Legislature(2003 - 2004)

02/10/2004 03:30 PM STA

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                    ALASKA STATE LEGISLATURE                                                                                  
            SENATE STATE AFFAIRS STANDING COMMITTEE                                                                           
                       February 10, 2004                                                                                        
                           3:30 p.m.                                                                                            
TAPE (S) 04-3&4                                                                                                               
MEMBERS PRESENT                                                                                                               
Senator Gary Stevens, Chair                                                                                                     
Senator John Cowdery, Vice Chair                                                                                                
Senator Bert Stedman                                                                                                            
MEMBERS ABSENT                                                                                                                
Senator Gretchen Guess                                                                                                          
Senator Lyman Hoffman                                                                                                           
COMMITTEE CALENDAR                                                                                                            
CSHJR 30(STA) - ELIMINATE SOCIAL SECURITY OFFSET am                                                                             
Relating  to  supporting the  repeal  of  the Government  Pension                                                               
Offset and  the Windfall Elimination  Provisions from  the Social                                                               
Security Act.                                                                                                                   
     MOVED CSHJR 30(STA) am OUT OF COMMITTEE                                                                                    
SENATE BILL NO. 232                                                                                                             
"An Act  relating to federal  requirements for  governmental plan                                                               
and  other qualifications  for the  teachers' retirement  system,                                                               
the  public  employees'  retirement   system,  and  the  judicial                                                               
retirement system; and providing for an effective date."                                                                        
     MOVED CSSB 232(STA) OUT OF COMMITTEE                                                                                       
SENATE BILL NO. 287                                                                                                             
"An   Act   relating  to   review   of   regulations  under   the                                                               
Administrative Procedure  Act by the Legislative  Affairs Agency;                                                               
and providing for an effective date."                                                                                           
          HEARD AND HELD                                                                                                        
PREVIOUS ACTION                                                                                                               
BILL: HJR 30                                                                                                                  
SHORT TITLE: ELIMINATE SOCIAL SECURITY OFFSET                                                                                   
REPRESENTATIVE(s): GATTO                                                                                                        
05/19/03       (H)       READ THE FIRST TIME - REFERRALS                                                                        
05/19/03       (H)       STA                                                                                                    
01/22/04       (H)       STA AT 8:00 AM CAPITOL 102                                                                             
01/22/04       (H)       Moved CSHJR 30(STA) Out of Committee                                                                   
01/22/04       (H)       MINUTE (STA)                                                                                           
01/23/04       (H)       STA RPT CS (STA) 3DP 1NR                                                                               
01/23/04       (H)       DP: GRUENBERG, SEATON, LYNN;                                                                           
01/23/04       (H)       NR: WEYHRAUCH                                                                                          
01/28/04       (H)       TRANSMITTED TO (S)                                                                                     
01/28/04       (H)       VERSION: CSHJR 30(STA) AM                                                                              
01/30/04       (S)       READ THE FIRST TIME - REFERRALS                                                                        
01/30/04       (S)       STA, HES                                                                                               
02/10/04       (S)       STA AT 3:30 PM BELTZ 211                                                                               
BILL: SB 232                                                                                                                  
SHORT TITLE: RETIREMENT: TEACHERS/JUDGES/PUB EMPLOYEES                                                                          
SENATOR(s): RULES BY REQUEST OF THE GOVERNOR                                                                                    
05/21/03       (S)       READ THE FIRST TIME - REFERRALS                                                                        
05/21/03       (S)       STA, FIN                                                                                               
02/10/04       (S)       STA AT 3:30 PM BELTZ 211                                                                               
BILL: SB 287                                                                                                                  
SHORT TITLE: REGULATION REVIEW                                                                                                  
SENATOR(s): THERRIAULT                                                                                                          
01/30/04       (S)       READ THE FIRST TIME - REFERRALS                                                                        
01/30/04       (S)       STA, FIN                                                                                               
02/10/04       (S)       STA AT 3:30 PM BELTZ 211                                                                               
WITNESS REGISTER                                                                                                              
Representative Carl Gatto                                                                                                       
Alaska State Capitol                                                                                                            
Juneau, AK  99801-1182                                                                                                          
POSITION STATEMENT:  Sponsor of HJR 30                                                                                        
Jerry Patterson                                                                                                                 
NEA-Alaska Retired                                                                                                              
No address provided                                                                                                             
POSITION STATEMENT:  Answered questions on HJR 30                                                                             
Marie Darlin                                                                                                                    
National Association of Retired Federal Employees (NARFE)                                                                       
Juneau, AK 99801                                                                                                                
POSITION STATEMENT:  Supported HJR 30                                                                                         
Sam Trivette, representative                                                                                                    
Retired Public Employees of Alaska/APEA/AFT                                                                                     
Juneau, AK 99801                                                                                                                
POSITION STATEMENT:  Supported HJR 30                                                                                         
Anselm Stack, chief financial officer                                                                                           
Division of Retirement and Benefits                                                                                             
Department of Administration                                                                                                    
PO Box 110200                                                                                                                   
Juneau, AK  99811-0200                                                                                                          
POSITION STATEMENT:  Testified on SB 232                                                                                      
Melanie Millhorn, director                                                                                                      
Division of Retirement and Benefits                                                                                             
Department of Administration                                                                                                    
PO Box 110200                                                                                                                   
Juneau, AK  99811-0200                                                                                                          
POSITION STATEMENT:  Testified on SB 232                                                                                      
Senator Gene Therriault                                                                                                         
Alaska State Capitol                                                                                                            
Juneau, AK  99801-1182                                                                                                          
POSITION STATEMENT:  Sponsor SB 287                                                                                           
ACTION NARRATIVE                                                                                                              
TAPE 04-3, SIDE A                                                                                                             
CHAIR  GARY  STEVENS called  the  Senate  State Affairs  Standing                                                             
Committee meeting  to order  at 3:30  p.m. Present  were Senators                                                               
