Legislature(1997 - 1998)

05/07/1997 03:30 PM House L&C

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
 CSSB 126(FIN) - STATE EMPLOYEES RIP AMENDMENTS                                
 Number 345                                                                    
 CHAIRMAN ROKEBERG announced the committee would address CSSB
 126(FIN), "An Act relating to the retirement incentive program for            
 state employees; and providing for an effective date."  He asked if           
 there was anyone in attendance from the Senate Finance Committee.             
 Number 420                                                                    
 TOM WILLIAMS, Legislative Assistant to Senator Bert Sharp, Alaska             
 State Legislature, read the following statement into the record:              
 "Senate Bill 126 will require state agencies to make better use of            
 the retirement incentive program (RIP) enacted last year.                     
 "Soon after the beginning of the legislative session, the Senate              
 Finance Committee took testimony from the Office of Management and            
 Budget (OMB) regarding the Administration's utilization of the RIP            
 program and the savings that had been realized as a result of the             
 implementation.  The Administration had chosen a very restrictive             
 and selective approach to implementing RIP program.  Consequently,            
 the number of employees who were even offered the opportunity to              
 retire under the plan was small relative to total number of state             
 employees and, therefore, that minimized the potential savings to             
 the state.  In other cases, individuals who were offered the                  
 opportunity to participate may have chosen to delay their                     
 retirement to a later RIP date.                                               
 "This bill leaves the basic elements of current retirement                    
 incentive program in place.  However, it adds two principal                   
 provisions.  First of all, it limits a qualified employee's                   
 participation to the first RIP application period for which they              
 qualify; and second, it requires state agencies to offer a RIP plan           
 to all qualified classified state employees during three two-month            
 "This legislation will not only increase RIP participation, it will           
 accelerate when employees are required to retire under this                   
 program.  Both elements should increase savings to the state, the             
 principal impetus to passing the RIP legislation last year."                  
 MR. WILLIAMS said one other main point he would make is although              
 there are a number of proposals that have been put forth to change            
 the tool, this legislation doesn't really change the tool.  It just           
 takes steps to ensure that the tool is utilized to the greatest               
 extent possible.  It requires the Administration to use the tool to           
 get savings.  He encouraged the committee to pass the legislation.            
 Number 849                                                                    
 REPRESENTATIVE GENE KUBINA asked why the legislation only deals               
 with state employees and not school district employees.                       
 MR. WILLIAMS explained the idea was basically to look for savings             
 in the Executive Branch.  He said that seemed to be where the most            
 concerns were raised about the number of people that were being               
 allowed to participate or even being offered to participate.  He              
 noted he has given committee staff information dated March 20,                
 prepared by OMB, titled "Status Report on Approved RIP plans."                
 There is also additional information from the Department of                   
 Administration which is an update of the positions in the RIP plan.           
 Mr. Williams indicated he also had additional information, dated              
 May 7, which says that of the 12,000 employees that work for the              
 Executive Branch, 949 were offered to participate in a RIP.  He               
 noted this is an improvement from earlier this year as it is up               
 about 50 percent.  Previously only 660 employees had actually been            
 offered the opportunity to participate.                                       
 MR. WILLIAMS said, "If you buy into the assumption that RIP was               
 something good and really would save the state some money, then I             
 think the idea is that RIP ought to be utilized to the greatest               
 extent possible -- and what we weren't seeing, particularly, was a            
 willingness to utilize it to its fullest extent and that was the              
 impetus to this legislation.  We are interested in getting some               
 savings and we encourage them to use the tools they've been given."           
 Number 730                                                                    
 REPRESENTATIVE JOE RYAN asked if the program requires the employer            
 to pay the employee's contribution and the employer's contribution            
 into the pension fund for the three-year or four-year period.                 
 MR. WILLIAMS informed Mr. Ryan he would have to defer that question           
 to the department.  He noted nothing is being changed from last               
 year's RIP plan; it just pushes them to use the plan.                         
 Number 783                                                                    
 CHAIRMAN ROKEBERG asked what savings have occurred or should have             
 occurred from the existing program.                                           
 MR. WILLIAMS said the Administration has not indicated that.  He              
 noted there is a fiscal note which says the savings are                       
 indeterminate.  He suggested that OMB could provide testimony                 
 regarding his question.                                                       
 MR. WILLIAMS informed the committee members that there is criteria            
 for offering the RIP to somebody.  You have a certain number of               
 years of service, you have to be a certain age and there has to be            
 dollar savings associated with each and every opportunity.                    
