Legislature(2013 - 2014)BARNES 124
04/05/2013 03:15 PM House LABOR & COMMERCE
| Audio | Topic |
|---|---|
| Start | |
| Confirmation Hearings|| Regulatory Commission of Alaska|| Board of Marine Pilots|| Board of Pharmacy|| Alaska Workers' Compensation Board | |
| HB32 | |
| HB150 | |
| SB52 | |
| HB121 | |
| HB152 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| += | HB 32 | TELECONFERENCED | |
| *+ | HB 150 | TELECONFERENCED | |
| + | SB 52 | TELECONFERENCED | |
| *+ | HB 169 | TELECONFERENCED | |
| *+ | HB 121 | TELECONFERENCED | |
| *+ | HB 152 | TELECONFERENCED | |
| + | TELECONFERENCED |
HB 152-PERS TERMINATION COSTS
4:36:18 PM
VICE CHAIR REINBOLD announced that the final order of business
would be HOUSE BILL NO. 152, "An Act requiring certain employers
who terminate participation in the defined benefit retirement
plan or the defined contribution retirement plan of the Public
Employees' Retirement System to make contributions related to
past service liability and pay termination costs; repealing a
requirement that employers who terminate participation in the
defined contribution retirement plan or the defined benefit
retirement plan of the Public Employees' Retirement System pay
for a termination cost study; and providing for an effective
date."
4:36:33 PM
JANE PIERSON, Staff, Representative Steve Thompson, Alaska State
Legislature, speaking on behalf of the sponsor of HB 152,
Representative Thompson, said the state's termination studies,
laws, and regulations make it difficult and more expensive for
municipal employers to deliver their programs and services by
requiring an employer that terminates participation of a
department group or other classification of employee to pay a
series of actuarially-determined costs. The municipalities are
working toward modernizing and standardizing job classifications
and although that may result in fewer job classifications, it
may not necessarily result in fewer employees. Current law
unnecessarily requires termination studies and costs for such
actions. The municipalities really need the operational
flexibility to effectively manage and deliver programs and
services while continuing to contribute toward paying off their
debts associated with the Public Employees' Retirement System
(PERS). Paying off the unfunded PERS liability is predicated
upon a stable and reasonably growing system-wide salary base.
System-wide salaries for defined contributions and defined
benefits have increased by $325 million or 18.6 percent over the
base salary floor, which was established in 2008 by Senate Bill
125 in the 25th legislature. As a result, contributions for the
unfunded liability have increased at a rate greater than the
actuarially assumed annual growth rate of 4 percent. This bill
would maintain the PERS contribution floor while employers must
pay whichever is greater, 22 percent of their current combined
defined benefit and defined contribution salary base or an
amount based on their total payroll for the period ending June
30, 2008.
4:39:28 PM
MS. PIERSON said HB 152 would replace the requirement for
termination studies with formula driven partial termination
cost, as follows: 20 percent flexibility for employers whose
total payroll is greater than $5,000,000, which is 93 percent of
employers in FY 12; 50 percent flexibility for employers whose
total payroll is between $1-$5 million, which was 6 percent of
employers in FY 12; and the study would not be applicable for
employers whose total payroll is less than $1,000,000, which was
1 percent of employers in FY 12. Using the data that is readily
available, the amount by which an employer's terminated salaries
are calculated to exceed the 20-50 percent threshold would be
applied to the current past service contribution rate, which is
currently 24.19 percent, and would then be paid annually until
the unfunded PERS liability is paid off.
4:40:24 PM
MS. PIERSON provided a brief sectional analysis of the bill.
