Legislature(1995 - 1996)
04/10/1996 01:36 PM House FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE BILL NO. 354
"An Act relating to a retirement incentive program for
certain employees of school districts under the
teachers' retirement system and the public employees'
retirement system; and providing for an effective
date."
REPRESENTATIVE JERRY MACKIE, sponsor of HB 354, spoke in
support of the legislation. He provided members with
letters of support and back-up information (Attachment 1).
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He also provided members with Amendment 1 and Amendment 2
(Attachments 2 and 3). Amendment 1 addresses the equal
protection issue. Amendment 2 defines "school district".
He emphasized that the legislation only relates to school
districts, does not have an adverse affect on the Teachers
Retirement System (TRS) actuarial, and is optional for
school districts and teachers.
Representative Brown asked if municipalities would be
fiscally impacted. Representative Mackie felt that a
municipal fiscal note was not needed. He observed that the
fiscal note by the Department of Administration would
provide funding through general fund program receipts for
the program's administration. He emphasized that
participating school districts will pay the cost of the
program. Each participating teacher will have to contribute
the same amount of money they would have contributed if they
had remained working. He reiterated that there is no
adverse affect on TRS.
Representative Mulder stressed that school districts cannot
not come back to the legislature for additional funding to
defray their participation in the program. Representative
Mackie stressed that it is not the intent of the legislation
that any future costs be covered by the legislature. The
legislation provides that costs involved in the program will
be taken from savings that are achieved by the Retirement
Incentive Program (RIP) or from school district's current
foundation formula amount.
Representative Martin asked if other options have been
considered. He asked if it would be better to repeal the 20
year retirement period. Representative Mackie noted that
the legislation does not address the structure of the
current teacher's retirement system. He stressed that the
intent is to provide an incentive for high end salaried
teachers to retire and be replaced with lower paid teachers.
Representative Martin noted that out-of-state teachers can
buy into TRS after a period of service in Alaska. He
expressed concern that the program will result in the loss
of qualified teachers.
Representative Mackie noted that 40 to 50 percent of the
state's teachers are at the high end of the salary schedule.
The legislation allows school districts to address the
problem.
Representative Martin questioned if superintendents and
principals are covered under the legislation.
Representative Mackie replied that the legislation covers
school districts' PERS and TRS employees.
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Representative Therriault noted that the legislation allows
school districts to opt in to the retirement incentive
program. Once school districts opt in they must participate
for three years. He questioned if the legislation could be
amended to allow participation for "up to" three years.
Representative Mackie noted that the change could be made,
but was not certain it would be advantageous.
RICHARD MAUER, DELTA/GREELY SCHOOL BOARD, LEGISLATIVE
LIAISON testified via the teleconference network. He spoke
in support of HB 354. He noted that attendance is receding
in the Delta/Greely School District. The School District
cannot reduce tenured teachers and administrators. There is
a $600.0 thousand dollar anticipated shortfall. Without a
retirement incentive program reductions must come from
supplies, maintenance and student services. There are
seventeen teachers that would qualify for the program. He
clarified that these teachers are not currently eligible for
retirement.
In response to a question by Representative Martin, Mr.
Mauer stressed that the program is needed to cover the
shortfall. The pupil/teacher ratio is high. He maintained
that there are too many teachers for the number of students.
He stated that the shortfall could be covered if in addition
to other reductions, three or four teachers took advantage
of the program.
STEVE WRIGHT, KENAI PENINSULA EDUCATION SUPPORT ASSOCIATION
testified via the teleconference network. He maintained
that HB 354 is a win/win situation. He expressed concern
that support employees be included in the legislation. He
asserted that the legislation is desperately needed.
Representative Mackie clarified that non-certified employees
are covered by the legislation.
In response to a question by Co-Chair Hanley, Representative
Mackie noted that between 175 and 200 employees are eligible
in the Kenai Peninsula School District.
Representative Martin reiterated concerns regarding the loss
of qualified teachers.
Representative Mackie noted that 72 individuals in the Kenai
Peninsula School District retired under the last RIP program
for an estimated savings of $1.9 million dollars.
KEITH EVANS, SUPERINTENDENT, DILLINGHAM CITY SCHOOLS
testified via the teleconference network. He testified in
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support of HB 354. He noted that 12 people would qualified
under the program. He stressed that savings could be
experienced if even 1 or 2 individuals elected to retire.
GEORGE HRONKIN, ADMINISTRATOR, COPPER RIVER SCHOOL DISTRICT
testified via the teleconference network. He spoke in
support of HB 354. He emphasized that the legislation would
provide an opportunity to revitalize staff in addition to
providing a savings.
