Legislature(2003 - 2004)
04/15/2004 01:30 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
HB 91-RETIRED PEACE OFFICER'S MEDICAL BENEFITS CHAIR CON BUNDE announced CSHB 91(FIN) to be up for consideration and that it was accompanied by a power point presentation. REPRESENTATIVE TOM ANDERSON, sponsor, said that HB 91 is of great importance to law officers whether they be correction, firemen or policemen. It is a cost-avoidance bill. Current policy requires that Tier 2 and Tier 3 peace officers defer retirement an extra five years to qualify for their medical benefit. He believed that deferment has a price tag and although this bill has a fiscal note from the Division of Retirement and Benefits, the Department of Corrections and the Department of Public Safety haven't reported in at this juncture. I think those fiscal notes would basically deplete the elevated fiscal note from [the Division of] Retirement and Benefits.... I hope you will consider that. Also, when a peace officer defers retirement, I think it's important to note that the operational cost increase is greater than the actual benefit cost. So, I want you to think of this, first of all, recognizing that PERS is managed on the basis of equality among its members and without this bill passing, there is no fairness. You're aware of what it does; it gives 20- year retirement for medical retirement and benefits to peace officers.... There is a $23,105 savings in base pay and leave during the first year after a 20-year correction officer 3 takes normal retirement. So, we see a savings.... These examples go on and on and on.... This is important even though there is a fiscal note, which again, I think can be reconciled down. We have to defer to the judgment that we want to keep these peace officers and the old adage I said in the previous committee, hey, you look at the service...and the risks and the stress that are involved...20-year medical retirement doesn't seem that out of kilter with respect to the career and that choice. CHAIR BUNDE said he once heard that because the cost of recruiting and training was so expensive, the state had to keep these people longer. Now, because of other circumstances, we want them to leave sooner. REPRESENTATIVE ANDERSON responded that Mr. Fox's power point presentation would show that a 20-year career span is as good as it gets. MR. MIKE FOX, PUBLIC SAFETY EMPLOYEES ASSOCIATION (PSEA), showed the committee a power point presentation on HB 91 that illustrated how HB 91 provides medical benefits for retired peace officers after 20 years of accredited service instead of after working five years beyond normal retirement. It removes the disincentive for peace officers to take normal retirement. It reestablishes parity with all other PERS members. Mercer's current experience is that 21 out of 100 peace officers will make it to retirement. SENATOR HOLLIS FRENCH asked what Mercer's Human Resources is. MR. FOX replied that they are the actuaries who are contracted by the Division of Retirement and Benefits to perform analyses. He continued that DPS hired 90 troopers in 2002 and 2003, 13 percent per year; Department of Corrections (DOC) hires about 70 [indisc.] per year, about 10 percent to maintain level staffing. The remaining Tier 1 trooper class had an approximate 62 percent separation rate. This means that 38 percent of the troopers left are Tier 1. MR. FOX explained that only Tier 2 and Tier 3 members would be affected by this bill. Major medical is already provided to all Tier 1 recipients. In 1986, Tier 2 was created, which provided major medical at age 60. In 2001, the current situation was created where after a 10-year vesting period, major medical is provided at age 60 or at normal retirement unless you're a peace officer and then you must work five more years. The perspective from HB 91 simply removes the five- year extra requirement for peace officers. That's all it does. The justification for change - current law withholds the benefit from peace officer members of PERS unless an extra five years is worked; it undermines the intent of peace officers' normal retirement; it inhibits recruitment and retention and it causes inequality among PERS members. HB 91 is a cost-avoidance bill. Current policy intends to defer retirement of Tier 2 and 3 peace officers. Operational cost increases from a deferred retirement are greater than the actual benefit costs. A cost comparison example - the largest group affected is correctional officers (CO). A correctional officer 2's additional base pay and leave costs for one year of deferred retirement is at least $18,252. DRB advises that the average benefit cost is $9,670. The current policy intends to defer retirements for five years. The choice is to fund the benefit or fund the deferred retirement cost increase. COs by years of service - When Tier 2 and 3 COs defer retirement, the 15 - 20 group will be added to the 20 - 25 group. This shift in the workforce profile will significantly increase operational costs.... MR. FOX explained the chart for Chair Bunde and reminded the committee that retirement is cut in half for those who divorce. CHAIR BUNDE pointed out that he couldn't assume that all the people in Tier 2 would continue to work after their 20-year retirement. There would be some reduction. MR. FOX agreed and added that people drop out all along the curve. He continued: Risk - If 20 years are not completed, there is no benefit change and no new costs. If an officer makes it to 20, the benefit cost is balanced by the payroll reduction. There is no risk of a benefit cost without a corresponding cost-avoidance. Problems associated with peace officers working past normal retirement - increased health problems, increased risk of injury, higher compensation, lower morale and burnout. Disability rates were provided by Mercer Human Resources and show that troopers and correctional officers average about 34 years of age when they are hired and they reach 20 years of service at approximately age 54. Another graph showed the increase in disability rates as peace officers age. He noted the steep increase when retirement is deferred past age 54. The line representing other employees who are not peace officers is significantly lower than the peace officers and the gap widens all the way to age 60. The graph, using 2002 data for administrative versus officer positions, illustrated the limited opportunity for peace officers to move into administrative positions as they age. It showed 709 corrections officers and 30 administrative jobs, 336 troopers and 33 administrative jobs. "It's impractical to think a person can continue through their career until they get older and then move into a desk job." CHAIR BUNDE asked if he had data that showed typical behavior for someone who now retires under the Tier 1 at age 54 or 55. "They don't just play golf, do they?" MR. FOX replied no, but he didn't have any data to show him. He, himself, is one of those guys, however, and knows a whole lot of others like himself. He explained that the PERS mission is not to provide a living wage for life. It is, after 20 years, to get 45 percent of your average monthly income, at the most. He elected to buy dental and vision insurance and the long-term care insurance. He elected to buy a survivor benefit for his wife. So, his actual monthly benefit is much lower than where it started out. He did not know of any of his contemporaries who didn't go on to other employment. CHAIR BUNDE asked if it was likely that they had health benefits in their other employment. MR. FOX replied no. A lot of guys end up doing something that they have more of an interest in and have the freedom to pursue even if it pays less money or benefits. PERS is managed on the basis of equality among members. Normal retirement is after 20 years for peace officers and after 30 years for all others. Peace officers pay a higher contribution rate than all of the members to maintain equality. Current policy withholds benefits from peace officer members unless they work five extra years. HB 91 corrects this prejudice against peace officers. The current policy is unfair. If a peace officer beats the odds, makes it to 20, the current policy is to defer their retirement. That is accomplished by unfairly withholding their medical benefit until they work five years beyond their normal retirement. In conclusion, the current law undermines the intent of normal retirement for peace officers and inhibits the PERS mission to recruit and retain in public service. HB 91 removes the disincentives to peace officers to take normal retirement and reestablishes parity among all PERS members and this bill is good for peace officers and it's also good policy. CHAIR BUNDE noted there were no questions and thanked him for his presentation. MR. CHUCK HANSEN, Correctional Officer, Leman Creek Correctional Center, said he has an undergraduate degree in human development and a master's degree in human services. He represents himself and fellow correctional officers in Alaska. He is a Tier 1 employee and has been on the job 19 years and 9 months. His job is part-time, seasonal, and he doesn't get any retirement benefit for it. He noted the sick behaviors and violence that make up the daily stresses in his job. The number of prisoners who are HIV positive or have hepatitis A, B or C is far higher than the public population, because inmates are often involved in high-risk activities before they come into the system. This also puts COs at higher risk than ordinary citizens, resulting in a potential need for long-term care health benefits. Correctional officers rarely make the present 20-year retirement goal. I've watched over 250 floor staff come and go without reaching that magic time...at Lemon Creek, alone. I've lost track of about 25 more. One day, a short time ago, I asked my superintendent, Dan Carothers, 'In your 27-year career in corrections, how many floor officers, which are non-management staff, have you known to complete 20 years with the Department of Corrections?' Four people. More recently, a co-worker made it to 20. So, that is a total of five making it to retirement that Mr. Carothers knows of. The likelihood that COs will reach the 20-year mark before retirement is bad enough, pushing the mark to 25 years for full medical benefits is next to impossible and demeaning to us when we are all at risk of serious long-term illness because of our jobs. HB 91 will insure an appropriate retirement package for those of us who make it that far. It is not cost- effective to continually pay to train new people in order to replace those who see the 25-year as unattainable and so they quit early. And yet, that's exactly what's happening now. MS. MELANIE MILLHORN, Director, Division of Retirement and Benefits, deferred her testimony on the fiscal note to let the large number of citizens testify. MR. DEAN BAUGH, Finance Director, City of Homer, said he also represents the Alaska Government Finance Officers Association (AGFOA). He didn't want to say that police officers don't deserve this, but right now the PERS systems can't afford it. If you would have asked me a year ago, I might have said that is one thing, because my city was 100 percent funded, but if you look at me now, all of a sudden, I'm $6 million in the hole. He disputed the fact put forward by Mercer's Human Resources that 21 percent of the officers