Legislature(1995 - 1996)

02/22/1996 01:40 PM L&C

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
               SENATE LABOR AND COMMERCE COMMITTEE                             
                       February 22, 1996                                       
                           1:40 P.M.                                           
 MEMBERS PRESENT                                                               
 Senator Tim Kelly, Chairman                                                   
 Senator John Torgerson, Vice Chairman                                         
 Senator Mike Miller                                                           
 Senator Jim Duncan                                                            
 Senator Judy Salo                                                             
  MEMBERS ABSENT                                                               
 All present                                                                   
  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              
 redeterminations 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. 276                                                           
 "An Act relating to the calculation of unemployment insurance                 
 benefits; and providing for an effective date."                               
  PREVIOUS SENATE COMMITTEE ACTION                                             
 SB 261 - See Labor and Commerce minutes dated 2/13/96.                        
 SB 276 - See Labor and Commerce minutes dated 2/22/96.                        
  WITNESS REGISTER                                                             
 Dwight Perkins, Special Assistant                                             
 Department of Labor                                                           
 P.O. Box 21149                                                                
 Juneau, AK 99802-1149                                                         
  POSITION STATEMENT:   Supported and commented on SB 261 and SB 276.          
 Ron Torgerson, Chief of Adjudications                                         
 Division of Workers' Compensation                                             
 Department of Labor                                                           
 P.O. Box 107019                                                               
 Anchorage, AK 99510-7019                                                      
  POSITION STATEMENT:   Supported and commented on SB 261 and SB 276.          
  ACTION NARRATIVE                                                             
  TAPE 96-14, SIDE A                                                           
 Number 001                                                                    
                SB 261 UNEMPLOYMENT COMPENSATION                              
 CHAIRMAN KELLY called the Senate Labor and Commerce Committee                 
 meeting to order at 1:40 p.m. and announced  SB 261  to be up for             
 DWIGHT PERKINS, Special Assistant, Department of Labor, said SB 261           
 is their housekeeping bill.  One of the areas it covers is income             
 tax withholding on unemployment checks and makes it current with              
 federal guidelines.  Another is confidentiality of records allowing           
 the Department to provide additional specific unemployment                    
 insurance information to other entities under strict disclosure and           
 Two provisions would provide important tools for collecting                   
 delinquent contributions.  First, the Department would be                     
 authorized to require a deposit or bond from an employer who is at            
 least two quarters delinquent in making contributions to the                  
 Unemployment Compensation Fund.  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.  These               
 uncollectible accounts are currently being subsidized by the rest             
 of Alaska's employers.                                                        
 The standard for waiving benefit overpayments would be changed from           
 great hardship to equity and good conscience allowing other factors           
 like the claimant's degree of good faith in claiming benefits and             
 the claimant's detrimental reliance on the benefits.  It would also           
 permit the Department to right of 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                
 increasing the accuracy of claim adjudication.                                
 MR. PERKINS continued saying a proposed amendment would provide a             
 uniform 30 day time period (currently only 15 days) for filing                
 appeals from any determination.  This impacts rural parties                   
 It would also clarify the legal affect of appeal decisions.                   
 Findings of fact and conclusions of law would not be binding in               
 another proceeding.  This is to prevent excess litigation based on            
 the affect the Department's rulings may have on later civil                   
 litigation.  This will help keep unemployment hearings speedy.                
 Both the extended 30 day appeals period and the provision                     
 restricting the scope of the Department decisions address concerns            
 of a recent legislative audit of the Unemployment Insurance Appeals           
 MR. PERKINS said there were other minor and technical changes which           
 would allow an insured worker to continue receiving benefits while            
 attending the funeral of an immediate family member, require a                
 worker 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, exempt extended benefit              
 claimants from the work search requirement while attending an                 
 approved training course, correct the definition of waiting week              
 from the Employment Security Act, and clarify treatment of                    
 cafeteria plan payments under the wage definition of the Act.                 
