SB 6-RIP FOR PUBLIC EMPLOYEES/TEACHERS  2:20:32 PM CHAIR COSTELLO reconvened the meeting and announced the consideration of SENATE BILL NO. 6 "An Act relating to retirement incentives for members of the defined benefit retirement plan of the teachers' retirement system and the defined benefit retirement plan of the Public Employees' Retirement System of Alaska; and providing for an effective date." [CSSB 6(EDC) was before the committee.] 2:20:46 PM SENATOR SCOTT KAWASAKI, Alaska State Legislature, Juneau, Alaska, sponsor of SB 6, introduced the legislation paraphrasing the following sponsor statement: Senate Bill 6 would implement a temporary, voluntary Retirement Incentive Program to increase state savings by allowing public employees to retire up to three years early. Long serving public employees are among the highest paid in the state. In many cases, pensions paid to retiring employees would cost the state less money than their current salaries. Providing high- salaried employees the option to retire early would save Alaska money through lower personnel costs. SB 6 could also help prevent layoffs. The bill presents a method of cost-cutting and payroll reduction without forcing anyone out of the workforce before they are ready to retire. This gives the State of Alaska the opportunity to reduce operating costs by opening vacancies that enable the placement of more junior employees. Retirement incentive programs are regularly used in the private sector to efficiently control personnel costs through market incentives rather than heavy-handed layoffs. Retirement Incentive Programs have been used on a temporary basis three times in Alaska's history and was last proposed in 2004. In 1986, Senator Jim Duncan estimated savings at approximately $25 million. A Legislative Audit of the 1989 Retirement Incentive Program demonstrated a savings of $22.9 million with nearly 1,764 individual participants. In 1996, Rep. McGuire calculated the state gained $41 million in savings through identical legislation. Senate Bill 6 is an innovative policy option for state agencies, municipalities and school districts to consider as a means to reduce payroll costs without layoffs. CHAIR COSTELLO moved to invited testimony. 2:24:46 PM DOUG WOOLIVER, Deputy Administrative Director, Alaska Court system, Anchorage, Alaska, stated that the Court System does not have a position on SB 6, but the sponsor asked him to testify about the retirement incentive program (RIP) the court implemented in 2016. The idea was to reduce the workforce without having to lay off any employees. The court offered an incentive of three month's salary to anybody who had been eligible to retire for at least three years and employees of the Court System for at least 10 years. Of the 28 employees who were eligible, 18 took advantage of the RIP, which has resulted in an annual savings of $680,000. The upfront cost of three month's salary was about $400,000. He acknowledged that this was a small number compared to PERS and TRS, but it accounted for much of the savings the court was looking for in FY16 and FY17 MR. WOOLIVER said the Court System RIP was a little different than SB 6. The court did not have the ability to change who was eligible to retire but they did have the authority to provide an incentive to those already eligible to retire. It was a good program for the court at the time; it made a lot of sense, he said. CHAIR COSTELLO asked if the court found it difficult to replace the older, seasoned employees and provide training to the replacements. MR. WOOLIVER replied, the court did lose expertise and experience but within a few years, everybody had the experience so that was not problem with the court's RIP. 2:29:39 PM CHAIR COSTELLO noted that the state was recovering from COVID-19 and asked the sponsor it he had contemplated offering the RIP to people with preexisting health conditions. She asked if the legislation intended to address the budget situation or the COVIC-19 situation. SENATOR KAWASAKI replied he introduced the legislation in a previous legislature with the intention of avoiding layoffs, but he would acknowledge that COVID-19 has fast-tracked a new group of people into the retirement community. He recounted the requirements to qualify for this RIP and pointed out the employers have the ability to limit the program to prevent a brain drain. He said the applicable conditions would be in regulation. CHAIR COSTELLO asked if this applies to both Public Employee Retirement System (PERS) and Teacher Retirement System (TRS) employees. SENATOR KAWASAKI answered yes. CHAIR COSTELLO asked for the number of PERS and TRS employees. SENATOR KAWASAKI offered to run a report to find the information but about 2,000 employees qualified in each of the 1986, 1989, and 1996 RIPs. 2:32:40 PM SENATOR GRAY-JACKSON stated support for the bill and asked for the age limitations. SENATOR KAWASAKI answered that participants must have at least 17 years of state service and be at least 50 years of age. CHAIR COSTELLO asked him to clarify whether that was for the bill or normal retirement. She noted that Mr. Puckett was available to answer questions. SENATOR GRAY-JACKSON advised that a firefighter reached out when the bill was introduced in the last legislature to ask if he might qualify. She suggested that she follow up with the sponsor offline to discuss the situation. 