Legislature(2007 - 2008)

03/28/2007 07:05 AM House W&M


Download Mp3. <- Right click and save file as

Audio Topic
07:05:24 AM Start
07:06:50 AM HB204
08:40:46 AM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                    ALASKA STATE LEGISLATURE                                                                                  
           HOUSE SPECIAL COMMITTEE ON WAYS AND MEANS                                                                          
                         March 28, 2007                                                                                         
                           7:05 a.m.                                                                                            
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Mike Hawker, Chair                                                                                               
Representative Anna Fairclough, Vice Chair                                                                                      
Representative Bob Roses                                                                                                        
Representative Paul Seaton                                                                                                      
Representative Peggy Wilson                                                                                                     
Representative Sharon Cissna (via teleconference)                                                                               
Representative Max Gruenberg                                                                                                    
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
All members present                                                                                                             
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
HOUSE BILL NO. 204                                                                                                              
"An Act relating  to the public employees'  and teachers' defined                                                               
benefit retirement  plans; relating to the  public employees' and                                                               
teachers' defined contribution retirement  plans; relating to the                                                               
judicial retirement system; relating  to the health reimbursement                                                               
arrangement  plan  for  certain teachers  and  public  employees;                                                               
relating to  the supplemental employee benefit  program; relating                                                               
to the public employees'  deferred compensation program; relating                                                               
to  group insurance  for public  employees  and retirees;  making                                                               
conforming amendments; and providing for an effective date."                                                                    
                                                                                                                                
     - HEARD AND HELD                                                                                                           
                                                                                                                                
HOUSE BILL NO. 206                                                                                                              
"An Act relating  to the accounting and  payment of contributions                                                               
under  the   defined  benefit  plan  of   the  Public  Employees'                                                               
Retirement  System of  Alaska, to  calculations of  contributions                                                               
under that  defined benefit  plan, and  to participation  in, and                                                               
termination of  and amendments to participation  in, that defined                                                               
benefit plan; making conforming  amendments; and providing for an                                                               
effective date."                                                                                                                
                                                                                                                                
     - SCHEDULED BUT NOT HEARD                                                                                                  
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
BILL: HB 204                                                                                                                  
SHORT TITLE: PUBLIC EMP./TEACHERS/JUDGES EMP. BENEFITS                                                                          
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR                                                                                    
                                                                                                                                
03/16/07       (H)       READ THE FIRST TIME - REFERRALS                                                                        
03/16/07       (H)       W&M, FIN                                                                                               
03/28/07       (H)       W&M AT 7:00 AM HOUSE FINANCE 519                                                                       
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
KATHLEEN LEA, Acting Director                                                                                                   
Retirement Manager                                                                                                              
Division of Retirement and Benefits (DRB)                                                                                       
Department of Administration (DOA)                                                                                              
Juneau, Alaska                                                                                                                  
POSITION  STATEMENT:     Presented  HB  204  on   behalf  of  the                                                               
Department of Administration and answered questions.                                                                            
                                                                                                                                
ANNETTE KREITZER, Commissioner Designee                                                                                         
Department of Administration                                                                                                    
Juneau, Alaska                                                                                                                  
POSITION    STATEMENT:        Explained   the    Department    of                                                               
Administration's  position  on aspects  of  HB  204 and  answered                                                               
questions regarding HB 204.                                                                                                     
                                                                                                                                
BRIAN ANDREWS, Deputy Commissioner                                                                                              
Department of Revenue (DOR)                                                                                                     
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Answered questions on HB 204.                                                                              
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
CHAIR MIKE HAWKER called the  House Special Committee on Ways and                                                             
Means meeting  to order at  7:05:24 AM.   Present at the  call to                                                             
order  were Representatives  Hawker, Roses,  Seaton, Wilson,  and                                                               
Cissna  (via  teleconference).   Representatives  Fairclough  and                                                               
Gruenberg arrived as the meeting was in progress.                                                                               
                                                                                                                                
HB 204-PUBLIC EMP./TEACHERS/JUDGES EMP. BENEFITS                                                                              
                                                                                                                                
CHAIR HAWKER announced that the  first order of business would be                                                               
HOUSE BILL  NO. 204,  "An Act relating  to the  public employees'                                                               
and teachers'  defined benefit retirement plans;  relating to the                                                               
public employees'  and teachers' defined  contribution retirement                                                               
plans; relating  to the judicial  retirement system;  relating to                                                               
the health  reimbursement arrangement  plan for  certain teachers                                                               
and  public  employees;  relating to  the  supplemental  employee                                                               
benefit  program;  relating  to the  public  employees'  deferred                                                               
compensation  program; relating  to  group  insurance for  public                                                               
employees  and   retirees;  making  conforming   amendments;  and                                                               
providing for an effective date."                                                                                               
                                                                                                                                
7:06:50 AM                                                                                                                    
                                                                                                                                
CHAIR HAWKER explained  that HB 204 and HB 206  are components of                                                               
an   integrated  package   to   address   the  unfunded   pension                                                               
liabilities  of the  Public Employees'  Retirement System  (PERS)                                                               
and the Teachers'  Retirement System (TRS).  Both  of these bills                                                               
were  introduced by  the House  Rules Standing  Committee at  the                                                               
request of the governor and  were initially to be integrated into                                                               
budget  decisions.   Subsequent discussions  with House  minority                                                               
leadership led  to an agreement  that these bills would  first be                                                               
heard  for overview  purposes by  this committee.   He  requested                                                               
that  this  committee  identify issues  within  these  bills  for                                                               
further resolution by the House  Finance Committee in conjunction                                                               
with other budget issues.                                                                                                       
                                                                                                                                
