Legislature(2005 - 2006)CAPITOL 106
03/02/2006 08:00 AM House STATE AFFAIRS
| Audio | Topic |
|---|---|
| Start | |
| HB485 | |
| HB475 | |
| HJR25 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 344 | TELECONFERENCED | |
| + | HJR 25 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| = | HB 485 | ||
| = | HB 475 | ||
HB 475-PUB EMPLOYEE & TEACHER RETIREMENT & SBS [Contains discussion of SB 141 and brief mention of SB 293.] 8:44:12 AM CHAIR SEATON announced that the next order of business was HOUSE BILL NO. 475, "An Act describing contributions to the health reimbursement arrangement plan for certain teachers and public employees; clarifying eligibility for membership in that health reimbursement arrangement plan; relating to the 'administrator' of the Public Employees' Retirement System of Alaska; and providing for an effective date." The committee took an at-ease from 8:44:31 AM to 8:46:15 AM. 8:46:19 AM REPRESENTATIVE GATTO moved to adopt the committee substitute (CS) for HB 475, Version 24-LS1685\Y, Wayne, 3/1/06, as a work draft. There being no objection, Version Y was adopted. [CHAIR SEATON handed the gavel to Vice Chair Gatto in order to present HB 475.] 8:47:02 AM REPRESENTATIVE SEATON addressed HB 475, as sponsor. He explained that the bill is "the technical clean up bill for SB 141" - a bill passed last year regarding the Public Employees' Retirement System (PERS) and the Teachers' Retirement System (TRS). 8:49:22 AM VICE CHAIR GATTO noted that HB 475 is a lengthy bill. 8:50:38 AM REPRESENTATIVE SEATON directed attention to the new language in [Section 1], page 2, of Version Y, which read as follows: The final decision under AS 44.64 is delegated to the administrative law judge and shall issue within 180 days after the date the administrator receives the appeal, unless the administrative law judge and all parties agree to another time. 8:53:05 AM KATIE SHOWS, Staff to Representative Paul Seaton, Alaska State Legislature, on behalf of Representative Seaton, sponsor, responded to a question from Representative Lynn. She explained that the sponsor statement is broad, and the issue being discussed can be found on it at the fifth bullet point from the bottom, which read, "Clarifies the procedure for an appeal to the Office of Administrative Hearings." 8:53:56 AM REPRESENTATIVE SEATON moved on to Section 2, regarding the employer contribution rate. He said, "That was consistent policy that we had in [SB 141] ..., and it didn't get done for this one section." 8:54:30 AM MS. SHOWS added that Section 2 has a delayed effective date of 2008, which is shown on the last page of the bill. She explained the reason for that is there are a number of employers whose assets actually exceed their liabilities and they need "a few years to be able to account for that." 8:55:06 AM REPRESENTATIVE SEATON directed attention to Section 3, which addresses membership service for which contributions were refunded. He explained that a person who leaves the system and takes his/her money will "not be able to reinstate." 8:55:34 AM VICE CHAIR GATTO offered his understanding that under the current system, it is possible to leave the system and "buy back in." 8:55:49 AM MS. SHOWS said the sectional analysis in the committee packet shows that Section 3 specifically deals with conditional service for TRS membership. The way the bill was written, she explained, if a retirement system member had at least two years of TRS service and cashed out, he/she could buy back that service and receive a conditional TRS benefit. She said, "This means that in some cases a PERS employee could still be working, and if they were a Tier I TRS employee for those two years, could be receiving both a pension and a medical benefit for those two years of service." She stated that a member who has not cashed out of the minimum two years TRS service and comes back to work for another employer would still be eligible for the conditional service benefit. VICE CHAIR GATTO asked what would happen to a person who had worked in TRS and "just quit" - took his/her money and left - and thought 30 years later that that was a mistake. He asked if that action could then be reversed. 