Legislature(1995 - 1996)
02/13/1996 01:30 PM Senate L&C
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* first hearing in first committee of referral
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= bill was previously heard/scheduled
SENATE LABOR AND COMMERCE COMMITTEE
February 13, 1996
1:30 p.m.
MEMBERS PRESENT
Senator Tim Kelly, Chairman
Senator John Torgerson, Vice-Chairman
Senator Mike Miller
Senator Judy Salo
MEMBERS ABSENT
Senator Jim Duncan
COMMITTEE CALENDAR
SENATE BILL NO. 261
"An Act relating to the release of employment security records;
relating to an injunction or an employer's security for delinquent
unemployment insurance contributions; extending time periods for
redetermination and appeals for unemployment insurance; relating to
the overpayment or the redetermination of unemployment insurance
benefits; relating to availability for work, seeking work, and the
calculation of wages for unemployment insurance purposes; relating
to voluntary federal tax withholding from unemployment insurance
benefits; relating to the binding effect of unemployment
compensation decisions; relating to the definition of `waiting
week' for employment security purposes; and providing for an
effective date."
SENATE BILL NO. 258
"An Act relating to the jurisdiction governing a trust, to
challenges to trusts or property transfers in trust, to the
validity of trust interests, and to transfers of certain trust
interests."
PREVIOUS SENATE COMMITTEE ACTION
SB 261 - No previous Senate action.
SB 258 - No previous Senate action.
WITNESS REGISTER
Dwight Perkins, Special Assistant
Department of Labor
P.O. Box 21149
Juneau, AK 99802-1149
POSITION STATEMENT: Commented on SB 261.
Ron Torgerson
Department of Labor
P.O. Box 25509
Juneau, AK 99802-5509
POSITION STATEMENT: Commented on SB 261.
Chris Christianson, Staff Counsel
Alaska Court System
303 K Street
Anchorage, AK 99501-2084
POSITION STATEMENT: Commented on SB 261.
Doug Gardner, Assistant Attorney General
Human Services Section
Department of Law
P.O. Box 110300
Juneau, AK 99811-0300
POSITION STATEMENT: Commented on SB 261.
Marilyn May, Assistant Attorney General
Collections and Support
Department of Law
1031 W. 4th Ave, Suite 200
Anchorage, AK 99501-1994
POSITION STATEMENT: Commented on SB 261.
Joseph Ryan, Legislative Aide
% Representative Al Vesey
State Capitol Bldg.
Juneau, AK 99801-1182
POSITION STATEMENT: Sponsor statement for SB 258.
Richard Thwaites
500 L Street, Suite 301
Anchorage, AK 99501
POSITION STATEMENT: Supported SB 258.
Wes Coyner
Alaska Bankers Assn.
301 W. Northern Lights
Anchorage, AK 99503
POSITION STATEMENT: Commented on SB 258.
ACTION NARRATIVE
TAPE 96-11, SIDE A
Number 001
SB 261 UNEMPLOYMENT COMPENSATION
CHAIRMAN TIM KELLY called the Labor and Commerce Committee meeting
to order at 1:30 p.m. and announced SB 261 to be up for
consideration.
DWIGHT PERKINS, Department of Labor, said SB 261 makes several
changes to the Employment Security Act in six major areas: federal
income tax withholding; confidentiality of records; contributions
and collections; benefit overpayments; finality in determinations;
and appeals. In addition, the bill contains a few minor and
technical amendments.
The federal income tax withholding provision brings the Employment
Security Act into conformity with a new federal provision that
requires states to allow claimants to have income withheld from
benefits to cover their income tax liability.
The confidentiality of records section proposes changes to AS
23.20.110 and allows the Department to provide additional specific
unemployment insurance information to other entities under strict
disclosure guidelines. This exchange will support and enhance the
department's own programs as well as assist other state programs.