Stedman, Cowdery and  Chair Gary Stevens. He  announced the first                                                               
order of business to be HJR 30.                                                                                                 
         CSHJR 30(STA)-ELIMINATE SOCIAL SECURITY OFFSET                                                                     
REPRESENTATIVE CARL  GATTO, resolution  sponsor, stated  that HJR                                                               
30 pertains to  Social Security and asks Congress  to repeal both                                                               
the  Windfall Elimination  Provision  (WEP),  and the  Government                                                               
Pension Offset (GPO) provision from the Social Security Act.                                                                    
In the  early 1980s, the  State of Alaska  elected to opt  out of                                                               
Social   Security  and   to  establish   the  Public   Employees'                                                               
Retirement  System (PERS)  and  the  Teachers' Retirement  System                                                               
(TRS). Sometime  thereafter Social  Security changed  their rules                                                               
and imposed  a penalty  on most members  that retired  after 1985                                                               
and qualified for both Social  Security and a public pension from                                                               
a job not covered by Social Security.                                                                                           
Few  people,  he  warned,  are  aware of  this  penalty  and  are                                                               
devastated  when they  learn about  it because  it's too  late to                                                               
make  different   career  decisions.   For  instance,   he  began                                                               
receiving  Social Security  about a  year ago  after having  paid                                                               
into the system for 50 quarters,  which is ten quarters more than                                                               
required.   He  receives   about   $100  per   month,  which   is                                                               
considerably  less than  the  amount  the personalized  printouts                                                               
Social Security sent to him indicated.                                                                                          
A Social Security benefit can be reduced in one of two ways.                                                                    
First,  the Windfall  Elimination  Provision  (WEP) modifies  the                                                               
formula  that is  used to  figure a  Social Security  benefit and                                                               
gives a  reduced benefit  for those  individuals who  qualify for                                                               
Social Security through their earnings  record and have also been                                                               
an Alaska public  employee (PERS) or teacher  (TRS). The modified                                                               
benefit  is  used the  first  month  you  receive both  a  Social                                                               
Security benefit and  the pension from work that  didn't pay into                                                               
Social Security.                                                                                                                
The other way  the Social Security benefit can be  reduced is the                                                               
Government Pension  Offset (GPO). This  applies if you  receive a                                                               
pension from  a federal,  state, or  local government  that isn't                                                               
covered by Social  Security and are eligible  for Social Security                                                               
benefits as  a spouse  or widow(er). This  affects both  PERS and                                                               
TRS retirees.                                                                                                                   
REPRESENTATIVE GATTO  gave a hypothetical  example of  what would                                                               
happen if  he were to die  before his wife. Assume  he receives a                                                               
public pension of $3,000 per  month and a Social Security payment                                                               
of $2,000 per  month. As a survivor, his wife  would receive just                                                               
the $3,000 pension  because of the offset.  Social Security would                                                               
offset  two-thirds  of his  pension  or  $2,000 from  his  $2,000                                                               
Social Security  benefit so his  spouse would receive  no spousal                                                               
Social Security benefit whatsoever.                                                                                             
HJR 30  asks the Alaska  Congressional Delegation to join  the 29                                                               
senators and  284 representatives who have  signed as co-sponsors                                                               
to repeal the provisions.                                                                                                       
CHAIR GARY  STEVENS said  he assumes this  would apply  to states                                                               
other than Alaska.                                                                                                              
REPRESENTATIVE GATTO  said there are  14 other states  that opted                                                               
out of Social  Security. He thought Alaska was right  to opt out,                                                               
they just didn't know there would be a penalty applied.                                                                         
CHAIR GARY  STEVENS asked if all  the other states opted  out the                                                               
same way that Alaska did.                                                                                                       
REPRESENTATIVE GATTO said  that's what he thought,  but he didn't                                                               
have that information.                                                                                                          
SENATOR JOHN COWDERY asked what the other states are doing.                                                                     
REPRESENTATIVE  GATTO  clarified the  states  that  pay into  the                                                               
Social  Security  system  aren't affected.  The  provisions  only                                                               
apply to the 15 states that opted out of Social Security.                                                                       
SENATOR COWDERY asked a question about his personal situation.                                                                  
REPRESENTATIVE GATTO replied he  didn't believe the senator would                                                               
be affected. His concern is for  the people that have made career                                                               
decisions based on what they have  been led to believe they would                                                               
receive  from  Social Security  when,  in  fact, they  won't.  He                                                               
predicted this would be a  serious situation for more people than                                                               
you might guess.                                                                                                                
SENATOR  COWDERY said  he has  been receiving  a PERS  retirement                                                               
check  since 1995  and  he wondered  how  these provisions  might                                                               
affect him.                                                                                                                     
JERRY PATTERSON, NEA-Alaska Retired,  explained two ways to avoid                                                               
the  penalty. First,  individuals that  paid Social  Security and                                                               
PERS  throughout  their  career   aren't  affected.  Second,  the                                                               
penalty is generational so people  that were eligible and retired                                                               
from state service in 1985 avoided the penalty.                                                                                 
REPRESENTATIVE GATTO  noted that the House  Finance Committee met                                                               
with PERS and  TRS retirement last night and learned  a good deal                                                               
about what is needed to keep that system solvent.                                                                               
CHAIR GARY  STEVENS said the  disincentive for retired  troops to                                                               
become teachers in Alaska is shocking and asked for a comment.                                                                  
REPRESENTATIVE GATTO  replied there  are two issues.  First there                                                               
are people  who might  consider moving to  Alaska to  teach after                                                               
they retire and  the other issue is those retirees  who decide to                                                               
leave Alaska  at some time  before the  start the eighth  year of                                                               
For instance, if a retired  autoworker from Michigan is receiving                                                               
Social Security  and he or  she moves  to Alaska and  teaches for                                                               
seven years,  everything looks fine.  At the start of  the eighth                                                               
year, the provision  to reduce the Social  Security benefit kicks                                                               
in. This  makes it difficult  for Alaska to recruit  teachers who                                                               
have retired from a job outside  Alaska and easy for retirees who                                                               
are teaching to leave Alaska after their seventh year.                                                                          
MR.  PATTERSON  said  the  troops-to-teachers  program  typically                                                               
targets  retirees  from the  military  who  have Social  Security                                                               
benefits so it's  more advantageous to those retirees to  go to a                                                               
state where  the penalties don't  apply. The head of  the troops-                                                               
