Legislature(2007 - 2008)
04/04/2007 07:08 AM House W&M
| Audio | Topic |
|---|---|
| Start | |
| HB204 | |
| HB206 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
HOUSE SPECIAL COMMITTEE ON WAYS AND MEANS
April 4, 2007
7:08 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
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."
- MOVED CSHB 204 (W&M) OUT OF COMMITTEE
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."
- HEARD AND HELD
HOUSE JOINT RESOLUTION NO. 5
Proposing amendments to the Constitution of the State of Alaska
limiting appropriations from certain mineral revenue, relating
to the balanced budget account, and relating to an appropriation
limit.
- BILL HEARING CANCELED
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
03/28/07 (H) Heard & Held
03/28/07 (H) MINUTE(W&M)
03/30/07 (H) W&M AT 7:00 AM HOUSE FINANCE 519
03/30/07 (H) Heard & Held
03/30/07 (H) MINUTE(W&M)
04/02/07 (H) W&M AT 7:00 AM HOUSE FINANCE 519
04/02/07 (H) Heard & Held
04/02/07 (H) MINUTE(W&M)
04/04/07 (H) W&M AT 7:00 AM HOUSE FINANCE 519
BILL: HB 206
SHORT TITLE: PERS CONTRIBUTIONS; UNFUNDED LIABILITY
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
03/28/07 (H) Scheduled But Not Heard
03/30/07 (H) W&M AT 7:00 AM HOUSE FINANCE 519
03/30/07 (H) Heard & Held
03/30/07 (H) MINUTE(W&M)
04/02/07 (H) W&M AT 7:00 AM HOUSE FINANCE 519
04/02/07 (H) Heard & Held
04/02/07 (H) MINUTE(W&M)
04/04/07 (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: Responded to questions pertaining to HB 204
and HB 206.
VIRGINIA RAGLE, Senior Assistant Attorney General
Labor and State Affairs Section
Department of Law (DOL)
Juneau, Alaska
POSITION STATEMENT: Responded to questions on HB 204, HB 206,
and employment issues.
ANNETTE KREITZER, Commissioner Designee
Department of Administration
Juneau, Alaska
POSITION STATEMENT: Responded to questions pertaining to HB 204
and HB 206.
KEVIN BROOKS, Deputy Commissioner
Department of Administration
Juneau, Alaska
POSITION STATEMENT: Responded to questions from committee
members.
MICHAEL E. LAMB, CPA, CGFM, Chief Financial Officer
Fairbanks North Star Borough
Co-Chair Finance Committee
Alaska Municipal League (AML)
POSITION STATEMENT: Testified regarding concerns with HB 206
and responded to committee questions.
ACTION NARRATIVE
CHAIR MIKE HAWKER called the House Special Committee on Ways and
Means meeting to order at 7:08:28 AM. Present at the call to
order were Representatives Hawker, Fairclough, Wilson, Seaton,
and Roses. Representatives Cissna and Gruenberg arrived as the
meeting was in progress.
7:09:05 AM
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."
7:09:51 AM
REPRESENTATIVE FAIRCLOUGH offered Amendment 2 which read
[original punctuation provided]:
. Page 36, following line 16, insert:
"* Sec. 83. AS 39.35 is amended by adding a new
section to read:
Sec. 39.35.725. Participation of elected officials
of political subdivisions. An elected official of a
political subdivision of the state that participates
in both the plan and the defined benefit plan of AS
39.35.095 - 39.35.680 is a member of the plan if the
political subdivision covers elected officials under
AS 39.35.550 - 39.35.650 and has designated elected
officials under AS 39.35.957 as a classification of
employees entitled to participate in the plan and if
the elected official receives compensation from the
political subdivision for services as an elected
official in the amount of at least $2,001 per month.
An elected official of a political subdivision of the
state that participates in the plan but not the
defined benefit plan of AS 39.35.095 - 39.35.680 is a
member of the plan if the political subdivision has
designated elected officials under AS 39.35.957 as a
classification of employees entitled to participate in
the plan and if the elected official receives
compensation from the political subdivision for
services as an elected official in the amount of at
least $2,001 per month. An elected official entitled
to participate under (a) of this section may file a
waiver of participation in the plan with the
administrator within 30 days after the later of the
effective date of this section or the date that the
elected official's term of office begins. A waiver is
irrevocable for the remainder of the term, or
consecutive terms, of office of the elected official."
Renumber the following bill sections accordingly.
REPRESENTATIVE HAWKER objected for purpose of discussion.
7:10:27 AM
REPRESENTATIVE FAIRCLOUGH suggested that while she is not
entirely comfortable with Amendment 2, she opined that it is
fair for elected officials who are compensated at the same rate
as the legislature to also be able to participate in the Public
Employees' Retirement System (PERS). She noted that the
amendment requires compensation of at least $2001 per month and
queried about the number of persons that might qualify for
participation in the plan.
