Legislature(2003 - 2004)
03/18/2004 03:31 PM Senate STA
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
CSHB 91(FIN)-RETIRED PEACE OFFICER'S MEDICAL BENEFITS
CHAIR GARY STEVENS reconvened the meeting and announced CSHB
91(FIN) to be up for consideration and recognized Representative
Anderson.
REPRESENTATIVE TOM ANDERSON, sponsor of HB 91, reported that HB
91 had undergone a lot of deserved scrutiny in the House Finance
Committee
HB 91 is about recruiting and retaining state troopers,
firefighters, and correctional officers by providing them with
medical coverage at their retirement of 20 years. "No one would
disagree that these men and women are risking their lives and
their health. ... I think it's really important to differentiate
a peace officer versus another occupation because of that health
and safety risk."
The bill removes the additional five year requirement for peace
officers to receive medical benefits and reestablished parity by
allowing the full medical benefit in a normal retirement. He
noted that the administration has been working on "a realistic
and workable" fiscal note and they are beginning to see the
potential in cost savings. Peace officers pay a higher PERS
contribution to compensate for their fewer years of required
service before normal retirement, he said and that fact should
be taken into consideration.
He asked members to note the letters of support and pointed out
that Representative Hawker asked for and received written
assurance from the Municipality of Anchorage stating that this
wouldn't adversely affect their budget. It is relevant, he said,
that the bill came out of the House with so many cosponsors.
He observed that Kevin Richie of the Alaska Municipal League was
in the audience and would undoubtedly speak against the bill,
but to refute his testimony he said, "this is a balance. We're
losing men and women to borough, federal, [and] out-of-state
jobs. Recruiting is tougher and tougher and this is an incentive
for them. They've certainly put in their time. No one will deny
that." He asked the committee to address any state affairs
issues and pass the bill on to the Finance Committee where
fiscal concerns could be addressed.
SENATOR BERT STEDMAN said he could appreciate the request to
pass fiscal concerns along to the Finance Committee and he could
understand why there is a lot of interest in the proposed
changes. "I think most folks, given the options, would work less
and retire with more benefits." This increases cost to the
communities in a financially challenging time. He questioned why
the bill was coming forward now instead of later when the
committee could respond to the funding issue under the PERS
system.
REPRESENTATIVE ANDERSON replied the ever-present question is why
bring forward a bill that may cause added burden. The answer is
because there is a balance here. "It comes down to where we have
critical mass and problem and where we don't." The reason he
sponsored the bill is because of the difficulty associated with
recruitment and retention. Giving this benefit isn't as much
about whether these people are deserving; it's more about the
necessity of keeping these people applying for and working in
these jobs. "We felt it was becoming a detriment not to have
better retirement. We wanted to correct back to what the
retirement used to be." This is a change that is necessary he
insisted.
SENATOR STEDMAN remarked that all the current PERS issues aren't
related to rising healthcare costs, but those costs are
substantial and this bill would increase the weighting. The
inability to accurately predict increasing medical costs is of
great concern.
Referring to a letter from the City of Fairbanks, he noted that
they oppose this bill because of the increased funding
requirement that they are already facing for their retirement
package. This is a contractual obligation and therefore is not
open for renegotiation. "There is a five percent cap increase on
their contributions every year. They were up against the cap
last year and are up against the cap this year and will probably
be up against the cap again the following year." It's creating a
substantial impact on the municipalities' general funds and
cutting services is about their only option. Because some would
look at this as an unfunded mandate, he asked what suggestions
he might have for municipalities.
REPRESENTATIVE ANDERSON replied that is a good question, but the
mayor of the largest city in the state is on record saying that
they would find ways to comply. He said he would hope that other
communities would do the same. The funding debate could go on
forever and everyone could pass the buck, but with a partnership
it can be done. He wasn't sure what prompted Fairbanks to send
the letter as recently as today when the bill has been around
for more than a year. The Fairbanks police certainly approve of
the bill. He said.
SENATOR COWDERY said he has been involved with police and fire
for a long time and he found that dispatchers experience a lot
of burnout and he wasn't sure whether they have early retirement
now or not.
REPRESENTATIVE ANDERSON thought that Representative Hawker had a
bill addressing that issue.
SENATOR COWDERY commented that he thinks they deserve
consideration as much as anyone else.
REPRESENTATIVE ANDERSON pointed out that Mike Fox would say that
this bill isn't costing any money in the end because the state
loses when well-trained officers leave early. If a captain
retires after 20 years service and a sergeant comes in as the
replacement, there is a pay differential. "It's our belief that
it's not as expensive as submitted." He deferred to Mr. Fox to
respond to Senator Cowdery's comment.
CHAIR GARY STEVENS opened public testimony and asked Mr. Fox to
begin.
