Legislature(2007 - 2008)
03/28/2007 07:05 AM House W&M
| Audio | Topic |
|---|---|
| Start | |
| HB204 | |
| 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
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.
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