Legislature(1995 - 1996)
04/27/1996 01:20 PM House FIN
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* first hearing in first committee of referral
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= bill was previously heard/scheduled
SENATE BILL 148
"An Act relating to a defined contribution retirement
plan for state employees."
MARY RUBADEAU, SUPERINTENDENT, JUNEAU SCHOOL DISTRICT,
ALASKA COUNCIL OF SCHOOL ADMINISTRATORS, JUNEAU, stated that
the Alaska Council of School Administrators strongly opposes
SB 148. She believed that the legislation would place the
State of Alaska and the students of the State at risk
because they would no long be able to attract the brightest
and best educators to work in Alaska.
Of the sixty-nine retirement systems compared, 53 plans
allow for some combination of a Teacher Retirement System
(TRS) and Social Security (SS) coverage.
(Tape Change, HFC 96-144, Side 2).
Ms. Rubadeau continued, SB 148 would reduce the current
multiplier of 2% or 2.5% to 1.5%. Of the 69 retirement
programs studied, thirty-one pension plans use an accrual
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rate equal to or greater than 2% percent; twenty-four plans
use an accrual rate between 1.79% and 1.99%. Only 7 plans
use 1.5% or less as the multiplier for computation of
retirement benefits. If Alaska were to adopt 1.5%
multiplier, Alaska will be at the "bottom of the list" for
attractive retirement system plans.
She continued, the third tier retains the highest paid
teachers in the system longer, at a time when districts are
looking for means to reduce expenses, suggesting that the
biggest budget area which could show a savings would be
staff salaries.
She asserted that the benefits for retaining the current
retirement system out weigh the reasons for the proposed
language. SB 148 would place Alaska at the bottom of
quality and value when compared with other states. Ms.
Rubadeau thought that Alaska teacher salaries are becoming
more in line with those of other states. Alaska is now
having difficulty in some districts retaining quality
educators under the present system. Adoption of SB 148
would create more reasons not to come to Alaska to teach.
She urged that the Committee not pass SB 148.
Representative Therriault inquired if the Alaska Council had
voiced blanket opposition to the legislation. Ms. Rubadeau
noted that the TRS system works and is a good system. She
believed it would make more sense to amend the current
system as opposed to adopting the third tier system. Ms.
Rubadeau commented on the opposition to the concept of the
Tier III. Representative Therriault pointed out that the
legislation could be amended in order to better work for the
groups involved.
In response to Representative Therriault's comment, Ms.
Rubadeau explained that the number of people applying for
jobs within the Alaska school districts has decreased by
one-quarter in the past year. Recruitment considerations
are a critical factor for the school system in Alaska. She
added, teaching is a taxing profession; new people with
energy and vision need to be given the opportunity to work
to keep up the challenging concerns. Specifically why
school districts supported the early retirement incentive
program.
Representative Parnell asked if there was a waiting list of
qualified teaching positions in Juneau. Ms. Rubadeau
responded that there have been qualified applicants who have
not been able to obtain employment because there have been
no new hires in the past few years.
Representative Mulder suggested that the decision be based
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on "financial reality" rather than trying to modify social
behavior in terms for employment practices. He suggested
that teachers be held to the same level as other professions
in determining when they should leave their post. Ms.
Rubadeau spoke to the realities which face school districts;
once teachers are tenured, they stay in the teaching system,
and that many of their choices evolve around financial
issues regarding the retirement system.
JUDY MURPHY, (TESTIFIED VIA TELECONFERENCE), BARROW, stated
that new retirement proposals would not encourage teachers
to stay in the system nor would it encourage new students to
pursue degrees in education. She emphasized that the
proposed changes would be too drastic and urged members to
vote against the proposed legislation.
BILL DONALDSON, (TESTIFIED VIA TELECONFERENCE), KODIAK,
spoke in favor of the legislation, specifically the portion
which addressed the Early Retirement Incentive Program (RIP)
for state employees. He agreed that it was fiscally
responsible to reduce state government.
MIKE LAUNDRY, (TESTIFIED VIA TELECONFERENCE), KODIAK POLICE
DEPARTMENT, KODIAK, spoke in support of the legislation. He
thought that the bill would be of benefit to the Kodiak
Police Department, pointing out that people would be
eligible for early retirement through passage of the
legislation. He thought that could create more options for
entry level employees.
DENNIS OAKLAND, (TESTIFIED VIA TELECONFERENCE), CITY OF
HOMER, HOMER, commented that the City of Homer is facing
declining city revenues, forcing down-sizing and
restructuring of the city work force. SB 148, RIP portion
of the bill would allow the city to reduce the work force
and bring on new employees at lower costs, creating
substantial savings. He concluded, the City of Homer
supports SB 148 and urges the Committee's approval and
passage.
