Legislature(2005 - 2006)BELTZ 211

02/10/2005 03:30 PM Senate STATE AFFAIRS


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03:34:33 PM Start
03:35:08 PM Overview:
04:29:01 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ Department of Administration - TELECONFERENCED
OVERVIEW: IMPACT OF HOUSE BILL 242 (2001)
+ Bills Previously Heard/Scheduled TELECONFERENCED
                    ALASKA STATE LEGISLATURE                                                                                  
            SENATE STATE AFFAIRS STANDING COMMITTEE                                                                           
                       February 10, 2005                                                                                        
                           3:34 p.m.                                                                                            
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Senator Gene Therriault, Chair                                                                                                  
Senator Charlie Huggins                                                                                                         
Senator Bettye Davis                                                                                                            
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Senator Thomas Wagoner, Vice Chair                                                                                              
Senator Kim Elton                                                                                                               
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
Department of Administration Overview - Impact of HB 242 (2001)                                                                 
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
No previous action to record.                                                                                                   
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
Melanie Millhorn                                                                                                                
Division of Retirement & Benefits                                                                                               
Department of Administration                                                                                                    
PO Box 110200                                                                                                                   
Juneau, AK  99811-0200                                                                                                          
POSITION STATEMENT:  Gave overview on the impact of HB 242                                                                    
                                                                                                                                
Kevin Brooks, Deputy Commissioner                                                                                               
Department of Administration                                                                                                    
PO Box 110200                                                                                                                   
Juneau, AK  99811-0200                                                                                                          
POSITION STATEMENT:  Gave overview on the impact of HB 242                                                                    
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
CHAIR GENE THERRIAULT called the Senate State Affairs Standing                                                                
Committee meeting to order at 3:34:33 PM. Present were Senators                                                               
Davis, Huggins and Chair Therriault.                                                                                            
                                                                                                                                
                           ^OVERVIEW:                                                                                       
  DEPARTMENT OF ADMINISTRATION IMPACT OF House Bill 242 (2001)                                                              
                                                                                                                              
CHAIR  GENE  THERRIAULT  announced  the committee  would  hear  a                                                               
Department  of Administration  overview of  the impacts  of House                                                               
Bill  242  that  passed  in 2001,  which  established  a  program                                                               
allowing retirees to return to state employment.                                                                                
                                                                                                                                
3:35:08 PM                                                                                                                    
                                                                                                                                
MELANIE  MILLHORN, Department  of Administration,  explained that                                                               
former Senator  Loren Leman  introduced Senate  Bill 149  to give                                                               
management the ability to offer  incentives for normal retirement                                                               
teachers  to return  to work.  Shortly thereafter  Representative                                                               
Pete  Kott   introduced  House  Bill  242,   which  expanded  the                                                               
opportunity  to include  normal  retirement  PERS employees.  The                                                               
statutes  were  amended  to allow  retired  TRS/PERS  members  to                                                               
return  to   work  by  waiving  participation   in  the  TRS/PERS                                                               
retirement  program.  Under  the waiver,  neither  employees  nor                                                               
employers made contributions to TRS or PERS.                                                                                    
                                                                                                                                
The legislation  is scheduled to sunset  on July 1, 2005  and the                                                               
Department of  Administration prepared  a detailed report  on the                                                               
program and its use to date.                                                                                                    
                                                                                                                                
3:37:06 PM                                                                                                                    
                                                                                                                                
Approximately  56 percent  of all  TRS employers  participated in                                                               
the program and 187 waivers were  filed. As of November 30, 2004,                                                               
124 TRS members were employed under the program.                                                                                
                                                                                                                                
About  26 percent  of  all PERS  employers  participated and  297                                                               
waivers were filed.  On November 30, 2004, 211  PERS members were                                                               
employed under the program.                                                                                                     
                                                                                                                                
3:38:10 PM                                                                                                                    
                                                                                                                                
On 9/14/04  the Division of  Retirement and Benefits  received an                                                               
attorney  general  determination  that  once  the  PERS  and  TRS                                                               
statute  sunsets, reemployed  retirees  could  no longer  receive                                                               
retirement benefits  while employed by any  PERS/TRS employer. In                                                               
addition,  those who  elect  to continue  working  as a  PERS/TRS                                                               
member, would be  required to make contributions  to PERS/TRS and                                                               
their  retirement payments  would stop.  The employer  would also                                                               
make PERS/TRS contributions.                                                                                                    
                                                                                                                                
CHAIR  THERRIAULT  said they  would  return  to regular  employee                                                               
status.                                                                                                                         
                                                                                                                                