2:34:09 PM SENATOR HOLLAND asked if the big savings come from the difference between the old and new salary and that the retiree is paid through PERS or TRS and not the department. SENATOR KAWASAKI replied that is correct. 2:35:37 PM CHAIR COSTELLO opened public testimony on SB 6. 2:35:52 PM RICHARD SEWELL, representing self, Anchorage, Alaska, stated that as a Tier I PERS employee of a certain age, he has a personal interest in SB 6, particularly the last sentence in Section 1 that seems to require the elimination of certain position control numbers (PCN) if the employee opts for the RIP. He said that language is troubling because members who are eligible for a RIP typically are senior employees who would be the last to be laid off because the union layoff rules are based on seniority. Furthermore, these senior employees typically are in key positions that commissioners need to run the department so they would be unlikely approve those RIPS. He suggested the solution could be to allow the department to have a net loss of one position for every employee that took a RIP as opposed to losing the particular position. He said he had other comments on the bill, but the foregoing was the most important. CHAIR COSTELLO said Section 1 is uncodified law but even if it were law, her reading is that this is an option for employers, not a requirement. She asked the sponsor if he agrees with her reading and Mr. Sewell's comment about losing the PCNs. 2:39:55 PM SENATOR KAWASAKI agreed that the Purposes and Intent in Section is uncodified law so there is no requirement. The position could be held, vacant, or eliminated. CHAIR COSTELLO asked if he agrees that the entire bill is uncodified law. SENATOR KAWASAKI answered no; just Section 1 is uncodified. The bill itself is in Sections 2-10. CHAIR COSTELLO said she would follow up and talk about that offline. 2:41:05 PM CHAIR COSTELLO closed public testimony on SB 6. She thanked Mr. Sewell for his testimony. She welcomed him to submit his comments in writing. 2:41:36 PM MR. SEWELL said he had one more comment relating to Section 2, page 3, lines 28-31 to page 4, lines 1-2. Paragraph (f)(3)(B) talks about 20 years [of credited service] as an employee and he wondered if that was total time accrued in various jurisdictions. He said he started as a PERS employee with the Municipality of Anchorage and now works for Department of Transportation and Public Facilities (DOTPF) but he does not 20 years of service. He asked how his employment is counted. 2:42:20 PM CHAIR COSTELLO said she reads the bill to mean 20 years total with the state and it could be in one or more jurisdictions. She asked Senator Kawasaki if he agreed. SENATOR KAWASAKI answered yes; the employment could be with the state and a municipality. CHAIR COSTELLO asked if PERS and TRS employment could be combined to reach 20 years. SENATOR KAWASAKI suggested that Mr. Puckett might be able to answer the question. CHAIR COSTELLO asked Mr. Puckett to respond to the questions. 2:43:25 PM JIM PUCKETT, Deputy Director, Division of Retirement and Benefits, Department of Administration, Juneau, Alaska, answered that a combination of PERS and TRS can be used in some cases. He offered to provide more information in writing. CHAIR COSTELLO asked him to send the information to her office and she would distribute it to the members. SENATOR GRAY-JACKSON pointed out that the savings when there is a RIP is not only the salaries but also the benefits, leave accruals, and PERS contributions. CHAIR COSTELLO asked Ms. Ricci if she wanted to respond to Senator Gray-Jackson's comment about savings in addition to salaries. 2:45:55 PM EMILY RICCI, Chief Health Administrator, Division of Retirement and Benefits, Department of Administration, Juneau, Alaska, said the division will have a better idea of the savings once the bill reaches the Finance Committee and the division analyzes it with help from their actuaries. CHAIR COSTELLO noted that the Finance Committee was the next committee of referral. CHAIR COSTELLO asked the sponsor's staff to visit the members in their offices to answer any questions and address concerns before the next meeting. The sectional analysis could wait until then. CHAIR COSTELLO held SB 6 in committee.