7:08:30 AM                                                                                                                    
                                                                                                                                
KATHLEEN LEA,  Acting Director,  Retirement Manager,  Division of                                                               
Retirement  and  Benefits  (DRB),  Department  of  Administration                                                               
(DOA),  provided the  committee  with  a PowerPoint  presentation                                                               
titled "Technical Clarification Bill  Overview-HB 204," and dated                                                               
March 28, 2007.  She said  that HB 204 was introduced by Governor                                                               
Palin and developed  in conjunction with extensive  review by the                                                               
Department of  Law (DOL), independent  tax counsel, and DRB.   It                                                               
contains  some  provisions that  were  contained  in last  year's                                                               
House bill  475, as well as  some new sections.   She stated that                                                               
the bill's  purpose is  to ensure  that the  Defined Contribution                                                               
Retirement (DCR)  Plan benefits  are provided  as intended.   She                                                               
explained  that  HB  204  was drafted  in  consideration  of  the                                                               
requirements of  the federal Pension  Protection Act of  2006 and                                                               
in   light  of   receipt   of  Internal   Revenue  Service   plan                                                               
determination  letters regarding  death  and disability  benefits                                                               
and  individual accounts.   She  said that  federal law  requires                                                               
previously   qualified  government   plans  to   apply  for   re-                                                               
qualification every five years.                                                                                                 
                                                                                                                                
7:13:17 AM                                                                                                                    
                                                                                                                                
MS. LEA explained  that the bill amends  the following provisions                                                               
of the DCR  Plan: Occupational Death and  Disability (DD) benefit                                                               
administration  and   funding;  employer   participation;  member                                                               
participation; and  IRC contribution limits.   Referring to slide                                                               
6,  she  explained  that  the  bill  provides  funding  for  TRS'                                                               
occupational  DD  benefits  and  clarifies  that  disabled  peace                                                               
officers  and   firefighters  shall  receive   normal  retirement                                                               
benefits when  they reach  retirement age.   It also  adds annual                                                               
cost of living adjustments to  disability and retirement benefits                                                               
similar to  the PERS  Tiers II  and III  benefits to  comply with                                                               
legislative intent.                                                                                                             
                                                                                                                                
7:13:48 AM                                                                                                                    
                                                                                                                                
MS. LEA  explained that Senate  bill 141 [passed during  the 24th                                                               
legislative session]  provided occupational  DD benefits  for the                                                               
PERS/TRS plans,  but omitted  funding of the  TRS portion  of the                                                               
benefits  - this  bill provides  authorization for  that funding.                                                               
She went on  to say that Senate bill 141  was ambiguous regarding                                                               
accrual and treatment of  survivor disability benefits, therefore                                                               
HB 204 clarifies  that periods of disability can be  used to meet                                                               
the  service  requirements  for retirement  and  medical  benefit                                                               
eligibility.    She  said  that   both  disability  and  survivor                                                               
benefits  cease when  a member  reaches, or  would have  reached,                                                               
normal  retirement   eligibility.    Ms.  Lea   opined  that  the                                                               
legislature  intended  to provide  a  retirement  benefit to  the                                                               
disabled  member  or  to  the  survivor at  the  time  of  normal                                                               
retirement eligibility.   To  meet that  intent, Senate  bill 141                                                               
required continued  contributions be  made to a  member's account                                                               
while  survivor  and disability  benefits  were  being paid,  she                                                               
said.   This  bill clarifies  that when  a member  or a  member's                                                               
survivor  is  receiving  disability  or  survivor  payments,  the                                                               
member or member's survivor is  not also entitled to draw against                                                               
the member's  individual account balance.   That balance  will be                                                               
preserved for  normal retirement,  she explained.   She explained                                                               
that a disabled member who  reaches normal retirement eligibility                                                               
by  service is  eligible to  have a  percentage of  their medical                                                               
premiums paid by  the plan based on their years  of service under                                                               
the plan's medical  cost share provisions, and  referred to slide                                                               
7.  She noted that  other technical clarifications clarify that a                                                               
member is  not considered disabled if  he or she can  perform the                                                               
duties of a comparable job for any employer.                                                                                    
                                                                                                                                
7:16:18 AM                                                                                                                    
                                                                                                                                
MS.  LEA referred  to  slide 8  and explained  that  HB 204  adds                                                               
provisions  for  new employers  to  join  the  DCR plan,  or  for                                                               
existing  employers  to  terminate  their  defined  benefit  (DB)                                                               
plans.   It  provides a  12-month  time limit  during which  non-                                                               
vested DB employees  may choose to convert to the  DCR plan.  The                                                               
bill establishes  a new trust,  the Alaska Retiree  Health Trust,                                                               
to receive  DCR plan employer  retiree health contributions.   It                                                               
sets   uniform    contribution   amounts   for    all   employers                                                               
participating in the health reimbursement arrangement, she said.                                                                
                                                                                                                                
7:17:45 AM                                                                                                                    
                                                                                                                                
CHAIR HAWKER  replied to  a concern regarding  the nature  of the                                                               
presentation  by noting  that his  office had  provided committee                                                               
members  with a  copy of  the sectional  analysis.   He explained                                                               
that  the  witness had  not  been  requested to  provide  written                                                               
testimony.                                                                                                                      
                                                                                                                                