 SENATOR KELLY asked what was the cafeteria plan payment.                      
 RON TORGERSON, Hearing Officer, explained that this change simply             
 clarifies the definition of covered wages to exclude the cafeteria            
 land payments.  It also brings the wage definition in the                     
 Employment Security Act into conformity with the federal wage                 
 Number 103                                                                    
 SENATOR MILLER asked for an example of the waiving of standards of            
 great hardship to equity and good conscience and for an overpayment           
 procedure.  MR. TORGERSON explained that the current standard in              
 statute is great hardship.  They are proposing a more flexible                
 standard so they can consider the elements of good faith and                  
 honesty, etc.  He emphasized that under the new standard a person             
 will not be getting more benefits than he would normally.  He said            
 the overpaid benefits would be charged against the account; they              
 would not be offset later in the claim which would be a form of               
 payment recoupment.                                                           
 Number 174                                                                    
 SENATOR KELLY said their concern was fraudulent claims. MR.                   
 TORGERSON said in that case there is a restitution requirement.               
 They prosecute those cases regularly and they have had 100 percent            
 conviction rate, averaging 30 - 45 per year.  In addition, there is           
 a 50 percent penalty attached (which is diverted to the general               
 MR. PERKINS said their concern at this point is not when the                  
 employee is at fault, but when it is an error in over-calculations            
 by the Department or some system error.                                       
 SENATOR MILLER said he understood that it was the Department's                
 problem, but he said the employer was the one who would eventually            
 pay for it, if it happened often enough.                                      
 MR. PERKINS said he understood his concern, but that this is a                
 situation that doesn't happen regularly.  MR. TORGERSON added that            
 this is a low traffic problem, something the Department would like            
 to do for people who really need this money and very often                    
 virtually require it for survival.  Sometimes the hardship standard           
 is too rigid.  He reiterated that they recover over 90 percent of             
 all non-fraud overpays.                                                       
 SENATOR MILLER said he understood and his concern was if there were           
 a lot of them, it would affect the rate and the employer would have           
 to pay eventually.                                                            
 MR. PERKINS said the Department was trying to be more customer                
 oriented and give themselves more flexibility to help the claimant            
 rather than to "come down on them."  He repeated that they are                
 right on top of the fraud situations and the non-fraud cases are              
 over 90 percent repaid.                                                       
 SENATOR MILLER asked if this legislation were adopted, what would             
 that bring the percentage down to.  MR. PERKINS said he didn't                
 think it would make one percentage point difference.  The ones they           
 have are visible - the ones members of the legislature get calls              
 on.  He didn't thing the public was being served fairly with this             
 restrictive of a standard.                                                    
 Number 290                                                                    
 SENATOR KELLY asked how long a person is eligible for unemployment            
 insurance.  MR. TORGERSON answered 26 is the maximum with an                  
 extension of 13 more.                                                         
 SENATOR KELLY asked how long after 39 weeks you had to wait to go             
 back on unemployment.  MR. TORGERSON replied that you would have to           
 wait until you could establish a new benefit year and you would               
 have to have base period wages.                                               
 SENATOR KELLY said they would set SB 261 aside.                               
 SL&C 2/22/96                                                                  
         SB 276 CALCULATION OF UNEMPLOYMT INS BENEFITS                        
 SENATOR KELLY announced  SB 276  to be up for consideration.                  
 Number 291                                                                    
 MR. PERKINS explained that the Unemployment Insurance System has              
 enabled Alaskan workers, their families, and their communities to             
 weather periods of unemployment with their economic well-being and            
 dignity in tact.  Recent events in Sitka, Wrangell, and Pelican and           
 other areas affected by plant closures and lay-offs have                      
 demonstrated the importance of this safety net for our working men            
 and women, he said.  The schedule of benefits has not been adjusted           
 to increase the maximum weekly benefit amount since 1990.  Alaska             
 currently ranks 49th in the nation in unemployment insurance wage             
 replacement with the average weekly benefit amount only slightly              
 more than 27 percent of the average weekly wage for the State.  In            
 terms of the maximum weekly benefit amount, Alaska ranks 35th in              
 the nation, not withstanding the higher cost of living here.                  