8:57:14 AM MS. SHOWS answered, "You can until the year 2010, ... [at which point] you will not be able to cash back into the system - pay back - if you've already cashed out. And the reason for that - and that was incorporated in SB 141 and we debated it extensively - is because it represents a very large, unknown liability to the system." She indicated that that issue will be addressed further in the bill. 8:57:53 AM REPRESENTATIVE SEATON addressed Section 4, which relates to a contribution into a trust account. He explained that SB 141 gave a new benefit to PERS and TRS members that had not existed before in the defined benefit (DB) system, which was occupational death and disability; however, it was not specified that the contributions were to go into a trust account. The result would be that each employer would have a small amount to deposit, but with no way to pay the benefits, because the benefit needs to be system wide "for that amount of money to be able to pay those benefits to the people who are injured or die." 8:58:56 AM REPRESENTATIVE SEATON said Section 5 adds language stating that the administrator may require a person who deferred participation to show evidence of insurability. He explained that the language "demonstrates that a person has either medical insurance coverage from their early retirement until they're eligible for selecting medical retirement under this plan ..., or that they at least have a letter of insurability." In response to a question from Representative Gatto, he confirmed that "as long as they have any current insurance then they have insurability." 9:00:43 AM REPRESENTATIVE SEATON turned to Section 6, which addresses the issue of what happens if a disabled member becomes ineligible to receive occupational disability benefits before the normal retirement date. In response to a question from Vice Chair Gatto, he referred to the last line of the reason for Section 6, as shown in the sectional analysis, which read as follows: "The employer must also make the member's contributions to the individual contribution account." 9:03:39 AM VICE CHAIR GATTO stated the importance of reading the language in the sectional analysis and subsequently being able to find that language in the bill. 9:04:04 AM REPRESENTATIVE SEATON directed attention to Section 7, regarding the monthly amount of an occupational disability benefit of 40 percent. He said Section 7 would require the employer to continue to make deposits for the employee into the defined contribution account. However, at some point "when a person has service" he/she would be able to start taking out the benefits and they wouldn't be there when he/she retired. 9:05:18 AM REPRESENTATIVE SEATON moved on to Section 8, which clarifies the termination of disability benefits when a disabled member first qualifies for normal retirement. Section 9, he noted sets out the date at which that would happen, and adds "dependent" to "child". Section 10, he said, addresses the timing of payments for a surviving spouse or dependent child. Section 11 prevents a person from draining his/her retirement account by making the employer make the contributions while he/she is receiving survivor's benefits. 9:08:30 AM MS. SHOWS highlighted the new language that would be added to Section 12 of the bill, which read as follows: The period of time during which a survivor's pension is paid under this section constitutes membership service for the purpose of determining vesting in employer contributions under AS 14.25.930(b) and eligibility for retirement and medical benefits under this chapter and AS 39.30.300 - 39.30.495 9:08:49 AM REPRESENTATIVE SEATON stated that the intent of Section 12 is to ensure that people qualify for benefits under the plan. 9:09:17 AM REPRESENTATIVE SEATON directed attention to Section 13, which he said addresses transfers from the defined benefit plan to the [defined contribution plan] and provides: Upon transfer, all membership service previously earned under the defined benefit retirement plan shall be nullified for purposes of entitlement to a future benefit under the defined benefit retirement plan but shall be credited for purposes of determining vesting in employer contribution under AS 14.25.390(b) REPRESENTATIVE SEATON explained that voluntary transfers from the defined benefit plan to the defined contribution plan would be allowed [through SB 141], but there was no specification that the number of years a person had in the defined benefit plan would qualify for vesting in the defined contribution plan. So, not only would the money transfer over, but the years of service would count towards vesting, he explained. REPRESENTATIVE SEATON addressed Section 14, which would - regarding the aforementioned voluntary transfer - provide a time limit of not later than 12 months after the member's employer notifies the administrator that the member's employer consents to the transfer of the member. The employer has to allow any nonvested member who wishes to transfer from the defined benefit plan to the defined contribution plan to do so. Representative Seaton offered further details. 9:13:07 AM MS. SHOWS, in response to a question from Vice Chair Gatto, said there is no difference between the terms defined contribution (DC) plan and defined contribution retirement (DCR). 