7:10:51 AM
KATHLEEN LEA, Acting Director, Retirement Manager, Division of
Retirement and Benefits (DRB), Department of Administration
(DOA) explained that allowing elected officials to participate
in PERS would require employers to amend their participation
agreements to add elected officials, which would have the effect
of picking up defined benefit elected officials as well as
defined contribution elected officials. Amendment 2 would
require employers to include defined benefit officials within
the defined benefit portions of the plan if that official had
prior defined benefit employment.
CHAIR HAWKER clarified that a previously qualified employee
cannot be denied benefits that applied to him or her at the time
that employee first became employed.
7:14:14 AM
REPRESENTATIVE WILSON offered her understanding that some
communities pay their elected school board members generously
and asked how many persons might be "picked up" if elected
officials were included in PERS.
MS. LEA relayed that DRB contacted the state's larger
municipalities and did a "spot check" of some smaller
communities and did not find any community outside of Anchorage
that paid what looks like "a regular wage." She said that most
communities contacted are paying their elected officials
anywhere between $50 and $150 a meeting.
REPRESENTATIVE WILSON offered that she would like to confirm
whether the information she has received that some communities
pay "quite a bit" is correct.
7:16:04 AM
CHAIR HAWKER stated some concern that qualification for medical
benefits by persons who receive a stipend becomes a very large
liability, but noted that there is an equity issue when larger
municipalities have elected officials who are full-time
professional employees.
REPRESENTATIVE FAIRCLOUGH stated the salary floor was intended
to conform to federal law as well as address equity issues for
those who receive a comparable wage for their work as an elected
official.
7:18:34 AM
REPRESENTATIVE SEATON said he believes the floor amount in
Amendment 2 is a important component, and is based on a
comparison with what legislators are paid. He asked if other
expenses received by legislators, such as moving expenses, are
included in salary determinations.
MS. LEA said that under PERS compensation is defined as
"services rendered" so allowances for moving are not included as
compensation even if included as taxable income under Internal
Revenue Service (IRS) provisions.
REPRESENTATIVE SEATON asked whether there is another method
besides an income floor by which persons in higher paid elected
positions can be treated as employees.
MS. LEA opined that the employee status of elected officials is
somewhat unclear, although the IRS has established they can be
employees under certain circumstances. She went on to say that
PERS has many types of elected and appointed officials who are
not covered, and to begin making exceptions for certain groups
becomes problematic. She opined that an income floor identifies
an intended group of elected officials and clarifies the status
of a full-time elected mayor.
7:21:57 AM
REPRESENTATIVE SEATON asked if there is a method through which a
municipality could classify a person as an employee for the
purposes of PERS participation.
MS. LEA replied that would be an issue for the division's legal
counsel to address.
REPRESENTATIVE SEATON relayed his understanding that the purpose
of the income floor is to provide a way to define who is
included in PERS, but suggested that there may be another method
besides setting forth a specific dollar amount in statute. He
suggested that since the dollar amount in Amendment 2 is based
on the legislative salary, the income floor for PERS
participation could be determined by reference to the
legislative salary statutory provisions, or other such language
to clarify that the intent is to allow PERS participation for
those whose earnings are the same or similar to that of the
legislature.
7:24:11 AM
REPRESENTATIVE FAIRCLOUGH suggested there could be problems with
that approach because changes could cause a "nightmare" of
accounting issues for the retirement system and confusion over
who qualifies for inclusion in PERS. Her approach establishes a
"bright line" by setting forth a fixed dollar amount.
CHAIR HAWKER opined that a fixed dollar amount is more
appropriate than one that can change. He asked whether one
approach could be to insert language requiring that the elected
officials be "full-time employees" of the political subdivision.
REPRESENTATIVE FAIRCLOUGH offered her belief that elected
municipal employees, such as the Anchorage assembly or school
board members, do not acquire vacation benefits. She suggested
that is the "defining difference" between employees and compared
elected officials.
7:27:34 AM
VIRGINIA RAGLE, Senior Assistant Attorney General, Labor and
State Affairs Section, Department of Law (DOL), responded to a
question as to whether municipalities, by ordinance, could
designate their elected officials as employees. She opined that
the problematic result of this approach could be that any
political subdivision could designate persons who receive a
small stipend as an employee. She noted that there are other
factors which determine whether a person is an employee, such as
a probationary period. Since elected officials have no
probationary period, it argues against them being classified as
an employee. She relayed it may be possible to craft a
statutory provision to treat full- or part-time elected
officials as employees, noting that some persons who work 15
hours a week can participate in PERS.
