Legislature(1999 - 2000)
03/09/1999 01:41 PM Senate L&C
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SB 85-CREDITED SERVICE FOR TEMP EMPLOYEES:PERS
MS. JEAN SMITH, aide to Senator Mackie, sponsor of SB 85, said that
currently temporary employees in the PERS can buy back their
temporary time; however, they can't count that towards their time
needed for retirement. This legislation amends AS 39.35. 345(d) by
enabling employees covered by PERS to buy back their temporary time
and have it credited toward the minimum service time for
retirement. This legislation provides equity among all state
employees in temporary positions by enabling them to count their
temporary time towards their retirement eligibility.
MS. SMITH said the Department of Administration fiscal note, dated
3/1/99, said the full actuarial cost of this service is to be paid
by the member. There is no anticipated cost to the Public Employee
Retirement System employers. The Public Employees Retirement Trust
Fund is the designate fund source and will be charged $4,000 for
approximately 40 hours of computer system modifications that will
be required to initiate this change.
As stated in the Department of Administration's position paper,
dated 3/1/99, this bill will have the effect of allowing employees
to meet the retirement eligibility threshold sooner than would
otherwise be anticipated. Since the employees likely to use this
for retirement credit are employees with higher service totals on
the higher end of the pay scale, it's more likely for the State to
realize cost savings.
MS. SMITH noted there are a number of support letters and petitions
from Kodiak and several other geographic areas of the State. There
are also letters of support from AFL-CIO and the Teamsters.
She concluded that SB 85 adds a responsible piece to our long-term
budget solution. In meeting budget reductions, this is an economic
tool that may be used to minimize the impact of downsizing
government. The passage of SB 85 is an opportunity to send a
positive message to Alaska's State employees during a critical
economic period within our state.
MS. SMITH said they also have an amendment that Mr. Church would
explain.
SENATOR LEMAN said actuaries have testified to what is known as
"adverse impact" in some cases, because those who benefit select
something and those who don't benefit, don't select it. He asked
if she had discussed this issue.
MS. SMITH answered that the employee would pay the cost of this and
it's a considerable amount - perhaps $50,000 for someone who is
trying to get five years.
CHAIRMAN MACKIE said they discussed this issue and Mr. Bell and Mr.
Church would testify on it.
MR. BELL explained that this bill will allow a person who has had
temporary service to use that time towards "20-and-out" or "30-and-
out" by buying it. The actuarial cost is the net present value
equation. A person makes his own determination whether it's worth
it to them. He didn't think there was an adverse selection with
this particular piece of legislation as their actuaries had already
factored it into the rate.
SENATOR LEMAN asked if it would benefit an employee to retire and
make lifestyle choices that would extend their lives longer, thus
saving more from the system.
MR. BELL answered yes. He added regarding Amendment #1 that a
question was asked if this could possibly put a person in an
earlier tier. For example, if a person were employed in a
temporary capacity only before July 1, 1986, when tier two
retirement came into effect, and permanent service after July 1,
1986, if they purchased this service, would that make them tier one
employees. The purpose of this amendment is to clarify that that's
not the case. The date of hire for PERS purposes is the date the
person became a permanent employee. Consequently, this does not
change the original date of hire for a benefit calculation. The
main issue with tier one is that a person is eligible to receive a
medical retirement benefit on normal retirement, regardless of the
age they retire. There is an age limitation of 60 - 65 for tier
two.
SENATOR DONLEY moved to adopt Amendment #1: on page l, line 9, to
insert, "An election under this subsection does not change the date
that an employee is considered to have commenced participation in
the system under AS 39.35.120." There were no objections and it
was so ordered.
SENATOR KELLY asked how many tiers there are.
MR. BELL replied that there are three: tier one is up until June
30, 1986, tier two is from July 1, 1986 to June 30, 1996, and tier
three starts on July 1, 1996. The main issue is the 10-year
vesting for the medical benefit.
MR. CHURCH added that the benefit in SB 9 is determined over the
high five consecutive years as opposed to the high three
consecutive years.
SENATOR KELLY asked when that started.
MR. BELL answered July 1, 1996.