to-teachers program in Alaska is  well aware of the penalties and                                                               
has expressed concern.                                                                                                          
CHAIR  GARY STEVENS  asked him  to  explain the  troop-to-teacher                                                               
MR.  PATTERSON explained  that retired  military personnel  would                                                               
become  vested  as a  teacher  in  Alaska  at eight  years.  Upon                                                               
vesting,  they would  already  be pegged  for  a Social  Security                                                               
reduction starting  at something less  than 60 percent  and going                                                               
down to zero.                                                                                                                   
SENATOR  COWDERY asked  which public  positions  are affected  in                                                               
addition to teachers and state employees.                                                                                       
MR. PATTERSON  replied police,  firemen, and  municipalities that                                                               
opted out  of Social Security. Potentially,  7,000 people between                                                               
the  ages of  65  and  75 are  impacted  and  some 11,000  people                                                               
between 55 and 65 years old are due to be impacted.                                                                             
CHAIR  GARY  STEVENS asked  if  he  mentioned the  University  of                                                               
Alaska because they are affected.                                                                                               
MR. PATTERSON said he considers them to be TRS.                                                                                 
SENATOR  BERT STEDMAN  remarked  he  ran into  this  in his  work                                                               
before  he became  a legislator.  Some clients  had no  idea this                                                               
existed   while   others   knew,  but   didn't   understand   the                                                               
implications. He stated  he didn't think the  current penalty and                                                               
offset structure is  fair and he'd like to see  them removed. The                                                               
state would  benefit greatly if  the teacher retention  issue was                                                               
resolved and removing the penalties would be fair to everyone.                                                                  
CHAIR GARY  STEVENS asked  about the situation  in which  a widow                                                               
receives a substantially reduced pension.                                                                                       
REPRESENTATIVE  GATTO  said  he  likes  to  use  numbers  because                                                               
they're more descriptive.                                                                                                       
     A $3,000  a month  pension, you're entitled  to $36,000                                                                    
     per  year. If  you  are subject  to  the provisions  of                                                                    
     Social Security here  - if you also had  a great amount                                                                    
     of  Social Security  benefit like  $2,000  - well  they                                                                    
     could take  the entire  $2,000 of your  Social Security                                                                    
     benefit  because  of   the  two-thirds.  Two-thirds  of                                                                    
     $3,000 is $2,000. If your  benefit was $2,000 in Social                                                                    
     Security,  that's the  amount that's  removed. If  your                                                                    
     benefit  was $1,500  in Social  Security, that's  under                                                                    
     the $2,000 so  they take 100 percent of  it [the Social                                                                    
     Security  benefit].  Therefore  you're  left  with  the                                                                    
     pension only, which wasn't part of your planning.                                                                          
MR. PATTERSON pointed  to the nationwide statistic that  9 out of                                                               
10 individuals lose the entire spouse survivor's benefit.                                                                       
MARIE   DARLIN,   retired   federal   employees   representative,                                                               
testified in support  of HJR 30. She said the  reason the retired                                                               
federal employees  are concerned  is because  they paid  into the                                                               
civil  service  retirement system  and  not  the Social  Security                                                               
system so  the Social Security provisions  adversely affect them.                                                               
Federal  employees  are  now  part  of  FERS  [Federal  Employees                                                               
Retirement  System]  that  pays  into  Social  Security,  but  it                                                               
doesn't help those who retired under the old system.                                                                            
She read the following:                                                                                                         
     Alaska has over 6,600 annuitants  in the state of which                                                                    
     1,336 are  survivor annuitants. They bring  about $12.5                                                                    
     million monthly into the economy of this state.                                                                            
     About  1,500  people  are  actually  members  of  NARFE                                                                    
     (National  Association  of Retired  Federal  Employees)                                                                    
     and our  Alaska federation has been  active since 1987.                                                                    
     NARFE has  been working  for years  to get  Congress to                                                                    
     repeal these pension offsets since  they began in 1982,                                                                    
     although  they  didn't  become  effective  until  about                                                                    
     1985. They were intended  to reduce the Social Security                                                                    
     annuities  of anyone  who  also  received a  government                                                                    
     annuity. By  that they meant  anybody who had  not paid                                                                    
     into  Social Security  - as  a  city government,  state                                                                    
     government, or the federal government never did.                                                                           
     We  feel this  is totally  unfair because  those Social                                                                    
     Security payments were made to  Social Security and the                                                                    
     employers made  their portion of the  payments. And the                                                                    
     GPO reduces  or eliminates the Social  Security benefit                                                                    
     from  the spouse  Social Security.  The other  one, the                                                                    
     WEP, reduces a  person's own earned benefit  by using a                                                                    
     formula that  can result  in a  loss of  as much  as 60                                                                    
     percent  - or  maybe  even more  -  just because  their                                                                    
     career or  even a  part of it  was with  a governmental                                                                    
MS.  DARLIN  concluded the  low-income  widows  are impacted  the                                                               
most, but  thousands are affected.  She urged members  to support                                                               
the resolution.                                                                                                                 
SAM   TRIVETT,  president   of  the   Retired  Public   Employees                                                               
Association  of  Alaska  (APEA/AFT),  stated  he  represents  the                                                               
retirees  in  the  group that  aren't  teachers.  They  represent                                                               
people  who have  retired from  state government  as well  as the                                                               
municipalities that participate in  PERS. He said the association                                                               
supports the resolution strongly.                                                                                               
The  association  has  become  involved  quite  recently  and  he                                                               
acknowledged  that   is  because   they  weren't  aware   of  the                                                               
provisions  before. He  checked on  his personal  situation as  a                                                               
retiree with a  wife who is still working. If  he dies before she                                                               
does, she will probably get no spousal Social Security.                                                                         
Social Security sent him benefits  statements regularly before he                                                               
retired and never informed him  that his benefit would be reduced                                                               
because he  was also a state  employee. It wasn't until  after he                                                               
retired and  then signed up  for Social Security that  he learned                                                               
that his Social  Security benefit would be reduced  by about $500                                                               
per month.  Multiply that by the  number of months he  expects to                                                               
live and that  amounts to a considerable sum of  money. There are                                                               
thousands of  retirees in his same  situation and it will  have a                                                               