9:13:33 AM REPRESENTATIVE SEATON moved on to Section 15, which he said specifies the dates in which the 12-month conversion takes place and also allows the employer additional time to give employees another 12-month window in the future. In response to a question from Vice Chair Gatto, he clarified that both the first and second 12-month periods begin on the first of a month and are "time-certain." Representative Seaton reiterated the reason for having a 12-month window. 9:16:57 AM MS. SHOWS reviewed Section 16, which read: (3) "membership service" has the meaning given in AS 14.25.220 and does not include any service for which reinstatement indebtedness has not been fully paid. 9:17:42 AM REPRESENTATIVE SEATON directed attention to Sections 17 and 18, both of which correct language to say that regulations are "adopted by the commissioner", not by the Alaska Retirement Management (ARM) Board. Section 19 addresses appeals, which Representative Seaton reiterated would be given 180 days. Section 20 deals with "the same thing on appeals that we dealt with before." Section 21 addresses contribution by employers. Representative Seaton said the health reimbursement account (HRA) contribution will be based on the average wage of all the employees, not just a single employer. 9:20:20 AM REPRESENTATIVE SEATON noted that Section 22 would remove a conflict regarding eligibility for retirement and medical benefits in the HRA. 9:21:23 AM REPRESENTATIVE SEATON, in response to a request for clarification from Vice Chair Gatto, explained that there was a dispute as to how long a person's HRA would be available to him/her and whether it would terminate if that person did not vest immediately. The House opined that an HRA contribution is just like the retirement portion of a defined contribution and should be "kept on the books for the person." He clarified, "Those years of service and that amount would be held for them in their HRA account; they would pick up their HRA account just as if they hadn't left service at all." REPRESENTATIVE SEATON directed attention to Section 23, regarding eligibility and reimbursement, and he said the addition of the word "or" means that a person does not have to be eligible for both PERS and TRS. He said Section 24 relates to the aforementioned 180 days of appeal time. 9:23:16 AM VICE CHAIR GATTO suggested the language should read "180 calendar days" for purposes of clarity. 9:24:07 AM REPRESENTATIVE SEATON suggested the committee could ask Legislative Legal and Research Services or the Department of Law whether a definition of 180 days already exists in statute. REPRESENTATIVE SEATON mentioned Section 25, which read as follows: (d) The employer contribution rate may not be less than the rate required, after subtracting the member contribution rate, to fully fund the actuarially calculated benefits expected to be earned by active members during a fiscal year. 9:25:47 AM REPRESENTATIVE SEATON directed attention to Section 26, which he said has to do with public service benefit and dual service related to TRS and PERS. Section 27, he noted, would remove the provision that would allow employees to repay refunded contributions. Section 28 would add a provision for appeal to the Office of Administrative Hearings of the Commissioner's decisions on waiver requests under PERS. He offered further details. Section 29, he noted, is in regard to the commissioner's designee, while Section 30 relates to a trust account providing money to pay "those disabled benefits under the police/fire." REPRESENTATIVE SEATON paraphrased the notation in the sectional analysis for Section 31, which read: AS 39.35.870(g). Requires a person who originally chose not to participate in the retiree major medical plan, but who later chooses to participate, to provide a letter of continuous coverage or proof of insurability. REPRESENTATIVE SEATON said Section 32 relates to a period of disability benefits constituting membership service. Section 33 clarifies that a member is not entitled to elect distributions from the member's individual account while receiving disability benefits, while Section 34 clarifies the termination of disability benefits happens when [a disabled person] is eligible for retirement. 9:28:37 AM REPRESENTATIVE SEATON indicated that Section 35 is in regard to fire fighters and peace officers not being able to draw from retirement while receiving disability benefits. He reviewed Sections 36, 37, and 38, which he said are in regard to survivor's benefits. 9:29:26 AM VICE CHAIR GATTO asked, "... Is it fixed that the surviving spouse will always get the same amount of money that you were getting?" 