Legislature(2007 - 2008)SENATE FINANCE 532
03/22/2007 09:00 AM Senate FINANCE
| Audio | Topic |
|---|---|
| Start | |
| SB123 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 125 | TELECONFERENCED | |
| += | SB 123 | TELECONFERENCED | |
| + | TELECONFERENCED |
MINUTES
SENATE FINANCE COMMITTEE
March 22, 2007
9:01 a.m.
CALL TO ORDER
Co-Chair Bert Stedman convened the meeting at approximately
9:01:06 AM.
PRESENT
Senator Lyman Hoffman, Co-Chair
Senator Bert Stedman, Co-Chair
Senator Charlie Huggins, Vice Chair
Senator Kim Elton
Senator Fred Dyson
Senator Donny Olson
Also Attending: CHARLENE MORRISON, Chief Financial Officer,
Division of Retirement and Benefits, Department of
Administration; MELANIE MILLHORN, Director, Division of
Retirement and Benefits, Department of Administration; KATHY
LEA, Retirement Manager, Division of Retirement and Benefits,
Department of Administration.
Attending via Teleconference: There were no teleconference
participants.
SUMMARY INFORMATION
SB 123-PUBLIC EMP./TEACHERS/JUDGES EMP. BENEFITS
The Committee heard from the Department of Administration. The
bill was held in Committee.
9:02:40 AM
SENATE BILL NO. 123
"An Act relating to the public employees' and teachers'
defined benefit retirement plans; relating to the public
employees' and teachers' defined contribution retirement
plans; relating to the judicial retirement system; relating
to the health reimbursement arrangement plan for certain
teachers and public employees; relating to the supplemental
employee benefit program; relating to the public employees'
deferred compensation program; relating to group insurance
for public employees and retirees; making conforming
amendments; and providing for an effective date."
This was the third hearing for this bill in the Senate Finance
Committee.
9:03:20 AM
Co-Chair Stedman announced that the opportunity for public
testimony would be available throughout the meeting.
9:04:33 AM
Co-Chair Stedman asked regarding the surplus assets described in
Section 12 of the sectional analysis [copy on file].
9:06:05 AM
CHARLENE MORRISON, Chief Financial Officer, Division of
Retirement and Benefits, Department of Administration explained
that Section 12 addressed termination of the plan as a whole by
the employer. If at the time of termination there were assets in
the system in excess of the actuarially calculated liabilities,
those excess assets would revert to the employer. This provision
is required by the Internal Revenue Code (IRC).
Co-Chair Stedman asked the technical modifications to SB 123
that would be necessary if the Committee adopted a cost share
"concept".
9:07:21 AM
Ms. Morrison responded that if both SB 123 and SB 125, the "cost
share bill", were passed by the Committee, reconciliations
between the two bills would be necessary.
Co-Chair Stedman, assuming both bills would be reported from the
Committee, asked if the Department had recommendations as to the
order of passage of the bills.
Ms. Morrison assumed that the "technical" bill, SB 123, would be
passed first, with any required amendments made to the "cost
share" bill, SB 125. She allowed that either bill could be
passed, with changes made to the other to "reconcile" any
discrepancies.
9:08:47 AM
Senator Elton referred to Section 13, line 23 of the bill which
set forth: "The amount of benefits is not subject to employer
discretion." He asked if that pertained specifically to
correctional officers negotiating benefits.
MELANIE MILLHORN, Director, Division of Retirement and Benefits,
Department of Administration, replied that the language quoted
did not speak to the issue of collective bargaining
negotiations.
Senator Elton furthered, asking what the provision was designed
accomplish.
9:10:01 AM
Ms. Millhorn explained that current statute specifies that
benefits are established for the "exclusive benefit of the
members". If the plan was terminated by the employer, the
administrator of that plan must satisfy financial obligations to
the employees first. After those obligations were met, any
remaining funds in the retirement system revert to that
employer. A recent decision regarding rights to negotiate
retirement benefits through the collective bargaining process
was issued by the Alaska Labor Relations Agency, and ruled that
retirement benefits are non-negotiable.