The information would be used only to protect the unemployment
compensation fund, enhance employment, training, and labor market
information programs. These changes do not rescind the public
disclosure prohibitions already in statute. The intent is to
increase efficiency of state government while retaining current
privacy safeguards.
Regarding contributions and collections, two provisions would
provide important tools for collecting delinquent contributions:
first from an employer who is at least two-quarters delinquent.
The bill also allows the department to enjoin a delinquent employer
who refuses to post a bond or pay contributions from operating as
an employer. The department would use these provisions when
existing remedies are not effective. These uncollectible accounts
are currently subsidized by the rest of Alaska's employers, who pay
contributions timely. In the benefit overpayment section, the
standard for waiving unemployment insurance overpayments would be
changed from great hardship to equity in good conscience. The new
standard would allow the department to consider other factors, such
as the degree of good faith in claiming benefits, and the
claimant's detrimental reliance on the benefits.
The bill would also permit the department to write off
uncollectible overpayments after two years. Practice has shown
that most recoverable overpayments are collected within two years.
The department would be given clear authority to correct any
determination during the benefit year of an unemployment claim.
This change will increase the accuracy of claim adjudication.
In the appeals section, a proposed amendment would provide a
uniform 30 day period for filing appeals from any determination
made by the department. The current 15 day period probably impacts
rural parties unfairly and may not allow enough time to review and
consider an appeal. The bill would also clarify the legal effect
of appeal decisions. It would make it clear that findings of fact,
and conclusions of law in unemployment hearings are not binding in
another proceeding. The purpose of this amendment is to prevent
parties from excessively litigating issues based on the effect the
department's ruling may have on a later civil litigation. Both the
30 day appeal provision, and the provision restricting the scope of
the department decisions, address concerns of a recent legislative
audit of the unemployment insurance appeals process.
Additional amendments would allow an insured worker to continue
receiving unemployment benefits while attending the funeral of an
immediate family member. The worker would be required to file a
compensable claim for the week, immediately before jury duty or
attendance at a funeral in order to receive an eligibility
exemption for those reasons. The bill also exempts extended
benefit claimants from the work search requirement while attending
an improved training course and corrects the definition of a
waiting week in the Employment Security Act, and clarifies the
treatment of cafeteria plan payments under the wage definition of
the Act.
Number 113
SENATOR KELLY asked Mr. Perkins to explain the cafeteria plan. MR.
PERKINS replied cafeteria plan payments are not considered wages so
long as the payments would not be otherwise treated as wages under
the Act. For example, payments made to a cafeteria plan for
retirement or medical expenses would not be considered wages.
SENATOR KELLY questioned whether those payments are considered as
income by the IRS and whether SB 261 would exempt them from being
considered as wages for the unemployment compensation program.
MR. PERKINS replied wages are considered to be the hourly pay wage.
The benefits are other compensable benefits.
SENATOR KELLY asked how compensable benefits are currently treated.
RON TORGERSON, a hearing officer with the Department of Labor,
testified that he was not sure what the taxable status of
compensable benefits is with respect to the employee, but they are
currently exempted from the Federal Insurance Contribution Act tax
and the federal unemployment tax. Since there are no federal
payroll taxes on those payments, SB 261 would harmonize the
Employment Security Act with the federal standard.
Number 151
SENATOR SALO asked if an Alaska employee who failed a urinalysis
drug test when applying for a job with the Department of
Transportation would be eligible for unemployment benefits. MR.
TORGERSON stated the Department of Labor does not have a standard
to apply to people that are going to take a job but fail the test.
There is no case law or statutory requirement that would support a
disqualification for refusing work.
SENATOR SALO said she was concerned with the difference between the
way the private and public sector treatment this issue.
CHRIS CHRISTENSEN, Alaska Court System, said they supported section
3. He said it would give the Department of Labor access to
information to determine eligibility for a public defender.
MARILYN MAY, Department of Labor, also supported section 3 of SB
261.
DOUG GARDNER, Collections, said section 3 would help them in
collecting on unpaid bills.