9:30:08 AM MS. SHOWS noted that the pension benefit for "the survivor" is 40 percent of salary, an amount that is adjusted for Cost of Living Allowance (COLA) and the post retirement pension adjustment (PRPA). She said, "I would anticipate that the benefit would increase with inflation." She suggested that Vice Chair Gatto may get more specific information from the director of Retirement & Benefits. 9:30:42 AM VICE CHAIR GATTO stated that he would like to see language in the bill ensuring that a surviving spouse would never get less than "the same amount of money as if the deceased spouse were still present." He said he thinks he can "demonstrate a situation where that does occur." 9:31:31 AM REPRESENTATIVE SEATON clarified that what Vice Chair Gatto wants to know is whether the surviving spouse's benefit would be at least as much as that of the person who died. He said he would get that answer for the committee. REPRESENTATIVE SEATON returned to the sectional analysis. He said Section 39 - regarding a period of death constituting membership service - means that when an employee dies, the employer will continue to make contributions on the member's behalf "until the normal retirement age." He said Section 40 addresses transferring from the DB to the DC plan. Sections 41 and 42 pertain to the first and second 12-month windows, respectively. Section 43 offers a definition of the membership service and clarifies that a [service] credit is eligible for transfer. Section 44, he explained, clarifies that "member" and "employee" mean the same thing in the context of the bill. Section 44 also addresses the Department of Education and Early Development positions that require teaching certificates. He said if a position requires a teaching certificate, then the employee would be in TRS, otherwise he/she would be in PERS. 9:35:13 AM VICE CHAIR GATTO said his wife is a school nurse and a certified employee. He said he would like it clarified what certified means, because "there are a few people that are always outside the teaching certificate, but which nonetheless are certified employees." 9:36:20 AM REPRESENTATIVE SEATON stated that a certificated employee who requires a teaching certificate would be in TRS, while someone who does not have a teaching certificate and whose position does not require one would be in PERS. He offered his understanding that [school] nurses are in PERS. VICE CHAIR GATTO said nurses are not in PERS; they are in TRS. He reiterated that there is a need to clean up the definitions. REPRESENTATIVE SEATON directed attention to Section 45, which provides the definition for peace officer and fire fighter [under the DCR plan]. VICE CHAIR GATTO asked if that would automatically exclude the Village Public Safety Officer (VPSO) program. REPRESENTATIVE SEATON said he would ask that question of the Division of Retirement & Benefits. 9:38:46 AM REPRESENTATIVE SEATON noted that Section 46 is in regard to appeals. MS. SHOWS reviewed Section 47 in the section analysis, which read: Adds the Supplemental Benefit-Annuity Plan, Health Reimbrusement Arrangement Plan, Deferred Compensation Plan, and waivers of adjustment under the PERS and TRS defined benefit plans to the jurisdiction of the Office of Administrative Hearings. REPRESENTATIVE SEATON said Section 48 would repeal the requirement in SB 141 that the employer contribution rate must not be less than the normal [cost] rate. Section 48 also would repeal participation of the National Education Association (NEA) employees in TRS. He stated the reason for this repeal, citing from the pertaining language of the sectional analysis, which read as follows [original punctuation provided]: Reason: Although NEA had been included by the legislature in the TRS DB plan in statute, NEA is a non-profit organization and they do not qualify for inclusion in the system. This error was acknowledged by the Division of Retirement and Benefits, the Department of Law, and the NEA in the early 1990's/late 1980's. In discussion with participating NEA management it was decided by the TRS Board that members participating at the time would be grandfathered and inclusion of new members would be discontinued (since then the last member has retired). Inclusion in the new plan resulted from duplication of existing statutes. CHAIR SEATON mentioned that, additionally, Section 48 repeals duplicative language. 