Legislature(2005 - 2006)

05/13/2005 05:09 PM Joint 141


Download Mp3. <- Right click and save file as

Audio Topic
05:09:35 PM Start
05:14:03 PM SB141
05:42:53 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
txt
        SB 141-PUBLIC EMPLOYEE/TEACHER RETIREMENT/BOARDS                                                                    
                                                                                                                                
CHAIR STEDMAN announced SB 141 to be up for consideration.                                                                      
                                                                                                                                
REPRESENTATIVE  HAWKER  said  there  was no  need  to  redo  work                                                               
already done on this issue,  but item 30 regarding the university                                                               
was something he thought they  could come to agreement on easily.                                                               
The two most  contentious issues within the current  bill are the                                                               
sunset and the plan choice alternative.                                                                                         
                                                                                                                                
5:14:03 PM                                                                                                                    
He  had  concerns  with  the  overall  direct  contribution  (DC)                                                               
approach; he  didn't like the  simultaneous dual plan  and wanted                                                               
to take that  off the table now. He also  thought the sunset plan                                                               
needed  a  clear decision.  It  doesn't  make  sense to  make  an                                                               
agreement and then say it will go away in two years.                                                                            
                                                                                                                                
The effective date  of when employees become involved  in the new                                                               
DC  plan  is  now July  1,  2005.  If  they  decide that  is  the                                                               
appropriate  route to  take, this  time horizon  is too  short to                                                               
properly implement  the plan. Deferring the  effective date until                                                               
July 1,  2006 will allow  time to get more  actuarial information                                                               
and  to look  at  other things  to incorporate  in  the DC  Plan.                                                               
Removing the sunset gives certainty to the plan.                                                                                
                                                                                                                                
5:18:26 PM                                                                                                                    
REPRESENTATIVE HAWKER moved to adopt conceptual Amendment 1.                                                                    
                                                                                                                                
                     CONCEPTUAL AMENDMENT 1                                                                                 
                                                                                                                                
OFFERED IN FREE CONFERENCE COMMITTEE                                                                                            
TO:  HCS  CSSB 141(FIN)  am  H,  version R.A.  By  Representative                                                               
Hawker                                                                                                                          
                                                                                                                                
Part 1                                                                                                                        
                                                                                                                                
Effective date: Sections 32,67,79 and  120 of the Act take effect                                                               
July 1, 2006.                                                                                                                   
   1. Section 32 is the Defined Contribution Plan under AS 14.25.                                                               
   2. Section 67 amendments AS 39.30.090 procurement of group                                                                   
     insurance to include the new medical benefits sections of                                                                  
     the Defined Contribution Plans under AS 14.25 and AS 39.25.                                                                
   3. Section 79 is the new Health Reimbursement Arrangement Plan                                                               
     for members of the Defined Contribution Plans.                                                                             
   4. Section 120 is the Defined Contribution Plan under AS                                                                     
     39.35.                                                                                                                     
                                                                                                                                
Legal  Services  should  make all  conforming  changes  to  other                                                               
sections in  the bill that  reference sections 32,67,79  and 120.                                                               
All other sections of this  Act, except for those specified above                                                               
and those  contained in  sections 146  and 147  on page  120, are                                                               
effective July 1, 2005.                                                                                                         
                                                                                                                                
Part 2                                                                                                                        
                                                                                                                                
Delete the  sunset provision  and the  employee option  to choose                                                               
either the DB or DC plans.                                                                                                      
Page 115, lines 13-20:                                                                                                          
     Delete all material.                                                                                                       
                                                                                                                                
Renumber the following bill sections accordingly.                                                                               
                                                                                                                                
Part 3                                                                                                                        
                                                                                                                                
Delete   the  conditional   retroactivity  clause.   The  delayed                                                               
effective date  of the new  Defined Contribution Plans  makes the                                                               
retroactivity clause unnecessary.                                                                                               
                                                                                                                                
Page 120, lines 20-25:                                                                                                          
                                                                                                                                
     Delete all material.                                                                                                       
                                                                                                                                
Renumber the following bill sections accordingly.                                                                               
                                                                                                                                
Part 4                                                                                                                        
                                                                                                                                
AS   14.25.540   and   AS  39.35.940:   Transfer   into   defined                                                               
contribution  plan  by  nonvested   members  of  defined  benefit                                                               
retirement plan.                                                                                                                
                                                                                                                                