SENATOR KELLY asked why the Governor had a separate bill to amend
the benefit amount for unemployment.
MR. PERKINS explained that the benefit amount was a separate issue
from access to Department of Labor information.
Number 324
SB 258 TRUSTS & PROPERTY TRANSFERS IN TRUST
JOE RYAN, Legislative Aide to Representative Al Vesey, Sponsor of
SB 258, said this Trust law is simple and would allow trusts to be
administered in Alaska and this has the potential of bringing in a
lot of outside money to Alaska.
RICHARD THWAITES, an estate planning attorney, testified that SB
258 would create an opportunity for investors to place property in
trust, with an Alaska trustee, and thereby establish its situs as
Alaska. If a current New York resident, with property in New York,
put property in a trust anywhere else, it would still be taxed in
New York. If the situs of the trust is in Alaska, with an Alaskan
trustee, and is an irrevocable transfer as set forth in SB 258, it
removes the property out of the jurisdiction and places it in the
jurisdiction of Alaska. That would mean a $50 million trust in New
York would no longer be subject to New York State taxes. Most
members of the American College believe that if and when Alaska
passes a state income tax, it will be less than the combined taxes
of New York City and New York State. SB 258 does not create any
shelter for estate taxes or income taxes. This measure makes
Alaska similar to the jurisdictions of the Cook Islands, the Cayman
Islands, and the Bahamas. The difference is that the trust would
be subject to federal income tax in Alaska. Alaska is an
attractive jurisdiction because the U.S. military and the Alaska
National Guard provide legal stability.
The Joint Committee on Taxation for the U.S. House of
Representatives did a study two years ago and estimated that $460
billion dollars per year was going offshore. MR. THWAITES believed
Alaska could pick up a substantial portion of that business in a
relatively short period of time. Most of the dollars would come in
the form of commissions to banks, trust companies and brokers
managing the funds. Using a three-eighths percent average return on
a $200 billion corpus, commissions would total approximately $750
million dollars per year. On a $1 million trust the commission is
one percent. As the volume of the trust increases, the commission
decreases, however if the asset requires unusual management, the
commission increases.
Number 414
SENATOR KELLY asked if the bill would attract more trust attorneys
to Alaska. MR. THWAITES replied there are currently 12 to 15, and
he does not know if the number will increase. SENATOR KELLY asked
if trust attorneys work independently, or whether they are employed
through banks. MR. THWAITES stated one-quarter of the membership
of the American College are law professors, mostly in private
practice. The American College is an organization devoted to
education, therefore members must be published, and give
presentations to the college to become elected nationally. SENATOR
KELLY asked if all members must be attorneys. MR. THWAITES replied
affirmatively. SENATOR KELLY inquired whether any other
accreditation is necessary. MR. THWAITES replied negatively and
explained the function of the College is to recognize those with
expertise in the field.
MR. THWAITES said the money in trust must be "clean" money; no
fraudulent transfers can occur, no liens or claims against it can
exist. Once the money is placed in trust, it is irrevocable. Only
the very wealthy will take advantage of this type of trust.
SENATOR KELLY asked if any other states besides Missouri have a
similar set up. MR. THWAITES responded that Missouri passed a
similar statute, however the statute was too ambiguous therefore
trust holders have not established trusts in that state. Alaska is
not encumbered by any statutes in particular regarding which types
of trusts are permissible, and has no case law on trusts, therefore
as a state, Alaska has a relatively clean slate to begin with. He
suspected Nevada may try to pass a similar statute.
SENATOR KELLY asked if a sales tax would have much affect on these
types of trusts. MR. THWAITES replied it would depend on the
nature of the sales tax, and whether it applied to brokerage items.
Alaska is unique on that basis because it does not have a past
record. If SB 258 passes, a private letter ruling will have to be
obtained from the Internal Revenue Service, which a New York firm
is planning to pay for. The IRS categorizes trusts in three ways
to determine taxability: grantor trusts; complex trusts; and
simple trusts. SB 258 would establish grantor trusts which are
taxed at the rate of the grantor or the beneficiaries of the trust.
