Legislature(2015 - 2016)BILL RAY CENTER 208
06/01/2016 01:15 PM House LABOR & COMMERCE
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| Audio | Topic |
|---|---|
| Start | |
| HB4002 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB4002 | TELECONFERENCED | |
HB4002-INS. FOR DEPENDS. OF DECEASED FIRE/POLICE
1:20:32 PM
CHAIR OLSON announced that the only order of business would be
HOUSE BILL NO. 4002, "An Act relating to major medical insurance
coverage under the Public Employees' Retirement System of Alaska
for certain surviving spouses and dependent children of peace
officers and firefighters; and providing for an effective date."
1:20:52 PM
LARRY LANGER, Principal and Consulting Actuary, Buck
Consultants, informed the committee his firm serves as actuary
to the Division of Retirement and Benefits (DRB), Department of
Administration (DOA), and directed attention to a letter/summary
dated May 24, 2016, provided in the committee packet. Mr.
Langer said the letter/summary is Buck Consultants' fiscal note
for HB 4002, a proposal for occupational death benefits for the
Public Employees' Retirement System (PERS) for [peace officer
and firefighter (peace/fire)] members, and the Defined
Contribution Retirement (DCR) medical plans for peace/fire
members. Also attached is a summary of proposed provisions, and
the financial impact of the bill. The purpose of the bill is to
provide major medical coverage for the survivors of a PERS
member employed as a peace officer or firefighter who suffered
an occupational death. In addition, the bill removes the
requirement that a peace officer or firefighter retire directly
from the DCR medical plan. Mr. Langer described the provisions
of the bill as follows:
· Extension of existing PERS occupation death
benefits which provide retiree benefits including system-
paid major medical benefits to survivors of Tier I members
whose deaths occur as a result of their job duties. This
bill extends the benefit to Tiers II and III members.
· Under the existing PERS DCR plans, no person
is eligible for system-paid major medical benefits. The
draft bill would allow for a 100 percent premium subsidy
for major medical benefits for eligible persons who are
survivors of employees who were peace officers or
firefighters and whose death was occupational. The 100
percent premium subsidy changes to a normal premium subsidy
at Medicare age. The health reimbursement arrangement can
then be used to fund the portion of the premium for which
the spouse is responsible.
· The PERS DCR plan requires members to retire
directly from the plan in order to be eligible for medical
benefits. To effectuate the goals of the legislation, the
draft bill removes that language from the plan only as it
applies to eligible survivors of a peace officer and
firefighter whose death occurs as the result of the job.
· Corrects the PERS peace officer or firefighter
occupational death benefit statute to extend benefits to
the dependent children, in those instances when there is no
surviving spouse, of peace officers and firefighters whose
deaths occur while in the performance and within the scope
of their duties.
MR. LANGER stated the legislation would be retroactive to
January 1, 2013 and the financial impact of retroactivity is not
significant due to the small number of those affected.
CHAIR OLSON asked what definitions were used for firefighter and
peace officer. He read from definitions in Alaska Statutes
[sections not identified].
1:27:41 PM
MELISSA BISSETT, Consultant, Buck Consultants, speaking as the
healthcare actuary for DRB, answered that the members who were
studied for the letter/summary were indicated as peace/fire
members on the State of Alaska data.
1:28:29 PM
MICHELE MICHAUD, Chief Health Official, DRB, DOA, informed the
committee the information reported to Buck Consultants is based
on occupational codes in the retirement system, and the peace
officer and firefighter occupational codes include all of the
positions covered in the statutory definition. In further
response to Chair Olson, she said municipal employees are
included and would be provided with the same benefit.
REPRESENTATIVE JOSEPHSON asked why village public safety
officers (VPSOs) are excluded from AS 39.35, and would not be
covered under the proposed bill.
MS. MICHAUD explained that VPSOs are temporary employees and do
not participate in PERS, thus including coverage for them
through the retirement system would jeopardize the tax
qualification of PERS.