NICK DUDIAK, (TESTIFIED VIA TELECONFERENCE), SELF, STATE
EMPLOYEE, HOMER, testified in favor of SB 148, echoing that
savings would be provided to the State through passage of
the legislation. He pointed out that without passage of the
bill, many lower paid recruitment positions would be laid
off resulting from the proposed budget plan.
GREG MACDONALD, (TESTIFIED VIA TELECONFERENCE), PUBLIC
SAFETY EMPLOYEE ASSOCIATION, ALASKA STATE FIRE FIGHTERS
ASSOCIATION, ANCHORAGE, stated that members of the
associations which he represents strongly urge the Committee
to separate the RIP and Tier III sections of the proposed
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legislation. Each should stand on their own merit. He
pointed out that there was broad support for the RIP portion
of the bill, although, citizens felt strongly about the
"Tier III" portion and would not support the legislation
with that included.
He pointed out that SB 148 would cut spouse and dependent
health care for the police and fire workers. Mr. MacDonald
stressed that these employees have stressful work lives. If
they have to remain in service longer, that increases family
stress and will make it "tough" to recruit quality people.
KEITH PERIN, (TESTIFIED VIA TELECONFERENCE), BOARD OF
DIRECTORS, PATERNAL ORDER OF STATE TROOPERS, ANCHORAGE,
advised that the Tier III retirement portion of the bill
would be detrimental to all State troopers. In order to
maintain the quality work force in the State, changes as
proposed in Tier III would not be advisable. The current
plan in Alaska is considered to be in the "middle of the
road" compared to other states. Mr Perin commented that
Tier III will put Alaska at the "bottom of the barrel".
California and Delaware have superior plans. He urged that
the two portions of the bill be separated.
LUCY HOPE, (TESTIFIED VIA TELECONFERENCE), PRESIDENT, MAT-SU
EDUCATION ASSOCIATION, ANCHORAGE, spoke in opposition to SB
148. She pointed out that the Mat-Su School District has a
difficult time recruiting specialty teachers; the proposed
legislation would make it more difficult.
Representative Therriault commented on the actuarial
soundness referenced by Ms. Hope, suggesting that fear was
ungrounded. Representative Therriault noted that the
different tiers are individually funded and by adding a Tier
III would not jeopardize other employees retirement.
BILL BJORK, (TESTIFIED VIA TELECONFERENCE), PRESIDENT,
FAIRBANKS EDUCATION ASSOCIATION, FAIRBANKS, spoke in
opposition to SB 148 because it will negatively impact
Alaska's ability to retain teachers and to attract new
teachers throughout the State. He added that the
association is concerned about the bills negative influence
on TRS participants. Teacher shortages still exist in rural
Alaska. If SB 148 becomes law, teachers will be forced to
moon-light after school and during the summers to qualify
for a modest social security annuity.
Representative Martin noted that he did not favor the RIP or
the Tier III program. He thought that neither would provide
a cost savings.
Representative Kelly inquired if University of Alaska was
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able to supply the number of needed replacement teachers.
Mr. Bjork replied that the University can not supply the
number of graduates necessary especially in the "special
needs" area.
DON DAVIS, (TESTIFIED VIA TELECONFERENCE), FAIRBANKS, spoke
against SB 148. He stated that it was an additional step
made by the Legislature to punish the working class
individual. Without a retirement incentive, one would
assume that a stable work force would be less available for
state employment. He pointed out, the Legislature had voted
an additional raise for themselves while funds were depleted
taken from the working class. Co-Chair Foster indicated
that the proposed legislation was the Governor's bill.
ANNALEE MCCONNELL, DIRECTOR, OFFICE OF MANAGEMENT AND
BUDGET, OFFICE OF THE GOVERNOR, commented that the proposal
prepared last year by the Governor differs in many respects
from current retirement incentive suggestion.
(Tape Change, HFC 96-145, Side 1).
Ms. McConnell reported that the legislation would not
provide an automatic age in which to be able to retire, but
rather it would be used at the Administration's discretion
to determine which work units could achieve savings to allow
employees to retire early. The program would calculate how
much savings would occur by either eliminating the position
or by replacing the employee at a lower pay range. The
other calculated portion would be the employers contribution
toward retirement, an amount paid by the Department over a
three year period.
Representative Martin voiced concern with the fiscal impact.
He maintained that the retirement program would be at the
expense of new employees, who would need to provide personal
savings three times greater than current employees.
Ms. McConnell explained that the initial bill submitted by
the Administration was a "straight-forward" retirement and
separation incentive. It did not include any adjustments to
retirement. In the Senate, that bill was combined with a
bill prepared by Senator Rieger addressing retirement
benefits. The Administration stated that this was not the
preferred approach and then suggested alternatives.