7:18:52 AM                                                                                                                    
                                                                                                                                
MS. LEA responded to a question  by explaining that the ARH trust                                                               
will be  separate from the  pension trusts, its trustees  will be                                                               
from the Alaska  Retirement Management Board (ARMB),  and it will                                                               
be administered by  the Commissioner of DOA.   She explained that                                                               
HB 204  adds the governor,  lieutenant governor,  and legislators                                                               
as members  of the DCR  plan.  The  bill proposes that  a defined                                                               
benefit  member  employed  by   a  DCR  plan-only  employer  will                                                               
participate in the DCR plan.   She said that without this change,                                                               
a non-vested defined  benefit member employed by  a DCR plan-only                                                               
employer could not participate in either plan.                                                                                  
                                                                                                                                
7:20:16 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  WILSON  asked  whether  a  defined  benefit  plan                                                               
member that switches  to a DCR plan only employer  is required to                                                               
participate in the DCR plan.                                                                                                    
                                                                                                                                
MS. LEA agreed with the  aforementioned situation.  She said that                                                               
as  of last  month, 27  employees who  were in  the DB  plan have                                                               
chosen to convert to the DCR plan.                                                                                              
                                                                                                                                
7:21:31 AM                                                                                                                    
                                                                                                                                
MS. LEA  explained that HB 204  clarifies that DB members  who do                                                               
not reinstate  service and  contributions to  the DB  plan before                                                               
July 1, 2010, will become members  of the DCR plan if re-employed                                                               
by the  state after the July  1, 2010 deadline.   Senate bill 141                                                               
specified that  employers of  non-vested defined  benefit members                                                               
who elect  to convert to  the DCR plan  match 100 percent  of the                                                               
employee contribution account.  However,  there are limits to the                                                               
amount  of  pre-tax  contributions  that  can  be  placed  in  an                                                               
employee's account during  a tax year, she said.   The bill makes                                                               
provisions  to  meet  the  intent  of Senate  bill  141  and  the                                                               
requirements  of Internal  Revenue Code  (IRC) section  415(c) by                                                               
allowing  payments  to  be  made  the  following  tax  year,  she                                                               
explained.                                                                                                                      
                                                                                                                                
7:23:20 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  ROSES  asked   for  clarification  regarding  the                                                               
changes to member participation and  asked if a non-vested member                                                               
who  reinstates employment  with  the state  after  July 1,  2010                                                               
would be  a member of  the DCR  plan regardless of  which defined                                                               
benefit plan may  have covered that employee  when first employed                                                               
by the state.                                                                                                                   
                                                                                                                                
MS.  LEA  noted  that   the  aforementioned  characterization  is                                                               
correct.   At the time Senate  bill 141 passed, DRB  notified all                                                               
plan members in  this situation and made further  efforts to find                                                               
current address for  all members.  She said that  there are plans                                                               
to give further notice in 2009 to affected persons.                                                                             
                                                                                                                                
7:25:22 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  ROSES  asked  whether  this  provision  requiring                                                               
participation in  the DCR plan  for employees who  separate, then                                                               
reinstate service, only  applies to those who  requested a refund                                                               
of their contributions.                                                                                                         
                                                                                                                                
MS. LEA agreed that the aforementioned statement is correct.                                                                    
                                                                                                                                
REPRESENTATIVE GRUENBERG asked if a  member can request a partial                                                               
refund of his or her contributions.                                                                                             
                                                                                                                                
MS. LEA  replied that a member  can only request a  refund of all                                                               
contributions to the system.                                                                                                    
                                                                                                                                
REPRESENTATIVE  GRUENBERG  asked whether  a  member  must make  a                                                               
payment to refund contributions.                                                                                                
                                                                                                                                
MS. LEA responded  that all a former member must  do is re-employ                                                               
and set up a reinstatement of  indebtedness.  The employee is not                                                               
required to  make a payment,  but they are required  to re-employ                                                               
and become a member again before July 1, 2010.                                                                                  
                                                                                                                                
REPRESENTATIVE  GRUENBERG  queried  whether  the  employee  could                                                               
reinstate benefits  if they are  only re-employed with  the state                                                               
for a brief period.                                                                                                             
                                                                                                                                
MS. LEA replied that the  employee must employ in a participating                                                               
full- or  part-time position.   There is  no requirement  for how                                                               
long  the employee  must work  in that  position.   She explained                                                               
that   DRB  has   provided  members   notification  and   contact                                                               
information regarding this issue.                                                                                               
                                                                                                                                
7:27:43 AM                                                                                                                    
                                                                                                                                
MS. LEA went  on to explain that portions of  HB 204 make changes                                                               
so as to comply with  applicable IRC requirements.  She explained                                                               
that  if a  DCR plan  member  became disabled  prior to  reaching                                                               
their  five-year  vesting  requirement,   that  member  would  be                                                               
considered 100  percent vested upon  disability.  This  bill also                                                               
provides  for survivor  retirement  benefits to  be  paid to  the                                                               
Occupational Death and  Disability fund so as to  comply with the                                                               
legislature's  intent  in  passing   Senate  bill  141  and  with                                                               
applicable  IRC  provisions.    She said  that  Senate  bill  141                                                               
omitted  language  necessary  for  compliance  with  the  federal                                                               
Uniformed  Services  Employment   and  Re-employment  Rights  Act                                                               
(USERRA), and  that although  the DCR  plans are  administered in                                                               
compliance  with USERRA,  the additional  language in  HB 204  is                                                               
necessary to maintain plan compliance.                                                                                          
                                                                                                                                
7:30:06 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  ROSES questioned  whether  many of  the DCR  plan                                                               
provisions parallel  existing provisions for  disability benefits                                                               
and survivor provisions in the DB plans.                                                                                        
                                                                                                                                
MS. LEA  replied that  it was  the intent  of the  legislature to                                                               
make the  death and disability  benefits in the DCR  plan similar                                                               
to  PERS  Tier III  and  TRS  Tier  II  provisions and  that  the                                                               
additions contained in HB 204 are intended to accomplish that.                                                                  
                                                                                                                                