9:41:13 AM CHAIR SEATON directed attention to Section 49, which relates to reinstating service associated with refunded contributions, and Section 50, which deals with uncodified law. He offered further details based on the sectional analysis. Sections 51, 52, and 53 address the effective date for certain sections of the bill. 9:44:31 AM REPRESENTATIVE LYNN directed attention to the sponsor statement and asked to which of the 53 sections does the following apply: Establishes provisions for employer termination from the plan 9:44:48 AM MS. SHOWS explained that that applies to an amendment that is forthcoming. She said it turns out that establishing termination for employers in the plan is a complex concept that will require the discussion of the committee. In response to a request from Representative Lynn, she further explained that currently if an employer chooses not to participate in the defined benefit plan and requests termination from the plan from the Division of Retirement & Benefits, the division consults its actuary to calculate the employer's unfunded liability. The employer would be required to make the payment of that unfunded liability. She offered her understanding that if an employer decides to terminate, all the employers are considered vested in the plan at the point of that termination. She explained that a similar process must be established for the defined contribution plan. MS. SHOWS, in response to a question from Representative Gatto, indicated that the village of St. Marys terminated from the plan. REPRESENTATIVE SEATON noted, "There were a number of cities that were trying to figure out how to do that ...." 9:48:08 AM BILL BJORK, President, National Education Association (NEA)- Alaska, told the committee that NEA-Alaska represents over 11,400 active school employees - both teachers and education support professionals - and over 1,300 retired employees. Mr. Bjork said he cannot resist saying "I told you so" to the legislature. He explained that last year he urged the House State Affairs Standing Committee to take its time in examining HB 238 and the ramifications of SB 141, specifically encouraging the committee to use the interim as a time to study the issues. VICE CHAIR GATTO told Mr. Bjork that he would like him to focus on HB 475. He said he knows HB 475 would affect SB 141, but "the benefits, or consequences, or opinions about [SB] 141 should not be a part of the discussion of this bill." MR. BJORK stated that as the committee moves towards creating a bill that can work for Alaska, it will be looking at many amendments that will profoundly affect the performance of SB 141. He agreed that SB 141 is not on the table today; however, he pointed out that the way in which SB 141 is actually implemented appears to be on the table for discussion. 9:50:40 AM MR. BJORK paraphrased from his written testimony [full text included in the committee packet] as follows: We urge you to set aside [HB] 475 and, in it's place, introduce a companion bill to SB 293, which would delay the implementation of SB 141 until July 1, 2008. According to the sponsor statement for [HB] 475, a handful of errors and oversights were made that needed to be changed for a smooth transition, though my hand could hold four or five items, but not the thirteen bulleted items that actually make many amendments to the law. If this is the number of changes proffered now, what might be the number discovered with further study? In fact, no one is sure that the present plan - even with the changes required prior to July 1, 2006 - will meet the compliance regulation of federal law. In fact, several folks who understand federal [Employee Retirement and Income Security Act of 1974 (ERISA)] regulations and [Internal Revenue Service (IRS)] code believe the basis of the health reserve account contribution has to be changed ... to the average compensation for all plan participation. MR. BJORK reiterated his request for the House State Affairs Standing Committee to replace HB 475. He continued paraphrasing from his written testimony as follows: Last session, NEA-Alaska urged you to consider the impact on the present retirement plans if the plans are closed and, thus, payroll-based contributions are reduced. You assured us that there was no impact, but today we've learned that, in fact, there is. We know employer rates for past service costs will continue to rise as amortized liability is applied to a shrinking payroll paid to members in the defined benefit plans. Thus, not only did SB 141 not address the liability of retirement plans, it increased the liability for employers. Are you sure that the proposed change will not lead to still greater problems? Do you have the actuarial data to make this determination? NEA-Alaska believes that the answer to both of those questions [is] no. ... NEA-Alaska believes that the $5.7 billion liability of the present plan is not growing as fast as it was projected to grow last session. On reason is larger than expected investment return. We're also waiting for the actuarial reports to the Alaska Retirement Management Board to determine whether or not [Mercer Human Resources, Inc.'s] assumptions were appropriate given the Alaska experience. It seems inappropriate to act until we