CHAIR HAWKER relayed it may be within the legislature's policy
making scope to define when an elected official is considered an
employee.
REPRESENTATIVE FAIRCLOUGH expressed her opinion that any
approach which may attempt to define a certain workload will be
problematic. She suggested that Amendment 2 is designed to
address an equity issue since Anchorage assembly members make
the same amount as members of the legislature, and since the
PERS system allows legislators to participate, it should allow
those who make the same amount to also participate.
CHAIR HAWKER summarized his understanding that Representative
Fairclough preferred to maintain a "bright line" approach to
determining what level of employment income would qualify for
PERS participation.
7:32:11 AM
REPRESENTATIVE SEATON suggested one approach is for
municipalities to establish 401(k) plans for their elected
officials. He opined that the problematic portion is the
medical costs portion. He noted that some elected officials
will be under the defined benefit plans, while others will
qualify under the defined contribution plan. He put forth the
possibility that the differing liabilities associated with each
plan could sway electorate decision-making since a person
qualified to participate in the defined benefits plan may carry
more potential liability.
CHAIR HAWKER suggested that the aforementioned concern argues in
favor of a cost share structure for the state's retirement and
benefit plans as it would help to level costs between employers.
7:34:24 AM
ANNETTE KREITZER, Commissioner Designee, Department of
Administration (DOA), stated that she has some concerns about
Amendment 2, and would like to hear from DOA tax counsel
regarding its advice as to the effect of Amendment 2.
CHAIR HAWKER suggested that issues could continue to be examined
in the next committee of referral.
COMMISSIONER DESIGNEE KREITZER stated that further understanding
of the effect of Amendment 2 may result in a request that the
amendment be removed from the bill.
REPRESENTATIVE FAIRCLOUGH stated she was willing to continue
working with the administration to determine the possible
ramifications of Amendment 2.
7:36:16 AM
REPRESENTATIVE SEATON asked if a PERS employer can establish a
separate 401(k) plan for its elected officials.
MS. RAGLE opined that she believes there are ways for a
municipality to establish a benefit plan, although she does not
think it would be a 401(k) plan.
REPRESENTATIVE SEATON asked if elected officials would be
covered under an active plan for medical costs within a
municipality.
MS. RAGLE replied that every municipality has its own medical
plan, if they have a medical plan at all for their employees.
REPRESENTATIVE SEATON asked if there was anything that would
disallow a municipality from including its elected employees in
its medical plan.
MS. RAGLE stated she was not aware of any prohibition which
would disallow municipalities from including their elected
officials in their medical plans.
REPRESENTATIVE FAIRCLOUGH reminded the committee that there have
been 40 elected officials in Anchorage since the late 1970s and
that those persons have received wages comparable to those paid
to members of the legislature.
REPRESENTATIVE SEATON stated he has some discomfort with the
amendment due to its possible effect on future elections, but
noted his concern may be somewhat alleviated if state moves to a
cost share system.
REPRESENTATIVE WILSON stated she does not have a problem with
Amendment 2 overall, but indicated she has some unease with it.
7:41:11 AM
CHAIR HAWKER withdrew his objection, and there being no further
objection, Amendment 2 was adopted.
7:41:38 AM
REPRESENTATIVE GRUENBERG moved to adopt Amendment 1, labeled 25-
GH1004\A.1, Chenoweth, 4/3/07, which read [original punctuation
provided]:
Page 2, lines 3 - 7:
Delete "In addition, the amount of [THE]
contributions and interest due may be claimed by the
administrator from [DEDUCTED BY] the Department of
Education and Early Development from the state funds
due the school district [AND THE AMOUNT SO DEDUCTED
TRANSMITTED TO THE PLAN FOR DEPOSIT IN THE RETIREMENT
FUND]."
Insert "[IN ADDITION, THE AMOUNT OF THE
CONTRIBUTIONS AND INTEREST MAY BE DEDUCTED BY THE
DEPARTMENT OF EDUCATION AND EARLY DEVELOPMENT FROM THE
STATE FUNDS DUE THE SCHOOL DISTRICT AND THE AMOUNT SO
DEDUCTED TRANSMITTED TO THE PLAN FOR DEPOSIT IN THE
RETIREMENT FUND.]"
Page 11, lines 14 - 17:
Delete "In addition, the amount of contributions
and interest due may be claimed by the administrator
from the Department of Education and Early Development
from the state funds due the school district."
CHAIR HAWKER objected for purposes of discussion.
7:42:27 AM
COMMISSIONER DESIGNEE KREITZER noted that a similar amendment
was adopted in the Senate, and that she would not oppose it,
although she recognizes it is a departure from current practice
and a significant decision to not be able to intercept
foundation formula funding monies.