Representative Martin asserted that teachers are being
bashed. In response to a question by Representative Martin,
Mr. Hronkin noted that 8 individuals participated in the
last RIP program. There are 16 individuals that could
qualify for the program. He stated that the Copper River
School District paid its participation for the last RIP
program.
DAVID MEANS, BUSINESS MANAGER, KETCHIKAN SCHOOL DISTRICT
testified via the teleconference network. He spoke in
support of HB 354. He expressed concern that replacement
teachers be recruited to replace retiring teachers.
LUCY HOPE, MAT-SU EDUCATION ASSOCIATION testified via the
teleconference network. She testified in support of HB 354.
She stressed that school districts need tools to deal with
the flat funding of education. She noted that 110 teachers
will be laid off in Mat-Su. She stressed that it makes more
sense to allow teachers to retire than to lay off teachers
who are at the beginning of their careers. She provided
members with testimony from others that support HB 354
(Attachment 4).
BILL MUNROE, PRESIDENT, CLASSIFIED EMPLOYEES ASSOCIATION
testified via the teleconference network. He spoke in
support of the legislation. He observed that there are at
least 70 classified employees interested in the program. He
read testimony in support of HB 354.
Representative Martin questioned if the retirement
requirement should be lowered to 17 years.
LENARD MURRAY, MAT-SU testified via the teleconference
network. He spoke in support of HB 354. He maintained that
the legislation will provide a cost savings.
JOAN WILKERSON, ALASKA PUBLIC EMPLOYEES ASSOCIATION
testified in support of HB 354. She stressed that the
legislation will save school districts money.
Representative Martin asked if the retirement requirement
should be lowered to 17 years. Ms. Wilkerson stressed the
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need for further research. She emphasized that the whole
system would have to be restructured.
Co-Chair Hanley pointed out that some individuals who
qualify will not participate in the program.
KIMBERLY HOMME, SPECIAL ASSISTANT, DEPARTMENT OF EDUCATION
testified in support of HB 354. She provided members with a
report by the Legislative Budget and Audit Committee, 1991
(copy on file). She observed that the report concluded that
the 1989 RIP program resulted in a savings. She requested
that state operated schools be included. She noted that
there are three state operated schools.
Ms. Homme noted that the legislation on page 2, line 14,
requires the commissioner of the Department of Education to
certify that each school district's plan will result in a
savings. She emphasized the difficulty of certifying
savings. She maintained that the purpose of the provision
is to obtain additional information regarding the RIP
program.
Representative Martin asked if the Department of Education
is involved in contract negotiations of individual school
districts. Ms. Homme was not aware of involvement by the
Department of Education in school district contracts. She
noted that HB 398 would allow school districts to lay off
teachers due to declines in revenues.
Representative Parnell stressed that school districts need
to be able to find savings if flat funding of education
remains. He emphasized that school districts will not
implement the program if a savings is not anticipated.
Co-Chair Hanley observed that if school districts attempted
to pass on increased costs to the State the legislature
would not be supportive. He noted that if the actuarial
soundness is threatened that school districts will look to
the State.
(Tape Change, HFC 96-109, Side 1)
Representative Mackie noted that the Anchorage School
District and others have offered cash incentives for
retirements. These programs are only available to those
that are qualified for 20 year retirement. The legislation
will allow individuals that have less than 20 years to
qualify. He emphasized that school districts will not
implement the program unless a savings is anticipated. He
noted that a plan is required to demonstrate a savings. The
local school board has to agree that the plan represents a
savings to the district before it can be implemented. He
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spoke in support of certification by the commissioner of the
Department of Education. He observed that the commissioner
would not be held responsible for a savings. There are no
additional state funds to cover mistakes.
Representative Therriault noted that the 1989 RIP program
required that a savings be demonstrated. He stated that
savings would be defined by the cost difference for the
replacement position.
LARRY WIGET, DIRECTOR OF GOVERNMENT RELATIONS, ANCHORAGE
SCHOOL DISTRICT testified in support of HB 354. He
recognized that other districts may benefit from the
program. He emphasized that the intent is not to get rid of
highly qualified teachers. He stressed that in a time of
declining resources the program provides a means to reduce
costs.
In response to a question by Representative Martin, Mr.
Wiget noted that the Anchorage School District has offered a
retirement incentive program.
Representative Martin restated the question of dropping the
retirement qualification to 17 years. Mr. Wiget stressed
that the issue will need to be analyzed. He observed that
not all teachers retire after 20 years. He maintained that
a number of highly qualified teachers will continue to
teach.
Representative Martin asked, "just because they are getting
paid too much, we have got to motivate them to quit early?"