MIKE FOX, Public Safety Employees Association employee, gave a
7-minute power point presentation on HB 91.
Analysis: This bill provides medical benefits for
peace officers at normal retirement instead of working
5 years beyond normal retirement.
It removes the disincentives for peace officers to
take normal retirement and reestablishes parity with
all the PERS members.
The Public Employees Retirement System Mission: On
January 1, 1961, the Alaska Legislature established
the Public Employee Retirement System to attract and
retain qualified people in the public service
employment.
Who is, by statute, affected by this bill: Peace
officers, firefighters, chiefs of police, regional
public safety officers, correctional officers,
correctional superintendents, probation officers, fire
chiefs.
The 2003 validation report for PERS lists 2,893 active
occupation [indisc.] members, but this bill would
affect only Tier II and III members.
History of the law:
Tier I: Major medical is provided to all benefit
recipients.
Tier II: - In 1986 HB 252 by Representatives Duncan
and Miller created Tier II. Major medical is provided
at age 60.
Tier III - Created in 2001. Major medical is provided
after a 10-year vesting period at age 60 or at normal
retirement. Except peace officers must work 5 extra
years.
HB 91 deletes the five extra years for peace officers.
The justification for change includes:
· The current law withholds benefits from peace
officer members of PERS unless an extra 5 years
is worked.
· It undermines the intent of peace officers' own
retirement.
· It inhibits recruitment and retention.
· It causes inequality among PERS members.
Fiscal Note 2: Approximately $.85 million - half
from general fund money. Employer contribution
change across the board is + .12% or .97% if
applied to just police/fire payroll. For a person
earning $50,000 per year, the increase in
employer contribution would be $60 per year. $30
a year would be from the general fund.
The fiscal note did not consider any savings HB
91 would generate in operational costs. It's just
one side of the coin.
[Mr. Fox showed a graph showing employer
contribution as a percent of salary.] Everyone
talks about PERS indebtedness in PERS and this
graph shows that in FY90 the contribution was
about 12 percent. In FY 94 it was about 17
percent. This year it's at 13.42 percent. This
fiscal note would raise this by .12 of 1 percent.
So the 13.42 percent would go up to 13.54
percent.
The employee contribution is steady. All other
PERS members contribute 6.75 percent while peace
officer PERS members contribute 7.5 percent. They
pay that extra to compensate for their shorter
period of service required for normal retirement
- to maintain equality in PERS.
The next graph helps illustrate turnover in
corrections and you can see the decline between 0
and 20. Almost 10 percent of the officers have
left in one year on the job; another 10 percent
have left in two years on the job. There is
significant room for improvement in retention of
corrections officers.
The next graph shows by year class, the
percentage of troopers still working compared to
those who have left. You can see a steady decline
from year 1 troopers to year 20 troopers. The
blank year classes are years where no one was
hired.
Improved retention equals savings. Savings in
recruiting and training are enjoyed by reducing
turnover. Recruiting and trainings costs equal
approximately $104,871 per trooper. Public Safety
provided that number.
Problems associated with peace officers working
past normal retirement include: Increased health
problems, increased risk of injury, higher
compensation, lower morale from burnout.
This graph shows that there is very limited
opportunity for peace officers to move into
administrative positions. The top bar shows
corrections officers and you can see there are
over 700 working on the floor of the prisons and
there are about 30 administrative officers in the
prisons. There's not much room for correction
officers to move off the floors of prisons.
In the State Troopers, there are about 330 people
that are working as sergeants and troopers, which
are patrol or investigative positions. There are
about 33 in the administrative positions. Once
again you can see that it's very likely for a
person to work their entire career either on the
floor of the prison or on patrol.
The normal retirement equals savings. Eliminating
the current disincentive to take normal
retirement will reduce the number of high-cost
20-year officers.
Direct savings: Replacing a 20 year trooper with
a 1 year trooper will save approximately $26,644
per year in base pay and leave. That's the
difference between a 1-year guy and a 20-year
guy. That is based solely on base pay and leave
with no shift differential, no overtime, no
geographic differential, and no other
consideration - all of which would make that
higher.
Replacing a 20-year CO2 with a 1-year CO2 would
save approximately $18,252 per year under the
same conditions.
This is in the first year. If they defer
retirement for five years, as is the current
policy, you just multiply that times five and see
if you'll save any money when guys leave at 20
for the 20 and out.
The cost versus savings balance for this bill: If
20 years are not completed there's no benefit
change and there's no cost. The bottom line - if
a person doesn't work 20 years this bill doesn't
affect them. There is no cost. If an officer
retires at 20 years instead of deferring the
associated savings help balance the cost.
It becomes a policy decision. What do you want to
do? Do you want guys to leave at 20 or do you
want to keep them after 20? If they leave before
20, there is no cost to you. If your policy is to
keep them beyond 20, there is a cost but there is
also a savings. It's a policy choice.