MS. MILLHORN said that's correct  and the employee would begin to                                                               
earn service credit for a second retirement benefit.                                                                            
     So they're  separate. If  you worked  for 20  years and                                                                    
     were enrolled under House Bill  242, you would come and                                                                    
     work another three years and then  as of July 1, 2005 -                                                                    
     unless the  Legislature extends this program  or allows                                                                    
     those parties  who are  currently enrolled  to continue                                                                    
     that benefit  - it  would cease as  of that  date. They                                                                    
     could  work another  three years  of  service and  they                                                                    
     would  get a  second benefit  that would  be calculated                                                                    
     separately   and  added   to  their   first  retirement                                                                    
     benefit.                                                                                                                   
                                                                                                                                
3:41:58 PM                                                                                                                    
                                                                                                                                
SENATOR  CHARLIE HUGGINS  questioned  whether PERS/TRS  employers                                                               
could hire PERS/TRS retirees after the sunset date.                                                                             
                                                                                                                                
MS.  MILLHORN replied  there would  be  no new  entrants and  the                                                               
existing enrollees would no longer  have a program to participate                                                               
in if  the Legislature  takes no action  to continue  the program                                                               
and/or to  allow the existing  parties to continue  receiving the                                                               
benefit.                                                                                                                        
                                                                                                                                
CHAIR THERRIAULT asked about the fiscal note for House Bill 242.                                                                
                                                                                                                                
3:43:44 PM                                                                                                                    
                                                                                                                                
MS. MILLHORN explained  there were two parts to  the fiscal note:                                                               
the retiree  return provision  allows retirees  to enroll  in the                                                               
program  through  the  waiver;   and  enhanced  medical  benefits                                                               
reflect  a   .17  percent  of   payroll  cost  for   the  medical                                                               
enhancement                                                                                                                     
                                                                                                                                
3:44:49 PM                                                                                                                    
                                                                                                                                
CHAIR  THERRIAULT  said legislators  are  concerned  that if  the                                                               
program were continued or allowed to  expand more and more of the                                                               
employee  base  wouldn't  be  contributing  to  a  system  that's                                                               
already in trouble.                                                                                                             
                                                                                                                                
What difference would  it have made if those  employees and their                                                               
employers  had  been making  contributions  into  the system,  he                                                               
questioned.                                                                                                                     
                                                                                                                                
3:45:52 PM                                                                                                                    
                                                                                                                                
MS. MILLHORN said they hadn't calculated that, but could do so.                                                                 
                                                                                                                                
CHAIR THERRIAULT  asked her to  make the calculation  because the                                                               
Finance Committee would want the information.                                                                                   
                                                                                                                                
3:46:24 PM                                                                                                                    
                                                                                                                                
MS. MILLHORN said  that after they received the  AG opinion, they                                                               
noticed  all PERS/TRS  employers and  members who  were currently                                                               
enrolled so  that they  would be properly  prepared to  deal with                                                               
the issue.                                                                                                                      
                                                                                                                                
The  report information  includes:  how employers  have used  the                                                               
program;   percentages  by   job  classification   for  who   has                                                               
participated  - PERS  parties who  have come  back including  the                                                               
difficult  to recruit  and retain  categories  of biologists  and                                                               
engineers,  and that  87  teachers in  23  school districts  that                                                               
returned  under   the  program;  and  the   successful  mentoring                                                               
program.                                                                                                                        
                                                                                                                                
3:48:23 PM                                                                                                                    
                                                                                                                                
CHAIR THERRIAULT asked whether House Bill 242 had been abused.                                                                  
                                                                                                                                
MS. MILLHORN said she was unaware  of any abuses. The TRS statute                                                               
says the school  board must issue a resolution  stating they have                                                               
retention  issues before  rehiring a  teacher under  the program.                                                               
PERS employers don't have that requirement.                                                                                     
                                                                                                                                
3:49:38 PM                                                                                                                    
                                                                                                                                
In September,  a fiscal analysis  tiered the  participation level                                                               
at 100 members,  500 members and 1,000 members  to determine what                                                               
happens to the system at the various participation levels.                                                                      
                                                                                                                                
For  PERS they  determined  the  costs to  the  system have  been                                                               
negligible. TRS has a higher  level of unfunded liability so when                                                               
124  members  participate  the   fiscal  impact  has  been  about                                                               
$100,000.                                                                                                                       
                                                                                                                                
MS. MILLHORN  said, "If the Legislature  enacts legislation going                                                               
forward  to  continue  that  program,  our  recommendation  would                                                               
be.... to hold the system  harmless by taking the payroll dollars                                                               
and incorporating those payroll  dollars for purposes of reducing                                                               
past service costs."                                                                                                            
                                                                                                                                