SENATOR KELLY asked if the difference between SB 85 and SB 9 is
that SB 9 covers school employees and isn't retroactive, whereas,
SB 85 is state and local and is retroactive.
MR. BELL replied that was correct.
SENATOR KELLY asked if an employee buys time at today's retirement
amount or at the amount he would have paid 10 years ago when he did
the temporary time.
MR. BELL answered it would be based on today's salary and age.
SENATOR KELLY asked for an example of how much money they were
talking about.
MR. BELL said they had not asked their actuary to come up with a
table for this bill. There was no table for the last bill, but the
direct percentage required to provide additional benefits. SB 85
would be set up just like the system for temporary service claims.
For each age there is a percentage of salary a person would pay to
buy a year of service. For example, a 30-year old person who is
vested would pay 10.269 percent of their vesting year's salary to
buy these benefits. Someone who is 40-years old would be paying
twenty-odd percent of salary, because they are closer to
retirement.
SENATOR KELLY asked if the department is assuming it would be
withheld from a paycheck or if the employee could write a check.
MR. BELL answered some people might be able to just write a check.
If an individual chooses to use this as a "20-and-out," like a
police officer.
TAPE 99-6, SIDE B
The indebtedness would be required to be paid before retirement.
CHAIRMAN MACKIE said he had asked if it would cost the State more
money in terms of employee contributions or anything else. He was
told that this is clearly an optional thing for an employee to do
at their own expense and it would not have an adverse effect on
retirement and benefits. He asked Mr. Bell to explain how he
arrived at that conclusion.
MR. BELL replied that the additional benefits would be fully paid
by the individual with no impact to the employer. Another way it
benefits the employer is that someone claiming this time will be
eligible to retire sooner and lower the impact on the employer for
ongoing employer contributions. If the position is subsequently
filled, it would be at a lower range or step which equates to lower
employer contributions.
SENATOR KELLY asked Mr. Bell when he talks about "employer" was he
referring to the PERS Trust Fund or would the State be contributing
the money.
MR. BELL answered he is talking about the nine percent of the
payroll the employer would pay. He said there is no negative
impact to the PERS Trust Fund.
SENATOR KELLY asked why anyone would pay more money if they don't
expect to get more out of it.
MR. BELL replied that the advantage to the employee is they will
get more money out of it through receiving retirement benefits
earlier. A peace officer or fireman would not receive any more in
value for the temporary time, but could have the temporary service
treated as membership service which, when paid off, allows him to
retire after 20 years. If he is in an elected position, he could
retire after 30 years of service.
SENATOR KELLY asked how many people would respond to this.
MR. BELL replied that initially he thought they would be impacted
with hundreds.
SENATOR KELLY asked, "Not thousands? You don't have thousands of
people who have worked in temporary positions in the last 30 or 40
years?"
MR. BELL replied yes, but it won't help most people reach the
service threshold. It will only benefit someone who has permanent
service of less than 20 years, but when they add their temporary
service to their credited service, it totals 20 or more years of
service. They could pay that indebtedness, retire, and not work
the additional time.
SENATOR KELLY asked about someone who buys their time, pays one
month of the increased calculation, then quits state government,
waiting till they're 55. "Would they have a benefit based on the
time they bought, although they didn't pay for it?"
MR. BELL answered if they make this election, even though they are
waiting until retirement age eligibility, if the benefits they are
going to receive are greater than the indebtedness cost, then, yes,
they would be credited with that service, even though they hadn't
paid for it.
SENATOR KELLY said the same might be true of someone who bought
this time and died before it was paid. Their spouse would continue
to get the higher benefit based upon the time they never paid money
for.
MR. BELL said that was correct.
SENATOR KELLY asked how far back the temporary service goes.
MR. BELL answered as far back as the initial point in time when an
employee was hired by an employer under this system - back to
January 1, 1961 for the State.
SENATOR KELLY asked if a vested employee is entitled to credit
service for periods in which the employee regularly rendered full-
time personal service to an employer excludes a four-month
legislative stint.
MR. BELL answered before legislative time became covered under the
retirement system, yes, as long as it was not previously purchased
and claimed. He said legislative employment would only count for
the four months of work.