Mr. Wiget emphasized that the program appears to be a way in
which school districts can help reduce costs.
Representative Martin asked if the retirement requirement
should be reduced to 17 years. He stated that he did not
want to have teachers paid more to leave. Mr. Wiget did not
think the retirement requirement should be lowered.
In response to a question by Representative Parnell, Mr.
Wiget discussed the Anchorage School District's RIP program.
He noted that $10.0 thousand dollar incentive is offered to
individuals that have completed 20 or more years and are
full-time employees to retire. The $10.0 thousand dollars
is paid as a compensation increase for the school year. The
incentive would increase the employee's three highest years.
Representative Kelly stressed that the intent is to give
districts flexibility to use the program where it would
produce savings. He added that a 17 year retirement
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requirement would not necessarily realize a savings.
Representative Mackie pointed out that the legislation is
designed to address existing law.
Representative Therriault noted that the pressure for
instituting RIP programs is increasing. He maintained that
RIP should only be applied when problems need to be
addressed. He asked the District's expense to buy out three
years under the legislation.
Mr. Wiget could not answer Representative Therriault's
question. He observed that 600 employees could apply for
the program. Representative Mackie noted that 306
individuals in the Anchorage School District participated in
the last RIP program for a savings of $2.8 million dollars.
Representative Therriault asked if the Anchorage School
District would need to participate for 3 years. Mr. Wiget
did not know how many years would be needed. He agreed that
an option for up to three years would provide more
flexibility.
Co-Chair Hanley noted that a flexible program would allow a
district to withdraw when their goals are met.
Representative Martin discussed out-of-state teachers that
buy into TRS. Mr. Wiget noted that out-of-state teachers
must pay for their service plus 7 percent interest on the
service. He emphasized that it is costly to buy service.
CLAUDIA DOUGLAS, PRESIDENT, NEALASKA spoke in support of HB
354. She provided members with written testimony
(Attachment 5). She asserted that RIP is cost effective and
fair. She maintained that RIP offers school district
administrators an opportunity to reduce staff at the top end
of the salary schedule and replace those with employees who
could be hired at the lower end of the salary scale.
Absent RIP school districts will be forced to lay off the
less experienced employees.
In response to a question by Representative Therriault, Ms.
Douglas stated that an option of up to three years would be
acceptable.
Representative Therriault asserted that there will be no
personnel cost savings. Ms. Douglas pointed out that the
plan has to demonstrate savings. Representative Therriault
noted that savings can be used to hire additional teachers.
He maintained that the overall amount of money spent can
remain the same.
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Representative Mackie reiterated that a savings must be
demonstrated. He acknowledged that the savings can be used
to fund programs that would have been deleted.
Representative Therriault reiterated his belief that the
overall amount of money spent will not be reduced. He
stressed that funding will be spent differently.
Representative Mackie noted that some districts are facing
shortfalls and will have to realize a savings.
In response to a question by Representative Martin, Ms.
Douglas stressed that the legislation is not an attempt to
dismiss highly qualified teachers. She did not think that
teachers or school districts are trying to implement a 17
year retirement system. She emphasized that the legislation
is a way for school districts to save money.
Co-Chair Hanley pointed out that a 17 year retirement system
would not necessary result in a cost savings.
Representative Therriault asked how long it takes the
average teacher to reach their maximum salary. Ms. Douglas
noted that teachers reach the top of their salary scale at
approximately 12 years. Top salaries are approximately
$58.0 thousand dollars and beginning salaries are
approximately $30.0 thousand dollars.
Representative Therriault noted that TRS is built on a 20
year actuarial. The system would be undermined if it were
changed to 17 years. He emphasized that some teachers that
are not eligible for this RIP will lobby for another RIP
when they become eligible.
Representative Mackie emphasized that the legislation was
introduced on behalf of school districts and administrators.
CARL ROSE, EXECUTIVE DIRECTOR, ASSOCIATION OF ALASKA SCHOOL
BOARDS testified on behalf of the legislation. He pointed
out that school boards are governed by legislative statutes
and Department of Education regulations. Funding is largely
through the legislature. He maintained that the ability of
school boards to fix their own problems is dependent on the
State and legislature. He noted that education has been
flat funded at a 2 percent increase. At the same time,
there have been increased mandates from local communities.
The local authority to raise money is restricted. Many
school districts are restricted by the cap. There is a
statutory obligation to negotiate. He emphasized political
and economic pressure from the "right to strike". He
stressed that HB 354 is fair and comprehensive. He
expressed concern that the legislation must be acted on
quickly to allow school districts to utilize it as a tool.
