Legislature(1999 - 2000)
04/06/2000 08:09 AM House STA
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 438-PERS BENEFITS FOR EMERGENCY MEDICAL TECHS CHAIR JAMES announced the next order of business would be HOUSE BILL NO. 438, "An Act permitting certain emergency medical personnel in police or fire departments or employed by the state troopers to convert their credited service under the public employees' retirement system to credited service as peace officers; and providing for an effective date." [A proposed committee substitute (CS), version 1-LS1574\G, Cramer, 4/5/00, was in committee packets.] Number 0417 CHAIR JAMES called for an at-ease at 8:14 a.m. and called the meeting back to order at 8:15 a.m. Number 0496 BILL CHURCH, Retirement Supervisor, Division of Retirement & Benefits, Department of Administration, said he has worked with Mr. Harman from Representative Kott's office and Ms. Cotting from Representative James' office regarding the proposed CS. He noted that based on the comments of testimony on Tuesday (4/4/00), there was some concern that there would be groups of people that should be covered under the proposed CS, and that the intent was to cover them; however, because of the organization's makeup and title designation, they would not be covered. For example, in the Matanuska-Susitna (Mat-Su) Borough, they are considered a public safety organization and yet have no police activities under their organization. Therefore, what was done was to change the title by removing from the proposed CS "employed by the state troopers". MR. CHURCH commented that also the original line 8 talks about "a state emergency medical service (EMS) officer or an emergency medical technician (EMT) in a state trooper office or in a police or fire department"; removal of that makes the proposed CS broad enough to cover these other potential agencies, but it keeps the proposed CS focused on these specific job qualifications of only the EMS and EMT. He indicated the key was to make sure that the proposed CS only applied to that group, which certainly addresses the concerns of Representative Ogan. Number 0691 CHAIR JAMES asked if the [EMS and EMT groups] are included wherever they work. REPRESENTATIVE HUDSON made a motion to adopt the proposed CS for HB 438, version 1-LS1574\G, Cramer, 4/5/00, as a work draft. There being no objection, Version G was before the committee. REPRESENTATIVE OGAN said he is concerned that a trend has been started. He explained that he could think of a lot of different groups that have high stress that do not usually retain 30 years of service. He commented that probably all state employees could be allowed to retire after 20 years if they want to pick up the cost. He is not entirely satisfied that there is not going to be a long-term cost that is not reflected in the fiscal note. He mentioned that as these additional people get into the retirement system at a young age, especially if someone goes to work as an EMT right out of high school or shortly after some technical training, they can retire at 38 years old and start drawing on the PERS. He indicated that life expectancy is high, so these young people could live a long time. Therefore, he would like to hear a discussion on how longevity affects the PERS over the long run. Number 0860 CHAIR JAMES stated that the retirement system is considered to be appropriate based on certain guidelines as to how many retirees there are and what the life span is. Originally, she also had a problem with a 20-year retirement as opposed to a 30-year retirement. However, she observed, retirement then was not the same as retirement now: today, retirement is not retirement. Therefore, she remarked, if Representative Ogan is talking about people going to work in their 20s and retiring in their 50s, that is not necessarily the case. She indicated her belief that the retirement income that young people would be receiving on the 20- year plan is not going to keep them for the rest of their lives because it is too small. REPRESENTATIVE JAMES said the amount is not known. Looking at her own life, she has had four careers. She envisions that the future will generate a different lifestyle. People are going to be living and working longer. She said "retirement" is not a good term for the proposed CS; rather, "a savings account" would be better. She noted that she is comfortable with the proposed CS. As soon as the committee started talking about people who had stress on their jobs and wanted to get out in 20 years instead of 30 years, then everybody came forward with all the stresses that they had on their jobs. She explained that living is a stress these days, and she does not know anybody that does not have stress on the job. She said learning to live with stress is better. She thinks the committee has to be flexible. If there is no direct cost to the state, she thinks that it is the same idea as putting money into an individual retirement account (IRA). She reiterated that the proposed CS is an option, not mandatory. Number 1103 REPRESENTATIVE OGAN asked what the effect is of the proposed CS. He said surely when people retire ten years earlier, they are going to be drawing on that retirement system, because a person does not just get the money that he or she paid into the retirement system. He reminded the committee that other people in investments and everything else help to support that payout. He asked Mr. Church to address the [20-year payout impact]. MR. CHURCH replied that the retirement system is based on the actuarial principle that a benefit is funded each year. In other words, each year that he is an employee of the state, money is being set aside to pay his benefits down the road when he retires. The retirement system is based on pre-funding retirement benefits, as opposed to the Social Security model that pays as it goes. The funding process has three components: employee contributions, employer contributions, and investment earnings on that money. Each year, an actuarial firm reviews the money that comes in to determine if enough money was earned and contributed to fund that year of service. He mentioned that [because of the actuarial review], various employers notice that employer rates go up and down year by year. He indicated that his division is always reviewing the actual five-year history of the fund, and so it is updating actuarial assumptions based on real experience. He informed the committee that actuarial projections are also adjusted by mortality. He said Representative Ogan is correct that mortality is increasing. The division is taking that into