Legislature(1995 - 1996)
02/22/1996 01:40 PM Senate L&C
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* first hearing in first committee of referral
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= bill was previously heard/scheduled
SL&C 2/22/96
SB 276 CALCULATION OF UNEMPLOYMT INS BENEFITS
SENATOR KELLY announced SB 276 to be up for consideration.
Number 291
MR. PERKINS explained that the Unemployment Insurance System has
enabled Alaskan workers, their families, and their communities to
weather periods of unemployment with their economic well-being and
dignity in tact. Recent events in Sitka, Wrangell, and Pelican and
other areas affected by plant closures and lay-offs have
demonstrated the importance of this safety net for our working men
and women, he said. The schedule of benefits has not been adjusted
to increase the maximum weekly benefit amount since 1990. Alaska
currently ranks 49th in the nation in unemployment insurance wage
replacement with the average weekly benefit amount only slightly
more than 27 percent of the average weekly wage for the State. In
terms of the maximum weekly benefit amount, Alaska ranks 35th in
the nation, not withstanding the higher cost of living here.
The current benefit schedule uses the workers yearly wage to
determine the weekly benefit amount. The minimum qualifying amount
is $1,000 which provides a weekly benefit amount of $44. For each
$250 a worker earns over $1,000, two dollars is added to the
benefit amount. Weekly benefits are now capped at $212 per week
based on a maximum of $22,250.
This bill would keep the current benefit schedule in place, but
would replace the current fixed cap with a flexible cap. The new
cap on wages would be 75 percent of the average annual Alaska wage,
exactly the same as the wage base on which employers and workers
are taxed to support the system. Bringing the maximum qualifying
wages up to the wage base would raise the maximum benefit amount
from $212 today to $238 in 1997. The average cost to employers in
the year 2000 will be approximately $1 per week per employee.
Thirty five states use a flexible benefit standard driven by
changes in the average weekly wage. The advantage of such a system
is that it integrates the benefit standard into a self adjusting
unemployment trust fund formula which is directly tied to the
State's economy. As average wages rise, the standard for
unemployment insurance benefits keeps pace in terms of income
replacement. If wages fall, as they did in the 1986-87 recession,
the maximum weekly benefit decreases and the employer tax burden
decreases.
MR. PERKINS said this is a modest proposal; it would raise Alaska
wage replacement less than one percent to a little over 28 percent.
While it is not enough to change our wage replacement ranking
amongst the states, the small change would provide a measure of
additional security to Alaska's average wage earners and help slow
the erosion of purchasing power during hard times.
As we work to together to strengthen Alaska's economy to provide
quality jobs for Alaska's families and to move certain low-income
people from welfare to work, we must insure there is an adequate
safety net to allow unemployed workers sufficient finances to
remain in their homes and communities and in Alaska until they are
reemployed.
SENATOR KELLY noted that the Governor's proposal asked the employer
to pick up the entire amount of the increase in insurance costs.
He had asked him for a model where the increased costs would be
split fairly between the employer and the employee.
In statute the employer pays 82 percent of the insurance rate and
the employee pays 18 percent. SENATOR KELLY said he asked for a
scenario of 80 percent for the employer and 20 percent for the
employee.
MR. TORGERSON said he had copies of the figures they put together
and passed them to the Committee members and answered their
questions regarding its information.
One of the questions SENATOR KELLY asked was how much the employers
rate would go up under the 20/80 scenario. MR. TORGERSON replied
irrespective of the other factors (how much is drawn against the
fund or other factors that come from having a self regulating
financing system) and all things being equal, the total employer
tax would drop $2.5 million the first year. It would rise $9
million in 1999, but primarily because of other causes.
The increased payout in benefits is a projected total of $7.5
million; they are looking at additional employer/employee taxes of
$12 million. Part of that is just the natural projected rise in
trust fund outlays for 1999 totally irrespective of the law change.
The trust income and outflow fluctuates from $6 million - $10
million per year depending upon the economic cycle, MR. TORGERSON
explained.
SENATOR KELLY asked for a long-range graph of how they project that
fluctuation. MR. TORGERSON explained that the fluctuation goes up
and down. For example, 1996 was the sixth year in a row when the
employer rate fell below the 85 - 94 average, about 2.7 percent.
SENATOR KELLY said that if that is based on a higher average
salary, then people would be actually paying more dollars.
SENATOR KELLY, referring to workers' compensation, asked if it had
dropped a bit this year. MR. PERKINS said he wasn't sure there was
a direct correlation, but he thought some rates had gone down.
SENATOR KELLY noted that they were now looking at proposal changing
the 82/18 ration to 80/20.
SENATOR MILLER noted that not all employer/employee contributions
are 82/18; it depends on what your rate is. With this employment
structure, if you are a seasonal business, you get hit very hard.
Number 460
SENATOR KELLY asked for an explanation of the rating system. MR.
TORGERSON explained in the first process, they figure out the
benefit cost rate or what is the average tax rate the fund has to
get back to stay solvent (2.17 last year). That has nothing to do
with 82/18. Of that tax rate (2.17), the employer pays 82 percent
and the employee pays 18 percent. That never changes. The reason
employers' rates change is that they aren't all assessed at 2.17.
To get an employer's rate, they take the benefit cost rate and
multiply that times .82 to get the employer share, and then
multiply that by the employer's experience factor. That will
range, depending on a payroll, from .4 to 1.6. SENATOR MILLER
noted that that is where seasonal employers are hit the hardest.
SENATOR MILLER said he thought Mr. Perkins' typed statement, the
last sentence of the second paragraph, was misleading. It says if
wages fall as they did during the 1986-87 recession, the maximum
benefit would decline and the employer tax would decline. That
wasn't the case, because the system we have is based on the amount
of money that's in there and there was a substantial draw on that
money and the employer tax rates went up. Business were crying the
blues at that time because their rates went up dramatically.
MR. TORGERSON agreed, but said in this proposal, it is tied to
wages, so if wages go up, the rate would go up and as wages go
down, rates go down. He said he didn't mean to mislead them.
SENATOR KELLY asked what was the philosophy behind the increase.
MR. TORGERSON replied that the top one third would see an increase
and the bottom one third would not see the increase. The way the
system works now, the upper end sort of subsidizes the lower end.
It isn't meant to favor one class or another.
SENATOR KELLY said in his mind if one third of the folks making
more than $22,000 per year go on unemployment, they come up against
a cap that is fixed in statute. So while wages increase to pay for
it and the employer/employee percentage continues to go up every
year, the benefit amount is locked in by statute. So the people
who are making the average weekly wage are paying a lot more
percentage-wise than they ever get back. He said he was really
concerned with the people who take advantage of the system who work
for just the summer and go to Hawaii in the winter and collect
unemployment.
TAPE 96-14, SIDE B
MR. TORGERSON said people at the bottom of the scale are not going
to be affected by this change at all. The people who will benefit
will be the average wage earners, the backbone of the State, who
are accustomed to and need to work as much as possible - people who
are supporting families. He thought the work disincentive would be
minimal.
SENATOR KELLY asked what percentage of the average weekly wage is
the increased benefit. MR. TORGERSON said it wouldn't even run a
percentage point. The benefit would be much lower than if they were
actually working.
SENATOR TORGERSON asked if some companies were self insured. MR.
TORGERSON answered that this program covers about 98 percent of all
employees, including municipal non-profits and governmental
entities. They can choose whether to pay taxes or to simply
reimburse the fund for benefits drawn by their employees.
SENATOR KELLY asked what the other percentage did. MR. TORGERSON
answered that he knew public officials, like the Senator, were in
that category.
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