Explanation                                                                                                                   
The  language in  these sections  needs to  be clarified  so that                                                               
only  the  pre-tax contributions  paid  by  a member  into  their                                                               
individual  account  under  the  defined  benefit  plan  and  the                                                               
associated years of membership service  are eligible for transfer                                                               
into the defined contribution plan.                                                                                             
                                                                                                                                
This  clarification is  necessary  to ensure  the plans  maintain                                                               
compliance   with  the   federal  tax   code  because   after-tax                                                               
contributions  may  not  be  made  into  a  pre-tax  contribution                                                               
account.                                                                                                                        
                                                                                                                                
Legal Services may change or add  to the language of AS 14.25.540                                                               
and AS 39.35.940 to make this clarification.                                                                                    
                                                                                                                                
CHAIR STEDMAN  object for  discussion purposes.  He asked  him to                                                               
clarify Part 4.                                                                                                                 
                                                                                                                                
REPRESENTATIVE  HAWKER  explained  that  Part  4  clarifies  that                                                               
current  employees who  transfer  into  the defined  contribution                                                               
plan won't  have their pre  and post tax contributions  mixed up.                                                               
He said  this is one of  several technical issues that  will have                                                               
to be addressed in the next year.                                                                                               
                                                                                                                                
SENATOR ELTON  asked if Part 4  is designed for those  people who                                                               
may be  in the  system now,  are non-vested, but  who may  opt to                                                               
leave Tier 3 go to the DC plan.                                                                                                 
                                                                                                                                
REPRESENTATIVE HAWKER replied yes.                                                                                              
                                                                                                                                
SENATOR ELTON objected to amend July  1, 2006 to July 1, 2007. He                                                               
thought that  2006 was  way too  aggressive for  moving to  a new                                                               
plan, especially  while lawmakers will be  working on fine-tuning                                                               
it throughout the year. This kind  of a plan was suggested by the                                                               
governor  of  California  and he  recognized  the  difficulty  of                                                               
implementing it  over a short  period of time and  he recommended                                                               
that the DC plan begin in 2007.                                                                                                 
                                                                                                                                
SENATOR ELTON said  that other things need to be  done whether or                                                               
not this  bill passes.  One of  them is that  the state  needs to                                                               
solicit  for a  new Mercer  contract and  a new  DeLoit contract,                                                               
whether it  goes to  them or  not. Those  contracts run  out this                                                               
year, June 30.                                                                                                                  
                                                                                                                                
     Those are integral to the  management of any retirement                                                                    
     system.  We won't  even have  until maybe  October, the                                                                    
     newly constituted board  that is going to  have to make                                                                    
     decisions  on what  an RFP  for  those contracts  looks                                                                    
     like.                                                                                                                      
                                                                                                                                
He thought that 2007 may even be too aggressive.                                                                                
                                                                                                                                
5:23:35 PM                                                                                                                    
REPRESENTATIVE   KERTTULA   supported   the  amendment   to   the                                                               
amendment,  because she  sees tax  and qualification  issues that                                                               
will need time to resolve.                                                                                                      
                                                                                                                                
REPRESENTATIVE  KELLY  commented  that  in two  years,  nearly  a                                                               
quarter  of the  workforce would  be  replaced. Each  of the  new                                                               
employees in  the two-year timeframe would  represent an unfunded                                                               
liability  challenge. He  accepted the  compromise that  one year                                                               
would  give  the  legislature  to get  the  new  plan  completely                                                               
fleshed out.                                                                                                                    
                                                                                                                                
5:25:13 PM                                                                                                                    
SENATOR  WILKEN  said  he  also  has  heard  concerns  about  the                                                               
timeframe. However, his discussions  with the department indicate                                                               
that  implementation of  this plan,  while challenging,  could be                                                               
done - absolutely.                                                                                                              
                                                                                                                                
CHAIR STEDMAN maintained his objection.                                                                                         
                                                                                                                                
SENATOR  ELTON   responded  that   he  would  not   withdraw  his                                                               
amendment.  He said  he  has confidence  in  the department,  but                                                               
wanted to remind people  that there is a lot of  work to be done.                                                               
He appreciated  Representative Kelly's comments, but  pointed out                                                               
whatever they do  with this amendment and the bill,  they are not                                                               
addressing the unfunded liability anyway.                                                                                       
                                                                                                                                