 Number 908                                                                    
 REPRESENTATIVE BILL HUDSON referred to Representative Ryan's                  
 question and said, "If I read this thing correctly, the employer              
 pays the portion of the - I think it's three years, and the                   
 employee, essentially, his portion is all (indisc.--coughing) or              
 paid back as a contribution as a part of it by getting a decreased            
 overall retirement plan, so that if he had worked that extra three            
 years and then retired, he'd got his 2 percent times this average             
 of high three at that point in time and it had a certain dollar               
 figure for retirement.  By taking the RIP and taking it a little              
 earlier, he ends up with less for the balance of his life."  He               
 explained they have a choice to either pay for it or take an                  
 actuarial reduced income.  There has to be a savings indicated to             
 the state of Alaska over a three-year period of time.                         
 Number 1079                                                                   
 CHAIRMAN ROKEBERG brought forth the following amendment:                      
 Page 2, following line 7:                                                     
 Insert a new bill section to read:                                            
 "* SEC. 3.  Section 23(c), ch. 4, FSSLA 1996, is amended to read:             
 (c) A proposed retirement incentive plan adopted under this section           
 may not permit an employee who is the governor, the lieutenant                
 governor or a commissioner, deputy commissioner, or assistant                 
 commissioner of a principal department of the executive branch to             
 participate in the plan.  In the case of each employee who                    
 participates in the retirement incentive plan and who is                      
 compensated at range 17 or above on the state salary schedule or a            
 comparable level on the salary schedule that applies to the                   
 employee, the employing department or agency shall reduce the range           
 for the employee's position by at least one level before hiring a             
 replacement for the employee.  For a period of three years after              
 the position became vacant because of the employee's retirement,              
 the state department or agency may not increase the salary range              
 for the position previously held by the retiring employee.  The               
 department or agency may only increase the salary range for the               
 position after the three-year period of the increase is recommended           
 by a position classification study."                                          
 Number 1139                                                                   
 REPRESENTATIVE RYAN moved Amendment 1 for the purpose of                      
 Number 1175                                                                   
 JACK KREINHEDER, Senior Policy Analyst, Office of Management and              
 Budget, Office of the Governor, came before the committee to                  
 testify.  He stated he wasn't in attendance to testify in support             
 or opposition of the bill.  Mr. Kreinheder said he would explain              
 why the Administration took a different approach in the RIP that              
 the legislature enacted last year.  Mr. Kreinheder explained that             
 the bill before the committee would convert the RIP currently                 
 underway to something that would be virtually identical to the RIPs           
 that were done in 1986, 1987, 1989 and 1990.  He said they are                
 generally called across-the-board or blanket RIPs.  Anyone who                
 meets the basic age, service requirements and shows a savings could           
 participate under the program.                                                
 MR. KREINHEDER said, "The main reason the Administration took a               
 different approach with our RIP plan is when they looked at the               
 last program done in 1989-1990, although there were estimates of,             
 I believe, in excess of $6 million of savings by the Division of              
 Legislative Audit, our concern was that only a handful of the                 
 positions out of the -- I believe it was 759 state employees that             
 participated in that program -- and only a handful, literally three           
 or four, of those positions were eliminated.  So, in our view,                
 while you could calculate savings, it was not used as a downsizing            
 tool, clearly.  Virtually, all the positions were refilled.  Our              
 Administration's interest was in using the RIP program as a                   
 downsizing tool and rather than offering it to all employees and              
 refilling most or all the positions, to use it in the areas of                
 state government that were facing budget reduction or for other               
 reasons, were being downsized.  So the idea there is to use an                
 approach which, in our view, is more similar to what most private             
 sector companies would use."  Mr. Kreinheder explained that they              
 aren't requiring all positions that participate in the plan to be             
 eliminated.  He said they are reviewing the plans carefully and are           
 strongly encouraging departments to look at eliminating positions             
 wherever possible.                                                            
 MR. KREINHEDER referred to projected savings under the current                
 program and asked the committee to look at wording in the                     
 information he distributed, "must retire by..."  He noted the dates           
 haven't been inserted as a number of the department's have multiple           
 plans.  Mr. Kreinheder noted most of the dates in the information             
 haven't occurred yet.  That means employees, even those who have              
 applied for the plan, haven't had to retire yet.  Experience from             
 the prior plan shows a large number of employees do wait until the            
 last month that they can retire before they elect to go.  He noted            
 247 employees have applied for the program.  Mr. Kreinheder said to           
 try and calculate savings at this time is really a stab in the                
 dark.  He stated they'll have a much better idea by July 1.  Under            
 the bill passed last session, OMB is required to prepare a status             
 report to the legislature by January 15, 1998.                                