REPRESENTATIVE GRUENBERG noted that this is a serious issue that
requires legislative examination at a level not covered by a
technical bill, therefore it is appropriate to remove these
education funds from the intercept ability of the state.
7:43:32 AM
REPRESENTATIVE ROSES asked how this would affect school
districts that have no tax base and receive all their funding
through the foundation formula funds.
COMMISSIONER DESIGNEE KREITZER stated that her understanding is
that the state would be taking over those school districts.
REPRESENTATIVE ROSES agreed that was his understanding also. He
clarified that under Amendment 1, no foundation formula funds
whatsoever can be used to buy into or contribute any funds to
pay down retirement and benefit liabilities.
COMMISSIONER DESIGNEE KREITZER clarified that her understanding
is that Amendment 1 works to disallow the state from
intercepting any foundation formula funds for payment of pension
plan liabilities.
REPRESENTATIVE GRUENBERG summarized Amendment 1 as "simply an
intercept" provision.
REPRESENTATIVE SEATON asked whether this amendment will affect
the current mechanism by which the state allocates foundation
formula funding for paying PERS liabilities.
COMMISSIONER DESIGNEE KREITZER replied that she does not believe
so. She responded to a question by clarifying that the effect
of Amendment 1 is to not allow the state to intercept foundation
formula funds for payment of delinquent PERS contributions.
7:46:57 AM
REPRESENTATIVE WILSON asked whether the state could intercept
local contributions to school districts.
MS. RAGLE opined that the statute currently allows DRB to go to
the Department of Education and Early Development (DEED) and
intercept foundation formula funds, which does include both PERS
and TRS contributions for school employees. The approach in HB
204 is to allow the state to intercept "that kind of money" and
any other unrestricted funds available to the school district
from any other state or municipal agency. She opined that
federal funds could be intercepted only if there was no
restriction on the usage of that money by the federal
government.
REPRESENTATIVE WILSON expressed concern with possible unfairness
resulting from Amendment 1, noting that some municipalities "do
not have to pay the full formulas" while other municipalities
do. She asked what would happen if a school district decided to
use its funding for purposes other than payment of retirement
benefits.
MS. RAGLE replied that schools would still be liable for their
unfunded pension plan liabilities. She explained that nothing
restricts the plan administrator from suing districts for
delinquent contributions, and that the amendment and the bill in
general does not allow the plan administrator to demand payment
of the funds owed without first filing a lawsuit.
REPRESENTATIVE GRUENBERG agreed that the intent of Amendment 1
is to not allow the state to intercept funds prior to
transmission to the district. The normal legal remedies would
still be available to provide due process, he opined.
7:52:35 AM
REPRESENTATIVE ROSES reminded the committee that in HB 206
participants can opt out of the PERS system. Employers who
choose that option are liable for their past liabilities, and
may work out a payment plan. He offered that in that situation,
the state may have to litigate to receive past delinquent
contributions.
7:53:42 AM
REPRESENTATIVE GRUENBERG told the committee that courts tend to
narrowly construe summary forfeiture proceedings as those
proceedings tend not to allow adequate constitutional due
process.
REPRESENTATIVE SEATON reminded the committee that there are
other school funds besides foundation formula funding, such as
grants and other infusions of state funds outside the foundation
formula. He offered that his understanding of Amendment 1 is
that interception of these funds would also be disallowed by the
amendment.
MS. RAGLE said she is not clear whether the amendment, which
deletes the language allowing the administrator to seek money
from DEED, would preclude the interception of any funds from
DEED, not just the foundation formula funding. She said:
It may mean what you say, that any other money in the
Department of Education cannot be attached by the
administrator The remaining language of the bill -
the new amendments to the bill - allow ... the
administrator to get money from any other state agency
... or political subdivision might also encompass the
Department of Education. I think you are establishing
legislative history here that the committees
considering this amendment do not want foundation
formula money to be involved. I don't know ... I
can't tell you the exact effect of this amendment in
combination with the other amendments allowing the
administrator to go after money from other agencies.
7:57:05 AM
REPRESENTATIVE SEATON asked whether Amendment 1 is concerned
with foundation formula money, or whether it would also
encompass PERS/TRS unfunded liability solutions that the state
would be funding. He noted that other funding includes quality
school grants.
REPRESENTATIVE GRUENBERG opined the amendment would cover the
aforementioned funds, but would not cover federal education
dollars earmarked for specific purposes.
7:58:08 AM
REPRESENTATIVE ROSES reminded the committee he is a strong
advocate for education, however, he expressed concern that
Amendment 1 sets forth an impediment to current efforts to
address the large unfunded PERS/TRS liabilities and to level the
contribution rates of all employers.
REPRESENTATIVE SEATON expressed discomfort with restrictions on
the state's ability to intercept funds appropriated for the
purpose of paying down the PERS\TRS liabilities.