Section 1 would retain the minimum requirement for employers to
make contributions based on 22 percent of the greater of their
current salary base or the salary base as of 6/30/2008
regardless of termination participation from the defined benefit
plan. Section 2 would place the requirement for termination
costs studies performed by the actuary with termination costs
determined via formula as follows: partial termination
thresholds, based on 20 percent for employers whose total
payroll is greater than $5,000,000 and 50 percent for employers
whose total payroll is greater than $1-5 million; [termination
costs] are not applicable for employers whose total payroll is
under $1 million. Section 2 would establish a rolling-tier
period for which costs from partial terminations would be
determined, it use readily available data, and establishes the
formula for determining termination costs. Thus any terminated
salary beyond the threshold of 20-50 percent would be applied to
the current past service contribution rate and be paid annually
until the past service liability is paid in full. The formula
is simple and does not require any consultant fee. She
explained it would be an amount by which an employer's salary
base exceeds its salary base from two years prior by 20-50
percent, depending on the current salary base level multiplied
by the past service contribution rate multiplied by the total
years to pay down the total unfunded liability. For example,
$100,000 multiplied by 24 would equal $24,000 annually
multiplied by 30 years would equal $720,000, she said.
4:42:18 PM
MS. PIERSON related that Sections 3, 4, and 5 correlate to
Section 2, but pertain to the defined contribution plan.
Section 6 would repeal language requiring a termination study
for an employer that requests termination from the plan
altogether, but such an employer would still be subject to the
base floor. This would also annul the regulation that covers
the calculation of termination cost studies. Sections 8 and 9
would add applicability retroactively to allow employers to
discontinue any payments after the effective date of the act in
which an employer would not have had to pay if a new formula
were in place after June 30, 2008. The last section, Section
10, would add the effective date.
4:43:07 PM
REPRESENTATIVE JOSEPHSON asked for clarification on the amount
of the fiscal note.
MS. PIERSON answered that the fiscal impact is $6,772,000 for FY
14 and continues to FY 19 in the amount of $7,462,000. She
acknowledged this bill has quite a hefty fiscal note.
4:44:20 PM
REPRESENTATIVE JOSEPHSON asked whether the fiscal note is
indefinite until the terminated employees are deceased.
MS. PIERSON answered that it would be indefinite until PERS and
the Teachers Retirement System (TRS) of $11 billion in unfunded
liability is paid off.
4:44:53 PM
REPRESENTATIVE JOSEPHSON asked whether this would add to the $11
billion.
MS. PIERSON clarified that it would not add to the $11 billion
but rather would be a shift away from municipalities to the
state.
REPRESENTATIVE JOSEPHSON asked whether some municipalities have
instituted plans to stay on top of these obligations while
others have not.
MS. PIERSON related her understanding that every municipality is
now required to adhere to same standards, but some have not been
able to pay their portion of the unfunded liability.
4:45:38 PM
REPRESENTATIVE JOSEPHSON noted that he filed a bill that would
increase revenue sharing to municipalities; however, he
expressed concern. He recalled that in 2008 or 2010 the
legislature devised a plan that was curative and supposed to
solve this problem.
MS. PIERSON replied that in 2008, the state discovered the
actuarial figures were not accurate. At the time a base rate
was put on all municipalities and termination studies were
required when an employee is terminated. However, she recalled
a scenario in which the Municipality of Anchorage (MOA)
transferred its weatherization department to another [municipal]
agency and although no employees were actually terminated, the
MOA still had to pay termination costs and studies.
4:47:15 PM
LUCINDA MAHONEY, Chief Fiscal Officer (CFO), Municipality of
Anchorage (MOA), stated at the time termination studies were
implemented in 2008, there was a concern that employers might
contract out municipal positions to avoid the 22 percent PERS
cost, thus shrinking the PERS base needed to pay off the
unfunded liability. As Ms. Pierson indicated this has not
happened, she said. In fact, since 2008, on a system-wide
basis, the salaries have increased by $325 million, which is at
a rate which is higher than what the actuary uses in determining
and calculating the unfunded liability. In essence, the fear
that initiated the change in statute in 2008 has not
materialized. As the CFO of the largest city in Alaska, it is
important the MOA has flexibility to manage its workforce. For
example, the MOA may not receive a state or federal grant, and
if so, may need to lay off employees when the federal grant is
not received. Additionally, the MOA may transfer employees
within job classifications and a job classification may no
longer be used, which would also trigger a termination study;
however, the MOA has been standardizing many of its job
classifications, which may not result in fewer employees, but
may result in fewer classifications. Therefore, the
aforementioned could trigger a termination study and cause the
MOA to unnecessarily pay into the program. She asked members to
consider this bill since municipalities, such as the MOA and
very small cities, are being punished for creating efficiencies
to modernize the workforce.