 Number 1435                                                                   
 REPRESENTATIVE RYAN said in addition to downsizing as much as                 
 removing positions, the philosophy behind the program was to take             
 older employees that are at a much higher pay grade and allow them            
 to retire early and fill the position with entry level positions.             
 He asked why the Administration is looking more at eradicating                
 positions than filling them with an entry level position and                  
 realizing the savings.                                                        
 MR. KREINHEDER explained the emphasis was on downsizing.  He said,            
 "Clearly, we are allowing a majority of the positions to be                   
 refilled.  One concern is if you look at sort of the paper savings            
 when we review these calculations, you might show somebody being              
 replaced at a lower range saving such and such amount of money.               
 But one thing that's not factored into those calculations is the              
 fact a large number of these employees are already eligible for               
 normal retirement - might retire without the program.  So to some             
 extent, those sort of paper savings or projected savings tend to              
 overstate the actual savings from the program and that was a                  
 concern when we looked at the savings estimates for the prior                 
 program.  The estimate that the Division of Legislative Audit did             
 assumed that not a single person who participated in the last                 
 program would have retired normally.  And they recognized that                
 wasn't really a valid assumption, but they didn't have any means to           
 tell how many of them would have retired without the program so               
 they just ran the numbers as if none would have."                             
 Number 1593                                                                   
 REPRESENTATIVE KUBINA asked Chairman Rokeberg if he is ready for a            
 motion on the bill.                                                           
 CHAIRMAN ROKEBERG said he believes there is another witness and               
 noted there is an amendment on the table.                                     
 MR. KREINHEDER said his office is fully confident that both the               
 current RIP and the proposed change to the program does not in any            
 way jeopardize the funding or the good standing of the PERS or TRS            
 systems.  The amount that has to be paid into the retirement system           
 by the both the employer and employee is sufficient when it's                 
 invested over time to pay the additional three years of retirement            
 checks or credit that employees would receive under the program.              
 CHAIRMAN ROKEBERG asked Mr. Kreinheder if he has reviewed the                 
 MR. KREINHEDER said he believes he understands the amendment.                 
 Number 1684                                                                   
 REPRESENTATIVE KUBINA referred to information the committee members           
 had and said, "The 247 applications they have received, they cut 72           
 of those - that they're going to delete those positions and 66 of             
 them that they're going to downgrade.  I guess my point being here            
 that this Administration has really gone over backwards not to make           
 the mistakes of past RIP bills.  They have really looked at trying            
 to make savings, and some people think have gone too far because              
 they haven't (indisc.) people get out of the system.  If you                  
 compare with what they're doing, it seems like without your                   
 amendment they're certainly trying to do that every place that is             
 possible or necessary.  Some places, you're amendment might make it           
 where really it's not appropriate to do that - to downgrade."                 
 MR. KREINHEDER said the one concern he has with the amendment is              
 that in some cases with the RIP plans they have reviewed, they have           
 run into situations where departments are limited in the extent to            
 which they can downgrade positions.  Under the state's                        
 classification system, there are restrictions against filling a               
 position or replacing a position at a lower salary if the person              
 filling that position is required to do the same work as the person           
 who left it.  He said you can't just pay somebody less if they're             
 doing the same and comparable duties of similar positions in other            
 departments.  Mr. Kreinheder suggested checking with the Department           
 of Administration, Division of Personnel.                                     
 Number 1791                                                                   
 BILL CHURCH, Retirement Supervisor, Division of Retirement and                
 Benefits, Department of Administration, came before the committee             
 and apologized for arriving late.  He indicated he would try to               
 answer questions.                                                             
 REPRESENTATIVE HUDSON asked Mr. Church if he has any figures                  
 showing savings.  He also asked who in the Administration is the              
 repository of accumulative savings of a RIP.                                  