consideration as it predicts the cost of benefits. Number 1282 MR. CHURCH agreed that HB 438 is very expensive because a person belonging to a 30-year retirement program may choose to go to a 20-year program. He emphasized that a 20-year program is inherently more expensive to fund. He remarked that his division does a calculation when an employee requests a 20-year retirement of what the difference will be from the 30-year to the 20-year retirement. He reminded the committee that the person who chooses a "20 and out" retirement is going to have to pay the difference in those costs; the person can either pay the cost up front or he/she can take a lifetime reduction to pay for the difference. He added that depending on the person's age and what tier he/she is, these costs may also include the present value of health insurance that the system is required to pay. He observed that the division does try to take in the true value of these costs. He stated that the division has also built in an anti- selection factor on the theory that only those who are advantaged will take advantage of the benefit. He reiterated that actuarial science calls this factor anti-selection. He said that the division tries to take in all of these known and unknown factors into the process. REPRESENTATIVE OGAN asked if it costs more to others who are contributing to PERS when people opt out early. MR. CHURCH replied that there is no additional cost to either employees or employers for affording an individual this type of an option. Number 1365 REPRESENTATIVE OGAN asked if it costs more to the PERS because these people are going to be drawing upon the PERS ten years longer. Therefore, he asked if Mr. Church was saying that all of the costs of drawing ten years longer are borne by the employer and the employee. Number 1391 MR. CHURCH answered that the costs are borne by the employee taking advantage of a "20 and out" program. He said that the division had done a workup on "20 and out" through its actuary, and it was found that a Tier I employee who has worked 20 years in employment addressed by one of these "20 and out" bills will pay a total of $282,000 to fund their 20-year benefits. He noted that non-peace officer "20 and out" retirement liability is $107,700 so the employee would have to pay the difference of what has been funded versus the money necessary to fund the 20-year peace officer benefit. He reiterated that the employee either has to pay the difference up front or take a lifetime reduction and explained that his example was based on someone who had an average salary of $50,000 because each one of these calculations is individual specific based on their age, service accruals, and salary. REPRESENTATIVE HUDSON asked if the actuarial value of the PERS program was about 108 percent at the present time. Number 1491 MR. CHURCH replied that on the next report to come out the actuarial value will be a little higher. REPRESENTATIVE HUDSON pointed out for the benefit of Representative Ogan that investment earnings on monies that have been collected from employees and employers are now greater than what it would take to literally pay off every single employee in the state of Alaska. He mentioned that this is very unusual because, typically, most actuarially-based retirement funds rest at about 80 percent across the nation. He indicated that here in Alaska investment earnings have done quite well, and in fact, there is extra money in the program to actually expand benefits or for other purposes. REPRESENTATIVE HUDSON informed the committee that the money in PERS belongs to the employees; that is important because when speaking about cost, there are no costs to HB 438. He remarked that he differs from Chair James because he would not want to see the entire state program rolled over to a "20 and out." He added that he thinks there are some big disadvantages to having every state employee be able to literally opt out at 20 years. He recognized that in the particular case of HB 438, where employees have working conditions and stress relationships similar to peace officers, he thinks that it is probably a reasonable thing to consider; that is the reason he is supporting HB 438. Number 1612 CHAIR JAMES said career employees are needed, but she does not know that just because they can retire at 20 years does not mean that they will. She explained that she thinks that if some people have the [20-year] option then everybody should have the option. She agreed that there is a benefit for long-term employees. She noted that since the retirement system actuarial account is over 100 percent she thinks that employer and employee charges should be equally reduced. MR. CHURCH commented that at the last [PERS] board meeting employer rates were adjusted down because of the very favorable funding ratio that the division is experiencing now. Therefore, employers (including the state) are receiving a benefit similar to the one that was given a number of years ago. REPRESENTATIVE GREEN asked if the division had considered what would happen when someone wants to share his or her retirement with a spouse. Number 1784 MR. CHURCH replied that the division actually starts from one point when figuring all of its benefit structures. He stated that the one point is a normal retirement benefit calculation and noted that every other benefit or option available under the retirement system is the actuarial equivalent of the normal benefit. Therefore, he reiterated, when the division does its calculations, it just uses the normal retirement benefit because it would make no difference whether retirement benefit was calculated on a normal benefit, an early benefit, or one of the survivor options. He said that all calculations go back to the actuarial equivalent of the normal benefit. REPRESENTATIVE HUDSON noted that the member who is retiring must pay for a widow's benefit if the member chooses that option. Number 1850 MR. CHURCH explained that even if a member chooses a survivor option, there is no need to change the calculation because every calculation is figured from the normal benefit base calculation. REPRESENTATIVE GREEN asked if the survivor option needed to be considered in the shorter retirement plan. MR. CHURCH replied no. REPRESENTATIVE HUDSON made a motion to move CSHB 438, version 1- LS1574\G, Cramer, 4/5/00, out of committee with the attached zero fiscal note and individual recommendations; he asked for unanimous consent. There being no objection, CSHB 438(STA) moved from the House State Affairs Standing Committee.
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