Legislature(1999 - 2000)
01/21/2000 09:06 AM Senate FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
CS FOR SENATE BILL NO. 85(L&C)
"An Act relating to credited service in the public
employees' retirement system for temporary
employment."
JEAN SMITH, Legislative Assistant, Senator Mackie, read the
sponsor statement into the record. This legislation was
introduced at the request of Senator Mackie's constituents.
She stated that SB 85 is an effective management tool for
the state to utilize and minimize the impact of current and
future budget reductions. The bill will have the effect of
allowing employees to meet their retirement eligibility
threshold sooner than would otherwise be anticipated. The
employees prone to use this benefit retirement credit are
employees with higher service totals on the higher end of
the pay scale. Additionally, employer costs decrease when
these employees are replaced through reduced costs to the
supplemental benefit system and to the retirement systems.
Savings are realized in the long term by replacing tier one
and tier two category employees with tier three category
employees in order to lower benefit costs. Currently these
temporary employees can buy their temporary time, however,
this time does not count towards their minimum service
requirement needed for retirement. This amends Alaska
Statutes by enabling the employees covered under PERS, to
buy back their temporary time and have it credited towards
the minimum service time for retirement.
Last session, the Senate Labor and Commerce Committee
amended this bill. On page one, line nine, after the word
"retires," they added "an election under this subsection
does not change the date that an employee is considered to
have commenced participation in the system under Alaska
Statute, 39.35.120." This language was added to clarify
the original intent of this legislation, that employees who
qualified under tier two could not use temporary time to
qualify for tier one benefits. They added this language to
strengthen the intent of this provision so it could not be
misinterpreted to provide that flexibility. The fiscal
impact on this legislation, since temporary service is
recognized under the retirement system, provides that the
full actuarial cost of using the temporary service be paid
for by the employee. There is no general fund expenditure
involved in this proposal. The Department of
Administration's fiscal note reflects a designated fund
source, the Retired Employees Retirement Trust Fund,
contracted services are required for computer system
modifications.
Amendment #1: This amendment allows for the combination of
Public Employees' Retirement System (PERS) and Teachers'
Retirement System (TRS.) Senator Wilken moved for an
adoption saying that the fiscal note affected about 50
people around the state. He also noted that it was not his
intent to burden SB 85 with this issue, but he thought this
might be a good time to discuss its ramifications.
GUY BELL, Director, Division of Retirement & Benefits
Department of Administration stated that the department
supports SB 85. He then submitted a related fiscal note of
$4,000, for programming time, to accommodate this change of
allowing employees to count their temporary service to 20
and out, or 30 and out. It is the intent that the full
cost to opt for the service credit provision be borne by
the employee making that election.
Mr. Bell then spoke to the amendment. It adds public
service retirement benefit to the PERS statute. It would
allow a person who has at least a total of five years of
service in PERS and TRS combined, at least two of which are
in PERS and paid (monies within the system.) This person
could apply and receive a retirement benefit under PERS.
Presently, a person must have a minimum of five years in
PERS or eight years in the Teachers Retirement System.
This would allow combined five years from both systems to
qualify for a retirement benefit. He noted that this issue
boiled down to fairness. These folks have paid in their
contributions and the employer has contributed toward a
retirement benefit as well. He pointed out there is a
small number of individuals involved with this issue,
roughly about 50 statewide. The individuals who find
themselves in this situation (a no man's land), possibly
years ago may have been working for state government and
then switched from a PERS to TRS program. This amendment
would effectively address a gap in the law, to allow these
people to obtain a retirement benefit. If there is a
difference in cost between what the system has built up
through contributions and interest, and the expected pay
out of benefits over the lifetime of the member, the
employee would pay the actuarial cost at the time of their
retirement. This amendment would have a zero fiscal impact
because it does require the individual to pay any cost
calculated beyond what is allowed by the system on that
person's behalf.
Co-Chair Torgerson noted that a few years ago, when this
was offered, it had an attached fiscal note which read:
"This change would not have a measurable impact on employee
contribution rates, or the total funding ratio of PERS or
TRS. It would increase the PERS unfunded liability by
$492,000 and a TRS unfunded liability by $1.4 million. He
asked if these 50 individuals would pick up the cost of
$1.9 million of unfunded liabilities or was this situation
rectified by the amendment.
Mr. Bell responded that their actuary had not done this
type of calculation.
Co-Chair Torgerson assumed that something had changed in
their system to account for such a discrepancy.
BILL CHURCH, Retirement Supervisor, Division of Retirement
and Benefits noted that the shifting of liability states
the obvious, a movement of money from the TRS to the PERS
system. As they look at unfunded liability, they look at
assets over liabilities and come up with the difference.