SENATOR KELLY asked if a legislative employee gets a full year of
credit.
MR. BELL replied that, if they work five sessions, under the
conditional service provisions, they can receive a retirement
benefit, but the benefit is still based only on the period of
service that they worked. They don't get a full year credit.
SENATOR KELLY asked if he had a position on this bill.
MR. BELL said as with the other bill, they had no position.
Number 487
SENATOR LEMAN asked if it would be possible to minimize the number
of calls by posting the calculations electronically so people could
review them.
MR. BELL responded it could be put on their Internet system.
CHAIRMAN MACKIE asked if it could accurately be said it wasn't
going to cost the State of Alaska any more money and could actually
achieve a cost savings by allowing people to retire earlier than
normally and that it has no adverse effect on the Retirement and
Benefit Trust account.
MR. BELL answered that is all correct. He clarified that the State
of Alaska is one employer in the system; the Municipality of
Anchorage is another.
MS. BARBARA HUFF TUCKNESS, Teamster Local 959, supported SB 85.
She said this bill specifically impacts a few of her members. She
represents over 1,000 employees within the Anchorage school
district, 650 in the Municipality of Anchorage, and a few folks in
Fairbanks. A lot of retired military members work for government
in the Municipality of Anchorage. Their years of military service
count much more under a military scenario than they would from a
temporary perspective, she said.
SENATOR KELLY noted that if you're in a uniform, you're at some
pretty heavy risk.
MS. HUFF TUCKNESS added in the Municipality of Anchorage there are
tech engineers who are going to school and may work three or four
months in a temporary position and then are fortunate enough to go
into a civil engineering position once they have graduated.
However, that may or may not be incentive enough 25 years down the
road for them to purchase it.
Teamsters Local 959 supports SB 85 because it would benefit a few
individuals who would "ante up" the additional monies. It also
lessens the payrolls.
Number 412
MR. LARRY BOYLE, ADF&G biologist, supported SB 85 principally
because it's a fairness issue.
MR. MICHAEL DEAN, Division of Sport Fish employee, said he has 1.9
years of claimed temporary time that is paid up and if this bill
passes, he would apply it to his retirement. He urged the
committee to do all they could to pass this through.
SENATOR KELLY asked how this affects people who have already
elected retirement.
MR. CHURCH answered that this would not affect them at all, because
they have already retired and this bill targets people who have not
retired by giving them the opportunity to retire earlier.
CHAIRMAN MACKIE thanked everyone who testified.
SENATOR DONLEY moved to pass CSSB 85(L&C) and the accompanying
fiscal note from committee with individual recommendations.
SENATOR KELLY objected, saying he wanted to know what effect this
issue would have on collective bargaining agreements that are going
on right now between the Administration and the four outstanding
bargaining units. He asserted it seems that SB 85 is a benefit
for the employees.
MR. BELL answered that this is outside the collective bargaining
process since it is a statutory provision and is subject to
legislative enactment.
CHAIRMAN MACKIE asked if it could potentially be a collective
bargaining issue if the Administration wanted it.
MR. BELL said he didn't think it would be possible to do that.
SENATOR KELLY asked if he agreed this would be a benefit for those
employees who are covered under some of the union contracts outside
of the process.
MR. BELL answered that it wasn't an additional benefit, because the
employee would be paying the full cost.
SENATOR KELLY asked if it was true that they don't have to put any
cash up.
MR. BELL replied if a person wanted to do this to reach their "20-
and-out" threshold for retirement eligibility, they would have to
pay the full cost before retirement. It's not a "freebie."
SENATOR KELLY asked if they could do it over a period of years like
normal indebtedness.
MR. BELL answered no. If a person chose not to use it to qualify
for the 20-and-out and said they would just wait for retirement
eligibility based on age, then, yes they could; but not when they
are using the service to meet that eligibility threshold. That can
only be met through service that is paid in full - whether it's
temporary service or working for an employer.
SENATORS LEMAN, DONLEY, AND CHAIRMAN MACKIE voted yes; SENATOR
KELLY voted no and CSSB 85(L&C) moved from committee.
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