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Representative Martin maintained that Alaska has one of the
lowest teacher/pupil ratios. Mr. Rose stated that the
statistics of teacher/student ratio are misleading. He
noted that there are many large classes. He added that
special education teachers make the pupil/teacher ratio
lower. He stressed that pupil/teacher ratio is of concern
to many parents. He questioned the State's interest in
providing public education and its responsibility for
funding. He asked the responsibility and interest of local
governments. He maintained that it is in the best interest
of the State to provide a quality education and recognize
the cost.
Mr. Rose noted that funding have been kept constant.
Expectations and real costs have increased. He emphasized
that the program provides incentives for high end employees
to retire and make room for low end employees.
(Tape Change, HFC 96-110, Side 1)
BOB STALNAKER, DIRECTOR, DIVISION OF RETIREMENT AND
BENEFITS, DEPARTMENT OF ADMINISTRATION noted that the
Administration strongly supports HB 354 as an additional
tool for school districts and any public employer.
In response to a question by Representative Martin, Mr.
Stalnaker stressed that RIP programs have not impacted the
actuarial soundness of TRS. No employers are delinquent.
Funding volatility and fluctuation was due to legislation
passed in 1991 which provided for guaranteed cost of living
increases. The funding ratio of TRS is above 91 percent and
is increasing. He reiterated that RIP programs have not
detrimentally affected the soundness of TRS. Employers must
pay the cost to the system for benefits and the cost to
administer the program within three years. This is included
in calculations of savings.
In response to a question by Representative Martin, Mr.
Stalnaker noted that COLA is prefunded. Employers must
include COLA costs in their estimated savings.
Representative Martin referred to superintendent contracts.
Mr. Stalnaker noted that increases in salary are factored
into the benefit payment.
In response to a question by Representative Therriault, Mr.
Stalnaker explained that only 30 percent of eligible
teachers participate in RIP programs. He pointed out that a
sliding scale program would incur more administrative costs.
The actuarial will have to compensate for different options.
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Mr. Stalnaker agreed that timing is critical. He noted that
the bill will not be enacted until the middle of May. He
emphasized that the more complex the program that more
difficult it will be to utilize it for the coming school
year. He explained that different people will be effected
by the different years offered as an incentive. There could
be a whole array of projected costs depending on 1, 2 or 3
years. The actuarial will have to be run for each option.
Representative Therriault noted that employees receive more
than they pay in to the program. Mr. Stalnaker acknowledged
that the employee contribution is rarely sufficient to fund
their benefit. Interest to the fund provides additional
revenues to offset the employer's cost. Most actuarial
methods assume that there will be growth in the system. The
State targets 95 percent funding.
Representative Therriault asked if there will be instability
in the system due to retirements from growth years. Mr.
Stalnaker explained that the average age of the TRS and PERS
populations are growing. This trend is considered in the
actuarial. The last RIP program was originally for 3 years
and was expanded to 5 years. The longer the period to show
a savings, the more likelihood that greater numbers will
qualify. The longer the program the easier it is for an
employer to demonstrate a savings.
Representative Therriault provided members with a graph
(Attachment 6). He asked if savings are being shifted to
the future. Mr. Stalnaker clarified that there is a two
tier system in TRS. Tier II employees cost less. Most
teachers retiring are under Tier I. He stressed that the
average teacher works in access of 20 years.
Representative Therriault noted that the Fairbanks School
District retires an average of 25 to 30 teachers a year. He
pointed out that the number of teachers participating in RIP
will include teachers that would have retired anyway. He
stated that the program can be limited to teachers that are
between 17 and 20 years. Mr. Stalnaker agreed that the
program can be based on defined criteria without
discriminating.
Mr. Stalnaker noted that the state of Alaska prefunds its
health insurance. If the health insurance is excluded the
State's actuarial is above 100 percent. With the health
insurance funded the actuarial was 85 percent for June 1994.
The funding level in TRS as of June 1995, is 91 percent.
The value of assets for TRS is approximately 2.5 billion
dollars. The unfunded liability is approximately $200.0
million dollars.
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Representative Grussendorf noted that many teachers keep
working past their 20 years of service. He stressed that
the incentive has to be big enough to encourage teachers to
participate.
Co-Chair Hanley asked the cost per person to buy their
participation. Mr. Stalnaker explained that the employee's
cost is approximately 25 percent of their annual salary for
the three years, $15.0 thousand dollars. The school
district pays the remainder of the cost. Savings have to be
shown to overcome the cost. School districts would pay
approximately twice as much, $30.0 thousand dollars. The
employer would pay the additional cost of administration.