MARK BOYER, COMMISSIONER, DEPARTMENT OF ADMINISTRATION,
commented that the assumption is that wages which drive
retirement will continue to rise with the consumer price
index (CPI). These will have increased benefits added so
that the future retiree should have a base which has kept
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pace with retirement costs. Commissioner Boyer pointed out
that a 4% gross factor was used to determine the retirement
reduction from the employee.
Representative Martin asked if that was determined by the
1.5% contribution added per year. Commissioner Boyer
replied that the 1.5% is a broad base private industry
standard. Base adjustments are still assumed at the 4% per
year increase. He agreed that the 1.5% was low and will
result in a lower retirement piece.
Representative Martin asked if the fiscal note submitted had
been calculated at the 1.5%. Commissioner Boyer explained
that Tier III savings was built upon blending the Tier I and
Tier II employees, eventually being replaced by the Tier III
employee.
Representative Therriault asked if going to a Tier III would
jeopardize the benefit paid to the Tier I and Tier II
employees. Commissioner Boyer advised that the tiers are
distinctively different and the contributions paid are
separate pools of retirement resources. The actuarial
assumptions which provide the contribution is based on the
individual employees placement. There will be no reduction
to the Tier I or Tier II level employee benefits from
implementing an additional tier.
Representative Therriault asked how the money would be saved
from the RIP program. He understood that it was the intent
of the Administration to use RIP savings to address
department budget reductions. Ms. McConnell offered to
provide the Committee with a handout explaining the plan and
the impact. Representative Therriault reiterated that the
budget reductions should not effect an employee who had
already RIP'ed out.
Representative Brown referenced the outdated fiscal notes.
She asked if they reflected savings expected through the
Tier III proposal. Commissioner Boyer explained that the
Department would provide a new fiscal note based on
Committee action. The budget anticipates a $30 thousand
dollar savings in FY97 associated with the implementation of
Tier III, based on turnover assumptions. Tier III savings
will accrue at a small rate over a period of time.
Representative Brown asked if there was any part of the Tier
III which the Administration supported and considered good
policy. Commissioner Boyer advised that the Administration
does not support the Tier III portion of the bill. He
suggested that the defined contribution needs to be
substituted with the defined benefit approach.
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In response to Representative Brown's query, Commissioner
Boyer replied that the Administration would support an
element of the Tier III system, seeking changes to the
health benefit provision and the multiplier. Representative
Brown asked if those two items were changed, would the
remainder of the bill be acceptable. Commissioner Boyer
stated that the Administration did not have a final
consensus regarding SB 148. Representative Brown emphasized
that there is "high" interest understanding the "range of
changes" proposed by the Administration. She asked access
to the information currently available.
Representative Parnell asked if the Administration had
calculated the savings. Commissioner Boyer replied that
health benefits had been cost-out for a twenty-five year
period, and those numbers were available. He added, the
system needs to be able to attract and retain good public
employees. The goal is to decrease employer contribution to
6% range.
Representative Therriault interjected that the effected
groups would of course want to continue the status quo; he
intended to a change that system. Commissioner Boyer
reminded members that savings accrue over time and are
incremental; for administrational ease, the blended number
would be 13.8% employer contribution.
Representative Therriault pointed out that the social
security contribution was 6.2%. He stressed that the PERS
contribution was too "rich". Commissioner Boyer disagreed
with that characterization. He stated that the private
sector often had other retirement plans available to their
employees.
Representative Therriault asked the Administration's
objection to a defined contribution plan. Commissioner
Boyer replied that plan tends to be of less benefit to large
public employers than it is for the private sector
employers. He agreed that it was attractive, although, felt
that the defined benefits arrangement would provide more
certainty to public employees. People are awarded for their
longevity as opposed to a defined contribution plan.
Representative Therriault agreed that the bill needed
adjustments, although recognized the need for change to our
current situation. He stressed that it would always be
opposed by the private sector.
(Tape Change, HFC 96-145, Side 2).
Discussion followed between Representative Martin and
Commissioner Boyer regarding the information requested from
the Administration highlighting options and cost analysis.
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Representative Therriault asked how the Administration felt
about including Tier III and RIP in the same bill.
Commissioner Boyer clarified that language was inconsistent,
encouraging employees to "leave early" while and on the
other hand developing a system to encourage them to stay
longer. Representative Therriault pointed out that the time
scenarios differed. He stressed that employees have a
personal obligation for providing for their own future
outside of the retirement accrued through their jobs.
Representative Martin agreed.
SB 148 was HELD in Committee for further discussion.
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