CHAIR  STEDMAN  asked  for  a   roll  call  vote.  Representative                                                               
Kerttula  and Senator  Elton voted  yea; Representatives  Hawker,                                                               
Representative  Kelly, Senator  Wilken  and  Chair Stedman  voted                                                               
nay; and Amendment 1 to Amendment 1 failed.                                                                                     
                                                                                                                                
CHAIR STEDMAN announced Amendment 1 was before the committee.                                                                   
                                                                                                                                
5:27:16 PM                                                                                                                    
SENATOR ELTON  said Representative Hawker's comments  covered the                                                               
elements.  He   disagreed,  though,   that  this  is   a  defined                                                               
contribution bill.  "The bill  before us is  a choice  bill. This                                                               
amendment  makes  it  a  defined   contribution  bill.  That's  a                                                               
dramatic paradigm shift."                                                                                                       
                                                                                                                                
He said  the legislature  has not  yet had  a good  discussion on                                                               
what the  net effect of this  bill is going to  be, for instance,                                                               
for recruitment and  retention. He already knows  it does nothing                                                               
with  the unfunded  liability. This  bill, if  amended this  way,                                                               
isn't an  investment in the  workforce and  the state may  end up                                                               
recruiting from  the bottom  of the class.  It won't  attract and                                                               
keep the kind of public servants Alaska needs.                                                                                  
                                                                                                                                
5:31:12 PM                                                                                                                    
REPRESENTATIVE KERTTULA  agreed and added  that the DC  plans are                                                               
seen as an unreliable vehicle  for insuring financial security in                                                               
retirement.                                                                                                                     
                                                                                                                                
      We know specifically if we did something like this,                                                                       
      you can't have lengthy time off for having children,                                                                      
     raising  a  family,  completing and  education  or  for                                                                    
     illness.  You  have  to have  the  proper  ratios  with                                                                    
     replacement. There  are so  many things  in terms  of a                                                                    
     policy  call on  this that  I just  feel that  this one                                                                    
     year will not be enough....                                                                                                
                                                                                                                                
5:32:03 PM                                                                                                                    
CHAIR STEDMAN called for a roll  call vote on the motion to adopt                                                               
Amendment  1. Representative  Kerttula  and  Senator Elton  voted                                                               
nay; Representative Hawker,  Representative Kelly, Senator Wilken                                                               
and Chair Stedman voted yea; and Amendment 1 was adopted.                                                                       
                                                                                                                                
5:32:43 PM                                                                                                                    
REPRESENTATIVE KELLY moved to adopt Amendment 2.                                                                                
                                                                                                                                
                          AMENDMENT 2                                                                                       
                                                                                                                                
OFFERED IN FREE CONFERENCE COMMITTEE                                                                                            
TO: HCS CSSB 141(FIN)Am, VERSION R.A. BY REPRESENTATIVE KELLY                                                                   
                                                                                                                                
Page 41, line 8:                                                                                                                
     Delete: "health"                                                                                                           
                                                                                                                                
Page 43, following line 23:                                                                                                     
     Insert new section to read:                                                                                                
     "*Sec___. AS 14.40.671 is amended by adding a new                                                                          
subsection to read:                                                                                                             
                                                                                                                                
     (h) Notwithstanding (b) of this section, the university may                                                                
offer an employee  who made an election not to  participate in an                                                               
optional university  retirement program at the  time the employee                                                               
was eligible to  participate in the program, an  option to enroll                                                               
in a  different university  retirement program  first established                                                               
by the university after the effective date of this subsection."                                                                 
                                                                                                                                
Page 44, line 1:                                                                                                                
     Insert a new section to read:                                                                                              
     "*Sec___. AS 14.40.691(c) is amended to read:                                                                              
                                                                                                                                
     (c)The board may specify that contributions required by                                                                    
this section  are made by a  reduction in salary under  26 U.S.C.                                                             
403(b) or 26 U.S.C. 414(h)(2)(Internal Revenue Code)."                                                                        
                                                                                                                                
CHAIR STEADMAN objected for discussion purposes.                                                                                
                                                                                                                                
REPRESENTATIVE KELLY explained:                                                                                                 
                                                                                                                                
Page 41 -  The University does not currently  provide health care                                                               
coverage in  its defined contribution  program and the  effect of                                                               
leaving this  in would require that  this expensive accommodation                                                               
be made.  The UA designs  programs appropriate for  its employees                                                               
based  on  market conditions  necessary  to  keep competitive  in                                                               
recruitment and retention of faculty and staff.                                                                                 
                                                                                                                                