In conclusion: Current law undermines the intent
of normal retirement of peace officers and it
inhibits PERS mission to recruit and retain in
public service. HB 91 removes the disincentive
for peace officers to take normal retirement and
reestablishes parity among all PERS members. It's
good for peace officers and it's good policy.
CHAIR GARY STEVENS thanked Mr. Fox and noted there were no
questions.
CHARLIE HANSON, Lemon Creek corrections officer, testified in
support of HB 91. He has an undergraduate degree in human
development and a masters degree in human services, is a Tier I
employee and has more than 19 years service.
He recounted the difficulty, danger and stress associated with
being a corrections officer. Because inmates are often involved
in high-risk behavior, the instances of HIV, and hepatitis A, B,
and C are higher than the public population. This puts
corrections officers at higher risk and increases the potential
need for long-term health care benefits.
He said he was bringing a message sent from the hearts of
correctional officers throughout the system. Corrections
officers seldom make their 20-year retirement goal. "I've
watched over 250 floor staff come and go without reaching that
magic time of service within the Lemon Creek Correctional Center
alone."
Recently he asked his superintendent to look back over his 27-
year career and tell him how many corrections officers he knew
of that were able to reach the 20-year mark. "The figure he came
up with was four." That has since been increased by one. "The
likelihood that a corrections officer will reach the 20-year
mark for full retirement is bad enough. Pushing the mark to 25-
years for full medical benefits is next to impossible and
demeaning to us when we are at risk of serious long-term illness
because of our jobs."
"HB 91 will ensure an appropriate retirement package for those
of us who make it that far. It isn't cost effective to
continually pay to train new people in order to replace those
who see that the 25-year goal is unobtainable."
KEVIN RICHIE, Alaska Municipal League, apologized for entering
the process so recently and advised that a number of
municipalities recently joined to form a PERS committee because
of the impact PERS is having. Currently the issue is the five
percent increase in salary cost for the retirement program. This
is a huge issue for municipalities because in addition to the
increased 5 percent to the retirement program, they are losing
revenue sharing and have to take on more responsibility such as
DOT match.
Prior to this year the average PERS employer contribution was
6.77 percent of salary. The new actuary says that percentage
must be increased to about 25 percent of salary for each of the
next 20 years for the PERS system to achieve about 90 percent
funding. This year it's a $19-$20 million cost that
municipalities must absorb. Those that have a cap have no other
option than to cut services.
Certainly municipalities are very concerned about any increased
PERS obligation and would like the opportunity to address the
structure of the process. Currently municipalities, school
districts, and the University of Alaska fund two-thirds of the
PERS/TRS system. Finding a way to increase municipality
involvement in the analysis process of cost increases and in the
management of the program would be desirable.
According to the fiscal note, this bill would amount to a .97
percent annual cost increase in police salaries. The PERS/TRS
Board is currently considering a radical overhaul of the entire
system so "looking at the long-term, it's important to put this
change in the context of the system could be radically different
in a few years for everybody new entering the system."
CHAIR GARY STEVENS summarized that the primary testimony spoke
of the impact the bill would have on state troopers, but the
last testimony related to city police. He questioned how to put
a dollar figure on that and asked Mr. Richie whether he had a
fiscal note for local communities.
MR. RICHIE explained that the annual fiscal impact would amount
to the total police salaries multiplied times .97 percent.
SENATOR STEDMAN referred to draft fiscal note number 4 and noted
that, "using the current Valuation Assumptions, this legislation
will increase the PERS accrued liability by $8 million."
SENATOR COWDERY asked how many police in Anchorage are Tier I
employees.
MR. RICHIE said he didn't have that information.
SENATOR COWDERY said, "We all agree they're not all in PERS,
right?"
MR. RICHIE was unable to provide an answer.
SENATOR COWDERY said, "I believe some are in PERS - some of the
later hires, but the early hires I don't believe are. I think
they have their own."
There were no further questions or comments for Mr. Richie.
MELANIE MILLHORN, director of the Division of Retirement &
Benefits, said she would address her comments to draft fiscal
note number 4. She agreed with Representative Anderson that the
division has met with PSEA and that they are looking at the
suggested savings, but at present they are unable to quantify
the savings. Therefore fiscal note number 4 is the one that
Mercer Human Resources Consulting (Mercer) worked on and those
are the calculations she would address.
With regard to the concern about turnover rate, she said they
are comfortable with the information Mercer provided from a 1997
through 1999 report showing a 3 percent turnover rate. "So we
don't have anything we can use to look at a higher turnover
rate. So the amount that would cost is correct according to
Senator Stedman. That is an $8 million and it would be l97
percent for police and firefighter payroll for the next 25
years." That is calculated by looking at the population that
would be impacted and according to the evaluation report of June
30, 2002 there are 2,695 police and firefighter classifications
for PERS. For that same evaluation period, the number of Tier II
and Tier III members was 1,961. "Those are the members who would
derive benefit from this piece of legislation."