7:31:11 AM                                                                                                                    
                                                                                                                                
MS. LEA  explained that the  sections on contribution  limits for                                                               
survivor benefits  have been removed  due to  non-compliance with                                                               
the  IRC, and  replaced with  new, tax-qualifying  provisions for                                                               
survivor benefits.  She set forth  that the second major focus of                                                               
HB 204 are  changes to the defined benefit plans.   She explained                                                               
that  the federal  Pension Protection  Act of  2006 changed  some                                                               
rollover provisions allowed in DB plans, referring to slide 13.                                                                 
                                                                                                                                
7:33:29 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  GRUENBERG asked  about the  date of  some federal                                                               
changes and whether  there would be a retroactivity  clause in HB
204.                                                                                                                            
                                                                                                                                
MS. LEA  replied that  the federal changes  were effective  as of                                                               
August,  2006.   She  went  on  to say  that  the  plan has  been                                                               
administered in compliance with  the Pension Protection Act since                                                               
it  passed in  2006.    For example,  DRB  has  been allowing  an                                                               
alternate  payee  to  rollover  contributions  as  allowed  under                                                               
federal law.                                                                                                                    
                                                                                                                                
7:35:01 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  GRUENBERG questioned  whether DRB  had the  legal                                                               
authority  to so  act, or  whether  the legislature  must act  to                                                               
protect the agency.                                                                                                             
                                                                                                                                
MS. LEA  replied that DRB  had legal authority under  the federal                                                               
compliance law,  and that the  state statute needs to  be amended                                                               
to be in conformity with that law.                                                                                              
                                                                                                                                
REPRESENTATIVE  GRUENBERG reiterated  his concern  as to  whether                                                               
changes may  need to be made  retroactive so that DRB  is not out                                                               
of compliance with state law for actions previously taken.                                                                      
                                                                                                                                
7:35:12 AM                                                                                                                    
                                                                                                                                
ANNETTE   KREITZER,   Commissioner    Designee,   Department   of                                                               
Administration,  explained  that  DOL had  ample  opportunity  to                                                               
review HB  204, but did not  make a recommendation that  the bill                                                               
be retroactive.                                                                                                                 
                                                                                                                                
REPRESENTATIVE GRUENBERG suggested that  this be "triple checked"                                                               
because the bill could be amended if necessary.                                                                                 
                                                                                                                                
7:35:31 AM                                                                                                                    
                                                                                                                                
CHAIR HAWKER asked  if there was a state  statute that prohibited                                                               
DOA   from  following   the   federal   Pension  Protection   Act                                                               
guidelines.                                                                                                                     
                                                                                                                                
MS. LEA answered no.                                                                                                            
                                                                                                                                
MS. LEA  explained that the  bill makes some changes  to employer                                                               
participation in  DB plans, referring  to slide 14.   The changes                                                               
include redefining the  rates so that they can be  applied to the                                                               
total employer payroll.   She noted the bill does  not change the                                                               
amount  of employer  contributions for  past and  current service                                                               
costs.    She explained  that  the  proposed changes  reduce  the                                                               
employer rate  amount and expand  the salary base upon  which the                                                               
rate  is  calculated.   Additionally,  these  changes  provide  a                                                               
salary  base to  apply past  service  rates of  employers who  no                                                               
longer have active DB members, but still have DB liability.                                                                     
                                                                                                                                
7:36:55 AM                                                                                                                    
                                                                                                                                
CHAIR HAWKER asked for clarification  as to why this provision is                                                               
in  the  bill  and  how  it may  relate  to  the  disparate  cost                                                               
allocation and  accounting provisions for employees  depending on                                                               
participation in the DCR plan or Tier III of the DB plans.                                                                      
                                                                                                                                
7:37:44 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  ROSES  asked  for further  clarification  on  the                                                               
proposed changes to the employer participation provisions.                                                                      
                                                                                                                                
MS. LEA explained that redefining  the salary base to include the                                                               
DCR plan  and DB  plan participants'  salaries does  not increase                                                               
the employers' contribution amount.   She said that the change is                                                               
necessary because, under current law,  the employer rate can only                                                               
be applied  to the defined  benefits salary base.   Therefore, if                                                               
an employer  has no active  members, there  is no salary  base on                                                               
which to calculate  their employer rate.  The  employer still has                                                               
liability  for   retired  members,   but  no  salary   base,  she                                                               
explained.   She said that  expanding the salary base  to include                                                               
defined contribution salaries provides  the salary base necessary                                                               
to calculate  the employers' contribution rate,  as well provides                                                               
as a mechanism by which to pay DRB.                                                                                             
                                                                                                                                
7:39:01 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON asked if  employer contribution rates would                                                               
rise  or  appear  to  rise,  if  the  state  did  not  expand  to                                                               
consideration of the full wage base.                                                                                            
                                                                                                                                
MS.  LEA replied  that  the  aforementioned characterization  was                                                               
correct.   She agreed that  rates would appear to  be increasing,                                                               
when  in actuality  the contribution  rates  may be  the same  or                                                               
decreasing.                                                                                                                     
                                                                                                                                
REPRESENTATIVE SEATON  noted that  the average  PERS contribution                                                               
rate  is  around  39  percent  and asked  what  it  would  be  if                                                               
calculated on the entire wage base.                                                                                             
                                                                                                                                
MS. LEA replied that she could obtain that information.                                                                         
                                                                                                                                