major impact on people's lives.                                                                                                 
The state  opted out  of Social  Security in  1980 and  it wasn't                                                               
until six or seven years later  that Congress passed the bill. No                                                               
one was notified of the change  so they didn't have any idea they                                                               
should  revisit their  retirement  decisions. The  impact to  the                                                               
state in terms of lost income  will amount to millions of dollars                                                               
he warned.                                                                                                                      
A  top official  in the  Social Security  Administration admitted                                                               
they  didn't send  notification initially;  they weren't  sending                                                               
notification   now   and    probably   wouldn't   start   sending                                                               
notification  for several  years. When  he was  lobbying for  the                                                               
repeal  of  these  provisions  he was  asked  why  anyone  should                                                               
support a  repeal because  Social Security  can't afford  it. His                                                               
response is that  it is a penalty to those  who continued to work                                                               
after the  WEP and the  GPO were passed.  He and others  paid the                                                               
full amount  that was required into  the system so that  money is                                                               
in the  system. "So  the people  that tell you  the money  is not                                                               
there are not right."                                                                                                           
CHAIR GARY STEVENS  asked if he understood  correctly that anyone                                                               
who  worked as  a  state  employee, a  teacher,  or a  university                                                               
employee before 1980 paid into Social Security.                                                                                 
MR. TRIVETTE said  that is correct and noted he  paid into Social                                                               
Security from  the time he was  in 9th grade until  1980 when the                                                               
state opted out.                                                                                                                
There was no further testimony.                                                                                                 
CHAIR GARY STEVENS asked for a motion.                                                                                          
SENATOR  COWDERY  made  a  motion  to  move  CSHJR  30(STA)  from                                                               
committee  with individual  recommendations  and attached  fiscal                                                               
note. There being no objection, it was so ordered.                                                                              
        SB 232-RETIREMENT:TEACHERS/JUDGES/PUB EMPLOYEES                                                                     
CHAIR GARY STEVENS announced SB 232 to be up for consideration.                                                                 
ANSELM  STAACK, Department  of Administration  (DOA), said  he is                                                               
the chief  financial officer  for the  public employees'  and the                                                               
teachers' retirement  systems and any others  that operate within                                                               
the  Division  of  Retirement  and  Benefits  including  SBS  and                                                               
deferred compensation.                                                                                                          
He  explained that  the Internal  Revenue Service  (IRS) reviewed                                                               
the entire  plan reviewed by  the Internal Revenue  Service (IRS)                                                               
and  the process  took three  years. He  noted that  to remain  a                                                               
qualified  plan,  the  division  must  ensure  that  their  plans                                                               
conform  to tax  law, which  requires modifications  whenever tax                                                               
laws change. More importantly, the  division had to get a private                                                               
letter  ruling from  the  IRS for  employees to  be  able to  pay                                                               
indebtedness to the system with  pre tax dollars rather than with                                                               
post tax dollars.                                                                                                               
For  the   public  employees'   retirement  system   (PERS),  the                                                               
teachers'  retirement  system   (TRS),  the  judicial  retirement                                                               
system  (JRS), and  the supplemental  benefits  system (SBS)  the                                                               
division sought a private letter  ruling and a plan determination                                                               
letter. The latter  is an IRS letter approving the  plan. As long                                                               
as the  established rules  are followed, monies  may be  paid pre                                                               
tax and the plan is eligible for IRA rollovers.                                                                                 
The  plan document  or the  rules  for a  tax-qualified plan  for                                                               
PERS,  TRS and  JRS  are  in statute  and  therefore any  changes                                                               
require legislative  action. The  original bill on  this subject,                                                               
SB 245,  addressed the first  series of changes suggested  by the                                                               
IRS. It  was at  that time  that the  Division of  Retirement and                                                               
Benefits  came to  realize that  the  process was  going to  take                                                               
longer than initially anticipated                                                                                               
SBS has a  separate plan document from PERS, TRS,  and JRS and it                                                               
contains  little  statutory  language. Therefore,  when  the  IRS                                                               
mandates certain  changes to the  SBS plan, the division  is able                                                               
to  make those  changes  without legislative  action. He  assured                                                               
members that just the changes that  the IRS required were made to                                                               
the SBS plan.                                                                                                                   
On April  30 2003,  the division received  the IRS  positive plan                                                               
determination letters for  the PERS, TRS, and  JRS plans. Because                                                               
the  positive determination  was  conditioned on  making all  the                                                               
suggested changes in statute within  210 days, the division asked                                                               
that SB 232 and HB 331  be introduced. They realized there wasn't                                                               
time  to  get  the  legislation  passed before  the  end  of  the                                                               
session, but felt this showed a good faith effort.                                                                              
In  August  2003,  the division  received  the  positive  private                                                               
letter rulings  related to PERS, TRS,  and JRS. At the  same time                                                               
they  received a  negative letter  ruling  for including  village                                                               
public safety officers  (VPSO) in PERS. This means  VPSOs must be                                                               
statutorily removed from  PERS. In the first session  of the 22nd                                                               
Legislature  SB  145 placed  VPSOs  into  PERS and  required  the                                                               
placement by March 2002.                                                                                                        
Mr.  Staack said  the division,  and  he in  particular, did  not                                                               
implement the  placement because  IRS had not  made a  ruling and                                                               
there  were indications  that IRS  would question  the placement.                                                               
Placing  VPSOs in  PERS without  a positive  ruling from  the IRS                                                               
would have exposed PERS to  unqualified plan status. The risk was                                                               
too great to test.                                                                                                              
MR. STAACK  said he  personally argued the  VPSO case  before the                                                               
IRS in  Washington D.C. but the  ruling was negative. He  noted a                                                               
copy of the ruling was in member's packets.                                                                                     
CHAIR GARY STEVENS remarked that tax code reading is tedious.                                                                   
MR. STAACK chuckled and admitted that  he's one of the few people                                                               
that enjoy it.                                                                                                                  
CHAIR GARY  STEVENS announced  there was a  work draft  CS before                                                               
the  committee and  he asked  for  a motion  to adopt  it as  the                                                               
working document.                                                                                                               
SENATOR  JOHN COWDERY  made a  motion to  adopt CSSB  232 as  the                                                               
working document. There being no objection, it was so ordered.                                                                  
