HB 87 - MED BENEFITS OF DISABLED PEACE OFFICERS 3:18:55 PM CHAIR OLSON announced that the first order of business would be HOUSE BILL NO. 87, "An Act waiving payment of premiums for major medical insurance under the defined benefit retirement plan for public employees for disabled peace officers who have at least 20 years of credited service as peace officers." 3:19:26 PM REPRESENTATIVE MILLETT, Alaska State Legislature, introduced her staff, Ryan Makinster. She briefly explained HB 87. She thth offered that if peace officers who are between their 20 and 25 years of employment become disabled, they will not receive any major medical coverage until they reach the age of 60. She offered her belief that this gap was an unintended consequence of legislation that passed the legislature in 1986 that created Tier II and Tier III state employees. She said she anticipates that HB 87 will be held over to allow time to provide additional actuarial information. 3:20:36 PM RYAN MAKINSTER, Staff to Representative Millett, Alaska State Legislature, explained on behalf of the prime sponsor, that HB 87 seeks to make a change for a gap in the Public Employees Retirement System (PERS) disabled coverage. He explained that public safety employees are eligible to retire after 20 years of service, instead of the 25 years of service required for other state employees. Thus, the period of time from 20 to 25 years causes a problem for the public safety employees. He related that under the current statute, a person is eligible for disabled coverage for full major medical benefits if they are disabled while he/she is a member. Retired public safety employees are not technically members of the plan during that five-year gap period, he stated. He commented that the bill drafter also restructured the proposed statute somewhat, but those changes were only technical in nature. 3:22:29 PM MR. MAKINSTER, in response to Chair Olson, explained that the fiscal note for fiscal year (FY) 2010, should list $12.8 to reflect thousands instead of millions. Additionally, one-time programming costs will be incurred to add the necessary requirements of HB 87 to the Division of Retirement and Benefits' computer system. 3:23:15 PM REPRESENTATIVE COGHILL asked whether it would cause a constitutional issue if the legislature increased the requirements for public safety employees retirement age from 20 to 25 years of service. REPRESENTATIVE MILLETT offered her belief that the benefits could not be diminished. She explained HB 87 would increase the unfunded liability by $567,000, by lowering the years of service eligibility for occupational disability medical coverage from 25 to 20 years. She elaborated that payment amount would be amortized over 25 years. The fiscal note also reflects that more employees will be added into this category over time. Thus, for FY 11, the increase in annual employer contribution would be $67 thousand. REPRESENTATIVE COGHILL inquired as to whether the gap is for all medical insurance or if an employee who becomes a disabled person in the gap situation would have any health insurance at all. MR. MAKINSTER answered that the disabled person would have major medical coverage, but would be responsible for the premiums, which otherwise are paid for by the plan. MR. MAKINSTER, in response to Representative Coghill, answered that he was not sure of the premium amounts. REPRESENTATIVE COGHILL said it seemed as though the effect of the changes will be to transfer some of the risk. He recalled several discussions years ago that the trade-off for a 20-year retirement, whose purpose was to retain a young and vibrant workforce, was that its members would not be eligible for benefits until year 25. He said he could not recall if the disability factor was part of the discussion. He inquired as to whether the state would pick up the risk of paying the premium or if it is passed on to the employee. MR. MAKINSTER offered that he is researching the original intent of the early retirement plan for public safety employees to determine if provisions for disability were inadvertently omitted. 3:27:30 PM REPRESENTATIVE NEUMAN asked for the reason that the gap in premium coverage for disability is just now surfacing as an issue if the statute changed in 1986. MR. MAKINSTER answered that until recently, no employee has been affected. He offered that some employees have recently entered the 20 to 25 year window. He recalled that a public safety employee Fairbanks was recently affected. 3:28:30 PM MR. MAKINSTER, in further response to Representative Neuman, explained that the perceived gap referred to the technical definition of "disabled member," since eligibility requires that the person must be part of the retirement system. However, the way the statute has been interpreted, in order to be a member a person must be part of the defined benefit membership plan. However, if an employee opted out of the plan at 20 years, he/she is not considered eligible. In further response to Representative Neuman, Mr. Makinster reiterated that the sponsor is seeking clarification on the original intent of the coverage for those employees who are eligible for retirement after 20 years of service. 3:30:14 PM REPRESENTATIVE COGHILL referred to the fiscal note that mentions the total population affected by HB 87 equals 2,275 Tier II and Tier III peace officer and firefighter members. He inquired as to what the normal demographic for injuries is by age group and stratification. MR. MAKINSTER offered that was not certain but offered that the DOA would be testifying and could answer questions about the actuarial amounts. 3:33:26 PM CHAIR OLSON, in response to Representative Chenault, offered to have someone from the consultant group, Buck Consultants of Denver, Colorado, participate at the next hearing to explain the cost estimates for allowing paid medical benefits for peace officer and firefighter members with 20 years of service instead of 25 years of service. 