hear form the folks that SB 141 authorized to make these recommendations to you. As the committee knows from NEA-Alaska's testimony last year, we believe a defined benefits plan is far superior to a defined contribution plan for retirement purposes for public employees. We understand the ... bona fide concerns of the entire legislature that predictability of costs and the limitation of liability must be primary components of such a new plan. NEA-Alaska believes that a defined benefits plan can be fashioned on a set contribution from the employer and the employee, and the legislature really ought to have the opportunity to choose between the DC plan and such a plan as I've described. ... Last year's forced choice was just not good public policy from our perspective. 9:55:31 AM MR. BJORK, in response to a question from Representative Lynn, said Senator Kim Elton is the sponsor of SB 293. 9:56:42 AM GLENN RAMOS told the committee that he is a member of NEA- Alaska. He concurred with the prior testimony from Mr. Bjork. He said he thinks there are a lot of unanswered questions and [the legislature] needs the benefit of time to look at the available data and to consider the possibility of meeting the goal of the original bill, which he said was to address the liabilities [in the retirement system]. 9:57:21 AM MR. RAMOS, in response to a question from Representative Lynn, said he is a school psychologist. 9:57:34 AM REPRESENTATIVE RAMRAS suggested that part of the reason that the state may be facing a potential increased liability is that House members worked to increase the state retirement contribution by 2 percentage points over the original intent of SB 141. He said, "As we go forward, we're going to find that that extra 2 percent contributes mightily to the accrued retirement benefits under this program. For as long as the state transitions to a defined contribution plan there will be more state resources that are going into the retirement accounts of NEA members and members of ... TRS." MR. RAMOS told Representative Ramras that he is aware of that. 9:59:14 AM KATHY WIGHT-MURPHY noted that she is a member of the National Education Association (NEA) in Washington D.C. and, thus, is involved with NEA-Alaska. She said she is a teacher in the Matanuska-Susitna Valley. She urged the committee to set aside HB 475. She said it is apparent that the issue before the committee is a complex one, and she urged the committee to postpone the implementation of SB 141 until 2008, in order for further studies to be done to ensure an effective retirement system for future employees of Alaska. She said this is essential for both recruitment and retainment. 10:01:01 AM VICE CHAIR GATTO asked Ms. Wight-Murphy if she would rather the committee did not clarify SB 141 but "simply work to set it aside," or if she thinks "this is a benefit that we should pass and deal with the other issue later." MS. WIGHT-MURPHY responded that she would appreciate the committee's allowing more actuarial studies and looking at the details of the defined contribution plan in the tiered systems to ensure that it is being implemented correctly. She said she doesn't want to see another rush through a complex issue as occurred last year. In response to a question from Vice Chair Gatto, she said, "I would like to seek a substitute that would be a companion bill to the senate bill that is already introduced." 10:02:44 AM REPRESENTATIVE GARDNER said she agrees with NEA-Alaska's position on SB 141 and said she would certainly support postponing its implementation. She asked, "... In the event that that effort doesn't happen and the fact that SB 141 is now law, would you support HB 475 or not?" MS. WIGHT-MURPHY answered that she would need more time to review HB 475, and she indicated that she would need to wait until all the amendments to it had been made. 10:03:38 AM CHAIR SEATON expressed hope that Ms. Wight-Murphy and the other testifiers representing NEA-Alaska would view HB 475 not as an entire bill to support or oppose, but rather as a whole series of "changes, cleanups, [and] clarifications." He said he would appreciate their feedback. MS. WIGHT-MURPHY said that she appreciates the committee's addressing the issues that were not addressed in SB 141 that would impact future employees, and she said she is certain that NEA-Alaska will assist the committee in giving recommendations. CHAIR SEATON indicated that he would particularly like NEA- Alaska to review the aforementioned provision regarding the 12- month window. MS. WIGHT-MURPHY replied, "We certainly will." 10:06:53 AM VICE CHAIR GATTO announced that HB 475 was heard and held. [VICE CHAIR GATTO turned the gavel back over to Chair Seaton.]
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