Legislature(1999 - 2000)
01/21/2000 09:06 AM Senate FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
CS FOR SENATE BILL NO. 85(L&C) "An Act relating to credited service in the public employees' retirement system for temporary employment." JEAN SMITH, Legislative Assistant, Senator Mackie, read the sponsor statement into the record. This legislation was introduced at the request of Senator Mackie's constituents. She stated that SB 85 is an effective management tool for the state to utilize and minimize the impact of current and future budget reductions. The bill will have the effect of allowing employees to meet their retirement eligibility threshold sooner than would otherwise be anticipated. The employees prone to use this benefit retirement credit are employees with higher service totals on the higher end of the pay scale. Additionally, employer costs decrease when these employees are replaced through reduced costs to the supplemental benefit system and to the retirement systems. Savings are realized in the long term by replacing tier one and tier two category employees with tier three category employees in order to lower benefit costs. Currently these temporary employees can buy their temporary time, however, this time does not count towards their minimum service requirement needed for retirement. This amends Alaska Statutes by enabling the employees covered under PERS, to buy back their temporary time and have it credited towards the minimum service time for retirement. Last session, the Senate Labor and Commerce Committee amended this bill. On page one, line nine, after the word "retires," they added "an election under this subsection does not change the date that an employee is considered to have commenced participation in the system under Alaska Statute, 39.35.120." This language was added to clarify the original intent of this legislation, that employees who qualified under tier two could not use temporary time to qualify for tier one benefits. They added this language to strengthen the intent of this provision so it could not be misinterpreted to provide that flexibility. The fiscal impact on this legislation, since temporary service is recognized under the retirement system, provides that the full actuarial cost of using the temporary service be paid for by the employee. There is no general fund expenditure involved in this proposal. The Department of Administration's fiscal note reflects a designated fund source, the Retired Employees Retirement Trust Fund, contracted services are required for computer system modifications. Amendment #1: This amendment allows for the combination of Public Employees' Retirement System (PERS) and Teachers' Retirement System (TRS.) Senator Wilken moved for an adoption saying that the fiscal note affected about 50 people around the state. He also noted that it was not his intent to burden SB 85 with this issue, but he thought this might be a good time to discuss its ramifications. GUY BELL, Director, Division of Retirement & Benefits Department of Administration stated that the department supports SB 85. He then submitted a related fiscal note of $4,000, for programming time, to accommodate this change of allowing employees to count their temporary service to 20 and out, or 30 and out. It is the intent that the full cost to opt for the service credit provision be borne by the employee making that election. Mr. Bell then spoke to the amendment. It adds public service retirement benefit to the PERS statute. It would allow a person who has at least a total of five years of service in PERS and TRS combined, at least two of which are in PERS and paid (monies within the system.) This person could apply and receive a retirement benefit under PERS. Presently, a person must have a minimum of five years in PERS or eight years in the Teachers Retirement System. This would allow combined five years from both systems to qualify for a retirement benefit. He noted that this issue boiled down to fairness. These folks have paid in their contributions and the employer has contributed toward a retirement benefit as well. He pointed out there is a small number of individuals involved with this issue, roughly about 50 statewide. The individuals who find themselves in this situation (a no man's land), possibly years ago may have been working for state government and then switched from a PERS to TRS program. This amendment would effectively address a gap in the law, to allow these people to obtain a retirement benefit. If there is a difference in cost between what the system has built up through contributions and interest, and the expected pay out of benefits over the lifetime of the member, the employee would pay the actuarial cost at the time of their retirement. This amendment would have a zero fiscal impact because it does require the individual to pay any cost calculated beyond what is allowed by the system on that person's behalf. Co-Chair Torgerson noted that a few years ago, when this was offered, it had an attached fiscal note which read: "This change would not have a measurable impact on employee contribution rates, or the total funding ratio of PERS or TRS. It would increase the PERS unfunded liability by $492,000 and a TRS unfunded liability by $1.4 million. He asked if these 50 individuals would pick up the cost of $1.9 million of unfunded liabilities or was this situation rectified by the amendment. Mr. Bell responded that their actuary had not done this type of calculation. Co-Chair Torgerson assumed that something had changed in their system to account for such a discrepancy. BILL CHURCH, Retirement Supervisor, Division of Retirement and Benefits noted that the shifting of liability states the obvious, a movement of money from the TRS to the PERS system. As they look at unfunded liability, they look at assets over liabilities and come up with the difference. By shifting this money, this means that that there is less money in the total assets. This is where the statement as noted by Senator Taylor comes from. This represents monies that the actuary has not calculated as being paid