CHAIR  GARY  STEVENS asked  Mr.  Staack  to outline  the  changes                                                               
between the original bill and the CS.                                                                                           
A sectional analysis may be found in the bill file.                                                                             
MR. STAACK  noted the original  bill had  19 sections and  the CS                                                               
has 32  sections. He pointed to  page 2, lines 6-9  and read, "No                                                               
amendment  to this  chapter  provides any  person  with a  vested                                                               
right to  a benefit  if the  Internal Revenue  Service determines                                                               
that the  amendment will result  in disqualification of  the plan                                                               
under the  Internal Revenue  Code." That  addition is  to prevent                                                               
the  general  fund  from  being  liable if  a  state  law  exists                                                               
allowing benefits that cannot be  paid out of plan assets because                                                               
of an IRS determination.                                                                                                        
Section 3  relates to changing  any reference to  "teacher(s)" to                                                               
the term "member(s)." That change  occurs throughout the bill and                                                               
applies  to PERS  as well.  The IRS  determined that  using terms                                                               
other  than  "members"  could  lead to  confusion  and  a  single                                                               
definition was preferable.                                                                                                      
Sections 5  and 6 are conforming.  Section 7 is to  allow members                                                               
to purchase  permissible service  credits such as  military time.                                                               
Section  10  adds  additional  sections  to  satisfy  eligibility                                                               
requirements and use  service history. Sections 11 and  12 are to                                                               
conform to the tax code in effect for 1980.                                                                                     
Section 13 was  a hard fought and long negotiated  addition. If a                                                               
member has any reduction from  the 100 percent based benefit, the                                                               
actuarial factors that apply have  to be specified in regulation.                                                               
The IRS originally wanted the  factors outlined in statute rather                                                               
than regulation so to satisfy  them, the division was required to                                                               
prove  the basis  for  every  actuarial factor  in  terms of  the                                                               
mortality  table. He  emphasized there  is good  reason for  this                                                               
because members should  be able to find out how  their benefit is                                                               
computed. He  continued, "You have a  right to know that  yes, we                                                               
use the  1973 mortality table  and we  used a 2  percent interest                                                               
rate." That is in regulation and not the bill.                                                                                  
Section  14 speaks  to the  interchangeability between  "teacher"                                                               
and  "member." Section  15 defines  the prescribed  interest rate                                                               
used for the actuarial tables.                                                                                                  
Sections 16  - 20 relate  to the JRS. Section  18 says no  one is                                                               
entitled to a  benefit unless the code says they  are. Section 20                                                               
is the actuarial assumption factors.                                                                                            
Sections  21  - 31  relate  to  PERS.  Section 21  stipulates  no                                                               
amendment  can  be made  if  it  results in  a  disqualification.                                                               
Section 22  deletes VPSOs.  Section 25 deletes  a mistake  in the                                                               
original HB  245 relating to forcing  a member to cash  out their                                                               
Section 26  shows corrections for  VPSOs for  permissible service                                                               
credit. Sections 27 and 28 are  conforming. Section 29 is for the                                                               
actuarial assumptions.  Sections 30  and 31 are  the last  of the                                                               
VPSO removal.                                                                                                                   
Sections  32 -  35 are  for  redesignations of  some systems  and                                                               
outlines when certain parts are effective.                                                                                      
TAPE 04-3, SIDE B                                                                                                             
4:24 pm                                                                                                                       
CHAIR GARY STEVENS  thanked Mr. Staack then  outlined the process                                                               
by which  the state passes  money to village nonprofits  that pay                                                               
the VPSOs. He  asked how that process is dissimilar  to the state                                                               
funding school districts that use the money to pay teachers.                                                                    
MR. STAACH replied there are  two issues involved. When the state                                                               
gives money to  a school district, the district  employees may be                                                               
TRS members because they are  employees of a governmental entity.                                                               
In contrast,  VPSOs are not  employees of a  governmental entity;                                                               
they are employees of a 501(c) (3) nonprofit corporation.                                                                       
He emphasized that  the division tried very hard  to include VPSO                                                               
and  even argued  that the  state was  leasing an  employee of  a                                                               
regional  Native  corporation for  the  purpose  of doing  public                                                               
safety services. The  IRS didn't agree with that  argument or any                                                               
other. Their  point is that the  state is asking the  IRS to rule                                                               
that  a  small  portion  of   the  regional  Native  corporation,                                                               
specifically the VPSOs, are government  employees and are working                                                               
for a government. At the  same time, those employees will provide                                                               
services to villages that are members  of PERS. IRS asked why the                                                               
village couldn't  employ those individuals. IRS  said asking them                                                               
to  declare   that  part  of   the  regional  corporation   is  a                                                               
governmental entity  raises the  question of  whether or  not the                                                               
entire corporation is a governmental entity.                                                                                    
There is  considerable tax law  stating you  can't be both  a 501                                                               
(c)(3) nonprofit  corporation and  a governmental entity.  If the                                                               
IRS were to rule that  the regional corporation is a governmental                                                               
entity for  purposes of the  VPSOs, their nonprofit  status would                                                               
be jeopardized.                                                                                                                 
CHAIR GARY  STENVENS referred  to page  4 of  the IRS  letter and                                                               
asked for clarification.                                                                                                        
MR.   STAACK  replied   the   IRS   letter  provides   background                                                               
information up to page 8. He read:                                                                                              
     Thus, we conclude  that the K Corporation(s)  is not an                                                                    
     agency or  instrumentality of the State  or a political                                                                    
     subdivision  thereof.  Accordingly,  as for  the  first                                                                    
     ruling requested, we find that  the inclusion in Plan X                                                                    
     of  Community  Officers,  who  are  employees  of  a  K                                                                    
     Corporation which does not qualify as an agency...                                                                         
He explained the following paragraph  states that it is not legal                                                               
for the  plan to take  contributions from VPSOs and  the employer                                                               
may not  pick them up.  He continued,  "The only reason  your SBS                                                               
money that  you pay into  the supplemental benefit system  or the                                                               
pretax  contributions   you  make  into  the   Public  Employees'                                                               
Retirement System  is pretax  is because a  'fiction' of  the law                                                               
converts it  to employer  money for purposes  of being  picked up                                                               
and deposited  in the plan." With  regard to VPSOs, IRS  is clear                                                               