Employee's retirement is raised by approximately 2 percent
for each additional year of participation.
Mr. Stalnaker explained that if an employee retires with 17
years of service they retire with a benefit based on 17
years of service. Their benefit does not increase by 2
percent for each of the additional 3 years. The additional
3 years is used to meet the 20 year requirement. They would
receive 3 additional years of benefit at 17 years of service
that they would not have received.
Co-Chair Hanley pointed out that if an employee is at 20
years of service and buys out an additional three years they
will actually receive their retirement based on the
additional 3 years. The person that is over 20 years would
pay off their cost to buy out three additional years after 4
years of benefits.
In response to a question by Co-Chair Hanley, Mr. Stalnaker
reiterated that there will be additional savings by
replacing Tier I employees with Tier II employees.
Representative Brown asked how difficult it will be for the
commissioner of the Department of Education to certify the
plans. Mr. Stalnaker noted that the plans will have to go
through the Department of Education before they are sent to
the Department of Administration and reviewed by the
Division of Retirement and Benefits. He noted that the
Division accepts the school district's calculations.
Representative Brown questioned the lack of a fiscal note by
the Department of Education. Mr. Stalnaker observed that
the Department of Education would prefer not to certify the
plans.
Representative Mackie noted that the House State Affairs
Committee added the provision to have the commissioner of
Department of Education certify the plans. He stated that
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he would have no objection to allowing the Department of
Administration to certify the plans.
(Tape Change, HFC 96-110, Side 2)
In response to a question by Representative Martin, Mr.
Stalnaker explained that the statutes include only two tiers
in the retirement system. He noted that only 30 percent of
those eligible participate. The legislation is elective for
employees and employers.
Co-Chair Hanley asked if the legislation allows savings to
be used to hire more teachers in addition to the replacement
teachers. Mr. Stalnaker stated that the legislation does
not speak to how the savings can be used. He pointed out
that some school districts are facing deficits.
Mr. Rose noted that not all retiring teachers will be
replaced. He added that savings may be used to reduce the
pupil/teacher ratio. The pupil/teacher ratio is critical in
some areas.
In response to a question by Co-Chair Hanley, Representative
Mackie noted that the Anchorage School District saved $2.8
million dollars from the previous RIP. Co-Chair Hanley
summarized that the money will be available for reallocation
to the school district's highest priority.
In response to a question by Representative Therriault, Mr.
Stalnaker noted that the yearly health insurance premium for
a retiree is $330 dollars a month.
Representative Mackie reiterated that two amendments were
provided the Committee. He addressed Amendment 1, 9-
LS0634\G.2, dated 4/9/96. He noted that the amendment
provides the criteria that a school district must follow to
maintain equal protection. Mr. Stalnaker stated that
Amendment 1 is consistent in current practices and advise
from the Office of Attorney General.
Representative Parnell MOVED to adopt Amendment 1. There
being NO OBJECTION, it was so ordered.
Representative Mackie explained that Amendment 2 would
define "school district" as a city or borough school
district or a regional educational attendance area. He
stated that the bill was drafted to include school districts
with a locally elected school board.
Representative Parnell MOVED to adopt Amendment 2. There
being NO OBJECTION, it was so ordered.
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Representative Brown MOVED to adopt Amendment 3, delete
"education" and insert "administration" on page 2, lines 4
and 18; delete page 2, lines 15 - 17; and insert on page 2,
line 17 after "shall" "review the plan and advise the
commissioner whether it complies with the requirements of
this section. The administrator shall..." She explained
that the amendment would transfer certification to the
Department of Administration. There being NO OBJECTION, it
was so ordered.
Representative Mulder MOVED to report CSHB 354 (FIN) out of
Committee with individual recommendations and with the
accompanying fiscal note. Representative Mulder WITHDREW
his motion to allow further amendments.
Representative Therriault discussed reducing the time in
which savings must be demonstrated from 5 to 3 years. Mr.
Stalnaker noted that previous RIP programs allowed savings
to be demonstrated in 5 years. He noted that the five year
allowance would be an advantage to the employer.
Co-Chair Hanley noted that school districts must reimburse
the system within three years after the end of the fiscal
year from which the employee is appointed to retirement.
Representative Mackie explained that the savings would be
eliminated if the debt had to be paid off in the first year.
Representative Mulder MOVED to report CSHB 354 (FIN) out of
Committee with individual recommendations and with the
accompanying fiscal note. There being NO OBJECTION, it was
so ordered.
CSHB 354 (FIN) was reported out of Committee with "no
recommendation" and with a fiscal impact note by the
Department of Administration, dated 3/16/96.
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