7:40:28 AM                                                                                                                    
                                                                                                                                
CHAIR HAWKER  set forth a  hypothetical to  illustrate mechanical                                                               
problems  with current  law.    Under the  current  law, DB  past                                                               
service costs  are allocated only  to that DB population  and are                                                               
not  calculated   for  accounting  purposes  and   assessment  to                                                               
participants  across  the entire  population  base.   That  could                                                               
result in  a situation  where an  employer, such  as the  city of                                                               
Anchorage, would  only have a  few employees, but there  could be                                                               
many retirees drawing on the system.                                                                                            
                                                                                                                                
7:41:55 AM                                                                                                                    
                                                                                                                                
MS. LEA explained  that under current law,  in the aforementioned                                                               
hypothetical, the city of Anchorage  would only pay the liability                                                               
for its  employees.  However,  without the change proposed  by HB
204, the state  would have no ability to  collect the liabilities                                                               
from other employers.                                                                                                           
                                                                                                                                
7:42:27 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE WILSON  set forth the  example of an  employee who                                                               
has  three different  municipal employers  over the  years.   She                                                               
asked whether this suggested change  allows the state to continue                                                               
collecting for that  employee's costs from all  past employers as                                                               
well as from the present employer.                                                                                              
                                                                                                                                
MS.  LEA  agreed  that  Representative  Wilson's  description  is                                                               
correct.  She  went on to say that HB  204 requires employers who                                                               
choose to  terminate participation  in a  plan pay  for actuarial                                                               
studies  to determine  termination  costs.   It further  requires                                                               
that the  termination costs by paid  in a lump-sum, or  through a                                                               
payment plan with  DRB.  In response to a  question regarding the                                                               
cost  of actuarial  studies, she  explained that  the cost  of an                                                               
actuarial study  depends on the  time it  takes to do  the study.                                                               
She indicated it may take longer  to complete a study for a large                                                               
employer with  many employees.   She said  that past  studies for                                                               
smaller employers have cost approximately $1500 to $8000.                                                                       
                                                                                                                                
REPRESENTATIVE WILSON  asked whether these studies  occur when an                                                               
employee dies or retires.                                                                                                       
                                                                                                                                
MS.  LEA explained  that  these studies  occur  when an  employer                                                               
chooses to terminate its entire participation in PERS.                                                                          
                                                                                                                                
7:46:10 AM                                                                                                                    
                                                                                                                                
MS. LEA told  the committee that another addition  proposed in HB
204  will allow  the  state  to intercept  funds  for payment  of                                                               
delinquent contributions if those funds  are held for an employer                                                               
and are not  restricted by statute or  otherwise appropriated for                                                               
a specific purpose.                                                                                                             
                                                                                                                                
REPRESENTATIVE SEATON asked whether  TRS employers could withdraw                                                               
from participation.                                                                                                             
                                                                                                                                
MS. LEA acknowledged  that participation in TRS  is mandatory for                                                               
all school districts.                                                                                                           
                                                                                                                                
7:47:00 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE GRUENBERG expressed his  concern that allowing the                                                               
state to intercept  funds targeted for a  certain community could                                                               
potentially bankrupt some smaller communities.                                                                                  
                                                                                                                                
MS.  LEA  clarified  that  the   bill's  provisions  would  allow                                                               
intercept only of funds that  were not restricted or appropriated                                                               
for a particular purpose.                                                                                                       
                                                                                                                                
REPRESENTATIVE  GRUENBERG  asked  for  further  clarification  of                                                               
which funds would be considered  restricted or appropriated for a                                                               
particular  purpose, and  thus be  immune  from interception  for                                                               
payment of delinquent contributions.                                                                                            
                                                                                                                                
MS.  LEA ventured  that the  intercept  provisions would  include                                                               
revenue sharing funds,  and for a TRS participant  it may include                                                               
some  education  formula  funding.     She  emphasized  that  the                                                               
decision  to intercept  funds  would not  be  taken lightly,  but                                                               
would taken  only after much  consideration.  She  explained that                                                               
it  would not  apply to  an employer  that was  only a  few weeks                                                               
behind, but  would include  an employer that  refused to  pay its                                                               
contribution.                                                                                                                   
                                                                                                                                
REPRESENTATIVE  GRUENBERG  asked  whether this  means  the  state                                                               
would intercept  funds in  the situation  where an  employer with                                                               
available funds  willfully refused  to pay  its share  of pension                                                               
fund contributions.                                                                                                             
                                                                                                                                
MS. LEA  replied that if  there were funds, this  proposed change                                                               
would allow the state to intercept those funds.                                                                                 
                                                                                                                                
REPRESENTATIVE GRUENBERG  agreed that  there had  to be  money to                                                               
intercept.  He  set forth that his question is  whether the state                                                               
would have  the ability to  intercept funds if a  municipality on                                                               
the verge  of bankruptcy states  it will not make  a contribution                                                               
because  it  must  pay  other necessary  costs,  such  as  public                                                               
safety.                                                                                                                         
                                                                                                                                
7:49:23 AM                                                                                                                    
                                                                                                                                
ANNETTE   KREITZER,   Commissioner    Designee,   Department   of                                                               
Administration, opined  it is important to  consider the totality                                                               
of the  PERS/TRS unfunded  liabilities when  considering possible                                                               
approaches to  solve funding issues.   She  set forth that  it is                                                               
advantageous  to the  state to  have a  broad array  of tools  to                                                               
address  the  PERS/TRS  funding  issues.   She  agreed  that  the                                                               
decision  to intercept  funds is  a serious  one that  would take                                                               
much  consideration  and evaluation  prior  to  any action  being                                                               
taken.                                                                                                                          
                                                                                                                                