out. In other words, the system has unrealized gain because someone has put in time, but they are not eligible for benefits. This money is still in the employer's account. What this has a tendency to do, not so much in TRS, since they work on a flat constant employer rate, but in PERS, it affects the amount of money in the employer fund. The larger this fund is, the lower the employer's rate tends to be. When someone puts their money in, the interest that is gleaned on this amount over time, (considering the employee leaves their contribution in the system), this money tends to push down the employer contribution rate. Through the proposed legislation, this money would be utilized by the employee, which explains the statement read by Co-Chair Torgerson. Technically, there is fundamentally no change to the rate of the fund itself, due to the amount of employees affected. Co-Chair Torgerson stated that he appreciated the explanation and added that he would require a zero fiscal note stating as such. SFC-00 # 8, Side A Co-Chair Parnell wondered about this bill and its purpose to rectify a situation similar to one that might take place in the private sector. He pointed out that people make career changes, from one job to the next, without a clear purpose to retirement benefits. He asked if this was part of the argument. Mr. Bell gave an extreme example of an employee who might work eleven and one-half years between PERS and TRS, 4 and one-half in PERS and 7 and one-half years in the TRS and not be eligible to receive a retirement benefit. Co-Chair Parnell noted that these are career choices that people make. Mr. Bell added that the least restrictive system is PERS, which requires a total of five years of service. If someone has less than five years of service in PERS, the only entitlement that someone would have, is to their own contributions plus interest. They are not entitled to retirement benefits. This new legislation allows for a person who has at least five years of service between PERS and TRS effectively, entitled to receive a retirement benefit in the future. This seems reasonable to the department. Co-Chair Parnell asked whether the judicial system came under a different retirement system. Mr. Bell answered affirmatively. Co-Chair Parnell asked how this department would be treated under a PERS and TRS scenario. If someone only had 4 and one-half years in PERS and then went to the Judicial system, could that person work a year in the latter and still link up for a benefit under this new legislation. Mr. Church responded that these two retirement systems were not linked at all. These have been set up as different retirement systems, focusing on specific groups of people. They were originally established individually and funded separately. The only current link between the systems, is between PERS and TRS. If a person is vested in one system they can apply for a conditional service benefit only if they have a minimum of two years paid in the other companion system. Each benefit and the rate an employer pays are separate. Co-Chair Parnell added that as a policy matter if it is good for one employee, it should be good for another. He asked if they had looked at the overall state retirement system to see how many different ones there were and how they could be linked if deemed appropriate. Mr. Bell responded that the basic retirement systems in the state are PERS, TRS, Judicial, and the Elected Public Officers Retirement System (EPORS) which is a 60-person retirement system and one that existed for a very short period of time. Senator Donley thought that the Employee Retirement Income Security Act (ERISA) required no more than a five-year vesting. He asked if the reason that TERS is eight years is because it is a state sovereignty question. Mr. Bell responded that the state was not subject to ERISA. Senator Green asked if this proposed legislation would apply only if someone qualified for benefits in neither system. Mr. Church responded affirmatively. EARL CLARK, former professor, University of Alaska, and Project Coordinator, Department of Public Safety testified in favor of the proposed legislation. He outlined for the Committee, his work history over the years, the combination of which did not count towards retirement. He built up service in both systems, but does not have a retirement. He stated that this legislation rectifies a situation for employees that have served the State of Alaska. CLARKE DAMON, testified in support of SB 85. He stated that his career was in education and throughout this period he participated in six different retirement programs. He receives $88 from the Carpenter's union. He then gave a detailed synopsis of his work history for the Committee. Mr. Damon calculated his contributions to each of the departments of which he had the opportunity to work for, along with the contributions made by the State into his retirement. As of July 1997, the balance of these funds was $69,000 for his contributions and $139,000 from the fund earnings. This retirement would work out to be $606.00 monthly, $237.00 for his benefit and $348.00 for health benefits. After 18 years from the date of retirement, the total unrealized benefit to Mr. Damon would total $584,000. Based on an average life expectancy, this total would go up to $704,000 at an eight-percent earnings rate of $4703.00 per month. At this present time, Mr. Damon is not eligible to receive any of these monies, due to the limitations of the present legislation. Mr. Damon made the point that he was at the mercy of reorganizations of departments and/or reclassifications of jobs. MICHAEL DEAN, testified by teleconference in Anchorage in support of SB 85. He urged the Committee to do whatever was necessary to expedite this legislation. Senator Taylor requested that the Division of Retirement & Benefits provide a fiscal note incorporating changes in the proposed amendment. Amendment #1 was TABLED. The bill was held in Committee. ADJOURNED Senator Torgerson adjourned the meeting at 10:59 am. SFC-00 (1) 1/21/00
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