Legislature(2003 - 2004)
04/14/2004 09:31 AM House STA
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
HOUSE STATE AFFAIRS STANDING COMMITTEE
April 14, 2004
9:31 a.m.
MEMBERS PRESENT
Representative Bruce Weyhrauch, Chair
Representative Jim Holm, Vice Chair
Representative John Coghill
Representative Bob Lynn
MEMBERS ABSENT
Representative Paul Seaton
Representative Ethan Berkowitz
Representative Max Gruenberg
COMMITTEE CALENDAR
HOUSE BILL NO. 331
"An Act relating to federal requirements for governmental plan
and other qualifications for the teachers' retirement system,
the public employees' retirement system, and the judicial
retirement system; and providing for an effective date."
- MOVED CSHB 331(STA) OUT OF COMMITTEE
PREVIOUS COMMITTEE ACTION
BILL: HB 331
SHORT TITLE:RETIREMENT:TEACHERS/JUDGES/PUB EMPLOYEES
SPONSOR(S): RLS BY REQUEST OF THE GOVERNOR
Jrn-Date Jrn-Page Action
05/21/03 2070 (H) READ THE FIRST TIME -
REFERRALS
05/21/03 2070 (H) STA, L&C, FIN
05/21/03 2070 (H) FN1: ZERO(ADM)
05/21/03 2070 (H) GOVERNOR'S TRANSMITTAL LETTER
03/30/04 (H) STA AT 8:00 AM CAPITOL 102
03/30/04 (H) <Bill Hearing Postponed to
Thurs. 4/1/04>
04/01/04 (H) STA AT 8:00 AM CAPITOL 102
04/01/04 (H) Scheduled But Not Heard
04/06/04 (H) STA AT 8:00 AM CAPITOL 102
04/06/04 (H) Heard & Held
MINUTE(STA)
04/14/04 (H) STA AT 8:00 AM CAPITOL 102
WITNESS REGISTER
MELANIE MILLHORN, Director
Division of Retirement & Benefits
Department of Administration
Juneau, Alaska
POSITION STATEMENT: Testified on behalf of the department
during the hearing on HB 331.
ANSELM STAACK, Chief Financial Officer
Division of Retirement & Benefits
Department of Administration
Juneau, Alaska
POSITION STATEMENT: Testified on behalf of the department
during the hearing on HB 331.
ACTION NARRATIVE
TAPE 04-62, SIDE A
Number 0001
CHAIR BRUCE WEYHRAUCH called the House State Affairs Standing
Committee meeting to order at 9:31 a.m. Representative
Weyhrauch was present at the call to order. Representatives
Holm, Coghill, and Lynn arrived as the meeting was in progress.
sb135
sb232
hb254
HB 331-RETIREMENT:TEACHERS/JUDGES/PUB EMPLOYEES
[Contains brief discussion of SB 135, SB 232, and HB 254.]
Number 0044
CHAIR WEYHRAUCH announced that the first order of business was
HOUSE BILL NO. 331, "An Act relating to federal requirements for
governmental plan and other qualifications for the teachers'
retirement system, the public employees' retirement system, and
the judicial retirement system; and providing for an effective
date."
CHAIR WEYHRAUCH reminded the committee members that at the prior
hearing they had adopted the committee substitute (CS) for HB
331, Version 23-GH1009\D, Craver, 4/1/04, as a work draft;
therefore, Version D was still before the committee.
Number 0097
MELANIE MILLHORN, Director, Division of Retirement & Benefits,
Department of Administration, emphasized that the proposed
legislation is important to the division, because it would
ensure that the division is in compliance with the Internal
Revenue Service (IRS) code. She noted that there was an
initiative launched by the division in January 2001, to obtain
plan determination letters and private rulings regarding the
Public Employees' Retirement System (PERS), the Teachers'
Retirement System (TRS), the Judicial Retirement System (JRS),
and the Supplemental Benefits System (SBS), to ensure federal
plan compliance.
MS. MILLHORN noted that, in May 2001, Senator Rick Halford
introduced SB 135 in the Twenty Second Legislative Session,
which added village public safety officers (VPSOs). She
continued as follows:
Now, this particular piece of legislation was not made
operative, pending an IRS ruling to make a
determination if VPSOs could be included in PERS for
classification purposes. So, [in] October 2001, there
was a comprehensive submission to the IRS to obtain
[a] positive determination letter on the plans and
private letter rulings.
[In] May of 2002, HB 254 ... made some requirements
for changes in the plan. [In] June of 2002, the IRS
provided a positive private letter ruling on SBS and
TRS, and the private letter ruling was conditioned
upon putting into law all of the changes requested by
the IRS. [In] November of 2002, the division received
notice from the IRS that they intended to rule
negatively on the ... VPSO issue, which was the
inclusion of VPSOs in [PERS]. There was a formal
conference of right that was held with the IRS in
Washington, D.C., to make a final plea ... to allow
the VPSOs for inclusion in [PERS].
