Legislature(2001 - 2002)
03/26/2002 08:07 AM House STA
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 380-REIMBURSE CERTAIN RETIREE MEDICARE CHARGE CHAIR COGHILL announced that the next order of business would be HOUSE BILL NO. 380, "An Act relating to reimbursement for certain Medicare premium charges for persons receiving benefits from the teachers' retirement system, the judicial retirement system, the elected public officers retirement system, and the public employees' retirement system." He informed members that only testimony would be taken today. Number 2199 TOM HARVEY, Executive Director, National Education Association - Alaska (NEA-AK), related Mr. Jerry Patterson's regret that he couldn't change his schedule to be present today. Mr. Harvey recalled that Mr. Patterson, at the prior hearing on HB 380, was addressing the fiscal note. The $274 million fiscal note over nine years amounts to approximately $30.4 million a year. However, NEA-AK believes there are some factors that the committee should take into consideration. First, the $30.4 million a year means that approximately $23.8 million more is being collected than necessary to fund the measure. Therefore, over the nine years, the Division of Retirement & Benefits would collect about $200 million more than necessary [to fund the measure]. The compounded interest rate of 8.25 percent on that [$200 million] would result in $284 million that would be invested. Only $6.62 [million] of that would be necessary [to fund the measure]. According to the [$274 million] fiscal note there would be more than enough money [for this project]. Therefore, NEA-AK believes that the fiscal note could be reduced. To date, the actual return of 11.48 percent over the past 20 years sums well over $300 million. MR. HARVEY turned to the fairness issue for the retirees. The savings to the division for those younger than 65 is $754 a month in premium payments. When the individual is over 65 and accesses Medicare, the state's premium drops to $287 a month and thus there are over $467 a month in premium savings to the state. Therefore, [NEA-AK] believes that $57 of that savings should be spent to pay for the Medicare Part B premium. Another state agency does so as a cost-savings measure. The Medicare/Medicaid program in Alaska pays that monthly premium because of the recognition of the massive savings to the state. Mr. Harvey said: "We believe it's an equity issue. The ratio of the savings to premium is 8.5:1. So if you take that unfunded liability of $274 million, then the savings on that amount of money is $2.3 billion." Therefore, the savings experienced by the state should also be experienced by the retiree covered by the program. MR. HARVEY moved on to the cost factor. He specified that passing HB 380 doesn't cost general fund (GF) money. Furthermore, this legislation wouldn't cost municipalities or school districts because these are all retirement monies. He informed the committee that last year when the legislature passed legislation lowering the age requirement for retiring and maintaining medical converge, there was a fiscal note with a cost to employers and a statement of unfunded liability. He pointed out that the contribution rate fell last year by 1 percent for the employers, which is because of the annual excess earnings in the retirement system. The fund needs a return of 8.25 percent in order to maintain the earlier mentioned funding ratio. As mentioned earlier, over the past 20 years the fund's return has been 11.48 percent. Even with a down market, the five-year return ending June 30, 2001, averaged 9.37 percent, which places the fund well over the 8.25 percent necessary. The excess earnings in the Teachers' Retirement System (TRS) since 1994 has been nearly $900 million and for the Public Employees Retirement System, the excess earnings has been $1.6 billion. Those excess earnings have been placed toward improving the funding ratio of the system. In 1996 the funding ratio was 55 percent and although that is healthy by many standards, it could be improved upon. On June 30, 2000, the funding ratio was 99.7 percent, which has now declined to 95 percent. Therefore, 1 percent of the $12 billion in excess earnings would [amount to] $120 million. He reminded everyone that the annual cost is $30.4 million. "Really it's only $6.6 million. We don't have to put that other money in the bank," he explained. Therefore, this is one-fourth of 1 percent of the excess earnings. In conclusion, Mr. Harvey specified that the fiscal note, although necessary, wouldn't impact GF money or the viability of the retirement system. The fiscal note adds to the excess earnings of the retirement system. Number 1653 SAM TRIVETTE, President, Retired Public Employees Association of Alaska (RPEA), turned to the question - asked at the last hearing - regarding whether the state actually committed in writing to cover medical expenses for employees. The pending lawsuit has already moved through the Superior Court. Mr. Trivette provided the committee with 14 pages of court findings, which he felt clearly [demonstrates] that the state did make such a commitment in writing. MR. TRIVETTE explained that RPEA is comprised of retirees from all areas of public employment. He pointed out that RPEA has a medical insurance committee that provides education with regard to medical issues. Furthermore, RPEA has performed medical surveys inquiring of the membership what is working and what isn't. Many of RPEA's members have complained about having to pay the Medicare premium of $54 a month, which is predicted to increase in the future. This cost has a significant impact on the retirees, especially for older retirees and those in the lower pay ranges. Mr. Trivette echoed earlier testimony that there will be no cost to the GF for this reimbursement. Furthermore, the employer contribution has decreased significantly due to the financial well being of the fund. Moreover, he related that PERS is funded at 101 percent, which is superb. Mr. Trivette said, "It's only fair that since the state pays a much smaller amount of medical expenses for retirees once the retirees turn 65 that some of the savings should be shared with the retirees." In closing, Mr. Trivette encouraged the committee's support of the legislation. REPRESENTATIVE JAMES reminded the committee that she has a conflict on this issue because she is 72 years of age, and as soon as she doesn't work she will fall into this retiree category.
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