 The current benefit schedule uses the workers yearly wage to                  
 determine the weekly benefit amount.  The minimum qualifying amount           
 is $1,000 which provides a weekly benefit amount of $44.  For each            
 $250 a worker earns over $1,000, two dollars is added to the                  
 benefit amount.  Weekly benefits are now capped at $212 per week              
 based on a maximum of $22,250.                                                
 This bill would keep the current benefit schedule in place, but               
 would replace the current fixed cap with a flexible cap.  The new             
 cap on wages would be 75 percent of the average annual Alaska wage,           
 exactly the same as the wage base on which employers and workers              
 are taxed to support the system.  Bringing the maximum qualifying             
 wages up to the wage base would raise the maximum benefit amount              
 from $212 today to $238 in 1997.  The average cost to employers in            
 the year 2000 will be approximately $1 per week per employee.                 
 Thirty five states use a flexible benefit standard driven by                  
 changes in the average weekly wage.  The advantage of such a system           
 is that it integrates the benefit standard into a self adjusting              
 unemployment trust fund formula which is directly tied to the                 
 State's economy.  As average wages rise, the standard for                     
 unemployment insurance benefits keeps pace in terms of income                 
 replacement.  If wages fall, as they did in the 1986-87 recession,            
 the maximum weekly benefit decreases and the employer tax burden              
 MR. PERKINS said this is a modest proposal; it would raise Alaska             
 wage replacement less than one percent to a little over 28 percent.           
 While it is not enough to change our wage replacement ranking                 
 amongst the states, the small change would provide a measure of               
 additional security to Alaska's average wage earners and help slow            
 the erosion of purchasing power during hard times.                            
 As we work to together to strengthen Alaska's economy to provide              
 quality jobs for Alaska's families and to move certain low-income             
 people from welfare to work, we must insure there is an adequate              
 safety net to allow unemployed workers sufficient finances to                 
 remain in their homes and communities and in Alaska until they are            
 SENATOR KELLY noted that the Governor's proposal asked the employer           
 to pick up the entire amount of the increase in insurance costs.              
 He had asked him for a model where the increased costs would be               
 split fairly between the employer and the employee.                           
 In statute the employer pays 82 percent of the insurance rate and             
 the employee pays 18 percent.  SENATOR KELLY said he asked for a              
 scenario of 80 percent for the employer and 20 percent for the                
 MR. TORGERSON said he had copies of the figures they put together             
 and passed them to the Committee members and answered their                   
 questions regarding its information.                                          
 One of the questions SENATOR KELLY asked was how much the employers           
 rate would go up under the 20/80 scenario.  MR. TORGERSON replied             
 irrespective of the other factors (how much is drawn against the              
 fund or other factors that come from having a self regulating                 
 financing system) and all things being equal, the total employer              
 tax would drop $2.5 million the first year.  It would rise $9                 
 million in 1999, but primarily because of other causes.                       
 The increased payout in benefits is a projected total of $7.5                 
 million; they are looking at additional employer/employee taxes of            
 $12 million.  Part of that is just the natural projected rise in              
 trust fund outlays for 1999 totally irrespective of the law change.           
 The trust income and outflow fluctuates from $6 million - $10                 
 million per year depending upon the economic cycle, MR. TORGERSON             
 SENATOR KELLY asked for a long-range graph of how they project that           
 fluctuation.  MR. TORGERSON explained that the fluctuation goes up            
 and down.  For example, 1996 was the sixth year in a row when the             
 employer rate fell below the 85 - 94 average, about 2.7 percent.              
 SENATOR KELLY said that if that is based on a higher average                  
 salary, then people would be actually paying more dollars.                    