 MR. CHURCH responded, "Certainly as it applies to the overall                 
 program, I don't know whether OMB is tracking that or whom.  We,              
 within the division, we certainly keep records and we know employer           
 costs.  At the end of this week and when the dust settles, we will            
 be able to tell what employer costs were incurred by employees -              
 administrative fees are related to that.  So as far as the RIP                
 program itself, we can answer those questions.  In actual savings             
 to an individual department, we wouldn't have statistics based on             
 that information."                                                            
 Number 1862                                                                   
 REPRESENTATIVE HUDSON referred to the first RIP and said there were           
 a lot of state employees that took the three years and retired                
 early.  The system obviously saved money.  He asked, "You haven't             
 had any appreciable effects on the retirement trust funds?"                   
 MR. CHURCH responded that is correct.  He said all three of the               
 bills have been designed so there is no impact to the retirement              
 funds.  The employer cost is designed to compensate the fund for              
 the present value of the additional benefits that someone would               
 receive over their anticipated lifetime.  He said this is something           
 that their actuary has been very conscious of over the past two               
 programs and found that they are assuring that there is no effect             
 to the contribution rate of employers.                                        
 REPRESENTATIVE HUDSON asked how the payments are processed by the             
 various departments.  For example, the Department of Administration           
 approves ten individuals to retire.  He asked, "What changes hand?            
 Where does the money to pay for that come from?  Who to?  And                 
 ultimately where does it end up?"                                             
 MR. CHURCH responded, "The departments are billed not for those               
 people that are designated, but only for those individuals who do             
 actually retire on the program.  The departments will pay that                
 employer cost.  It's paid over three years and the first payment is           
 due by August of the fiscal year following an individual's date of            
 retirement and then one-third until it's paid."                               
 Number 2046                                                                   
 REPRESENTATIVE RYAN said the amendment seems to accelerate the                
 process and to bring more people into the system.                             
 CHAIRMAN ROKEBERG asked Mr. Williams to come back before the                  
 committee and explain his position regarding the amendment.                   
 Number 2077                                                                   
 MR. WILLIAMS said he prefers the amendment not be adopted.  He                
 explained the reason is that it changes the tool itself.  In the              
 Senate Finance Committee there were a number of provisions where              
 people suggested that we change how RIP worked as far as what you             
 and the Administration had to do to qualify.  Mr. Williams                    
 explained the emphasis of the bill was simply not change the tool,            
 but simply to make sure that the tool was being used.                         
 Number 2118                                                                   
 CHAIRMAN ROKEBERG closed the public hearing on CSSB 126(FIN) and              
 asked what the wish is of the committee.                                      
 REPRESENTATIVE HUDSON said, "Let me just speak for a moment to my             
 perception of Amendment 1.  I view this as somewhat attempting to             
 micro mange or to create a set situation that if anybody over the             
 range of 17 has to be hired one grade down and then held static for           
 three years, and the contracts themselves, salary range as well as            
 the statutes, normally provide for the progressive range steps up.            
 I think that by offering this and requiring that they show a                  
 savings, without this amendment they'll have the flexibility in               
 some cases of not hiring anybody at all in there and saving the               
 money for the state in that respect -- by getting rid of an                   
 employee or perhaps even by combining two positions rather than               
 simply just setting up a sort of a rigid schedule to where if you             
 RIP someone at a 17 or over, you got to drop them a range and then            
 hold them steady.  I just think that it's not well thought out is             
 on a long-term basis."                                                        
 Number 2200                                                                   
 CHAIRMAN ROKEBERG said the purpose of the amendment, from his                 
 perspective, is that it would provide a tool and mandate that true            
 savings do occur.  He said it is his understanding that,                      
 historically, that's been one of the difficulties and there has               
 been a true lack of effective savings from the programs.  Chairman            
 Rokeberg asked if there was an objection to Amendment 1.                      
 A roll call vote was taken.  Representatives Rokeberg and Cowdery             
 voted in favor of the adoption of Amendment 1.  Representatives               
 Brice, Kubina, Ryan, Hudson and Sanders voted against the adoption            
 of Amendment 1.  So Amendment 1 failed to be adopted.                         
 Number 2260                                                                   
 REPRESENTATIVE HUDSON moved and asked unanimous consent to move               
 CSSB 126(FIN), Version F, out of committee with individual                    
 recommendations and attached fiscal notes.                                    
 CHAIRMAN ROKEBERG asked if there was an objection.  Hearing none,             
 CSHB 126(FIN) moved out of the House Labor and Commerce Standing              

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