Legislature(2015 - 2016)BUTROVICH 205
04/16/2015 09:00 AM Senate STATE AFFAIRS
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| Audio | Topic |
|---|---|
| Start | |
| HB135 | |
| SB74 | |
| HJR22 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 74 | TELECONFERENCED | |
| + | HB 135 | TELECONFERENCED | |
| + | HJR 22 | TELECONFERENCED | |
| + | TELECONFERENCED |
HB 135-PUBLIC EMPLOYEE ROTH CONTRIBUTIONS
9:19:39 AM
CHAIR STOLTZE announced the consideration of HB 135.
9:20:05 AM
JOHN BOUCHER, Deputy Commissioner, Alaska Department of
Administration, Juneau, Alaska, provided an overview of HB 135
as follows:
HB 135 is an act establishing a Roth contribution
option for public employees who choose to participate
in the deferred compensation program. This legislation
enables plan members to take control of one portion of
their retirement portfolio that they currently do not
have a choice over, essentially that is the timing of
the taxation of the contributions that they make to
their deferred compensation plan. The current statute
has been in effect since 1973 and the statute
currently only allows deferred compensation to be made
as part of a pretax contribution. HB 135 is an effort
to modernize and update the options that are available
to members of the plan to comport with changes that
have been made on a national level with other deferred
compensation plans.
CHAIR STOLTZE asked if the new opportunities are because of
federal laws.
MR. BOUCHER answered correct. He continued his overview as
follows:
In January of 2011, Congress passed legislation
enabling governments to implement a designated Roth
contribution option and HB 135 would allow for the
incorporation of this option to public employees who
participate in the State of Alaska deferred
compensation plan. The bill enables members to control
the timing of the taxation of their deferred
compensation contributions, whether it be at the time
that the contribution is made to the deferred
compensation plan or at the time of distribution.
Should HB 135 pass as purposed, it would enable
members to choose to have their contributions taxed at
the time of contribution, which would mean that the
income could be considered tax-free at the time of a
qualified dividend distribution. The default option
for existing members would be the current pre-tax plan
and members would have to positively elect to a Roth
investment to have their contributions changed to a
taxable status. This proposed legislation is in
response to requests by members to the Division of
Retirement & Benefits to offer this option to members.
9:21:58 AM
SENATOR WIELECHOWSKI joined the committee meeting.
CHAIR STOLTZE asked if the request was from organized employee
groups or individuals.
MR. BOUCHER replied that the request came from individual
employees.
CHAIR STOLTZE asked if there have been any formalized requests
from any employee groups or retired groups.
9:23:46 AM
KATHY LEA, Chief Pension Officer, Division of Retirement and
Benefits, Alaska Department of Administration, Juneau, Alaska,
explained that the requests have come to the division through
its regional counselors who travel all over the state and meet
individually with members. She specified that the option was
published a couple of years ago when Congress inaugurated the
bill and the option has been a topic of conversation.
SENATOR WIELECHOWSKI asked if the option is common in other
states.
MS. LEA answered that more states are adding a designated Roth
option. She detailed that approximately 12 states offered the
option.
SENATOR WIELECHOWSKI asked if the maximum that can be deferred
is the same as the current maximum.
MS. LEA answered that the current limit is $18,000. She detailed
that the Roth option would take on all of the rules and
contribution limits of the deferred compensation plan.
SENATOR WIELECHOWSKI asked if contributions can be "stacked"
where $18,000 is deferred to each plan or "split" where $9,000
is deferred to each plan.
9:25:36 AM
MS. LEA answered the contributions can be split as long as the
$18,000 limit is not exceeded.
SENATOR HUGGINS noted that education and healthcare workers have
a Roth 403(b) contribution option. He asked what the differences
were in the various retirement plans.
MS. LEA answered that she is not versed in Roth 403(b) details
because the division does not administer the plan.
SENATOR HUGGINS asked why public employees are not covered by
Social Security and how that came about officially.
MS. LEA explained that the early 1950s, the state's teachers had
an opportunity to come into Social Security and the option at
that time was the teachers did not need to opt into Social
Security due to an existing retirement plan. The State of Alaska
signed an agreement with Social Security that their teachers
would not participate, many states did the same. She revealed
that in 1980, state employees held a referendum and voted for a
Social Security replacement plan, the Alaska Supplemental
Annuity Plan. She noted that the option to choose has sunset and
Social Security only allows an option choice for new entities;
for example, when a borough and city merges.
9:28:28 AM
SENATOR HUGGINS asked if Ms. Lea had history on whether the
teachers supported the state not opting into Social Security.
MS. LEA answered that the division does not have any public
records.
SENATOR WIELECHOWSKI assumed that the same investment options
would be available that would be treated like deferred
compensation. He asked if there would be a separate state
account or could the deferred compensation be directed to a
personal Roth Individual Retirement Account (IRA). He inquired
that if there is a state account, would the same Alaska
Supplemental Annuity Plan (SBS-AP) and deferred compensation
investment options be offered.