 SENATOR KELLY, referring to workers' compensation, asked if it had            
 dropped a bit this year.  MR. PERKINS said he wasn't sure there was           
 a direct correlation, but he thought some rates had gone down.                
 SENATOR KELLY noted that they were now looking at proposal changing           
 the 82/18 ration to 80/20.                                                    
 SENATOR MILLER noted that not all employer/employee contributions             
 are 82/18; it depends on what your rate is.  With this employment             
 structure, if you are a seasonal business, you get hit very hard.             
 Number 460                                                                    
 SENATOR KELLY asked for an explanation of the rating system.  MR.             
 TORGERSON explained in the first process, they figure out the                 
 benefit cost rate or what is the average tax rate the fund has to             
 get back to stay solvent (2.17 last year).  That has nothing to do            
 with 82/18.  Of that tax rate (2.17), the employer pays 82 percent            
 and the employee pays 18 percent.  That never changes.  The reason            
 employers' rates change is that they aren't all assessed at 2.17.             
 To get an employer's rate, they take the benefit cost rate and                
 multiply that times .82 to get the employer share, and then                   
 multiply that by the employer's experience factor.  That will                 
 range, depending on a payroll, from .4 to 1.6.  SENATOR MILLER                
 noted that that is where seasonal employers are hit the hardest.              
 SENATOR MILLER said he thought Mr. Perkins' typed statement, the              
 last sentence of the second paragraph, was misleading.  It says if            
 wages fall as they did during the 1986-87 recession, the maximum              
 benefit would decline and the employer tax would decline.  That               
 wasn't the case, because the system we have is based on the amount            
 of money that's in there and there was a substantial draw on that             
 money and the employer tax rates went up.  Business were crying the           
 blues at that time because their rates went up dramatically.                  
 MR. TORGERSON agreed, but said in this proposal, it is tied to                
 wages, so if wages go up, the rate would go up and as wages go                
 down, rates go down.  He said he didn't mean to mislead them.                 
 SENATOR KELLY asked what was the philosophy behind the increase.              
 MR. TORGERSON replied that the top one third would see an increase            
 and the bottom one third would not see the increase.  The way the             
 system works now, the upper end sort of subsidizes the lower end.             
 It isn't meant to favor one class or another.                                 
 SENATOR KELLY said in his mind if one third of the folks  making              
 more than $22,000 per year go on unemployment, they come up against           
 a cap that is fixed in statute.  So while wages increase to pay for           
 it and the employer/employee percentage continues to go up every              
 year, the benefit amount is locked in by statute.  So the people              
 who are making the average weekly wage are paying a lot more                  
 percentage-wise than they ever get back.  He said he was really               
 concerned with the people who take advantage of the system who work           
 for just the summer and go to Hawaii in the winter and collect                
 TAPE 96-14, SIDE B                                                            
 MR. TORGERSON said people at the bottom of the scale are not going            
 to be affected by this change at all.  The people who will benefit            
 will be the average wage earners, the backbone of the State, who              
 are accustomed to and need to work as much as possible - people who           
 are supporting families.  He thought the work disincentive would be           
 SENATOR KELLY asked what percentage of the average weekly wage is             
 the increased benefit.  MR. TORGERSON said it wouldn't even run a             
 percentage point. The benefit would be much lower than if they were           
 actually working.                                                             
 SENATOR TORGERSON asked if some companies were self insured.  MR.             
 TORGERSON answered that this program covers about 98 percent of all           
 employees, including municipal non-profits and governmental                   
 entities. They can choose whether to pay taxes or to simply                   
 reimburse the fund for benefits drawn by their employees.                     
 SENATOR KELLY asked what the other percentage did.  MR. TORGERSON             
 answered that he knew public officials, like the Senator, were in             
 that category.                                                                
 SENATOR KELLY thanked everyone for their participation and                    
 adjourned the meeting at 2:30 p.m.                                            

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