REPRESENTATIVE GRUENBERG asked whether the money the state plans
on appropriating to pay down the PERS\TRS unfunded liabilities
will be appropriated to the DEED.
8:01:42 AM
KEVIN BROOKS, Deputy Commissioner, Department of Administration,
explained that the in the past, appropriations on a "hold-
harmless bailout" have gone directly to the fund on behalf of
the individual participants. In this instance, it would likely
not be appropriated to the school district to pay back to the
state, noting that the legislature has some flexibility in the
actual appropriation language.
CHAIR HAWKER referred to Section 1 of HB 204, which refers to an
"agency of the state or political subdivision," and noted that
would likely include the state itself.
MS. RAGLE said that she does not know of any funds that go to
the state as an entity that are not also allocated out to an
agency.
CHAIR HAWKER asked if a supplemental appropriation to the TRS
system would be protected by the provision on page 2, line 12,
that the state cannot intercept funds that are restricted by
statute or appropriation.
MS. RAGLE replied that she believes that is the intent of this
language.
REPRESENTATIVE GRUENBERG offered that the amendment could be
amended to clarify the intent.
8:04:34 AM
CHAIR HAWKER offered that the testimony establishes that the
amendment accomplishes Representative Gruenberg's intent. He
explained that specific appropriations by the state through an
agency are protected by the language in the latter part of
proposed Section 1 of HB 204.
8:04:56 AM
REPRESENTATIVE WILSON explained her understanding is that the
payments being made by the state to the PERS\TRS systems will be
paid outside the education funding formula.
MR. BANKS agreed with the aforementioned point. He went on to
say that the foundation formula is provided for schools to use
as they wish regardless of whether it is one of many sources of
funding for a school, or its only source.
8:07:18 AM
REPRESENTATIVE ROSES reiterated his discomfort with the fact
that Amendment 1 makes it more difficult for the state to
address the pension fund liabilities.
REPRESENTATIVE GRUENBERG stated that the intent of Amendment 1
is that money appropriated to fund schools goes to that purpose
while money that is intended for payment of pension fund
liabilities go to that purpose. He stated his belief that the
public expects the education foundation formula funding to go to
the schools.
8:09:25 AM
A roll call vote was taken. Representatives Seaton, Gruenberg,
Wilson, Cissna, and Hawker voted in favor of Amendment 1.
Representatives Fairclough and Roses voted against it.
Therefore, Amendment 1 was adopted by a vote of 5 to 2.
8:15:27 AM
CHAIR HAWKER moved to adopt a memorandum dated April 3, 2007,
written by Jack Chenoweth, Assistant Revisor, and addressed to
Representative Mike Hawker as conceptual Amendment 3 which read
[original punctuation modified slightly for clarity]:
House Bill 204 is an administration-sponsored bill
making a series of changes to laws applicable to
employee retirement and benefit matters. As your
special committee considers the measure, please give
consideration to the following, all of which are
suggested and offered principally to conform the
measure to the requirements of the Legislative
Drafting Manual:
1. Page 6, line 29, through page 7, line 4:
the language of the amendment should be revised to
read:
however, a portion under this subparagraph may be
transferred only to an individual retirement account
or annuity described in 26 U.S.C. 408(a) or (b), to a
qualified plan described in 26 U.S.C. 401(a) or
403(a), or to an annuity contract described in 26
U.S.C. 403(b), that agrees to separately account for
amounts transferred, including separately accounting
for the portion of the distribution that is includable
in gross income and the portion of the distribution
that is not includable in gross income;
This change also should be made to substantially the
same amendment material appearing at
-- page 10, lines 24 - 30;
-- page 23, lines 20 - 26;
-- page 30, lines 7 - 13; and
-- page 37, line 28 - page 38, line 3.
2. Page 7, line 23: The reference is to "the
commissioner"; no separate definition of
"commissioner" is provided for AS 14.25, so the
definition for the title as a whole, set out in AS
14.60.010(3), will presumably apply, and that is a
reference to "commissioner of education and early
development." That appears to me to be an incorrect
reference in context and the committee may want,
instead, to refer to the "commissioner of
administration."
3. Page 8, line 30: The word "to" should be
inserted at the beginning of the amendment to maintain
parallel construction; if this change is made here,
the word "to" would also need to be inserted in the
same place in the phrase at page 9, line 6.
4. Page 9, line 7: The word "to" should be
inserted at the beginning of the amendment to maintain
parallel construction.
5. Page 11, lines 25 - 31: The text of subsection
(c) should be drafted in the singular:
(c) An employer is responsible for
administrative fees, investment fees, and investment
losses charged to accounts established under
AS 14.25.340 resulting from contribution adjustments
because the employer enrolled a member in the plan
before the member was eligible for membership.