would retire at 20 years. He thought closer to 80 - 100 percent of officers will retire at 20 years, if medical coverage is provided. So, the costs in the fiscal note are incorrect. He also noted that it is state law once Tier 2 and 3 are changed again to 20-year retirements with full medical, it can't be changed again. At this point, PERS is looking at creating a Tier 4 to keep the budget actuarially sound. CHAIR BUNDE asked if the committee changed the tier system today so that it's not retroactive, would he support it. MR. BAUGH responded that the issue would be argued all the more because someone who had been there for 15 years has more benefits than someone who has been there for one year. CHAIR BUNDE said the fiscal note was attached to the state's budget, not the municipalities' budgets. MR. BAUGH responded that the state has said it would fund it for the next year, but not forever. MR. MAURICE HUGHES, Alaska State Trooper, Public Service Employees Association, said it has approximately 350 members. The difference between Tier 2 and Tier 3 is that when Tier 2 was created, the members kept paying the same percentage for 20-year retirement. TAPE 04-33, SIDE B 3:55 p.m. MR. HUGHES continued: So, in relation to the statement where they would be going back to paying for 30 years...our members continue to pay that 7.5 percent.... I would just like to make some statements about our core message and the message about HB 91 and that is the policy that's in effect right now - it's influencing police officers at Tier 2 or Tier 3 to defer their retirement from a 20-year retirement to 25-year retirement. This is being done by the holding [back] of a retirement benefit, which is the medical benefit. The police officer who decides to defer that retirement, it could be for a good reason. There could be a good reason that officer wants to stay around, but if a person is forced to stay to get a medical benefit that he would otherwise have if he stayed in some other occupation at his normal retirement, then that's not right. It's hard to accept, but when you say old and police officer, the two don't go together. Police work is a young man's game. When you get older, you get hurt easier; it takes a longer time to mend when you do get hurt. Mike pointed out that you have issues of sleep deprivation and it's tougher to [do] shift work. The burnout issue is a real issue, the older you get. On the other end of the spectrum, with younger officers coming along, when they get to that 7 - 8 years on the job, they have to make that determination whether or not they want to stay that extra five years to receive their medical benefit or to go ahead and possibly change careers entirely or to go to another system. The extra five years of working on holidays and working on weekends and working when your family is asleep is not a real conceivable goal for someone to have to work that extra five years.... MR. PAUL COMOLLI, Juneau Police Officer, said he represented himself and fellow police officers, not the city or the chief. He related how his long-time friend, Kenai Police Officer John Watson, was killed in the line of duty while responding to a welfare check on a citizen, on Christmas Day 2003. He was searching for a person who reportedly needed help. He was doing his job on Christmas, trying to keep you safe, just like we all do - on every shift, every day and every night.... If John had survived two more years on the job, he would have been eligible for normal retirement. Far less than half of us make it to 20. John had only two more to go; he almost beat the odds. MR. COMOLLI said the current policy is ill-conceived, unfair and blatantly prejudicial against peace officers. This bill does nothing more than reestablish the parity among all PERS members. I've got my benefits. It's not fair to me to leave my young brothers and sisters behind me that are going to step up and continue to do this job without what I have. It's not too much to ask. CHAIR BUNDE commented that he has a brother and two nephews who are police officers and knows what he is talking about. MR. LARRY SIMMONS, Certified Public Accountant (CPA), said he is finance director for the City of Kenai, and that he had been following this bill since last year and at that time the AGFOA passed a resolution against it. When Tier 2 was created in 1986, it didn't include medical benefits until members reached the age of 60, a requirement that stayed in place for 15 years. In 2001, benefits were changed for police and fire members to receive medical benefits after 25 years. "Prior to that there were no medical benefits, period, until age 60." At that time, the PERS was 106 percent funded, but the following year the PERS system was funded at 75 percent and the expense for the added medical benefits are huge. He was very concerned about the fiscal note for HB 91. It is based on actual experience that only 21 percent of the eligible members would retire. Do you think more people will retire when you give them medical benefits at 20 years than will retire at 20 years if they don't have medical benefits? The answer is totally obvious and, therefore, that fiscal note is well understated. I think for the City of Kenai, it is four times understated.... State funding for the increased benefits can go away when the next legislature decides to make it go away. MR. CHRIS BURNS, Mercer Human Resource Consulting, said he would answer questions. CHAIR BUNDE noted there were no questions and thanked all who testified and said HB 91 would be held over. There being no further business to come before the committee, he adjourned the meeting at 4:07 p.m.
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