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
SENATE LABOR AND COMMERCE COMMITTEE
March 9, 1999
1:41 P.M.
MEMBERS PRESENT
Senator Jerry Mackie, Chairman
Senator Tim Kelly, Vice Chairman
Senator Dave Donley
Senator Loren Leman
MEMBERS ABSENT
Senator Lyman Hoffman
COMMITTEE CALENDAR
SENATE BILL NO. 9
"An Act relating to the calculation of employee contributions and
credited service in the public employees' retirement system for
noncertificated employees of school districts, regional educational
attendance areas, the Alaska Vocational Technical Center, and the
state boarding schools; and providing for an effective date."
-MOVED SB 9 OUT OF COMMITTEE
SENATE BILL NO. 85
"An Act relating to credited service in the public employees'
retirement system for temporary employment."
-MOVED CSSB 98(L&C) OUT OF COMMITTEE
PREVIOUS SENATE COMMITTEE ACTION
SB 9 - No previous action to consider
SB 85 - No previous action to consider
WITNESS REGISTER
Senator Gary Wilken
State Capitol Bldg.
Juneau, AK 99811-1182
POSITION STATEMENT: Sponsor of SB 9.
Mr. Guy Bell, Director
Division of Retirement and Benefits
Department of Administration
P.O. Box 110203
Juneau, AK 99811-0203
POSITION STATEMENT: Commented on SB 9 and SB 85.
Mr. Bill Church, Retirement Supervisor
Division of Retirement and Benefits
Department of Administration
P.O. Box 110203
Juneau, AK 99811-0203
POSITION STATEMENT: Commented on SB 9 and SB 85.
Ms. Barbara Huff Tuckness
Teamsters Local 959
520 F Street, #34
Juneau, AK 99801
POSITION STATEMENT: Supported SB 9 and SB 85.
Ms. Beth Davis
Education School Support Association
169 Palace Circle
Fairbanks, AK 99701
POSITION STATEMENT: Supported SB 9.
Ms. Sandy Pevan
Mat-Su School District Employees
POSITION STATEMENT: Supported SB 9.
Mr. John Cyr, President
National Education Association Alaska (NEA)
114 2nd St.
Juneau, AK 99801
POSITION STATEMENT: Supported SB 9.
Ms. Jean Smith, Aide
Senator Mackie
State Capitol Bldg.
Juneau, AK 99811-1182
POSITION STATEMENT: Presented SB 85 for Senator Mackie, sponsor.
Mr. Larry Boyle, Fisheries Biologist
Alaska Department of Fish and Game
Unalaska, AK 99685
POSITION STATEMENT: Supported SB 85.
Mr. Mike Bean, Program Coordinator
Sport Fishing Guide Program
Division of Sport Fish
Alaska Department of Fish and Game
333 Raspberry Rd.
Anchorage, AK 99518
POSITION STATEMENT: Supported SB 85.
ACTION NARRATIVE
TAPE 99-6, SIDE A
Number 001
SB 9-PERS CREDIT FOR NONCERTIFICATED EMPLOYEES
CHAIRMAN MACKIE called the Senate Labor and Commerce Committee
meeting to order at 1:41 p.m. Present were Senator Donley, Senator
Kelly, and CHAIRMAN MACKIE.
CHAIRMAN MACKIE announced SB 9 to be up for consideration.
SENATOR WILKEN, sponsor, said SB 9 is not a new issue. It gives
noncertificated employees in the school district, such as janitors
and secretaries, the ability to participate in a 12 month
retirement system rather than a nine by allowing them to pay into
the plan with their own money during the summer months. After they
work for 30 years, they have 30 years of retirement. Now they
cannot contribute in the summer months and the net effect of the
cost to the State and the retirement program is zero. There is a
small fiscal note of $72,000 to get the system set up, relating to
computer programing.
SENATOR WILKEN said his school district in Fairbanks supports this
bill, as well as the Anchorage school district. Over 200 POMs and
other letters from around the State indicate support.
SENATOR DONLEY remarked that participants would have to pay in
quite a bit of money for three months of retirement.
SENATOR WILKEN responded that currently the State pays in roughly
6.5 percent and the employees pay 4.5 percent of a monthly salary.
For the three months they are not working, the employee will be
paying in 11.5 percent.