MS. LEA answered as follows:
This is an option within the deferred compensation
program, so you would not be able to direct it to a
private IRA and this type of option is only allowed in
a 457 plan because the limits are higher for
contribution, it is a taxation option so the
investment lineup that are in the deferred
compensation plan don't change, it is the same
investments.
SENATOR WIELECHOWSKI asked if the investments are the same
investments that currently exist in the deferred compensation.
MS. LEA answered correct.
SENATOR WIELECHOWSKI asked if a state employee has the option of
rolling their Roth IRA into their own private Roth IRA when the
individual leaves state-service.
MS. LEA answered yes. She specified that the investment product
is "rollable" and can go into a Roth IRA.
9:30:38 AM
SENATOR WIELECHOWSKI asked if there is any opposition to the
bill.
MR. BOUCHER answered that he is not aware of any opposition.
SENATOR WIELECHOWSKI commented that the proposition looks like
another employee option.
MR. BOUCHER answered correct. He opined that the option depends
on how the future of taxation is viewed where a person decides
between the certainty in current rates and the uncertainty in
future rates. He noted that one option could be setting aside a
portion of tax-free income for an individual's heirs. He
summarized that the option is just another tool.
SENATOR COGHILL asked to verify that taxes are paid prior to
deferral.
MR. BOUCHER answered yes.
SENATOR COGHILL asked what tax rates are applied prior to
deferral.
MS. LEA answered that an individual is taxed at the applicable
rate during the time of the pay period contribution.
SENATOR COGHILL asked to verify that an individual decides on
what percentage of income is deferred.
MS. LEA answered correct. She specified that the contribution is
a positive election that the employee has to make.
9:33:46 AM
SENATOR WIELECHOWSKI assumed that excess money after taxes of
$18,000 could be put into a Roth IRA. He asked if a person has
to wait a certain amount of time for withdrawal.
MS. LEA answered that there are some restrictions that are
different from a personal IRA and withdrawal is allowed under
the following conditions:
· Account must be maintained for at least 5 years.
· In the case of a disability.
· A survivor may remove the money.
· Age 59-1/2 and employment has been terminated.
MS. LEA summarized that any investment earnings on the
contributions are not taxed as long as the qualifiers are met.
SENATOR WIELECHOWSKI asked to verify that a person strictly pays
taxes on the dividends or interest if money is withdrawn from
the plan within the first five years.
MS. LEA answered that money cannot be removed from a deferred
compensation plan unless a person is terminated from employment.
CHAIR STOLTZE asked if the plan can be used as a loan account
where an individual can borrow on the money and repay with
interest to oneself.
9:35:33 AM
MS. LEA answered that the state plans do not allow for a loan
option. She specified that a loan option is considered "leakage"
from an individual's retirement plan. She remarked that loans on
a retirement plan is considered robbing from an individual's
future.
CHAIR STOLTZE asked if the policy Ms. Lea described was a
decision that she made in presenting the bill and offering the
programs.
MS. LEA replied that the policy decision was made by the
Legislature when the deferred compensation plan was created.
CHAIR STOLTZE assumed that the policy decision was made with
guidance from the Department of Administration.
SENATOR HUGGINS asked if there is a provision that allows for
rolling over a different Roth IRA into the public employees'
Roth IRA.
9:37:19 AM
MS. LEA answered that private IRA roll-in is permissible except
for the SIMPLE (Savings Incentive Match PLan for Employees) IRA.
SENATOR COGHILL asked how a catch-up contribution works.
MS. LEA answered that a catch-up provision is allowed within
three years of an individual's normal retirement date. She
specified that contributions can be doubled in each of the three
catch-up years where the limit is $36,000 rather than $18,000.
SENATOR WIELECHOWSKI asked to verify that funds from a private
Roth IRA can be rolled into the bill's Roth IRA if the
legislation is passed.
MS. LEA answered yes.
SENATOR WIELECHOWSKI asked if unlimited amounts maybe rolled
into the plan.
MS. LEA answered that she is not sure what the limitation is.
9:39:05 AM
At ease.
9:40:09 AM
CHAIR STOLTZE called the committee back to order. He asked Mr.
Boucher if he had any closing comments.
MR. BOUCHER commented that the plan is a fantastic option for
people who may want to choose to have a portion of their
retirement income not taxed or taxed now and not taxed in the
future.
CHAIR STOLTZE asked to verify that the bill has a zero fiscal
note.
MR. BOUCHER answered correct.
9:41:23 AM
SENATOR COGHILL moved to report HB 135, [version 29-GH1015\A],
from committee with individual recommendations and the attached
zero fiscal note.
9:41:37 AM
CHAIR STOLTZE announced that hearing no objection, [HB 135 moved
out of Senate State Affairs Standing Committee].