in stating there is no authority to do that.                                                                                    
CHAIR  GARY  STEVENS  remarked  it's  unfortunate  that  this  is                                                               
occurring at the  same time that the Department  of Public Safety                                                               
is  encouraging  the  regional   Native  corporations  to  assume                                                               
responsibility for the VPSO program.  In this time of budget cuts                                                               
it makes  it difficult  for the  Native corporations  to continue                                                               
the program.                                                                                                                    
MR. STAACK  verified that all parties  tried very hard to  find a                                                               
solution and even the tribal section of the IRS was involved.                                                                   
SENATOR BERT STEDMAN questioned  whether the division is actually                                                               
using mortality tables from the 1970s.                                                                                          
MR. STAACK  replied the table  that is  used depends on  when the                                                               
member  was first  hired  in  the system.  Some  would use  those                                                               
tables, but  in 2000 the  division switched from the  1983 tables                                                               
to  the 1994  mortality tables  for the  purposes of  calculating                                                               
liabilities in PERS and TRS.                                                                                                    
SENATOR STEDMAN  observed the two  options are to bring  the plan                                                               
into compliance  or not. If  the latter  choice is made  then the                                                               
entire   plan  becomes   noncompliant   thereby  triggering   tax                                                               
MR. STAACK  replied if  a plan  is determined  non-qualified, the                                                               
pretax contributions  stop immediately.  It's also  possible that                                                               
the money  that is already  in the plan would  become immediately                                                               
taxable. The legal liability associated  with an unqualified plan                                                               
is tremendous.                                                                                                                  
SENATOR  STEDMAN asked  if  changes could  be  expected every  so                                                               
often as the IRS evolves their rulings.                                                                                         
MR. STAACK  assured him  that any  time the  tax law  changes the                                                               
division is automatically required to become compliant.                                                                         
SENATOR STEDMAN asked how the 457 (B) plan is handled.                                                                          
MR. STAACK said the 457(B)  plans are deferred compensation plans                                                               
for  governments and  other nontaxable  entities  and are  called                                                               
eligible retirement  plans. The  PERS, TRS, JRS,  teacher 403(B)s                                                               
and  the  supplemental  benefits   system,  which  is  a  defined                                                               
contribution plan  are all  qualified plans.  For the  most part,                                                               
the  rules for  both are  now identical  to all  other retirement                                                               
plans. Previously  they were not the  same, but there is  no need                                                               
to make a  change in this legislation, he said.  However, just to                                                               
be on  the safe side,  they adopted  any changes that  applied to                                                               
SBS to deferred compensation.                                                                                                   
CHAIR GARY STEVENS asked for the pleasure of the committee.                                                                     
SENATOR JOHN COWDERY  made a motion to move CSSB  232(STA) to the                                                               
next committee  of referral  with individual  recommendations and                                                               
the attached  fiscal note.  There being no  objection, it  was so                                                               
                    SB 287-REGULATION REVIEW                                                                                
CHAIR GARY STEVENS  announced SB 287 to be  up for consideration.                                                               
He stated  the committee  was hearing the  bill at  the sponsor's                                                               
request, but he  didn't intend to take action that  day. He asked                                                               
Senator Therriault to step forward.                                                                                             
SENATOR  GENE  THERRIAULT,  sponsor   of  SB  287,  explained  he                                                               
introduced  this bill  as a  result of  his work  on a  different                                                               
piece of  legislation relating to  regulations formation  and the                                                               
public's  perception  of  the regulatory  process.  That  bit  of                                                               
legislation deals  with the standards  citizens are held  to when                                                               
they appeal  a decision  made under regulation.  It's the  end of                                                               
the  process when  the  regulation is  being  implemented and  is                                                               
having consequences for constituents, he said.                                                                                  
Because of  that work, he  began to  look at how  the Legislature                                                               
interacts  with  regulations  as  they are  formed.  He  referred                                                               
members  to the  flow chart,  "Steps in  the Regulation  Adoption                                                               
Process,"   and   pointed  out   that   sometimes   there  is   a                                                               
misinterpretation of the legislative intent  when an agency works                                                               
with legislators  then proposes a regulation.  It's upsetting for                                                               
constituents  to  work  on  legislation only  to  find  that  the                                                               
regulation  has taken  an  unexpected turn.  At  that point,  the                                                               
Legislature has  the choice  of working  to change  the direction                                                               
the regulation  is headed  through the  public comment  period or                                                               
pass another piece of legislation.                                                                                              
He and  his staff began  to explore  formalizing the role  of the                                                               
Legislature for  input or  notification. This  is not  to control                                                               
the  process, he  quickly insisted,  because  regulations are  an                                                               
administrative function  and with  the separation of  powers, the                                                               
Legislature   has  no   constitutional  power   to  control   the                                                               
regulatory process. However,  he would like to  explore the early                                                               
input  option so  that if  the  body that  passed the  underlying                                                               
statute  believed there  was some  misinterpretation, they  could                                                               
take corrective steps early in the process.                                                                                     
SB 287 would insert legislative  legal attorneys into the process                                                               
between step 4 and 5 in the  flow chart. In step 4 the Department                                                               
of Law  opens the  file and  in step 5  the agency  publishes and                                                               
distributes  public notice,  additional  notice information,  and                                                               
He  admitted that  Lt. Governor  Leman  and his  staff have  some                                                               
concerns   with  the   separation   of  powers   issue,  but   he                                                               
reemphasized it  isn't his  intent to  insert the  Legislature in                                                               
any   controlling   manner.   It's   an   opportunity   to   work                                                               
cooperatively with the administration to avoid difficulties.                                                                    
Legitimate concerns relate to the Board  of Game and the Board of                                                               
Fish.  If citizen  groups are  suggesting changes  to regulations                                                               
the boards oversee,  the board reviews and  selects the proposals                                                               
they want to move forward.  He clarified, "It certainly would not                                                               
be in my  intent that our legislative legal  attorneys review all                                                               
of those proposed regulations that are brought to the boards."                                                                  
Specifically,  he  said,  he was  interested  in  addressing  new                                                               
legislation   that  is   implemented  through   the  passage   of                                                               
regulations.  This is  when the  legislative  attorneys would  be                                                               
With  regard  to the  fiscal  impact  of  the bill  as  currently                                                               
structured, he said  he expected to receive the  same advice from                                                               
