Legislature(2005 - 2006)HOUSE FINANCE 519
04/26/2006 08:30 AM House FINANCE
| Audio | Topic |
|---|---|
| Start | |
| HB375 | |
| SB250 | |
| SB237 |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 250 | TELECONFERENCED | |
| += | HB 375 | TELECONFERENCED | |
| += | HB 306 | TELECONFERENCED | |
| + | SB 237 | TELECONFERENCED | |
| + | TELECONFERENCED |
HOUSE BILL NO. 375
"An Act relating to the retirement benefit liability
account and appropriations from that account; relating
to deposits of certain income earned on money received
as a result of State v. Amerada Hess, et al., 1JU-77-
847 Civ. (Superior Court, First Judicial District); and
providing for an effective date."
Representative Hawker MOVED to ADOPT Amendment 2, labeled
24-LS1467\L, which would insert on page 3, line 13, the
words "85% of the employer's past service cost rate during
the fiscal year that precedes the distribution fiscal year
under (c) of this section by three fiscal years."
JACQUELINE TUPOU, STAFF, REPRESENTATIVE WEYHRAUCH, explained
that expediency is a key component of the bill. There is a
concern that all communities be treated fairly under this
legislation. Amendment 2 is a blanket amendment for all
communities regarding the formula previous to three years
ago.
8:59:20 AM
JEFF JOHNSON, FAIRBANKS, explained that on June 30, 2001,
the net pass on unfunded liability was approximately $11.3
million. On June 30, 2004, it was bumped up to $95 million.
It is predicted to go up by $15 million in 2005. There has
been a decline in the number of employees that participate
in PERS. He explained that the bill favors large employers,
not those with past service costs. He related a scenario
where the formula would equal zero for Fairbanks. He
proposed a way for the city to solve their debt problem by
transferring the $11 million from June 30, 2001, to a
separate account, which is funded from general state revenue
sources.
9:02:50 AM
Representative Kelly recalled when the utility in Fairbanks
was sold, Pat Cole questioned the impact of the sale on the
system. He asked Mr. Johnson if it was his understanding
that this situation would not happen.
Mr. Johnson said that is correct. Had the Division of
Retirement closed out the MUS, which was treated as a
separate account at the time of the sale, there would not
have been a problem. He related that in 2001, the city owed
$11 million. He deemed it reasonable to have to pay back
that amount.
9:05:45 AM
Representative Weyhrauch stated that how this would work
depends on the administration, so he has tried to make the
language workable.
9:05:59 AM
GARY BADER, CHIEF INVESTMENT OFFICER, TREASURY DIVISION,
DEPARTMENT OF REVENUE, explained that each year gains and
losses of the retirement plan are calculated. The loss, in
this case, is amortized over 25 years. The whole system
experienced losses since the year 2000, first, because of
changes in health care assumptions and experience in the
plan, secondly, because of investment returns, and thirdly,
because many of the assumptions were changed in terms of
estimating future costs. All PERS and TRS employers were
caught in these changes.
Fairbanks had additional impacts. They made changes based
on what they believed to be reliable information, and
reduced the number of their PERS employees. The rate
escalated to a 125 percent past service rate. The Alaska
Retirement Management (ARM) Board proposed to the House
Finance Committee that TRS receive 85 percent of the past
service cost rate. It used a different approach to explain
how the Committee might allocate funds to repay employers
under PERS. It proposed that no community would get more
than the average of all PERS employers taken together.
Mr. Bader shared that there is another approach, the one in
Amendment 2, which is similar to the TRS approach. The ARM
Board has several goals: that the systems be fully funded
within 30 years, that it not cause severe disruption to
public services, that the state should participate in the
solution, that accelerated contributions from employers
should be rewarded, that the state support should be
equitable, and that it should not attempt to subsidize
federally-funded positions. Amendment 2 is consistent with
those goals. It would take out the calculation based on
past service rate, less 5 percent or the average past
service rate, whichever is less, and replace it with 85
percent of the community's past service rate. This would
have an additional cost to the system, but would be
equitable. The distribution to Fairbanks would be closer to
$5 million more than the $1 million currently available.
9:10:37 AM
Co-Chair Meyer questioned the 85 percent figure.
Representative Kelly requested more time to look at the
amendment and to get a reaction from Fairbanks. Co-Chair
Meyer agreed.
9:11:25 AM
Representative Weyhrauch agreed with allowing more time. He
noted that people have to be comfortable with this policy
change.
Representative Hawker concurred, but said he is prepared to
vote yes on the amendment at the request of the sponsor. He
stated that the bill is a critical step toward getting rid
of the $7 billion unfunded liability. He pointed out that
there are many unresolved complications, but he suggested
that time is running out.
Representative Weyhrauch related that this is not a silver
bullet, but a way to deal with the problem. The bill could
be changed later on. He said the empirical analysis has to
end at some point. HB 375 does not require a huge
appropriation this year, but is putting policies in place.
Co-Chair Meyer said he is prepared to vote yes on Amendment
2, but would allow for Fairbanks' input.
Representative Weyhrauch asked for a vote.
Representative Holm agreed that the bill is a good vehicle
for the state to resolve the retirement past service cost
liability.
Representative Kelly said he would get Fairbanks' input
today.
9:16:02 AM
Representative Weyhrauch said the message has to be that the
burden is on [Fairbanks] because the legislature has done
its job.
Representative Stoltze WITHDREW his objection.
Representative Weyhrauch OBJECTED. He suggested that
Fairbanks examine the advice that they received in the past.
He WITHDREW his objection.
There being NO further OBJECTION, Amendment 2 was adopted.
HB 375 was heard and HELD in Committee for further
consideration.
9:18:04 AM
| Document Name | Date/Time | Subjects |
|---|