REPRESENTATIVE LEDOUX expressed her understanding that VPSOs are
not hired directly by the state, but through grants given to
nonprofit organizations, which subsequently hire VPSOs as
contract employees.
CHAIR OLSON questioned why VPSOs wear "a State of Alaska badge."
REPRESENTATIVE JOSEPHSON added that they are trained at the
Department of Public Safety Training Academy in Sitka.
MS. MICHAUD said she did know.
1:31:25 PM
REPRESENTATIVE JOSEPHSON recalled the recent loss of a VPSO in
Nondalton.
CHAIR OLSON referred to a document entitled, "Work Related
Deaths," dated 5/25/16, provided in the committee packet, which
listed twenty-one fatalities. The number one cause of loss of
life to state employees was airplane or helicopter crashes; in
fact, four or five deaths were from gunshots, three or four were
from traffic accidents, and all were spread across different
agencies. He expressed concern about the proposed legislation
creating two classes of employees - one granted benefits and one
not - resulting in litigation.
REPRESENTATIVE LEDOUX opined that a policy call to offer a
benefit to only one group of employees would not cause the state
to have liability. Unless the state is making a distinction
based upon race, religion, or a suspect classification,
distinctions can be made between groups of people on a rational
basis.
REPRESENTATIVE JOSEPHSON pointed out that the list of work
related deaths does not include the Village Public Safety
Officer from Nondalton.
CHAIR OLSON noted other deaths that were not listed, including
firefighters.
REPRESENTATIVE LEDOUX questioned the state's procedures related
to the status of VPSOs, such as their coverage under workers'
compensation law, and suggested these issues need to be
discussed at another time. In response to Chair Olson, she
said some VPSOs are armed.
1:36:10 PM
MR. LANGER directed attention to page 3, which was a table that
illustrated the financial impact of the bill. Costs were split
between PERS benefits and the DCR plan for "others" and "P/F"
and "Total." The 2015 valuation results are as of 6/30/15. He
said the actuarial accrued liability is the amount that ideally
should be in the fund now, which is the cost of benefits
accrued. The normal cost rate is the cost of benefits accruing
during the year, and the amount shown is net of any member
contributions received. The total actuarial required
contribution rate reflects the additional amount to pay off the
unfunded liability of the fund. He pointed out the increases in
cost that result by implementing HB 4002: the PERS total
actuarial required contribution rate increases from 3.16 percent
to 3.17 percent, and for the DCR plan, the total increases from
1.03 percent to 1.04 percent. However, Mr. Langer explained
that the real increases are in the P/F percentages, and he read
the results shown on the table. On page 4, the table projects
costs of the bill for fiscal year 2017 (FY 17) through FY 22,
split between the defined benefit and the DCR plans, and total
increases, split between normal cost, and past service cost.
The total projected cost in FY 17 is $174,000, increasing to
$226,000 by FY 22. Mr. Langer paraphrased from the following
assumptions on pages 4 and 5 [original punctuation provided]:
Impact and Methodology
Surviving spouses and dependents would be allowed to
commence subsidized medical coverage immediately upon
the occupational death of a current member. This
change did not impact Tier 1 members of PERS nor any
members of PERS Others or Teachers.
The impact to the normal cost rate for the DB plan for
this change was 0.01315% for peace/fire only and
0.00175% overall; the impact did increase the past
service cost amortization resulting in a 0.00250%
impact to the total rate. Similarly for the DCR plan
this change was a 0.08262% increase to the normal cost
rate for peace/fire members and 0.00950% overall. The
total contribution rate increased 0.09897% for
peace/fire and 0.01138% overall. These results are
slightly lower than the estimates in 2015 and reflect
June 30, 2015 valuation results and the premium cost-
sharing upon Medicare eligibility in the DCR plan.