9:11:07 AM
Co-Chair Stedman understood that if the Defined Benefits (DB)
retirement plan was terminated in its entirety, the Internal
Revenue Service (IRS) would utilize the lower "bond market
returns" to assess the "present value of the assets" required to
ensure that employees receive the benefits they were entitled
to. The rate used by the IRS would have the effect of increasing
the total funds necessary to close the DB plan.
9:12:11 AM
Ms. Morrison had not discussed the possibility of terminating
the entire plan with the Division's tax counsel, and thus could
not respond.
Co-Chair Stedman understood the Pension Benefit Guarantee
Corporation to function in that manner in the private sector,
and assumed that a public retirement system would operate under
the same principles.
9:12:49 AM
Co-Chair Stedman asked the Administration's rational for
establishing an authority to intercept funds.
Ms. Morrison informed that the Division currently has no legal
authority to intercept funds from an employer that is past due
on its contributions. The Department of Law recommended such a
provision, and the Division considered it a method to "protect"
the plan. Under a cost share scenario, if an employer failed to
make its contributions, other employers in the plan would be
liable for that funding.
Co-Chair Stedman asked for verification that "interception of
funds" referred to intercepting State assistance to communities,
rather than Federal dollars or other funds.
9:14:20 AM
Ms. Morrison explained that federal monies had not been
discussed, and the provision would apply only to State funds not
appropriated for a specific purpose. She spoke to a provision in
the Teachers Retirement System (TRS) that allowed TRS to
approach the Department of Education and Early Development to
collect past due TRS contributions.
9:14:53 AM
Ms. Millhorn added that without this provision, the only
recourse available to an administrator to collect past-due
retirement contributions from an employer would be to initiate a
legal proceeding. Litigation is a costly and time consumptive
process that this provision would provide an alternative to.
9:15:48 AM
Senator Elton referred to Section 1, page 2, line 10 of the bill
that authorized "the intercept". He asked if the specification
that funds allowed to be intercepted were "not restricted by
statute or appropriation to a specific purpose" precluded
foundation formula education funding from interception.
Ms. Millhorn agreed that foundation formula funds were dedicated
to a specific purpose, and thus could not be intercepted.
Senator Elton continued, assuming that bond proceeds would also
be exempt from the interception provision, as bonds were issued
for an explicit purpose. The municipal share of the raw fish
tax, however, could be intercepted.
Ms. Millhorn concurred.
9:17:01 AM
Co-Chair Stedman requested clarification regarding retirement
benefits for elected officials, and for assurance that the bill
would not create a new benefit. In the past, local governments
had the option to participate in the PERS system.
9:17:47 AM
KATHY LEA, Retirement Manager, Division of Retirement and
Benefits, Department of Administration informed that the bill
would extend to only elected State officials, and be limited to
the Governor, Lieutenant Governor, and members of the
legislature. It would not include elected municipal officials,
due to the high cost of providing benefits.
9:18:24 AM
Co-Chair Hoffman asked the location of that provision.
AT EASE 9:18:38 AM/9:20:43 AM
Co-Chair Stedman located the language on page 52 of the bill,
and asked for clarification of the section.
Ms. Lea told that Section 110 would define a "member or
employee" to include the aforementioned elected officials, and
would exclude positions within the Department of Education and
Early Development that require a teaching certificate. Elected
municipal officials would not be included, for those positions
receive a stipend rather than a salary.
9:22:13 AM
Co-Chair Hoffman assumed this exclusion would apply only to
future elected officials at the municipal level, and that those
already in the PERS system would receive the benefits as
anticipated.
9:22:32 AM
Ms. Lea replied that any elected municipal employee working for
a PERS participating employer who was elected prior to July 1,
2006 would remain in the DB retirement plan. All municipal
officers elected after July 1, 2006 would not be benefit
eligible.