By shifting this money, this means that that there is less
money in the total assets. This is where the statement as
noted by Senator Taylor comes from. This represents
monies that the actuary has not calculated as being paid
out. In other words, the system has unrealized gain
because someone has put in time, but they are not eligible
for benefits. This money is still in the employer's
account. What this has a tendency to do, not so much in
TRS, since they work on a flat constant employer rate, but
in PERS, it affects the amount of money in the employer
fund. The larger this fund is, the lower the employer's
rate tends to be. When someone puts their money in, the
interest that is gleaned on this amount over time,
(considering the employee leaves their contribution in the
system), this money tends to push down the employer
contribution rate. Through the proposed legislation, this
money would be utilized by the employee, which explains the
statement read by Co-Chair Torgerson. Technically, there
is fundamentally no change to the rate of the fund itself,
due to the amount of employees affected.
Co-Chair Torgerson stated that he appreciated the
explanation and added that he would require a zero fiscal
note stating as such.
SFC-00 # 8, Side A
Co-Chair Parnell wondered about this bill and its purpose
to rectify a situation similar to one that might take place
in the private sector. He pointed out that people make
career changes, from one job to the next, without a clear
purpose to retirement benefits. He asked if this was part
of the argument.
Mr. Bell gave an extreme example of an employee who might
work eleven and one-half years between PERS and TRS, 4 and
one-half in PERS and 7 and one-half years in the TRS and
not be eligible to receive a retirement benefit.
Co-Chair Parnell noted that these are career choices that
people make.
Mr. Bell added that the least restrictive system is PERS,
which requires a total of five years of service. If
someone has less than five years of service in PERS, the
only entitlement that someone would have, is to their own
contributions plus interest. They are not entitled to
retirement benefits. This new legislation allows for a
person who has at least five years of service between PERS
and TRS effectively, entitled to receive a retirement
benefit in the future. This seems reasonable to the
department.
Co-Chair Parnell asked whether the judicial system came
under a different retirement system.
Mr. Bell answered affirmatively.
Co-Chair Parnell asked how this department would be treated
under a PERS and TRS scenario. If someone only had 4 and
one-half years in PERS and then went to the Judicial
system, could that person work a year in the latter and
still link up for a benefit under this new legislation.
Mr. Church responded that these two retirement systems were
not linked at all. These have been set up as different
retirement systems, focusing on specific groups of people.
They were originally established individually and funded
separately. The only current link between the systems, is
between PERS and TRS. If a person is vested in one system
they can apply for a conditional service benefit only if
they have a minimum of two years paid in the other
companion system. Each benefit and the rate an employer
pays are separate.
Co-Chair Parnell added that as a policy matter if it is
good for one employee, it should be good for another. He
asked if they had looked at the overall state retirement
system to see how many different ones there were and how
they could be linked if deemed appropriate.
Mr. Bell responded that the basic retirement systems in the
state are PERS, TRS, Judicial, and the Elected Public
Officers Retirement System (EPORS) which is a 60-person
retirement system and one that existed for a very short
period of time.
Senator Donley thought that the Employee Retirement Income
Security Act (ERISA) required no more than a five-year
vesting. He asked if the reason that TERS is eight years
is because it is a state sovereignty question.
Mr. Bell responded that the state was not subject to ERISA.
Senator Green asked if this proposed legislation would
apply only if someone qualified for benefits in neither
system.
Mr. Church responded affirmatively.
EARL CLARK, former professor, University of Alaska, and
Project Coordinator, Department of Public Safety testified
in favor of the proposed legislation. He outlined for the
Committee, his work history over the years, the combination
of which did not count towards retirement. He built up
service in both systems, but does not have a retirement.
He stated that this legislation rectifies a situation for
employees that have served the State of Alaska.
CLARKE DAMON, testified in support of SB 85. He stated
that his career was in education and throughout this period
he participated in six different retirement programs. He
receives $88 from the Carpenter's union. He then gave a
detailed synopsis of his work history for the Committee.
Mr. Damon calculated his contributions to each of the
departments of which he had the opportunity to work for,
along with the contributions made by the State into his
retirement. As of July 1997, the balance of these funds
was $69,000 for his contributions and $139,000 from the
fund earnings. This retirement would work out to be
$606.00 monthly, $237.00 for his benefit and $348.00 for
health benefits. After 18 years from the date of
retirement, the total unrealized benefit to Mr. Damon would
total $584,000. Based on an average life expectancy, this
total would go up to $704,000 at an eight-percent earnings
rate of $4703.00 per month. At this present time, Mr.
Damon is not eligible to receive any of these monies, due
to the limitations of the present legislation. Mr. Damon
made the point that he was at the mercy of reorganizations
of departments and/or reclassifications of jobs.
MICHAEL DEAN, testified by teleconference in Anchorage in
support of SB 85. He urged the Committee to do whatever
was necessary to expedite this legislation.
Senator Taylor requested that the Division of Retirement &
Benefits provide a fiscal note incorporating changes in the
proposed amendment. Amendment #1 was TABLED. The bill was
held in Committee.
ADJOURNED
Senator Torgerson adjourned the meeting at 10:59 am.
SFC-00 (1) 1/21/00
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