In April of 2003, there was a favorable plan
determination letter for PERS, ... TRS, JRS, [and]
SBS, based on voluntary compliance requirements. ...
In May of 2003, SB 232 was introduced. In August of
2003, the IRS ... provided the division with a
positive letter ruling on TRS and PERS, and a negative
ruling on VPSO inclusion in PERS.
[In] November of 2003, regulations [were] adopted by
PERS and TRS boards on issues required in regulations
as to the actuarial reduction factors, which were
required by the IRS, and these changes must be
implemented in order to maintain PERS, ... TRS, and
JRS as plan-qualified status ..., and they have to be
made in statute.
Which brings us to January of 2004: The IRS required
[statute] changes through SB 232 and HB 331, which are
identical bills, and it made a requirement that the
VPSO language that was never made operative be
repealed from statute. And these changes must be
implemented in order to maintain PERS, TRS, and JRS,
as plan-qualified status ....
ANSELM STAACK, Chief Financial Officer, Division of Retirement &
Benefits, Department of Administration, told the committee that
he has been a fully licensed certified public accountant (CPA)
for 30 years and is also an attorney at law. He indicated that
a qualified [retirement] plan offers good benefits; members of
TRS, PERS, and JRS can make contributions to the plan, pre-tax,
which is valuable to the plan and lowers the plan's cost. He
explained that, under the IRS code, in order for a plan to
remain qualified, a plan document must be maintained in concert
with the IRS code. He revealed that the plan documents for
PERS, TRS, and JRS are the statutes. He noted that SBS has a
separate plan document; it has a statutory link, but its main
operative provisions are not in the statute itself. He stated
that it is under IRS review and control, but it's separately
linked. In response to a question from Representative Holm, he
explained that SBS is the plan for the State of Alaska and 14
other public employers and is a substitute for social security.
Mr. Staack continued as follows:
So, we went to the IRS ... to ask for a review to see
if you're in compliance. And we also went to the IRS
because there was a desire that people could pay their
indebtedness to the system - to purchase, for
instance, military time, and to purchase back
previously refunded service - to be able to do that
with pre-tax dollars ..., and also to be allowed to
transfer monies from certain kinds of qualified plans,
in order to pay for that service. Well, that's a
tremendous benefit; it helps both the system and ...
the member. It's no real cost to the plan.
Well, in order to get that, the IRS has to do a full
review of your plan. So, this is where you have to
step up to the plate and you have to have every bit of
your plan reviewed. And that is precisely what they
did. What you see here is, in 2002, ... the first
series of changes were adopted as HB 254 in the Twenty
Second Legislature, second session. There were
additional changes made, and that is what is included
here in HB 331. Now, the reason it was introduced on
the very last day of the session last year was because
we are under a compliance agreement to get these
changes in effect.
MR. STAACK, in response to a question from Chair Weyhrauch,
stated that all of the language in [HB 331] is "precisely how
the IRS accepts it." He indicated that [the version before the
committee] was "after twelve iterations." He continued as
follows:
As to the VPSO matter that was originally passed ...,
I personally, along with three other tax [counsels],
argued that case with four members of the IRS, in
order to try ... to convince them to keep the VPSOs in
the PERS system. However, they disagreed with that.
MR. STAACK stated his understanding that the committee had been
provided with copies of that ruling [included in the committee
packet].
Number 0775
MR. STAACK noted that the actual employer of the VPSO is what is
called the 501(c)(3) nonprofit - a private nonprofit
corporation. In order to get the VPSOs that work for the
regional Native corporations to be declared employees who could
be in a governmental plan, the organization itself must be
declared to be the practical equivalent of a government. He
clarified, "You can't be a private nonprofit and a governmental
plan at the same time."
MR. STAACK summarized that the first issue was one of control.
He stated, "We even used an argument with the IRS to try to
convince them that ... we considered these least employees.
They felt it was creative, but it wasn't good enough to convince
them." He credited the IRS with trying hard to overcome the
problems, and it reviewed over 1,000 pages of background
documentation regarding the VPSO issue.
Number 0895
REPRESENTATIVE HOLM moved to report CS HB 331, Version 23-
GH1009\D, Craver, 4/1/04, out of committee with individual
recommendations and the accompanying fiscal notes. There being
no objection, CSHB 331(STA) was reported out of the House State
Affairs Standing Committee.
ADJOURNMENT
Number 0921
There being no further business before the committee, the House
State Affairs Standing Committee meeting was adjourned at 9:45
a.m.
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