Co-Chair Hoffman inquired regarding an official elected prior to
July 1, 2006 and ran for reelection after that date.
Ms. Lea answered that the Division considers the date a person
first enters the PERS system to determine their tier and
eligibility. Thus, if an individual was elected prior to July 1,
2006, they would remain in the benefit tier as initially
established.
Co-Chair Hoffman furthered his line of questioning, asking if a
person would remain eligible if they had left public service for
an extended period of time and then returned.
9:23:43 AM
Ms. Lea affirmed, qualifying that an official could return to a
PERS participating position and qualify for benefits under the
original tier, provided that that person had not refunded their
employee contributions.
Co-Chair Hoffman asked if this provision would also apply to
school board members.
Ms. Lea affirmed, informing that school board members are
considered elected officials and participate in PERS.
9:24:20 AM
Senator Elton asked why Village Public Safety Officers (VPSOs)
were excluded in Section 111 of the bill, which defined "peace
officer" or "fire fighter" eligibility.
Ms. Millhorn responded that a "private letter ruling" from the
IRS prohibited VPSO participation in the DB plan.
Senator Elton returned to Section 1 of the bill to correct the
record. He had assumed during a previous line of questioning
that foundation formula funding could not be intercepted to pay
retirement system obligations, as they were funds dedicated to a
"specific purpose". Line 4 of page 2, however, provided that
those funds could be "claimed by the administrator".
Ms. Millhorn conceded.
9:26:07 AM
Co-Chair Stedman opined that the interception of education
funding would not meet the approval of the legislature.
Senator Elton agreed, and suggested an amendment could address
that issue.
Co-Chair Stedman explained that the bill would receive a through
hearing in Committee, and Members would have the opportunity to
offer amendments at a later date.
9:26:40 AM
Senator Huggins asked if this bill contained the "2010
provision".
Ms. Millhorn identified two provisions in the bill that
referenced the date of July 1, 2010. This date functions as a
reinstatement deadline for "conditional service benefits" for
former PERS and TRS employees, as well as the deadline to
reestablish indebtedness under PERS for the public service
benefit. After the date of July 1, 2010, employees would forfeit
any conditional service or public service benefits.
Senator Huggins asked the location of those dates in the bill.
9:27:54 AM
Ms. Millhorn pointed to Section 17 of the bill, which would be
applicable to TRS, and Section 60 which would relate to PERS.
She told that this would align with the indebtedness provisions
contained within SB 141, retirement system legislation passed by
the 24th Legislature. The conditional service benefit allows a
person who is eligible to receive benefits under both the PERS
and TRS systems to collect medical and pension benefits from
both. There were approximately 2, 000 individuals eligible for
conditional service benefits, and this provision would align
those people with the deadline provisions of SB 141.
9:29:42 AM
Co-Chair Hoffman asked if the State was required to provide
notification.
Ms. Millhorn replied that upon passage of SB 141, notification
was sent to all members who had refunded out of PERS or TRS, and
would thus be affected by the legislation. She expected the same
notification process to occur if this bill was passed by the
legislature.
9:30:17 AM
Co-Chair Stedman asked the position of an employee that worked
under the DB retirement plan, then took employment with an
employer that offered only the DCR plan.
Ms. Millhorn informed that a newly established employer would be
a member of the DCR plan. If a DB member became an employee of
the new employer, that employee would be eligible for benefits
under both systems, provided they met service requirements.
9:31:47 AM
Senator Elton asked if that scenario would apply only to vested
employees.
Ms. Millhorn responded that all members, vested or not, would be
able to earn retirement benefits under the DB and DCR plans,
provided they did not refund out of either system, and met the
minimum years of service to secure benefits.
9:32:49 AM
Co-Chair Stedman asked if a "deferred member" could reestablish
their account prior to 2010 without being rehired by an enrolled
employer.