REPRESENTATIVE  GRUENBERG set  forth his  concern regarding  this                                                               
issue and that he considered  municipality's ability to pay basic                                                               
utility   costs  as   paramount  to   that  community   making  a                                                               
contribution.                                                                                                                   
                                                                                                                                
7:51:00 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON  referred to recent decisions  in Fairbanks                                                               
whereby the voters limited local  taxation.  He expressed concern                                                               
as to  whether other  employers will  become responsible  for the                                                               
costs of municipalities that voluntarily  refuse to contribute to                                                               
the  pension  liabilities.    He   asked  whether  the  intercept                                                               
agreement applies to DB and DCR plans.                                                                                          
                                                                                                                                
COMMISSIONER DESIGNEE  KREITZER said that  it does apply  to both                                                               
the  DB and  DCR plans.    She emphasized  that the  state has  a                                                               
responsibility to  all participants in  PERS and it  is important                                                               
to not  let unfunded liabilities  grow unchecked, or to  let some                                                               
employers refuse  to pay as  that will increase  the liabilities.                                                               
While the  first tact of  the state is to  act to "chip  away" at                                                               
the  unfunded   liabilities,  the   intercept  provision   is  an                                                               
important   reminder   that   employers   cannot   ignore   their                                                               
contribution responsibilities.                                                                                                  
                                                                                                                                
7:53:18 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  ROSES  noted  that  under  certain  circumstances                                                               
poorly performing schools could be  taken over by the state under                                                               
the  provisions of  the federal  No Child  Left Behind  Act.   He                                                               
queried  how  this  may  affect  employer  liability.    He  also                                                               
expressed  concern about  possible state  law changes  to charter                                                               
school  organization and  the effect  on employer  responsibility                                                               
for those employees.                                                                                                            
                                                                                                                                
COMMISSIONER  DESIGNEE  KREITZER  opined  a  takeover  would  not                                                               
resolve the  school districts from  liability.  She  indicate she                                                               
could  provide   further  information   on  this  issue   to  the                                                               
committee.  She  opined that most legislators see TRS  as more of                                                               
a mandate on  the state, and PERS  as more of a  mandate on other                                                               
employers and the state.                                                                                                        
                                                                                                                                
7:56:12 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE ROSES agreed  with the aforementioned description,                                                               
but warned  that higher  rates could be  very difficult  for some                                                               
employers to meet.                                                                                                              
                                                                                                                                
REPRESENTATIVE  FAIRCLOUGH noted  that  charter  schools are  the                                                               
responsibility of their district, and  that districts may be wary                                                               
of  charter  school  authorization because  of  the  contribution                                                               
plans.                                                                                                                          
                                                                                                                                
7:58:00 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  WILSON  set  forth  that  without  the  intercept                                                               
authorizations, there  is a risk  that municipalities  will spend                                                               
their state money  on areas other than  employer contributions to                                                               
retirement.                                                                                                                     
                                                                                                                                
COMMISSIONER   DESIGNEE  KREITZER   agreed   that  although   the                                                               
intercept  agreement provisions  may  seem  "draconian" at  first                                                               
glance,  the  state has  a  responsibility  to protect  all  plan                                                               
participants.   She  emphasized that  DOA is  willing to  discuss                                                               
considerations  for  review  prior  to  intercepting  funds,  and                                                               
stated she would not like to see this removed from the bill.                                                                    
                                                                                                                                
7:59:34 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE WILSON opined  that this is a  needed provision as                                                               
sometimes municipalities may not make responsible decisions.                                                                    
                                                                                                                                
CHAIR  HAWKER  likened  the intercept  provision  to  a  security                                                               
agreement  in a  loan.   He  noted it  is not  intended to  cause                                                               
disruption of  communities, but it  is an important  component of                                                               
the state's management responsibilities.                                                                                        
                                                                                                                                
REPRESENTATIVE  GRUENBERG  clarified  that  his  concern  is  for                                                               
municipalities  in  dire financial  straits,  rather  than for  a                                                               
municipality that has the ability to pay, but does not.                                                                         
                                                                                                                                
REPRESENTATIVE ROSES indicated he  was seeking clarification, not                                                               
necessarily speaking  against the intercept authority.   He asked                                                               
what provisions have  been available to the state in  the past to                                                               
take care  of a situation where  an employer is not  paying their                                                               
share.                                                                                                                          
                                                                                                                                
COMMISSIONER DESIGNEE  KREITZER recalled  that there may  be some                                                               
broad statutory language.                                                                                                       
                                                                                                                                
REPRESENTATIVE  ROSES  agreed  that  he had  not  found  anything                                                               
specific in applicable statutes on this issue either.                                                                           
                                                                                                                                
8:02:24 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON  questioned  whether it  was  possible  to                                                               
require  that   a  portion  of   revenue  sharing  funds   go  to                                                               
outstanding  pension  fund  debt,  although he  opined  that  the                                                               
intercept mechanism was a preferable approach.                                                                                  
                                                                                                                                
COMMISSIONER  DESIGNEE   KREITZER  recalled   that  there   is  a                                                               
provision allowing  garnishment of  permanent fund  dividends for                                                               
child support arrearages.                                                                                                       
                                                                                                                                
8:04:06 AM                                                                                                                    
                                                                                                                                
MS.  LEA went  on to  explain  that HB  204 codifies  the use  of                                                               
forfeitures  to  be  applied to  future  employer  contributions.                                                               
Forfeitures  occur when  a DB  member  terminates employment  and                                                               
elects  to refund  his or  her own  contributions.   The employer                                                               
contributions remain  in the employers'  asset base and  are used                                                               
for payment  of benefits.  She  said this only applies  to the DB                                                               
plan, and  that this provision  codifies the  forfeiture practice                                                               
that DRB  has been  using.   Ms. Lea responded  to a  question by                                                               
agreeing  that  this is  a  standard  administrative approach  to                                                               
plans that have both employee and employer contributions.                                                                       
                                                                                                                                