4:51:12 PM
REPRESENTATIVE JOSEPHSON questioned whether this legislation
would be necessary, if the administration had not introduced
Administrative Order (AO) 37 in early February.
MS. MAHONEY answered that the bill has no effect on AO 37.
REPRESENTATIVE JOSEPHSON questioned whether the MOA would still
need to cover some of the prior PERS if some of the MOA
municipal workforce is privatized as the MOA will not have the
salary base.
MS. MAHONEY answered that if the MOA were to privatize any
portion of workforce, the bill would look to the sliding scale
proposed. For example, the MOA would consider the average two
years' worth of salaries and if the change is greater than 20
percent, the MOA would pay for that component of the PERS
termination study and would pay the liability until 2030. In
brief, this bill recognizes the goal of municipalities to
continue to contribute to help bring down the unfunded
liability. However, the MOA has suggested a sharing of the cost
depending on triggers and the size of the community.
4:53:20 PM
LUKE HOPKINS, Mayor, Fairbanks North Star Borough (FNSB),
offered the FNSB's support for HB 152. He acknowledged that the
unfunded liability needs to be paid off and agrees to fairly
sharing these obligations. However, in considering the PERS
termination aspect based on the number of employees, the salary
floor is important. He pointed out that the salary has
increased about 19 percent and the termination study, law, and
regulations have created unintended consequences, which
adversely impact municipalities with regard to managing their
workforce. He offered his belief that this bill, with its
sliding scale, would be a fair and equitable method to continue
to pay the FNSB's portion of the debt as it has done each year.
He reiterated support for HB 152.
4:54:57 PM
SALLIE STUVEK, Director, Human Resources, Fairbanks North Star
Borough (FNSB), stated that HB 152 is a positive bill that
addresses serious concerns with the existing statutes relating
to the triggering of termination studies. Management of
municipal employees is dynamic and fluctuates based on service
needs. She said that flexibility is necessary, based on
programs and services that are offered. For example, the FNSB
might need to hire additional librarians based on public demand,
but may need fewer lifeguards this year. This type of
flexibility is critical for efficient delivery of services. She
offered her belief that tying the need for a termination study
to the base salary makes more sense than tying it to the
classification, department, or division. As Ms. Mahoney
testified earlier, the FNSB shares concern about the lack of
flexibility. She thanked members for consideration of HB 152.
4:56:14 PM
KATHIE WASSERMAN, Executive Director, Alaska Municipal League
(AML), stated the AML is in support of HB 152. She emphasized
the main thing is to get this topic on the table. She reminded
the committee that the AML represents all 162 municipalities in
the state who feel the repercussions from this statutory
structure. Accordingly, the biggest outcome is municipalities
cannot manage their personnel. For example, [termination costs]
affect small municipalities, such that if a municipality has
four employees and the population decreases or finances are
reduced and one person is placed in layoff status, it will
trigger a termination study. Under AS 39.35, this means the
municipality must pay termination costs over the long term until
the liability is paid off. This could take up to 25 years and
represents a huge expense for a small community. For this
reason, the state needs to find a solution to work with the
municipalities to resolve this issue. She acknowledged this may
not be easy, since the unfunded liability represents an $11
billion shortfall; however, the termination study provision
adversely impacts all communities and prevents them from
managing their personnel. In fact, some municipalities have
decided not to lay off employees since they can't afford the
outcome, which seems backwards. She remarked that it has taken
her many years to get to the point of fully understanding this
issue since it is complicated.
4:58:30 PM
REPRESENTATIVE JOSEPHSON understood this bill raises two issues.
First, it raises the issue of the cost of termination studies
and second, it raises the issue of the even greater cost of
funding vested liability for those employees not on payroll.
MS. WASSERMAN answered yes. In further response, she said the
obligation is not based on the individual, but on the position
that no longer exists. For example, this first came to the
AML's attention when a municipal fire chief position was changed
to an emergency medical services director, but the person was
retained by the municipality, yet the change triggered a
termination study since the position was dissolved.
[HB 152 was held over.]