the Finance  Committee co-chair  that he  used to  dispense. That                                                               
is, "Great  idea, cost's  too much.  Come back  when you  get the                                                               
cost down."                                                                                                                     
SENATOR THERRIAULT admitted that  controlling costs might involve                                                               
a blend of the current  system with the Administrative Regulation                                                               
Review  Panel and  early notification  or  solicitation of  input                                                               
into the process.                                                                                                               
SENATOR  JOHN COWDERY  questioned whether  legislative legal  has                                                               
sufficient staff  to handle the  additional workload or  is extra                                                               
staff included in the fiscal note.                                                                                              
SENATOR THERRIAULT  replied the  expense of  additional positions                                                               
is   something  that   needs  evaluation.   He  noted   that  the                                                               
legislative legal  staff has  slack time  during the  interim and                                                               
perhaps this function could be performed then.                                                                                  
SENATOR  COWDERY asked  how  long  it would  take  to review  the                                                               
regulations and give the public time to comment.                                                                                
SENATOR THERRIAULT opined the legal  review could be completed in                                                               
a  week or  two. He  pointed to  the practice  of one  department                                                               
holding  another  hostage  and  stated with  certainty  that  the                                                               
Legislature doesn't have the constitutional  power to hold up the                                                               
process in that  fashion. Ideally, the same  attorney that worked                                                               
with  legislators  in  drafting  the   bill  would  look  at  the                                                               
regulations and give  an opinion as to whether  they were backing                                                               
up the stated legislative intent in the new law that was passed.                                                                
Although it's  not necessary, it's  not uncommon  for legislators                                                               
to  solicit opinions  from the  Attorney  General's Office  (AG).                                                               
There's  no requirement  for legislators  to follow  that advice,                                                               
but  they certainly  do  take it  into  consideration because  it                                                               
doesn't  make sense  to take  steps  that would  lead to  certain                                                               
legal challenge.  If the regulation  writers got a memo  from our                                                               
legislative legal  shop saying,  "You're missing the  boat here."                                                               
They would listen  in the hope that it would  save headaches down                                                               
the line.  It could avoid  backlash from the public  that thought                                                               
they  knew  what  to  expect  when  they  supported  a  piece  of                                                               
legislation, but the regulation went in a different direction.                                                                  
SENATOR COWDERY asked  how many regulations are  established in a                                                               
SENATOR THERRIAULT  replied Mr.  Stancliff could  probably answer                                                               
that question.                                                                                                                  
DAVE  STANCLIFF,  staff  to   the  Regulation  Review  Committee,                                                               
reported that  Senator Therriault tasked  him with finding  a way                                                               
to  bring  about positive  changes  in  the process  through  the                                                               
regulatory  reform process.  A good  process works  well for  any                                                               
political persuasion and deals with  the balance of power between                                                               
the Executive Branch of government  and the Legislative Branch of                                                               
MR. STANCLIFF reported that the  regulatory process that Colorado                                                               
employs  is  one  of cooperation.  Their  legal  services  aren't                                                               
adversarial  with the  Attorney General's  Office and  that's the                                                               
model in SB 287.                                                                                                                
He  suggested that  the system  in Alaska  doesn't have  the same                                                               
level of balance  that other states have  with regulatory review.                                                               
First, it's not uncommon to hear  that an agency regulator told a                                                               
disgruntled citizen  that if they  didn't like a  regulation they                                                               
should speak  to their legislator  because that's who  passed the                                                               
bill  that  made  the department  establish  the  regulation.  He                                                               
admitted  that  is  sometimes  valid, but  many  times  it's  not                                                               
because the  regulation that's causing  the heartburn  has little                                                               
to do with the statute that was passed.                                                                                         
The other imbalance  is that the Attorney  General's Office isn't                                                               
involved  until after  the public  comment period.  Currently the                                                               
public  is  given  an  opportunity  to  comment  on  an  agency's                                                               
proposed  regulation  after which  it  is  sent to  the  Attorney                                                               
General's Office for review. If  that office finds fault with the                                                               
regulation, it is  remanded back to the agency  for repair. After                                                               
the repair, the  commissioner decides whether or not  to send the                                                               
proposed  regulation  back  through the  public  comment  period.                                                               
Often the  decision is to  skip additional public comment  so the                                                               
regulation  continues through  the process  and becomes  law. The                                                               
result is  that the  public sees a  regulation that  is different                                                               
than the one they commented on.                                                                                                 
In response  to Senator Cowdery's  questions, he said  the fiscal                                                               
note calls  for three  full time attorneys,  which would  be very                                                               
costly if  you weren't sure of  a good return. He  estimated that                                                               
the number of regulations per year is well over 1,000.                                                                          
In Colorado, regulation writers realized  their work was going to                                                               
be screened  by the Legislative Branch.  Regulations were written                                                               
more carefully,  there weren't as  many. The process  saved money                                                               
from the start to the end  because they didn't send as many back,                                                               
they weren't  adjudicated the same  way because they  were better                                                               
quality regulations.  The investment climate in  Colorado changed                                                               
Using  the fishing  industry  as  an example  he  noted how  much                                                               
impact one  regulation can have  in a sensitive  and multimillion                                                               
dollar  industry. Clearly,  it's important  to get  it right  the                                                               
first time.                                                                                                                     
With  regard  to costs  he  thought  that  they would  come  down                                                               
significantly if fish and game were  left out. "I think you might                                                               
eliminate one of those positions," he said                                                                                      
DEBORAH BEHR,  regulations attorney  with the Department  of Law,                                                               
said  she  and   Annette  Kreitzer  were  there   to  talk  about                                                               
regulatory  reform and  better  interactions  with the  Executive                                                               
Branch. She  stated agreement  with Senator  Therriault's premise                                                               
that it's  necessary to  cooperate for  regulations to  be better                                                               
developed and more responsive to the public.                                                                                    
She  expressed the  opinion that  everything that's  in the  bill                                                               
could be done  without a statute and she firmly  believes that if                                                               
a new  statute isn't  need, you  shouldn't put a  new one  on the                                                               