Ms. Lea defined a deferred member as a member with contributions
still in the system. If that member had refunded any portion of
their service, they would have to reinstate that indebtedness
prior to July 1, 2010. Due to the fact that a deferred member
retains some portion of their contributions in the system, they
would remain a DB member, but would forfeit any service that had
been refunded if they failed to reinstate.
Co-Chair Stedman understood that if a deferred member forfeited
service from the period they were originally hired under, such
as Tier 1, their benefit status would be based on the employment
that was not refunded, and could be at a different tier.
9:34:46 AM
Ms. Lea affirmed, adding that service would be considered
"totally" forfeited after July 1, 2010, and if the employee
reentered PERS or TRS under a different tier, that tier would be
applicable to their service.
Co-Chair Stedman assumed that employee notification would
enumerate these details, and asked the requirements of the
Division's notification.
9:35:20 AM
Ms. Lea expressed that upon passage of SB 141, the Division
advised all employees of reinstatement requirements, and the
forfeiture ramification.
9:35:56 AM
Ms. Lea continued that the Division had purchased a new computer
software system that allowed it to locate current addresses for
employees in an attempt to facilitate information dissemination.
Co-Chair Stedman commented that several of his friends were
notified.
9:36:45 AM
Senator Huggins was familiar with a "403(b)" account, and
inquired as to a "403(a)" account.
Ms. Morrison understood 403(b) accounts to be "annuity type"
accounts. The Division administered neither 403(a) nor 403(b)
accounts, thus she was unsure.
Senator Huggins recalled 403(b) accounts were established for
medical professionals and teachers. He asked regarding the
intent of alignment between PERS and TRS in this legislation.
Ms. Morrison interjected that this bill was a technical
clarification bill. The cost share legislation would address
alignment.
Senator Huggins asked what modifications would be necessary to
achieve alignment between PERS and TRS.
9:38:35 AM
Ms. Millhorn commented that the volume of the bill before the
Committee was in part due to the duplication of changes
necessary to address both the PERS and TRS systems. If the
replicated changes were removed, the length of this bill would
be reduced to approximately five pages, representing the Pension
Protection Act.
Co-Chair Stedman asked for a definition of "plan qualified
status".
Ms. Millhorn defined "plan qualified status" as a plan governed
by the IRC regulations, which is able to provide benefits to
members on tax deferred basis. The Pension Protection Act (PPA)
was enacted in 2006 and included additional requirements to
maintain qualified status. Plans must now renew their qualified
status with the IRC every 5 years.
9:41:06 AM
Senator Huggins asked how the underfunding provisions of the PPA
would relate to the State.
Ms. Millhorn understood that the PPA required a different
structure than the federal Employee Retirement Income Security
Act (ERISA), but was not applicable to the State government's
plan.
Ms. Morrison agreed that government retirement plans did not
fall under ERISA guidelines. She assumed that Senator Huggins
was referring to ERISA principles.
9:42:36 AM
Senator Elton returned to Section 110, and asked if this
provision would exclude an elected mayor that received a salary.
Ms. Lea responded that the Division had an "informal opinion"
that an elected mayor would be treated as an employee if that
position was full time. The Division had eleven requirements
used to determine if an individual qualified as an employee or a
contractor.
Senator Elton continued, stating that the mayor of Juneau
received a salary, but could also be employed elsewhere during
his term. He asked if this position would be eligible to
participate in the retirement system.
Ms. Lea replied that an elected official would be eligible to
participate only if their position was full-time.
9:44:38 AM
Co-Chair Stedman shared that the current retirement system had
"tightened up" the hours required annually for qualification,
but the issue was still a local policy decision.
Senator Elton opined it "odd" that mayors who are supervisors of
eligible public employees would not themselves be eligible to
participate in the retirement system.
Co-Chair Stedman would provide clarification on that point.
9:45:58 AM
Senator Elton referred to Sections 21 through 31, asking if
those provisions constituted a "diminishment of benefits" to DCR
employees hired after July 1, 2006 but before this bill's
effective date of July 1, 2010.
