Legislature(2011 - 2012)SENATE FINANCE 532
04/02/2012 09:00 AM Senate FINANCE
| Audio | Topic |
|---|---|
| Start | |
| SB100 | |
| SB159 | |
| SB151 | |
| SB226 | |
| SB179 | |
| SB210 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 100 | TELECONFERENCED | |
| + | SB 159 | TELECONFERENCED | |
| + | SB 151 | TELECONFERENCED | |
| *+ | SB 226 | TELECONFERENCED | |
| + | SB 179 | TELECONFERENCED | |
| + | SB 210 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| + | SB 221 | TELECONFERENCED | |
| *+ | SCR 24 | TELECONFERENCED | |
| += | SB 192 | TELECONFERENCED | |
SENATE BILL NO. 100
"An Act relating to employer contributions to the
Public Employees' Retirement System of Alaska;
relating to requirements that employers who terminate
some or all participation in the Public Employees'
Retirement System of Alaska pay termination costs; and
making the changes retroactive."
9:05:29 AM
SENATOR JOE PASKVAN, introduced SB 100. He referred to the
Sponsor Statement for SB 100 (copy on file).
Senate Bill 100 addresses the future financial
stability of all PERS employers - the State
municipalities, school districts and the University of
Alaska - and their ability to efficiently and
effectively manage the delivery of programs and
services.
Due to a variety of historical circumstances and
decisions, the Public Employees' Retirement System
(PERS) defined benefit system evolved from being fully
funded to being underfunded by billions of dollars. A
solution embraced by all parties to address the
unfunded liability was incorporated into Senate Bill
125 and was passed by the legislature in 2008. SB 125
set into law that the PERS system is a consolidated
system and that the combined defined benefit (DB) and
defined contribution (DC) salary base would be
required to pay down the unfunded obligation, which in
turn would provide for sustainable, predictable and
affordable employer rates.
Paying off the unfunded obligation is predicated upon
a stable, reasonably growing, system-wide salary base.
A concern at the time SB 125 was adopted was that
employers might en-masse elect to convert PERS
salaried positions to contracted positions to reduce
or avoid their PERS cost, thus shrinking the PERS
salary base needed to pay off the unfunded obligation.
To address this concern, it was agreed that employers
would pay the greater of 22 percent on their combined
DB and DC salary base, or, 22 percent on their total
payroll for the period ending 6/30/2008. This
effectively set the minimum contribution, or floor,
that an employer would pay once PERS converted to a
consolidated system.
Additional language relating to termination studies
was added at the time to prevent employers from
intentionally reducing their fair share contribution
toward paying off the unfunded obligation. The
application of the termination studies law is the
cause for concern and the introduction of SB 100.
Current law requires an employer who terminates
participation of a department, group, or other
classification of employees to pay the following
bills:
1. the cost associated with obtaining a
termination study from the PERS actuary;
2. the actuarial cost to the employer for future
benefits due employees whose coverage is
terminated; and
3. the past service cost, annually, on each
position terminated until the unfunded obligation
is paid off decades from now.
Enforcement of the termination studies law is making
it difficult for employers to manage their delivery of
services, discriminates against small municipalities
even thought their impact is immaterial, and is costly
and nearly impossible to implement in an equitable
manner. These mandated termination studies fail to
recognize that we do not have a single-agent, multiple
employer system in which different employers pay
different net rates. SB 125 provided for one
integrated system of accounting; the unfunded
obligation is to be shared among all employers, with
each paying a single, uniform contribution rate of 22
percent.
All agree that the unfunded obligation must be paid
off. All agree that the entire PERS salary base - both
DB and DC - is needed to pay off the unfunded
obligation, and that it must be sustained and have
reasonable growth. The fear that employers would actin
in a manner jeopardizing the payment of the unfunded
obligation has not materialized; in fact, the system-
wide salary base has grown steadily. The law providing
for termination studies is not needed and is repealed
through SB 100.
SB 100 maintains the 6/30/2008 floor as the base
salary amount upon which PERS payment must be
calculated as this is the most efficient, cost
effective and equitable method of ensuring the
unfunded obligation is paid off.
9:13:09 AM
Co-Chair Stedman noted the one fiscal impact note from the
Department of Administration (DOA).
MICHAEL BARNHILL, DEPUTY COMMISSIONER, DEPARTMENT OF
ADMINISTRATION, stated that DOA did not take an official
position on SB 100. Senate Bill 125 was passed in 2008, and
the salary floor provision in that bill was intended to
ensure a certain participation of political subdivisions
and payment of the existing unfunded liability. By capping
employer rates at 22 percent, SB 125 ensured that all
future unfunded liabilities would be the responsibility of
the general fund. The termination study issue ensured that
when employers create new unfunded liabilities as a result
of staffing changes, those employers bear those new
unfunded liabilities. He expressed concern about SB 100,
because the bill permitted cost-shifting when new unfunded
liabilities were created. The amounts at issue were
currently relatively small, but those amounts could grow
larger in the future. He relayed some discussions with the
bill sponsor and the Alaska Municipal League. He stated
that DOA recognized the concerns of the Alaska Municipal
League, particularly in the context of smaller employers.