She said she would be  working with Senator Therriault's staff to                                                               
determine  whether they  were looking  for a  policy review  or a                                                               
lawyer's review. She has reviewed  legislation and found it to be                                                               
perfectly  legal, but  then  had to  ask  the commissioner  which                                                               
policy direction  he or she  wanted to  take. At that  point, the                                                               
commissioner talks to policy experts  who are usually not lawyers                                                               
and selects the policy direction.                                                                                               
MS. BEHR  suggested that the  committee decide whether  they want                                                               
to  invest  expensive  lawyer  dollars  in  looking  at  all  the                                                               
regulations  in the  state. Certainly,  she  asserted, there  are                                                               
regulations such as  local hire and complex  tax regulations that                                                               
would  require  a  lawyer,  but  some  sort  of  prescreening  by                                                               
legislative staff or  other non-lawyers would make  better use of                                                               
your legal services dollars.                                                                                                    
She said she would talk  to staff about the standards legislative                                                               
legal is supposed  to be using as compared to  the standards that                                                               
the  Department of  Law is  supposed  to use  because they  don't                                                               
mesh. For  example, legislative legal doesn't  look at compliance                                                               
with drafting legal styles.                                                                                                     
Another concern  is what happens  when legislative legal  is busy                                                               
and the provision  is for a mandatory review and  they don't have                                                               
the  staff  to  conduct  the  review  in  a  timely  fashion.  An                                                               
unintended consequence might  be that a third  party would charge                                                               
that the regulations are somehow  flawed because the statute says                                                               
legislative legal shall review the regulations.                                                                                 
MS.  BEHR  noted that  several  agencies  have expressed  concern                                                               
about  regulation  delays so  discussions  should  take place  to                                                               
decide what  to include.  Certainly there's  a difference  in new                                                               
legislation  and legislation  that  is for  cost containment  and                                                               
right now most of the bills  she is reviewing deal with trying to                                                               
get the state statutes to match a pared down budget. She said,                                                                  
     I don't  want to  have the  department waiting  to hear                                                                    
     from legislative legal and then  missing time - a month                                                                    
     or two - in implementing  a policy call the Legislature                                                                    
     made  to pare  down  a budget.  This  is of  particular                                                                    
     concern in the understaffed  areas of health and social                                                                    
     services.  If  you miss  a  month  in Medicaid,  you're                                                                    
     talking about millions of dollars.                                                                                         
She advised  that the Department of  Law has a budget  request in                                                               
for  a lawyer.  It's  much  easier for  the  Executive Branch  to                                                               
garner federal  dollars for  legal resources than  it is  for the                                                               
Legislative Branch. "So  if you believe there is a  need for more                                                               
legal resources, that certainly is  a possibility and at any time                                                               
you found a regulation you were  troubled with and wanted a legal                                                               
opinion,  certainly the  Department of  Law is  the resource  for                                                               
She  then  brought  up  a technical  concern  related  to  public                                                               
records. Because  the attorneys at legislative  legal aren't part                                                               
of  the Executive  Branch, there  isn't  a clear  attorney-client                                                               
privilege. It  isn't entirely  clear that  an opinion  written by                                                               
legislative  legal wouldn't  be  a  discoverable document,  which                                                               
could be very problematic on a complex oil regulation.                                                                          
Next she brought  up the applicability of  regulations in process                                                               
pointing out that several industries  are waiting for regulations                                                               
and there isn't a section in the bill to address that.                                                                          
She concluded  her remarks saying  that it is important  that the                                                               
Legislature wants  to better interface with  the Executive Branch                                                               
and   she  reemphasized   that  comments   legislators  make   on                                                               
regulations are considered strongly and evaluated seriously.                                                                    
ANNETTE KREITZER,  chief of staff  to Lt. Governor  Leman, stated                                                               
that the  Lt. Governor appreciates Senator  Therriault's interest                                                               
in reviewing  how regulations  are promulgated  and when  and how                                                               
legislators have an  impact on the process. That  being said, she                                                               
admitted that  she's a bit  baffled when her office  doesn't hear                                                               
from  legislators during  the public  comment period  because the                                                               
public  includes legislators.  The  departments would  absolutely                                                               
take those comments very seriously, she said.                                                                                   
She showed members a regulation packet  and said it lists all the                                                               
legislators  that  got the  notice  about  the regulations  being                                                               
proposed in  response to HB  271, which was passed  last session.                                                               
There was  ample opportunity to  comment yet there is  nothing in                                                               
the packet reflecting that a single legislator had a comment.                                                                   
The Lt. Governor has assured  Senator Therriault that if there is                                                               
something  about the  process  that doesn't  work,  such as  more                                                               
training for  staff or new  legislators, they're very  willing to                                                               
work  with   him  to  accomplish   his  desire  to   ensure  that                                                               
legislators are involved early on.                                                                                              
TAPE 04-4, SIDE A                                                                                                             
5:00 pm                                                                                                                       
CHAIR GARY STEVENS asked Ms.  Behr about her concern about delays                                                               
and whether  she had considered  what options might  be available                                                               
to address the delay.                                                                                                           
MS. BEHR clearly  stated that this bill doesn't  stop anyone from                                                               
going  forward   with  a  project  while   legislative  legal  is                                                               
reviewing. However, she said if  she were commissioner of Revenue                                                               
and she knew  that legislative legal was  looking at regulations,                                                               
she'd probably wait for that legal review before proceeding.                                                                    
She  repeated that  a screening  process would  help address  the                                                               
issue of  how quickly  a review  could be  completed. Legislative                                                               
legal  attorneys  should  neither  spend time  looking  at  minor                                                               
regulations that don't require an  attorney's expertise nor spend                                                               
time doing legal research that  the Department of Law isn't going                                                               
to use.                                                                                                                         
CHAIR  GARY  STEVENS  thanked everyone  for  their  comments  and                                                               
announced  SB  287 would  be  heard  again  in the  future.  With                                                               
nothing further  to come before  the committee, he  adjourned the                                                               
meeting at 5:15 pm.                                                                                                             

Document Name Date/Time Subjects