Ms. Lea replied that she would provide an overview of those
sections, beginning with Section 21, which would update the
"rollover" provisions. This section would be an expansion of the
benefits provided to employees hired after July 1, 2006, as it
included many Individual Retirement Accounts (IRAs) not
originally approved for rollover.
9:47:27 AM
Ms. Lea spoke to Section 22, classifying it as an existing
requirement for any plans that accept pre- and post- tax
dollars. These funds must be accounted for separately, and this
provision codifies a requirement of the PPA.
Ms. Lea told that Section 23 would require that contributions to
the plan be deposited in to appropriate plan or trust account
and sets a payment deadline. This would also be a codification
of existing practice, but must be embedded in statute to conform
to the IRC for the plan to receive "qualified" status.
Ms. Lea continued to Section 24, which would allow for interest
to be charged on contributions not transmitted to the plan in a
"timely" manner. This applied to the DCR plan, and constituted
an enhancement.
Ms. Lea informed that Section 25 specified that defined
contributions paid to an individual's account would be subject
to the limitations under 415(c) of the IRC. This could not be
considered a diminishment, as the Division had operated under
those principles since the inception of the DCR plan.
9:49:20 AM
Ms. Lea stated that Section 26 clarified the process for the
termination of disability benefits.
Senator Elton understood that Section 26 and other
aforementioned sections were justified as a "clarification of a
practice," and commented that in the course of clarifying a
practice, the legislation may be changing existing law to
conform to the practice, thus resulting in a diminishment of
benefits to recently hired employees.
9:50:56 AM
Ms. Lea reported these changes were codifications of the
emergency regulations promulgated by the Division the previous
year. The Division preferred the provisions be in statute rather
than solely in regulation.
Senator Elton commented that regulations must have statutory
authority.
9:51:54 AM
Ms. Lea explained that Section 27 provided that a member who
received disability benefits from the plan would be fully vested
in all the employer contributions made to the member's
individual account, as required by the IRS. This provision would
clarify language in SB 141, which could have been construed to
deny full vestment of benefits to an employee in permanent
disability status.
Ms. Lea set forth that Section 28 clarified the termination of
disability benefits at the date that a disabled member first
qualified for normal retirement.
9:53:26 AM
Co-Chair Stedman noted the "considerable discussion" regarding
the transition from disability to retirement when SB 141 was
drafted.
9:53:43 AM
Ms. Lea told that Section 29 clarified four issues related to
the benefits for a survivor of a disabled member, including:
termination of survivor's pension; inaccessibility of the
member's individual account while receiving a survivor benefit;
normal retirement benefits available to the survivor; and
determination that a period of disability benefits and survivor
benefits constitute service for eligibility for medical
benefits. These items were included in the intent discussion of
SB 141, and this section would clarify the intent.
9:54:39 AM
Ms. Lea continued to Section 30, stating that it defined
"occupational disability". She recalled that SB 141 utilized the
definition contained within the DB plans, and this provision
would allow the DCR plan to clarify the definition for its
purposes.
Ms. Lea reviewed Section 31, which required employers to fund
the additional benefit for survivors of a disabled member by
making contributions to the trust account based on the deceased
members' gross monthly wage. The benefits would be provided to
the survivor at the time of normal retirement of the member, if
that member were alive, and would contain the amount of employer
and employee contributions the member would have deposited. The
IRC does not allow for additional contributions to a deceased
member's account after death, and this provision would provide a
tax-qualified method to afford those benefits, as intended by
the legislature with the passage of SB 141.
9:56:18 AM
Co-Chair Stedman asked if Members needed additional
clarification.
Senator Elton replied that it would be "helpful", and identified
a "fine line" between clarification of practices and changes to
the law.
ADJOURNMENT
Co-Chair Bert Stedman adjourned the meeting at 9:57:09 AM
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