SB 258 does not change existing statute substantively, it merely
adds some provisions within the trust section. The definition of
an Alaska resident is that used to define recipients of permanent
fund dividends.
Number 481
SENATOR TORGERSON questioned why that definition is used, since it
has nothing to do with the qualifications of the person managing
the trust. MR. THWAITES explained by statute, there is a
difference between domicile and residence. The definition of
resident was used to be consistent with existing statutory language
at the recommendation of the legislative drafter, Terry Bannister.
MR. THWAITES noted in the House version, the trust company is
organized under AS 06.25 with its principal place of business in
the state, and adds that a bank, organized under AS 06.05, or a
national banking association organized under 12 USC 12.21-216(d)
that has trust powers, must have its principal place of business in
this state.
SENATOR KELLY asked for an example of a banking association. MR.
THWAITES specified National Bank of Alaska or First National Bank
would be designated as national banking associations. State banks
and national banking associations differ depending upon which
section they were incorporated under. SENATOR KELLY inquired
whether credit unions would fall under this definition. MR.
THWAITES replied it would not matter, since credit unions have
never been granted fiduciary powers to function in that capacity.
Number 516
SENATOR KELLY asked how much money would move to Alaska if SB 258
passed. MR. THWAITES projected, under a best case scenario, the
amount could range from $200 to $500 billion. SENATOR KELLY asked
how much of that would be sitting in Alaska banks, as opposed to
being in the form of property elsewhere. MR. THWAITES felt it
would be a large percentage, since these types of trusts are not
usually funded with active assets that are normally used to develop
and run a business. This transfer is irrevocable and is meant to
benefit one's succeeding generations.
Number 526
SENATOR SALO requested more elaboration on "clean" money. MR.
THWAITES pointed out the question arose, in earlier discussions,
whether someone could set up a trust fund knowing he/she planned to
file bankruptcy to discharge debts later on. There is a fraudulent
transfer statute to prevent that from happening. He also explained
a person cannot put their money in a trust knowing he/she is about
to be sued for malpractice, because money cannot be sheltered in
the trust. Likewise, if an airplane is part of a trust, and a
beneficiary uses the airplane and causes damage, the trust is open
to suit. If assets in a trust are used as collateral, those assets
can be taken. It is only those assets with no lien or claim that
are protected from creditors. SB 258 would extend the same status
that protects shareholders from the liability of a corporation to
family trusts. In the Cayman Islands and the Cook Islands, there
are no treaties with the U.S. Even though there is a legal
obligation for a U.S. resident to pay tax on those dollars, the
resident does not, because records are not available from the
administrator on the Cook Islands. That would not be the case in
Alaska since trusts in Alaska would be subject to IRS review and
claims.
SENATOR SALO commented SB 258 would attract wealthy investors who
are not trying to avoid paying U.S. taxes. MR. THWAITES believed
the bill would hurt jurisdictions such as New York and California.
WES COYNER, representing the Alaska Bankers Association, stated the
banking community in Alaska is still reviewing this issue, and has
no position on SB 258. SENATOR KELLY asked when a position might
be forthcoming. MR. COYNER believed a position might be determined
in one week. MR. THWAITES commented he has not received a response
from Key Bank, but he has received a response from the National
Bank of Alaska, which indicated they were interested in the
legislation and wanted to know how it would be promoted. They are
hesitant to accept placing real property in a trust, because of the
problem of environmental regulations. SENATOR KELLY asked if they
were hesitant to accept real property anywhere. MR. THWAITES
clarified real property anywhere. In other states real property is
accepted, but the commission is higher.
SENATOR KELLY announced the bill would be held over until Thursday
to give the banking industry time to determine a position. He
adjourned the meeting at 2:20 p.m.
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