3:50:45 PM                                                                                                                    
                                                                                                                                
CHAIR THERRIAULT asked whether the bills were in the system.                                                                    
                                                                                                                                
MS. MILLHORN replied  Senator Gary Stevens and  Senator Kim Elton                                                               
both introduced legislation.                                                                                                    
                                                                                                                                
CHAIR  THERRIAULT  asked  whether   the  suggested  language  was                                                               
included in either bill.                                                                                                        
                                                                                                                                
MS. MILLHORN  said they  discussed language  to hold  the systems                                                               
harmless with both Senators.                                                                                                    
                                                                                                                                
3:52:09 PM                                                                                                                    
                                                                                                                                
SENATOR HUGGINS asked  whether she was supporting this  as a cost                                                               
saving mechanism with merit.                                                                                                    
                                                                                                                                
MS. MILLHORN replied  it has been a good management  tool and the                                                               
primary concern is  to see that no additional costs  are added to                                                               
the system.                                                                                                                     
                                                                                                                                
3:53:20 PM                                                                                                                    
                                                                                                                                
SENATOR HUGGINS  asked if  young people  entering the  work force                                                               
have difficulty finding a position  because a retiree was rehired                                                               
for the position.                                                                                                               
                                                                                                                                
MS. MILLHORN replied  you have to look at that  on a case-by-case                                                               
basis, but  it would be  less an issue  in the senior  or journey                                                               
level positions.                                                                                                                
                                                                                                                                
CHAIR THERRIAULT questioned whether there  might be a brain drain                                                               
at  some point  in the  future  when returning  workers retire  a                                                               
second time and don't return.                                                                                                   
                                                                                                                                
3:55:42 PM                                                                                                                    
                                                                                                                                
MS.  MILLHORN  replied  a  healthy   system  has  all  levels  of                                                               
employees and  as a management tool  its important to be  able to                                                               
evaluate  programmatic needs  and  have the  ability  to bring  a                                                               
retired person back.                                                                                                            
                                                                                                                                
3:57:58 PM                                                                                                                    
                                                                                                                                
SENATOR HUGGINS asked  whether there are ever  any constraints on                                                               
rehiring.                                                                                                                       
                                                                                                                                
MS.  MILLHORN  said  those  decisions   are  made  by  individual                                                               
agencies.                                                                                                                       
                                                                                                                                
4:01:53 PM                                                                                                                    
                                                                                                                                
CHAIR  THERRIAULT referenced  page  4 and  asked whether  there's                                                               
been much thought about limiting  the application base to address                                                               
specific levels of expertise.                                                                                                   
                                                                                                                                
KEVIN BROOKS, deputy  commissioner, Department of Administration,                                                               
said there are no hard and fast rules.                                                                                          
                                                                                                                                
4:06:31 PM                                                                                                                    
                                                                                                                                
CHAIR THERRIAULT  questioned whether there was  any difference of                                                               
opinion on the AG conclusion of  what would happen if the program                                                               
sunsets.                                                                                                                        
                                                                                                                                
MR. BROOKS  said they defer to  the advice they receive  from the                                                               
Department of Law.                                                                                                              
                                                                                                                                
CHAIR THERRIAULT  asked how many  retirees that have  returned to                                                               
work  might  not meet  recruitment  criteria  if parameters  were                                                               
placed on  the program and  questioned how those people  might be                                                               
impacted.                                                                                                                       
                                                                                                                                
MR.  BROOKS  suggested  recruitment  criteria  would  impact  new                                                               
rehires.  They  discussed  the fact  that  rehires  have  already                                                               
qualified to  retire and would  do so  again at some  point. With                                                               
some exceptions, these  people aren't likely to  be long tenured,                                                               
he said.                                                                                                                        
                                                                                                                                
CHAIR  THERRIAULT asked  whether  he could  supply  some of  that                                                               
demographic information.                                                                                                        
                                                                                                                                
MR.  BROOKS   replied  they  could   supply  group   rather  than                                                               
individual information.                                                                                                         
                                                                                                                                
CHAIR  THERRIAULT  said  the  information   would  be  useful  to                                                               
determine whether any particular age  group took advantage of the                                                               
program.                                                                                                                        
                                                                                                                                
MR. BROOKS said they would gather the information.                                                                              
                                                                                                                                
4:09:59 PM                                                                                                                    
                                                                                                                                
CHAIR  THERRIAULT  remarked  if   the  Legislature  is  seriously                                                               
interested  in adding  another tier,  the faster  the base  moves                                                               
into the  new tier the  better. If existing employees  can bridge                                                               
the gap between now and when  a new tier is established, then new                                                               
employees will be in the new tier and that would be beneficial.                                                                 
                                                                                                                                