Page  43 -  This  section will  allow the  University  to open  a                                                               
defined  contribution  program  to  employees who  may  not  have                                                               
selected the option  to join ORP when it was  first offered. When                                                               
the  ORP   program  was  established,   there  was   a  one-time,                                                               
irrevocable  opportunity to  elect participation.  Many employees                                                               
who elected not to participate would  now like a second change to                                                               
elect a defined contribution program.                                                                                           
                                                                                                                                
Page 44  - This language is  necessary for the ORP  program to be                                                               
in compliance with Internal Revenue Code.                                                                                       
                                                                                                                                
CHAIR  STEDMAN said  that addresses  open item  number 30  and he                                                               
removed his objection.                                                                                                          
                                                                                                                                
SENATOR ELTON objected to ask a  question and to restate that the                                                               
net  affect,  other   than  technical  clean  up,   is  that  the                                                               
university  can  open  the  option   of  choosing  ORP  to  their                                                               
employees.  It doesn't  compel  them  to do  it  or change  their                                                               
existing  plan if  they  opt not  to  do it.  It's  a choice  the                                                               
university employee can make based  on his own personal or family                                                               
imperatives.                                                                                                                    
                                                                                                                                
REPRESENTATIVE KELLY  replied that is correct.  He explained that                                                               
that option is  now open to just a select  class of employees and                                                               
this would open it up further.                                                                                                  
                                                                                                                                
CHAIR  STEDMAN  removed his  objection  and  said there  were  no                                                               
further objections and  Amendment 2 was adopted.  He doubled back                                                               
to clarify that  Amendment 1 removed item 36, because  it was not                                                               
needed  with the  delayed implementation  date. He  recapped that                                                               
Senator  Elton had  cleaned up  language  on item  22(a) for  the                                                               
board to have staggered terms of two years.                                                                                     
                                                                                                                                
5:36:34 - 5:36:50 PM - At ease                                                                                                
                                                                                                                                
SENATOR ELTON asked if there was  a conflict in the fiscal notes.                                                               
Item  39,  fiscal  note  number  9, dated  5/2/05,  is  zero  for                                                               
administration and all the others add several million dollars.                                                                  
                                                                                                                                
5:37:51 PM                                                                                                                    
                                                                                                                                
TRACI CARPENTER,  staff to Senator  Green, explained  that fiscal                                                               
note number 9 was offered in  the House Finance Committee to zero                                                               
out  fiscal note  number 8,  which the  Senate Finance  Committee                                                               
passed   depositing  $69.5   million   on  behalf   of  all   the                                                               
participating PERS employers.                                                                                                   
                                                                                                                                
     The House  Finance Committee  felt that  it was  not an                                                                    
     appropriate vehicle  to do  so and  so they  zeroed out                                                                    
     the fiscal note.  I believe the intention  is that that                                                                    
     particular situation of providing  the 5 percent relief                                                                    
     for  the   participating  employers  will   be  handled                                                                    
     through  the  operating  or capital  budget  conference                                                                    
     committee.                                                                                                                 
                                                                                                                                
REPRESENTATIVE  HAWKER,   as  a  member  of   the  House  Finance                                                               
Committee, agreed with the explanation.                                                                                         
                                                                                                                                
CHAIR STEDMAN moved to accept the report.                                                                                       
                                                                                                                                
REPRESENTATIVE KELLY  backed him  up saying  it addressed  all 39                                                               
items.                                                                                                                          
                                                                                                                                
CHAIR STEDMAN  reiterated that there  was a motion to  accept the                                                               
committee  report  on  SB  141   accepting  items  from  previous                                                               
committee reports and Amendments 1 and 2.                                                                                       
                                                                                                                                
5:41:07 PM                                                                                                                    
SENATOR ELTON objected.                                                                                                         
                                                                                                                                
CHAIR  STEDMAN  asked  for  a   roll  call  vote.  Representative                                                               
Kerttula  and Senator  Elton voting  nay; Representative  Hawker,                                                               
Representative  Kelly, Senator  Wilken  and  Chair Stedman  voted                                                               
yea; and the motion carried.                                                                                                    
                                                                                                                                
CHAIR STEDMAN adjourned the meeting at 5:42:53 PM.                                                                            

Document Name Date/Time Subjects