When Mercer looks at retirement rates and applies actuarial
assumptions, they project that of the 1,961 potential
beneficiaries there would be 411 that would anti-select. "Anti-
select is an insurance term meaning that those parties who
derive benefit would make that selection."
CHAIR GARY STEVENS apologized for interrupting, but he wanted to
know if the data included municipal employees.
MS. MILLHORN replied all PERS employees were included.
SENATOR COWDERY chimed in to ask if he was correct that not all
police and fire are in PERS.
MS. MILLHORN said it is her understanding that there is a
different municipal retirement program for some employees.
Continuing her testimony, she repeated that Mercer calculated
that 411 employees would benefit from this legislation, which
represents about 25 percent of the 1,961 who would be eligible.
"For the State of Alaska, the amount we would pay for this
legislation would be $856,000 annually." The evaluation report
of June 30,2002 shows that PERS is at a 75 percent funding
ratio. This means that if all the assets and liabilities were
calculated and everything that was due on that date was in fact
paid, there would be a 25 percent shortfall.
PERS hasn't been in this funding circumstance for about 20 years
she warned. There are two primary drivers that account for this
situation. First, healthcare costs represent about 30 percent of
the total PERS costs, which is significant. The second driver is
the investment earnings.
CHAIR GARY STEVENS asked whether the annual $856,000 cost
included municipal costs.
MS. MILLHORN replied municipal costs are separate. So the annual
cost to the Municipality of Anchorage would be $246,000, she
said.
CHAIR GARY STEVENS noted that there would be a number of other
municipalities that would be added to the list if there were a
thorough analysis.
MS. MILLHORN said yes and there are a total of 161 PERS
employers.
There were no further questions for Ms. Millhorn.
MAURICE HUGHES testified via teleconference from Kodiak to say
that he has been an Alaska State Trooper for 14 years and he was
speaking for the 330 state troopers and the other police
officers that are in PERS. The message he wanted to impart was
that, "The policy intending to influence police officers to work
beyond their normal retirement by withholding a retirement is
wrong." Burnout is a serious issue in this field and young
officers find it demoralizing to have to work the five extra
years.
TAPE 04-19, SIDE B
5:45 pm
LARRY SEMMENS testified via teleconference as finance director
for the City of Kenai in opposition to HB 91. He advised that he
faxed opposing resolution 2003-04 from the Alaska Government
Finance Offices Association. The resolution was dated April 18,
2003, "so although some people were not aware of this, the
finance officers were and we registered our opposition at that
time."
MR. SEMMENS reported that he also sent his written testimony to
the committee and he wanted to read it into the record as well.
[A full copy may be found in the bill file.] The primary reason
for his opposition is because the PERS system is already in
trouble and this legislation would cost money. "For Kenai, the
unfunded actuarial accrued liability is $7.4 million - almost a
whole year's general fund budget." He noted that employers have
alternatives to increasing retirement benefits if they are
having difficulty attracting and retaining qualified applicants.
Raising wages is one such option and individual municipalities
could even choose to pay health benefits after 20-years of
service. That makes it a local control issue and not an unfunded
mandate.
CHAIR GARY STEVENS told Mr. Semmens that he received the
resolution and letter some time ago.
He noted that it was after 6:00 pm and he would hold the bill
for future consideration and the committee would return to HB
414.
SENATOR GUESS stated that the bill was straightforward and you
should know where you stand on the issue so she could see no
reason why the committee shouldn't move the bill. She was ready
to make a motion.
CHAIR GARY STEVENS said he would accept the motion if she wanted
to move HB 91.
SENATOR HOFFMAN commented that the Senate President spoke of
working cooperatively, but he had seen no cooperation that day.
CHAIR GARY STEVENS said, "Well I'm certainly going to accept
that motion if you want to make it Senator Guess." After a pause
he asked, "Senator Guess, if you'll make a motion fine, if not
well go..."
SENATOR GUESS replied, "Oh I'm sorry I didn't - I'm a little
confused at where you're running your meeting. I was trying to
find my notes on the amendment of the earlier stuff."
CHAIR GARY STEVENS said, "I'm ready to move on to the other
bill, but if you'd want to make a motion on HB 91 we would
accept it."
SENATOR GUESS replied, "You're doing a very good job of putting
me between failing this bill so it stops and putting you guys on
record against police officers. So with that, we'll go to 414.
If the sponsor left, I will confer with him."
CHAIR GARY STEVENS announced he would hold HB 91 for further
study.
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