MR. BROOKS  agreed and said  the sunset provision  provides that.                                                               
If the  program were  extended, it  would provide  opportunity to                                                               
clarify the issues.                                                                                                             
                                                                                                                                
CHAIR   THERRIAULT  questioned   whether  any   bargaining  units                                                               
disagreed with the AG opinion.                                                                                                  
                                                                                                                                
MR. BROOKS  replied not with the  opinion itself, but there  is a                                                               
diverse set of opinions out there.                                                                                              
                                                                                                                                
4:12:27 PM                                                                                                                    
                                                                                                                                
SENATOR CHARLIE HUGGINS asked whether  the average employee might                                                               
be characterized as bitter.                                                                                                     
                                                                                                                                
MS.  MILLHORN  explained  the division  interpreted  the  program                                                               
differently  after the  AG opinion  and that  has caused  some to                                                               
become disgruntled.                                                                                                             
                                                                                                                                
CHAIR THERRIAULT  asked whether communication with  employees was                                                               
verbal or written.                                                                                                              
                                                                                                                                
MS. MILLHORN  replied they provided the  information in seminars,                                                               
verbally   and  via   e-mail.  The   division  admits   that  the                                                               
information it  gave in 2002 is  contrary to that it  gives as of                                                               
September 2004.                                                                                                                 
                                                                                                                                
CHAIR THERRIAULT questioned the potential liability.                                                                            
                                                                                                                                
MR. BROOKS said there's been no attempt to quantify liability.                                                                  
                                                                                                                                
CHAIR THERRIAULT remarked any litigation  would probably be class                                                               
action.                                                                                                                         
                                                                                                                                
4:16:03 PM                                                                                                                    
                                                                                                                                
MR. BROOKS said Ms. Millhorn had written records.                                                                               
                                                                                                                                
MS.  MILLHORN  said  they acknowledge  they  have  changed  their                                                               
interpretation.                                                                                                                 
                                                                                                                                
MR. BROOKS added the total population is probably about 400.                                                                    
                                                                                                                                
4:17:01 PM                                                                                                                    
                                                                                                                                
SENATOR  HUGGINS suggested  they had  some flexibility  and could                                                               
grandfather current participants.                                                                                               
                                                                                                                                
4:18:40 PM                                                                                                                    
                                                                                                                                
MR. BROOKS spoke of succession training and knowledge transfers.                                                                
                                                                                                                                
SENATOR  BETTYE  DAVIS recapped  the  issue  and asked  when  the                                                               
department decided to get an AG opinion                                                                                         
                                                                                                                                
MS. MILLHORN said  they asked the question in  September 2004 and                                                               
that's when they received the opinion.                                                                                          
                                                                                                                                
SENATOR DAVIS questioned  what triggered the decision  to ask for                                                               
an opinion.                                                                                                                     
                                                                                                                                
                                                                                                                                
MS. MILLHORN  replied the director  of the Division  of Personnel                                                               
contacted the Department  of Law and asked the  question. "If she                                                               
hadn't asked that question, the  division [Division of Retirement                                                               
and  Benefits] would  have continued  on with  its interpretation                                                               
and its understanding."                                                                                                         
                                                                                                                                
CHAIR  THERRIAULT remarked  that some  members retired  and might                                                               
not have cleaned  out their desk before returning  to work, which                                                               
causes you to  wonder whether it's because they  are difficult to                                                               
replace  or  because they  are  simply  taking advantage  of  the                                                               
system.                                                                                                                         
                                                                                                                                
4:25:11 PM                                                                                                                    
                                                                                                                                
MR. BROOKS said they would  provide the committee information on:                                                               
forgone  contributions   of  rehires   and  the  impact   on  the                                                               
retirement system; age  demographics; and who was  advised and in                                                               
what manner.                                                                                                                    
                                                                                                                                
CHAIR THERRIAULT  asked whether  they could  also be  prepared to                                                               
suggest categories that need a heightened showing of need.                                                                      
                                                                                                                                
MR.  BROOKS said  they could  provide  a list  of government  job                                                               
classifications that have recruitment difficulties.                                                                             
                                                                                                                                
4:26:17 PM                                                                                                                    
                                                                                                                                
MR. BROOKS stressed that the department would like to provide a                                                                 
remedy rather than find out what the potential exposure might                                                                   
be.                                                                                                                             
                                                                                                                                
There were no further questions.                                                                                                
                                                                                                                                
CHAIR THERRIAULT  announced the  committee would meet  on Tuesday                                                               
and Thursday next  week. There being no further  business to come                                                               
before the  committee, Chair Therriault adjourned  the meeting at                                                               
4:29:01 PM.                                                                                                                   

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