We assumed 100% of eligible individuals would
initially elect this subsidized coverage for all plans
except where contributions are required for Medicare-
eligible survivors in the DCR plan. Retiree
contribution provisions and health plan participation
are assumed to apply according to DCR valuation
assumptions upon Medicare eligibility. In addition, we
assumed that surviving spouses and dependents would be
eligible for coverage under their current respective
DB or DCR retiree medical plan. For this study, we
have assumed the proposed changes will be effective as
of January 1, 2013. This retroactive applicability
date is de minimis and does not materially impact our
calculations below. In addition, we have assumed that
on average 45% of survivors will be employed or re-
married with primary coverage and the plan will pay
secondary. We have assumed that the value after
coordination of benefits is 20% of the benefit for
valuation purposes. Future actuarial measurements may
differ significantly from current measurements due to
plan experience differing from that anticipated by the
economic and demographic assumptions, increases or
decreases expected as part of the natural operation of
the methodology used for these measurements, and
changes in plan provisions or applicable law. In
particular, retiree group benefits models necessarily
rely on the use of approximations and estimates, and
are sensitive to changes in these approximations and
estimates. Small variations in these approximations
and estimates may lead to significant changes in
actuarial measurements. An analysis of the potential
range of such future differences is beyond the scope
of this study.
1:45:26 PM
CHAIR OLSON surmised the state would be responsible for the
accrued liability beginning on "day one."
MR. LANGER agreed the state is responsible; however, the terms
show the liability is not due to be paid off until 2039, with
payments of $19,000 per year.
CHAIR OLSON opined the state is not in compliance at this time.
MR. LANGER affirmed that the state is not 100 percent funded at
this time, and a portion of the annual contribution is to pay
down the unfunded liability within the retirement systems.
Having some unfunded liability is common in public plans.
CHAIR OLSON asked whether the PERS total of actuarial accrued
liability of $7,350,183, would be spread out over the next
twenty to twenty-three years.
MR. LANGER explained that the total accrued liability does not
reflect assets in the fund of $7.24 billion, which means the
liability is 98.5 percent funded. Overall, between pension and
health care, the liabilities are 78 percent funded. He opined
that for the health care liability, the state is "in very good
shape," and a little less so "for the pension side."
REPRESENTATIVE LEDOUX inquired as to how the entire PERS
liability is related to the effect of the proposed bill.
CHAIR OLSON acknowledged his question was related to the total
liability [not the portion specific to HB 4002]. He then asked
whether Alaska is the first state to address this issue.
1:53:42 PM
MR. LANGER related that the coverage of occupational death
benefits varies from state to state. Some states do cover these
benefits, as does Alaska for Tier 1 members. He stressed that
coverage does not mean a lot in terms of the fund, but does mean
a lot to the individuals affected, and states make adjustments
in terms of ancillary benefits.
CHAIR OLSON asked whether the state has possible exposure [to a
lawsuit] if the benefit is applied to one class of employees.
MR. LANGER declined to respond.
REPRESENTATIVE LEDOUX pointed out that the state does not worry
about liability related to its distinction between the benefits
of Tiers I, II, III, and IV.
CHAIR OLSON stressed that his point is the majority of loss of
life has been due to aircraft crashes resulting in the deaths of
employees from a variety of agencies.
1:59:18 PM
JOAN WILKERSON, Assistant Attorney General, Labor and State
Affairs Section, Department of Law, informed the committee that
there are separate subgroups - such as those for police and fire
- which acquire different benefits already, thus it is
appropriate for HB 4002 to extend benefits to police/fire as a
group. Unless there is a discriminatory intent or forming a
group on the basis of a protected class status, it is possible
to have a governmental plan extend different benefits to a
subgroup.
REPRESENTATIVE KITO asked whether death benefits are contract-
negotiable on a bargaining unit basis.
MS. MICHAUD explained that certain life, accidental death, and
travel benefits are negotiated through collective bargaining
agreements; $10,000 basic life and $100,000 travel accidental
are currently negotiated in the Department of Public Safety
agreement.
2:01:36 PM
[HB 4002 was held over.]
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