CHAIRMAN MACKIE asked about a $316,500 fiscal note for SB 9,
because the companion bill in the House was $70,000.
SENATOR WILKEN said there was some confusion and it had started out
at $140,000, but the most current fiscal note is $72,000.
MR. GUY BELL, Director, Division of Retirement and Benefits,
clarified that the $116,000 fiscal note was his staff's clerical
error and should have been $72,000. He said that currently in
PERS, employees are required to provide 6.75 percent of their
salary to the retirement system. This bill would allow an employee
to elect this option which would effectively transfer them to the
Teacher's Retirement Fund schedule for accredited services only.
This would allow an employee to get a full year credit for each
school year that they work.
The additional cost to the employee who would elect this would be
4.33 percent which would raise their rate on salary to just over 11
percent to pay into PERS per month.
SENATOR KELLY asked why anyone would want to pay more money.
MR. BELL explained if a person chose to do this and started working
at age 20, after 30 years they would receive a retirement benefit
at 50 years of age. Without this change, that person would not be
eligible to receive a benefit until age 60, because they are
getting nine months of credit for each year they work. He added
that means the system would be paying benefits for those additional
10 years. The system needs to recoup that cost in advance and that
is why the additional rate is being paid by the employee.
SENATOR KELLY asked if a participant would be paying both the
employer and employee rate.
MR. BELL replied that the additional rate reflects the additional
cost of this change. The employer's contribution doesn't change.
SENATOR KELLY asked if this bill is retroactive.
MR. BELL said it is not.
SENATOR KELLY asked if it was for new employees only.
MR. BELL said no and explained that a new employee entering the
system has 90 days to make an election, which is irrevocable, to
use the definition of "years of service" under AS 14.25.220
(Teachers Retirement schedule). A noncertificated employee of a
boarding school who is an active member of the system on the
effective date of this act, may within 180 days after the effective
date of the act, make the irrevocable election. Language on page 2,
line 19 says, "The election applies to the employee's service
earned for the school year in which the election is accepted by the
administrator and applies to all subsequent employment as an
employee..." Mr. Bell said. That means the election year and all
subsequent years. An employee can't go back and buy the last ten
years.
SENATOR KELLY asked if the employee contribution would be prorated
throughout the year.
MR. BELL replied that it would be an additional payroll deduction
of 4.33 percent for nine months.
SENATOR KELLY asked if this had anything to do with "20-and-out."
MR. BELL responded this does not give them "20-and-out."
CHAIRMAN MACKIE asked if it would be "30-and-out."
MR. BELL answered yes; if a person entered the system and made that
election at age 20, they could leave after 30 school years and
receive a normal retirement benefit.
SENATOR DONLEY wanted to clarify who participated financially.
MR. BELL explained that it's an action between an employer, not
necessarily the State, and an employee. Sometimes the school
district is the employer. The object of the legislation is to hold
the employer harmless from the employee election. This is a net
zero cost to the employer.
SENATOR DONLEY asked if the costs the employer would have paid into
the retirement system for a year-round position was incorporated
into the 4.3 percent increase the employee is going to pay during
the months they are working.
MR. CHURCH explained that the employee will be paying the share
the employer would have had to pay if he worked year-round. If the
cost was shared across the board with 6,600 employees, the total
rate would be approximately 3.95 percent. However, it is an
election by the employee, so that is not the case. The collective
cost of the whole program will be borne by each employee.
SENATOR DONLEY asked if the 4.3 percent was just an estimate.
MR. CHURCH answered that their actuaries asked what it took to
provide these benefits and calculated it out at 4.33 percent.
SENATOR KELLY asked if an existing employee with 25 years in and of
service elects this program for five more years and then retires.
Would he only get full credit for the five years and not the first
25.
MR. CHURCH said that was correct.
SENATOR KELLY noted that they wouldn't retire with a full 30 years
even then.
MR. CHURCH answered if they had 25 years of credited service, they
would retire with 30 years. If they had worked 25 years, it would
be nine months times the five years.
SENATOR KELLY asked what the employer pays per nine months.
MR. CHURCH answered that it varies by school district.
SENATOR KELLY asked if we could use 6.75 percent as one example.
MR. BELL answered that the average employee is around 9 percent, so
the employee contribution is 6.75 percent.