Contributions made by an employee shall be returned to
the employer by reducing future employee contributions
due. Contributions, net of fees and investment losses,
made by an employer shall be used to reduce future
employer contributions due.
6. Page 12, line 28: The inclusion of "(j)" is a
reference to a definition. The committee should
verify that "fails to meet the requirements of [a
definition]" is accurate.
7. Page 14, line 1: The text of AS 14.25.485(i)
earlier refers to "member," as does the text of the
later part of the material added in the amendment
(page 14, lines 7, 9, and 12, for example), so
"member's" should substitute for "employee's" in this
line.
8. Page 15, line 5: Is reference to "this chapter"
accurate, or should the reference be limited to the
defined contributions component of TRS, "AS 14.25.310
- 14.25.590"?
The same question arises as to the reference to "this
chapter" at page 17, line 30.
9. Page 17, line 28: Reference to "this section"
should probably be to "this subsection".
10. Page 39, line 27: The inclusion of "(l)" is a
reference to a definition. The committee should
verify that "fails to meet the requirements of [a
definition]" is accurate.
11. Page 42, line 20: Is reference to "this
chapter" accurate, or should the reference be limited
to the defined contributions component of PERS, "AS
39.35.700 - 39.35.990"?
The same question arises as to the reference to "this
chapter" at page 45, line 28.
*
In addition to the foregoing, there are punctuation,
spelling, grammar, and section catchline corrections
that should be made. We would like to have the
latitude to make those corrections in the event your
special committee requests preparation of a committee
substitute.
8:16:31 AM
REPRESENTATIVE GRUENBERG objected for purposes of discussion.
MS. RAGLE referred to Section 1 of conceptual Amendment 3 and
explained it concerns tax compliance issues that should not have
any substantive change to the meaning of the bill.
CHAIR HAWKER noted that there was no objection, therefore
Section 1 of conceptual Amendment 3 was adopted.
CHAIR HAWKER asked whether there were any comments or concerns
regarding Section 2 of conceptual Amendment 3 and there being
none, Section 2 was adopted.
8:17:55 AM
CHAIR HAWKER asked whether there were any comments or concerns
regarding Section 3 of conceptual Amendment 3.
MS. RAGLE said that DOL has identified that Sections 80 and 81
of the bill should also have the word "to" inserted in the same
place as indicated by Section 3 of conceptual Amendment 3.
8:18:49 AM
REPRESENTATIVE FAIRCLOUGH moved to amend Section 3 of conceptual
Amendment 3 to include conforming amendments to Sections 80 and
81 of HB 204.
There being no objection, Section 3 of conceptual Amendment 3
was adopted as amended.
CHAIR HAWKER asked whether there were any comments or concerns
regarding Section 4 of conceptual Amendment 3.
COMMISSIONER DESIGNEE KREITZER suggested that Section 4 have a
conforming amendment like that made to Section 3.
8:19:53 AM
REPRESENTATIVE FAIRCLOUGH moved to amend Section 4 of conceptual
Amendment 3 to include conforming amendments to Sections 80 and
81 of HB 204.
There being no objection, Section 4 of conceptual Amendment 3
was adopted as amended.
CHAIR HAWKER asked whether there were any comments or concerns
regarding Section 5 of conceptual Amendment 3, and there being
none, Section 5 of conceptual Amendment 3 was adopted.
CHAIR HAWKER asked whether there were any comments or concerns
regarding Section 6 of conceptual Amendment 3.
8:20:35 AM
REPRESENTATIVE SEATON asked whether the definition in Section 6
was accurate.
MS. RAGLE confirmed that the amendment is accurate.
REPRESENTATIVE GRUENBERG noted that Section 6 of conceptual
Amendment 3 relates to subsection (j) on page 15 of HB 204.
CHAIR HAWKER asked whether there were any comments or concerns
regarding Section 7, 8, and 9 of conceptual Amendment 3. There
being none, Sections 7, 8 and 9 of conceptual Amendment 3 were
adopted.
8:23:10 AM
CHAIR HAWKER asked whether there were any comments or concerns
regarding Section 10 of conceptual Amendment 3.
MS RAGLE verified that Section 10 of conceptual Amendment 3 set
forth the meaning intended and refers to page 42, subsection
(95) of HB 204.
8:24:11 AM
CHAIR HAWKER asked whether there were any comments or concerns
regarding Section 11 of conceptual Amendment 3 which substitutes
a statutory reference for a reference to "this chapter."
MS. RAGLE stated that it is possibly preferable to make the
change as recommended by conceptual Amendment 3.
There being no objection, Section 11 of conceptual Amendment 3
was adopted.
