Legislature(2003 - 2004)
04/01/2004 03:35 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(TRA)-RETIRED PEACE OFFICER'S MEDICAL BENEFITS
CHAIR GARY STEVENS announced CSHB 91(TRA) to be up for
consideration. He noted that it was heard previously.
SENATOR BERT STEDMAN said he would move the State Affairs
committee substitute when a quorum was reestablished and asked
whether discussion could take place in the meantime.
CHAIR GARY STEVENS agreed and asked Senator Stedman whether it
was correct that the CS calls for the initial costs to be
absorbed by the State rather than the local municipalities.
SENATOR STEDMAN said that is true.
MELANIE MILLHORN, Director of the Division of Retirement and
Benefits, introduced herself and Mr. Staack who was involved in
the preparation of the draft fiscal note. It calls for the State
to pay for the cost to PERS employers and also addresses some
concerns raised by municipalities regarding the first fiscal
note. The projections look at a percentage of individuals who
would benefit from the legislation and indicates that 25 percent
of those employees who positively benefit would make that
election. Therefore the municipalities were concerned because
they believe that more of their employees would make that
selection. Because of this, MERCER Human Resource Consulting
provided the revised calculations. The following, from page 2 of
the draft fiscal note shows how a higher retirement rate
assumption would affect the unfunded liability and the
corresponding employer rates.
Alternate Assumptions:
% % of % of P/F Increase in
Members Total Payroll Unfunded
Affected Payroll Liability
(in Dollars)
Current Assumption 21% 0.11% 0.97% $8,000,000
50% Retirement 40 % 0.19% 1.68% $11,400,000
75% Retirement 60% 0.27% 2.39% $14,800,000
100% Retirement 79% 0.35% 3.11% $18,200,000
CHAIR GARY STEVENS asked whether the figures included state as
well as municipal employees.
MS. MILLHORN told him it includes state and all other PERS
employers who would benefit from HB 91.
SENATOR STEDMAN asked her to explain the difference between the
$856,000 on the original fiscal note and the accrued liability.
ANSELM STAACK, Chief Financial Officer for the Division of
Retirement and Benefits, explained that when the bill passes it
places new benefits in place. The current assumption includes
everyone expected to take advantage of the change and projects
an immediate $8 million unfunded liability. Those are the
employees that would be the most expensive because they are
under 50 years of age, have close to 20 years employment and
would probably terminate within the year.
The previous fiscal note used only the State of Alaska figures
and the draft fiscal note shows the total cost for the State of
Alaska and all subdivisions. The $8 million is amortized over 25
years and for FY 2005 the total would be $1.7 million.
SENATOR STEDMAN noted that the draft fiscal note shows that the
unfunded liability would range from $8 million to $18.2 million
depending on how many people exercise the early retirement
benefit to capture the cost of health insurance.
MR. STAACK agreed and added that you'd never see 100 percent
participation in the police and fire population because some
won't have enough years of employment before they reach 60 years
of age.
SENATOR STEDMAN suggested ignoring the fiscal impact for a
moment and asked for a comment on the fairness issue.
MS. MILLHORN replied the tier system is the result of
legislative action and each tier provides different benefits.
MR. STAACK added that establishing new tiers was purposeful to
reduce costs and maintain funding of the system. He acknowledged
that the fairness and fiscal issues do collide.
CHAIR GARY STEVENS noted that a quorum was present and he was
ready for a motion.
SENATOR STEDMAN motioned to adopt committee substitute (CS)
version \S as the working document. There being no objection, it
was so ordered.
SENATOR JOHN COWDERY questioned whether PERS and TRS were under
funded.
MS. MILLHORN advised that the June 30, 2003 actuarial valuation
information indicates a percentage point loss. For PERS the
funding ratio was at 75 percent and now it's at 72 percent. The
TRS funding ratio was at 68 percent and now it's at 64 percent.
The recent valuation sets the employer contribution rates for FY
2006. Based on the current funding status for PERS and TRS, the
division has requested that legislation be held in abeyance
because this proposal is an enhancement to an under-funded
system.
SENATOR COWDERY asked whether the system still has tiers.
MS. MILLHORN informed him that PERS has Tiers I, II, and III.
Tier I was for a 25 year period. Tier II was created in 1986 and
Tier III was created in 1996. TRS has two Tiers.
SENATOR COWDERY asked if state and municipal employees were
affected.
MS. MILLHORN said that the fiscal note for the version \S CS,
represents the cost to the State of Alaska and to the
approximately 156 other PERS employers.
SENATOR COWDERY asked whether they were looking to the
communities or the State to pay.
CHAIR GARY STEVENS explained that House version called for the
State to pay its portion and the communities their portion.
Version \S CS would make the entire amount a State
responsibility.
LARRY SIMMONS from Kenai testified via teleconference in
opposition to CSHB 91 for fiscal reasons. It's clear that more
than 21 percent of eligible members would retire if they were to
receive health benefits, he said.
CHAIR GARY STEVENS noted that the committee had copies of both
his and MERCER's letters before them.
MR. SIMMONS continued to say that the 79 percent assumption is
the most realistic among the options presented. For the City of
Kenai, the percent and cost would be higher yet because they
don't have any members who will be over 60 years old when they
have 20 years service. If 79 percent were to retire, that would
more than triple the percent of police/fire payroll. If the 79
percent assumption is the realistic option, the State's fiscal
impact will be $2.75 million for FY 2005 rather than $856.9.
That number will grow to $3.2 million per year by FY 2010.
He calculated that if 79 percent choose to retire in FY 2005 the
total would be $5.5 million rather than the projected $1.7
million. That would grow to $6.4 million in FY 2010. The cost to
the City of Kenai would be $85,000 per year. There is already a
5 percent increase in PERS rates for FY 2005 and when combined
with the $85,000, you're at more than three fourths of a mill
property tax. It's unlikely that property taxes can be raised
for that purpose, he said.
Remember, he said, the Tier II and III PERS members that could
benefit from this legislation were aware of the retirement
package when they were hired. "It's simply not appropriate or
prudent to increase retirement benefits at this time of fiscal
difficulty at nearly every level of government," he concluded.
CHAIR GARY STEVENS summarized his testimony then asked what his
thoughts are regarding the State assuming the cost.
MR. SIMMONS admitted it would reduce costs to the City of Kenai.
However, the bill isn't needed and the State of Alaska is in no
position to pay $5.5 million per year for additional health
benefits for a select group of PERS members, he opined.
CHAIR GARY STEVENS asked Ms. Millhorn and Mr. Staack to comment.
MR. STAACK pointed out that if the 79 percent assumption were
taken then the current assumption percentages would triple. He
calculated that using the 79 percent assumption the total to the
State of Alaska would be $2.6 million in FY 2005.
He added that in 2001 the Legislature enhanced part of the
benefit so that it became system paid.
JULIE BENSON testified via teleconference from Ketchikan in
support of HB 91.
KEVIN RICHIE, Alaska Municipal League, distributed a two page
hand out to show what a 5 percent increase in the PERS system
would cost municipalities in terms of both dollars and mill rate
increases. He advised that his figures were based on 2003
figures so they might be off slightly, but the financial impact
to the various municipalities would be huge.
4:35 p.m.
TAPE 04-25, SIDE B
CHAIR GARY STEVENS summarized the testimony and asked for a
motion.
SENATOR STEDMAN made a motion to report SCS CSHB 91(STA) from
committee with the attached fiscal notes and individual
recommendations. There being no objection, it was so ordered.
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