COMMISSIONER   DESIGNEE  KREITZER   noted   that   DOL  has   not                                                               
recommended a retroactivity clause.                                                                                             
                                                                                                                                
CHAIR HAWKER  asked whether there  is a statutory  prohibition to                                                               
the division's current procedures.                                                                                              
                                                                                                                                
MS.  LEA answered  that there  is no  prohibition to  the current                                                               
procedures.                                                                                                                     
                                                                                                                                
8:06:20 AM                                                                                                                    
                                                                                                                                
MS. LEA  said that this bill  clarifies that DB members  who hire                                                               
with a DCR  only employer must participate in the  DCR plan.  She                                                               
said  that administrative  changes  include the  creation of  the                                                               
Alaska  Retiree  Health  Trust to  account  for  retiree  medical                                                               
benefits.  It  will be an irrevocable trust under  section 115 of                                                               
the IRC  and will have  the ARMB trustees  as its trustees.   The                                                               
Commissioner of DOA, or her  designee, will be the administrator.                                                               
It will be  funded by employer health contributions  and will pay                                                               
retiree  medical premiums.   She  set forth  that the  reason for                                                               
this  trust  is  because  concerns  have  been  raised  regarding                                                               
accounting issues.  The division felt  it was prudent to create a                                                               
new health  trust separate from  the pension trusts.   Currently,                                                               
the health fund money is  accounted for separately in the pension                                                               
trust,  but  a separate  trust  would  facilitate accounting  and                                                               
management responsibilities, she explained.                                                                                     
                                                                                                                                
8:08:18 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON asked about the  effect of the new trust on                                                               
determination of  past service costs  and expressed  concern that                                                               
the  state be  able to  maintain  the ability  to determine  past                                                               
service costs.                                                                                                                  
                                                                                                                                
MS. LEA said  this new trust will not change  how liabilities are                                                               
calculated, but  will simply change current  accounting practices                                                               
and will allow  the state to insure that  its accounting complies                                                               
with applicable IRC provisions.                                                                                                 
                                                                                                                                
REPRESENTATIVE SEATON  sought assurance  that funds could  not be                                                               
shifted between the two trusts.                                                                                                 
                                                                                                                                
MS. LEA said that currently  funds are not shifted between funds.                                                               
She  explained  the  retiree health  amounts  are  accounted  for                                                               
separately and the assets are not co-mingled.                                                                                   
                                                                                                                                
MS. LEA explained  in response to a question, that  since this is                                                               
a qualified  plan, the IRS  requires separate  accounting because                                                               
of the  tax nature of the  plans authorized under section  115 of                                                               
the  IRC.    She  also  agreed  with  an  observation  that  this                                                               
accounting change does not affect how rates are calculated.                                                                     
                                                                                                                                
REPRESENTATIVE WILSON  asked whether the investment  choices will                                                               
change with the establishment of a new trust.                                                                                   
                                                                                                                                
8:12:41 AM                                                                                                                    
                                                                                                                                
BRIAN ANDREWS, Deputy Commissioner,  Department of Revenue (DOR),                                                               
explained that the investment strategy  would not change and that                                                               
there will not  be a separate portfolio or policy  for the health                                                               
care trust.                                                                                                                     
                                                                                                                                
8:13:24 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE FAIRCLOUGH  noted that separate trusts  may better                                                               
show fluctuations  in the  retirement fund  accounts so  that the                                                               
ARMB board  can better view  and administer  retirement benefits.                                                               
She  observed that  if the  health care  account is  separate, it                                                               
would allow  ARMB to  consider varying  outside factors  that may                                                               
influence the draw  down or the contributions  to this particular                                                               
aspect of the retirement system.   She opined that it may provide                                                               
an "extra insulator" to examine management of medical benefits.                                                                 
                                                                                                                                
MR.  ANDREWS agreed  that with  the aforementioned  statement and                                                               
noted  it would  give "more  visibility"  to the  demands on  the                                                               
system.                                                                                                                         
                                                                                                                                
COMMISSIONER  DESIGNEE   KREITZER  added  that  this   change  is                                                               
recommended by tax counsel.                                                                                                     
                                                                                                                                
8:16:38 AM                                                                                                                    
                                                                                                                                
MS.  LEA went  on to  explain that  HB 204  removes the  National                                                               
Education   Association-Alaska   (NEA-Alaska)  as   an   eligible                                                               
employer,  removes the  social security  tax wage  base cap  from                                                               
employee  and  employer  contributions,  and  conforms  the  plan                                                               
administrator's duties across  the all the plans.   She explained                                                               
that some NEA-Alaska retirees are currently drawing benefits.                                                                   
                                                                                                                                
REPRESENTATIVE FAIRCLOUGH  asked for clarification as  to how the                                                               
new  flat  PERS   rate  will  be  calculated   and  whether  that                                                               
determination  will  include  an  examination of  who  is  in  an                                                               
employer's system.                                                                                                              
                                                                                                                                
8:19:38 AM                                                                                                                    
                                                                                                                                
MS.  LEA   reminded  the  committee   that  new   employers  only                                                               
participate in  the DCR plan.   If a  current DB employer  has an                                                               
employee  with   NEA-Alaska  time,   the  new  employer   is  not                                                               
responsible for the NEA-Alaska time,  but is only responsible for                                                               
time the employee has spent in  their employ.  In responding to a                                                               
question as to who picks up  the past cost of NEA-Alaska members,                                                               
Ms. Lea  set forth  that she believes  NEA-Alaska went  through a                                                               
close-out procedure with the state  at the time their last active                                                               
employee  left  service,  but  she  will  provide  the  committee                                                               
further information on this point.                                                                                              
                                                                                                                                