Those small employers often wanted additional flexibility
in how their staff was handled.
Mr. Barnhill stated that DOA had offered the Alaska
Municipal League a compromise proposal. He stated that DOA
suggested the adoption of a 20 percent partial termination
rule: if there was a staffing change that would trigger a
termination under existing law, but impacted 20 percent or
less than the payroll over a specified period of time, no
termination study would be triggered. He felt that the
partial termination rule would particularly help the
smaller municipalities. He remarked that under the 20
percent partial termination rule, there was a potential for
municipalities to create new unfunded liabilities that
would be cost-shifted to the state. He stated that DOA
suggested that the 22 percent cap be increased to account
for the projected new unfunded liabilities that would be
created. This way, the State would be protected from the
creation of any new unfunded liability by a political
subdivision that wanted to take advantage of the 20 percent
partial termination rule.
9:17:26 AM
Co-Chair Stedman surmised that if SB 100 were amended to
include a 20 percent partial termination rule, DOA would be
in favor of the bill. Mr. Barnhill replied that he could
declare that DOA would be in favor of the bill, but felt
that DOA would not oppose the bill.
Senator Thomas wondered if there would be a change to the
aggregation of the employees working for an employer, or
were employees tracked individually based on who they work
for, length of service, and hours worked. Mr. Barnhill did
not know to what extent individual employees were tracked.
CATHY LEE, DEPUTY DIRECTOR, DIVISION OF RETIREMENT AND
BENEFITS, stated that individual employees were tracked by
their service hours, salaries, and by employer. This
information was transmitted to the actuary in order to
evaluate the system.
KATHIE WASSERMAN, ALASKA MUNICIPAL LEAGUE, JUNEAU,
testified in support of SB 100. She stressed that the small
communities were taking the brunt of this expense. The
larger employers could layoff or lose 20 employees, but if
they kept just one employee, the larger employers would not
need to pay into the system for that loss. Whereas, a small
community could have one person in that group, and when
that one person is terminated, the small community needs to
pay into that loss. She stressed that the larger employers
are impacting the system when the employees were laid off.
She agreed that there needed to be safeguards against
manipulating the system.
Co-Chair Stedman wondered if the Alaska Municipal League
had an opinion on the 20 percent termination rule. Ms.
Wasserman replied that she had not addressed the idea with
the board. She expressed concern regarding the increase to
20 percent, but stressed that there had been no negotiation
or discussion regarding the 20 percent termination rule.
9:22:51 AM
DOROTHY LEAKE, SELF, CITY OF ANDERSON (via teleconference),
spoke in support of SB 100. She explained that Anderson had
received a bill from the State Division of Retirement and
Benefits for $27,000 for falling below the 2008 salary
floor. She had spent the last two months trying to opt out
of the contract, because the City of Anderson had not had a
full-time employee since 2008. That one, former employee
had been paying into the Public Employees' Retirement
System (PERS) in their new job with the State. She stressed
that the City of Anderson did not have the money to pay for
full-time employees, so therefore could not pay the $27,000
owed to the Division of Retirement and Benefits.
SALLIE STUVEK, HUMAN RESOURCE MANAGER, FAIRBANKS NORTH STAR
BOROUGH, FAIRBANKS (via teleconference), testified in
support of SB 100. The Fairbanks North Star Borough was
concerned with the current application of the existing
statute in regards to the PERS termination studies. In its
current form, the termination study requirement impacted
all PERS-participating municipalities in a significant way.
It "ties the hands" of municipal governments to effectively
and efficiently manage their provided services.
DOUG GRIFFIN, CITY OF PALMER, PALMER (via teleconference),
testified in support of SB 100. He agreed with the previous
testifiers. He stated that the City of Palmer would
probably be considered a medium-sized community, but it had
faced some recent budget adjustments. The general fund was
reduced by 15 percent over the last two fiscal years, and
it was difficult for the City of Palmer to pay into the
unfunded liability.
9:28:30 AM
LISA VAUGHN, ACCOUNTANT, NORTH POLE (via teleconference),
testified in support of SB 100. Current practice placed an
unfair burden on small employers across the state, as many
of the departments and classifications in individual
municipalities only have one or two employees.
JENNIFER JOHNSTON, MEMBER, ANCHORAGE ASSEMBLY, ANCHORAGE
(via teleconference), testified in support of SB 100. She
stated that Anchorage was recently charged with a
termination study regarding the discontinued weatherization
grant program.
Co-Chair Stedman closed public testimony.
Senator Olson queried Senator Paskvan's position on the 20
percent partial termination study. Senator Paskvan replied
that it was a new proposal, but looked forward to more
discussions regarding this idea.
Senator Olson wondered if Senator Paskvan would be opposed
to an amendment. Senator Paskvan stressed that the proposal
was new, and would like to speak with the Alaska Municipal
League regarding the proposal's effect on smaller
communities.
Senator Paskvan stressed that the problem was an immediate
problem that needed to be resolved in a timely manner.
SB 100 was HEARD and HELD in committee for further
consideration.