8:25:18 AM
CHAIR HAWKER asked whether there was any objection to the last
paragraph of conceptual Amendment 3 which states [original
punctuation provided]:
In addition to the foregoing, there are punctuation,
spelling, grammar, and section catchline corrections
that should be made. We would like to have the
latitude to make those corrections in the event your
special committee requests preparation of a committee
substitute.
REPRESENTATIVE GRUENBERG removed his objection, and there being
no further objections, conceptual Amendment 3, as amended, was
adopted.
8:28:30 AM
REPRESENTATIVE SEATON moved to report HB 204, 25-GH1004\A, as
amended, out of committee with individual recommendations and
the accompanying fiscal note. There being no objection, CSHB
204(W&M) was reported out of the House Special Committee on Ways
and Means.
HB 206-PERS CONTRIBUTIONS; UNFUNDED LIABILITY
8:29:34 AM
CHAIR HAWKER announced that the next order of business would be
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."
8:30:27 AM
COMMISSIONER DESIGNEE KREITZER referred to a document titled
"House Ways and Means committee Questions and Reponses House
Bill 206," dated April 3, 2007. She explained that a "hold
harmless" clause covers the difference between an employer's
individual fiscal year (FY) 2007 liability and the FY 08
estimated contributions. It is intended to apply only to the
increase between FY 07 and 08.
CHAIR HAWKER clarified that the administration's intent is to
hold employers harmless from cost increases for one year only.
REPRESENTATIVE WILSON asked how the hold harmless clause will
work.
COMMISSIONER DESIGNEE KREITZER said that under the hold harmless
approach proposed by the administration, the state will pay the
increase that employers would have to pay in FY 08 and the
amount necessary to do that is $82 million. She reminded the
committee that at present there are few defined contribution
employees, so their salaries do not have much of an effect on
the calculations done to compile the Cost Share Exhibits, a copy
of which was provided the committee. She also referred to a
document which lists employers who have not submitted their
payroll records along with the mandatory contributions due.
REPRESENTATIVE FAIRCLOUGH asked about the effect on an
individual employee's retirement benefits when an employer fails
to submit payroll records.
MS. LEA replied that when no payroll is received, there is no
accumulation of service and no salary posted for that employee.
She went on to explain that the employee's annual statement will
show that employee has not received any service credit.
8:37:51 AM
REPRESENTATIVE FAIRCLOUGH referred to a letter from Mayor Steven
Thompson and dated April 3, 2007 which she said clarifies some
prior erroneous information regarding the City of Fairbanks.
She paraphrased that a prior utility sale accounting issue
caused a perception that the City of Fairbanks was not paying
its required employer contributions, however the letter
indicates that the City of Fairbanks has been making its
payments in a timely manner. In response to a question, she
said that it appears there was a difference of opinion as to
whether Fairbanks would receive a $16 million credit related to
the sale of a city utility, and it may have resulted in a
greater unfunded liability than expected.
8:41:10 AM
CHAIR HAWKER clarified that the City of Fairbanks, a separate
entity from the Fairbanks North Star Borough, has made its
required contributions to the retirement system and its unfunded
portion exists due to circumstances it could not control. This
clarification does not change the result of the Cost Share
Exhibits prepared by DOA and previously provided to the
committee. He noted that this issue was only to clarify the
record, not to examine the details of the Fairbanks's utility
sale in detail.
8:45:03 AM
MICHAEL E. LAMB, CPA, CGFM, Chief Financial Officer, Fairbanks
North Star Borough, Co-Chair Finance committee, Alaska Municipal
League (AML), paraphrased from written testimony as follows
[original punctuation provided]:
1. Credit needs to be given to the Department of
Administration for its work on the PERS issues
addressed in this bill, and I am happy to endorse that
part of HB 206 that recognizes that legislative
language needs to move forward such that our statutes
reflect the reality that the State operates PERS as a
consolidated blended system.
2. Section 5 contains language that essentially says one
rate, which is the combined total of the normal and
past service cost rates, should be applied to both DB
and DC salaries. I concur with this provision, to do
otherwise would at some point lead to discriminatory
hiring practices.
3. Section 7, the 65/35 percent allocation of the
unfunded liability is a significant disappointment. It
is a disastrous proposition that sets future rates at
levels that cannot be paid by school districts, the
university system, cities, or by boroughs. ... Quoting
from a recent AML letter: Any legislation which leaves
communities having to pay unaffordable rates for an
unfunded liability which was not of our making, and
which risks bankrupting communities, is not a concept
we can accept. This 65/35 proposal is just that kind
of legislation and instead of providing for future
predictability, stability, or affordability, it is a
call to fiscally incapacitate member employers in the
future and can't be supported.