REPRESENTATIVE  ROSES explained  that in  the past,  persons were                                                               
given leave  from their school  districts to work  for NEA-Alaska                                                               
under  agreements whereby  NEA-Alaska would  refund the  costs to                                                               
the school districts.                                                                                                           
                                                                                                                                
8:24:08 AM                                                                                                                    
                                                                                                                                
MS.  LEA  explained  that  HB 204  also  contains  provisions  to                                                               
correct omissions and drafting errors  in Senate bill 141 related                                                               
to  administrative appeals.    She noted  that  the change  would                                                               
return  regulation  adoption  authority to  the  commissioner  of                                                               
administration.   Furthermore,  it would  correct an  omission in                                                               
Senate  bill  141  by  providing  the  Office  of  Administrative                                                               
Hearings  with authority  to hear  appeals from  the Supplemental                                                               
Benefits   system,   the   Deferred   Compensation   and   Health                                                               
Reimbursement Arrangement.   Without  this change,  appeals would                                                               
be heard by the Superior court.                                                                                                 
                                                                                                                                
MS. LEA summarized that the  technical changes proposed by HB 204                                                               
allow the state to administer  retirement benefits as intended by                                                               
the  legislature, provide  funding mechanisms  for all  benefits,                                                               
address IRC requirements, and remove administrative ambiguities.                                                                
                                                                                                                                
8:27:20 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE FAIRCLOUGH  asked for clarification  regarding the                                                               
inclusion  of   only  the  governor,  lieutenant   governor,  and                                                               
legislators in the DCR plan, but not other elected officials.                                                                   
                                                                                                                                
MS.  LEA explained  that  Senate  bill 141  did  not include  any                                                               
elected  officials.    Furthermore,   she  said  that  many  plan                                                               
employers  wish  to remove  elected  officials  from their  plans                                                               
because  of  the cost.    She  explained that  municipal  elected                                                               
officials  receive a  stipend of  approximately $50  to $100  per                                                               
meeting, so that  only a small amount of money  goes into the DCR                                                               
plans.  In comparison, state  elected officials receive a salary.                                                               
She indicated  it is a policy  choice of the legislature  whom to                                                               
include in the plans.                                                                                                           
                                                                                                                                
REPRESENTATIVE  FAIRCLOUGH explained  that  elected officials  in                                                               
Anchorage  receive  a  salary  comparable  to  that  received  by                                                               
legislators.                                                                                                                    
                                                                                                                                
COMMISSIONER  DESIGNEE  KREITZER  explained  this  was  a  policy                                                               
determination she made when crafting  the bill, and noted she did                                                               
not  see a  method  to separate  municipalities  for purposes  of                                                               
inclusion in the plan.                                                                                                          
                                                                                                                                
CHAIR HAWKER  queried whether it  would be  possible to set  up a                                                               
method by which  municipalities could chose whether to  opt in to                                                               
the plan.                                                                                                                       
                                                                                                                                
COMMISSIONER  DESIGNEE KREITZER  expressed reservations  with the                                                               
aforementioned approach absent other changes to the system.                                                                     
                                                                                                                                
REPRESENTATIVE FAIRCLOUGH asked whether  there could be a minimum                                                               
salary floor for an elected official to participate in a plan.                                                                  
                                                                                                                                
COMMISSIONER  DESIGNEE  KREITZER  noted she  would  consider  the                                                               
effect of  such a  change and  could get  back to  the committee.                                                               
She  emphasized  that  she  spent   considerable  effort  in  her                                                               
examination of  this issue.   In  response to  further questions,                                                               
she  noted that  some elected  officials,  such as  the mayor  of                                                               
Anchorage, may  be considered an  employee whereas  other elected                                                               
officials, such as assembly members, are not.                                                                                   
                                                                                                                                
8:33:48 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE FAIRCLOUGH opined  that Anchorage assembly members                                                               
are likely considered employees.                                                                                                
                                                                                                                                
8:34:23 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON  set forth  that under the  current system,                                                               
municipalities   are  responsible   for  their   employee  costs.                                                               
However, if  PERS becomes  a unified  system, all  employers will                                                               
share in all costs.                                                                                                             
                                                                                                                                
COMMISSIONER DESIGNEE  KREITZER said she has  analyzed this based                                                               
on a cost share system, but not under the current system.                                                                       
                                                                                                                                
8:35:42 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE ROSES noted that in  the past, an elected official                                                               
could  receive a  very small  salary and  serve eight  years, yet                                                               
receive full  retirement benefits despite contributing  little to                                                               
the system.                                                                                                                     
                                                                                                                                
COMMISSIONER DESIGNEE  KREITZER answered that  the aforementioned                                                               
scenario  will not  change unless  the cost  share bill  [HB 206]                                                               
passes.   In response to a  question, she opined that  House bill                                                               
475 from  last session captured  most of the aspects  from Senate                                                               
bill 141 that required addressing.   She said that HB 204 further                                                               
expands and clarifies the provisions of House Bill 475.                                                                         
                                                                                                                                
[HB 204 was held over.]                                                                                                         
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
There being no  further business before the  committee, the House                                                               
Special  Committee on  Ways and  Means meeting  was adjourned  at                                                               
8:40:46 AM.                                                                                                                   
                                                                                                                                

Document Name Date/Time Subjects