SENATOR KELLY asked if it was correct that the employee would have
to pay another 4.5 percent for a total of 11.08 percent and only
receives credit for the 12-month year on the years that he's
paying prospectively.
MR. BELL said that was correct.
Number 280
MS. BARBARA HUFF TUCKNESS, Teamsters Local 959, supported SB 9.
She explained that the people who would opt for this program would
have 15 - 20 years of work, not necessarily credited years, who
want to retire. This would be an opportunity to retire within five
years instead of ten years, under those circumstances.
Number 302
MS. BETH DAVIS, testifying via teleconference from Fairbanks, said
she is a lead custodian and is representing their Education Support
Staff Association (ESSA). She supported SB 9 saying that it is only
fair to treat classified staff in the school district the same as
certified staff when it comes to accumulating years of service
credit for retirement. The bill means that classified staff could
be vested in five years and education support personnel could
retire after 30 years instead of having to wait almost 40 years to
receive credit for 30 years of service.
MS. SANDY PEVAN, representing Mat-Su employees, said she is a good
example of why someone would want to pay the extra 4.33 percent.
She is currently an employee in the Mat-Su Valley, has been working
in the school district for 21 years, but has only 14 years in
retirement. She is also 53 years old. She'll have to work until
she is 65 or 67 until she can retire. Of the 550 employees in the
Mat-Su Valley that she represents, approximately 100 are 12-month
employees, 300 are nine-month employees, and approximately 150 are
part-time employees with 75 of those not even able to receive any
type of retirement.
MS. PEVAN said from the beginning employees have agreed to pay the
4.33 increase, because it will directly impact their retirement.
SENATOR KELLY asked if there was language saying a temporary
employee has to work at least nine months to be able to this or
could they work three weeks a year.
MR. CHURCH answered that temporary employment is not covered under
the retirement system. Under the teachers credited service
schedule, to receive a full year of credited service, an individual
has to complete at least 172 days or more of employment.
SENATOR KELLY said that was less than half a year.
MR. CHURCH explained a full school year is 188 contracted days.
SENATOR KELLY said that theoretically a person could work for years
part-time and his concern is that they are not even requiring nine-
month people to do this.
MR. CHURCH answered they are requiring someone who wants a full
year of service credit to work at least 172 days of the school
year, equating to nine months.
SENATOR KELLY asked, for instance, if a janitor who works four
hours a day, 172 days per year would be eligible for this program.
MR. CHURCH answered that they are eligible, but he didn't know if
it would be to their advantage. For part-time work under the
teacher's retirement schedule, you receive half credit. Someone
who worked 180 days is actually going to get half credit. Under
the Public Employees Retirement System, part-time credit is based
on the hours worked and he didn't know if an employee would benefit
more by receiving the PERS credit or by opting for the TRS option.
MR. CHURCH said under SB 9 someone who starts at age 20, assuming
full-time employment for at least 172 days in each of 30 school
years, can retire at age 50. Someone under the current program who
is hired today would have to work until age 60; however, 60 is also
the normal retirement age. The double advantage under the TRS
credited service option is receiving the full year of credit and
being able to retire at an earlier age. The questions of advantage
will be different for each person. It could depend on how long
they work each year and if it is advantageous to pay that
additional required surcharge.
SENATOR KELLY asked if the PERS supported this legislation.
MR. BELL said they don't have a problem with it, but he couldn't
give their formal position.
MR. CHURCH added that they have no objection to the legislation; he
could get an official position statement from the Governor.
CHAIRMAN MACKIE closed the public testimony.
MR. JOHN CYR, President of NEA Alaska, said he represents 11,000
education employees, about 3,000 of whom would be impacted by this
legislation. They are in favor of this bill, having worked on it
for the past 10 years. SB 85 is benign to the system because the
employees carry the entire fiscal weight. He said he represents all
the folks who work in schools to make them run every day, other
than teachers, and it's an equity issue.
SENATOR KELLY asked if he represented the Anchorage school
district.
MR. CYR answered that he didn't.
SENATOR DONLEY moved to pass SB 9 with the accompanying fiscal note
and with individual recommendations. There were no objections and
it was so ordered.
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.
CHAIRMAN MACKIE adjourned the meeting at 2:52 p.m.
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