4. After rates get set at levels that can't be paid by
member employers in this bill, we get to section 9, a
poison pill provision that essentially says that even
if a member employer has a legitimate reason not to
make a payment, or maybe simply can not because they
just don't have the money, the Administrator of the
plan will simply go and take funds from any agency of
the state or political subdivision that has in its
possession funds of the employer that couldn't pay its
bill. So, this bill sets rates that will cripple
employers and then any life blood funding available
can be summarily taken with no due process? I
understand the Administration needs a tool to collect
from employers that will not pay a legitimate bill.
This is the wrong tool. This is instead a heavy handed
tool that will only accelerate the bankrupting of
employers, then who will be left to pick up their
piece of the bar tab that they can no longer pay, in
the end it'll be the State.
5. Sections 10 through 15 deals with terminations,
scrutiny needs to be given to this language. First off
it allows for unlimited termination cost charges, that
can then be extracted from an employer using the
section 9 language. Scrutiny also needs to be given to
the section 15 language that says you only have 90
days after receipt of notice to decide if you want to
add or terminate coverage of a department, group, or
other classification of employees. First off, 90 days
in a public process environment isn't even enough time
to deal with an issue as significant as what is
contemplated in this section. Secondly, who can
predict what makes sense in the future? Why would we
want to preclude future changes that may help the
system? Though there will be an attrition factor, is
it the intent of this language that all existing
school board members, council members, or assembly
members would have to stay in the system because they
couldn't elect out because a 90 day period was missed?
This makes no sense. If the administration is trying
to fix an abuse, then prevent the abuse, but don't
preclude all changes, both good and bad.
If the consolidation and the DB/DC language from HB
206 could used in conjunction with components of other
PERS language in other bills, I think we would be
getting very close to a shared solution that
municipalities could live with and support. It is
clear, and AML has consistently communicated, that its
members firmly believe that an 85/15 splitting of the
unfunded liability is about as fair as it is going to
get. What is critical in this split is that they ended
up, using the most current complete set of numbers
available, with a rate that was affordable. Let me be
clear, I am not saying it isn't a rate that hurts, but
at least no member employer would go broke, and though
different communities felt the State was responsible
for an even higher percentage, the AML member
employers agreed as a group to the rate that an 85/15
splitting of the unfunded liability generated, which
was an 18.27% rate. It was always known and understood
that the unfunded obligation would be going up, and
accordingly, the 18.27% rate for FY '08 would likely
go up in future years to 19 point something or 20
point something percentage, and then level off. It is
I believe a number that everyone is equally unhappy
about, but not so unhappy about that they'd seek
relief from it. For the Borough, who had a 22 year
average rate of 4.17%, this is a huge 400 to 500%
increase, but one the Mayor and Assembly were willing
to accept to avoid a confrontation with the State.
Mr. Chairman, members of the committee, I sought to be
direct and transparent, and to offend no one today,
and I most graciously apologize if I did. Many have
worked hard on the legislation before this body today,
and on the other PERS legislation not specifically
discussed today, and I most respectfully acknowledge
those efforts, and that work, and I say thank you.
But at the end of the day, all of that work will have
been for naught if even one member employer ends up
fiscally incapacitated because we, and I mean
collectively we, failed to get the final legislation
right. For my part, I will have failed to have spoken
the words necessary to convey not only the Borough's
message, but other municipality's message to this
body, and put simply, in the end: its about the rate,
it's about the rate, and it is about the rate. No one,
and I mean no one, is better off if 28 terminated or
inactive employers turns into 30, 35, 40, who knows
what 28 could grow to. I therefore, respectfully,
request that HB 206 be moved forward such that the
components of 206 that are good, and supportable, can
be made to work in conjunction with the good
components of HB 179, the House Committee Substitute
for HB 95/96, and HB 13. ...
8:51:20 AM
MR. LAMB explained that he appreciates the clarification
regarding the City of Fairbanks and stated that in trying to
move forward on the issue of unfunded pension liabilities, it is
important not to be waylaid by unsubstantiated and incorrect
understandings.
CHAIR HAWKER set forth that he has had requests from committee
members to further study HB 206 and that he would like those
committee members to work with the DOA on their concerns so that
the bill can be considered again.
COMMISSIONER DESIGNEE KREITZER opined that the issue of the
amount of unfunded liabilities to be borne by the state will
likely be determined in the House and Senate Standing Finance
Committees. She stated concern for financial well-being of the
state's communities as something being considered in conjunction
with HB 206.
CHAIR HAWKER announced that HB 206 would be held in committee,
and hoped it would move from this committee at its next hearing.
REPRESENTATIVE FAIRCLOUGH agreed that further debate on HB 206
would occur in the House and Senate Standing Finance Committees.
ADJOURNMENT
There being no further business before the committee, the House
Special Committee on Ways and Means meeting was adjourned at
9:03:45 AM.
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