3:33:49 PM JEFF BRIGGS, Alaska Professional Fire Fighters Association (APFFA), explained that his association, the Professional Fire Fighters Association (APFFA) first learned about the medical coverage gap last winter. He related that the issue is referred to by the PFFA as the "PERS gap". He related that Anchorage members belong to a municipal retirement system so the only firefighter in his department that is currently affected by the PERS gap is someone who transferred in from another fire department. He surmised that most of their organization's members are in PERS, with 14 years employment tenure. Thus, his department's employees are still 6 or 7 years away from the PERS gap. However, he offered his understanding that quite a few firefighter members in Fairbanks and a few members in Juneau are affected by the PERS gap. One of the concerns the APFFA has is that an employee who is injured with 10 years plus a day's service will receive more benefits than someone with 25 years employment. Thus, once an employee is injured at the 20-year service mark, he/she is penalized. He recalled that the Anchorage Fire Department suffered a large exodus of retirees, who were then rehired as contractors to train younger firefighters. In his experience, the injury rate for senior firefighters has not been an issue since the senior firefighters have substantial training and experience, and are less likely to be injured on the job, he opined. MR. BRIGGS related his understanding that the reason for the 20- year retirement was to entice peace officers and firefighter members to stay on the job longer to seek an early retirement. He offered his belief that his department has not been harmed by the PERS gap to date. However, as time passes more firefighters could be affected, he noted. He related that firefighters are in the business of taking risks, and understand that any given day could result in their injury or death. He related his own experience, noting that a few weeks ago he had to dive through a window into a burning house with limited visibility in order to perform a rescue. He opined that firefighters continually weigh risks versus benefits. He concluded by stating that firefighters should not have to worry about whether they have medical coverage in the event that they are injured while on the job attempting to rescue or save someone. 3:37:46 PM KEVIN BROOKS, Deputy Commissioner, Office of the Commissioner, Department of Administration (DOA), explained that the DOA is aware of the unfunded status of Public Employees Retirement System (PERS) and Teacher Retirement System (TRS). He related that HB 87 would add over $500,000 to the unfunded status. Therefore, the DOA is concerned since this bill would add to the unfunded status. He explained that the DOA is currently investigating the history of the PERS gap. He stated that based on prior testimony, the issue arose in 1986, with the passage of enabling legislation for Tier II implementation. He offered that a few years ago the DOA undertook an exhaustive review of all pension plans when Senate Bill 141 passed the legislature. The Department of Law is also assisting the DOA in researching the legislative history on this "gap" issue, he advised. 3:39:11 PM MR. BROOKS, in response to Chair Olson, stated that the DOA has asked the actuaries some questions about the unfunded status. Additionally, the DOA is also considering impacts that other legislation may have that could make changes to the tiers or defined benefit plans. He said he hopes to receive an analysis in a few weeks from the actuaries. He offered to provide commentary and written comments at that time. He welcomed to present any additional questions by the committee to the actuaries. However, he highlighted that the DOA is charged fees for any services the actuaries provide. Thus, he said that the DOA carefully prepares concise questions for their consideration. In further response to Chair Olson, Mr. Brooks answered that the DOA is neutral on HB 87 at this time. However, once additional information is acquired, he said he thought that the DOA's position would probably broaden. 3:41:18 PM MR. BROOKS, in response to Representative Neuman, answered that the bill as written is specifically defined. He said he did not perceive that HB 87, in and of itself would open dialogue on defined benefits and defined contributions. REPRESENTATIVE COGHILL stated his interest in reviewing new figures on the fiscal note, since it will make a big difference whether the projected costs are $567,000 or $10 billion. He surmised that the committee will need to make a policy decision on the cost to keep work force employed. He inquired as to whether members still contribute to the retirement system if they are employed during the 20 - 25 year time period. Additionally, he inquired as to whether members make co-payments on their medical claims. 3:43:44 PM PAT SHIER, Director, Division of Retirement & Benefits, Department of Administration (DOA), answered yes, if public safety employees remain employed, both the employer and employee make contributions into the employee's retirement system. In further response to Representative Coghill, Mr. Shier noted that employees can pay the amount of the premium. He clarified that the cost is not really a premium to health plan, but would be paid from the retirement health trust unless the employee was disabled. In that instance, the disabled employee would incur the cost of the premiums, he related. He provided the current amount of the premium for an employee who was disabled between the 20 - 25 years of service as $590 per month. The amount of the premium would vary, he noted. Thus, the coverage for the retiree and a child would be $833; for a retiree and spouse would be $1179; and for the retiree and family would be $1423 per month. He offered that a disabled retiree might seek to get coverage elsewhere if they could, but would need to pay the premium costs if he/she wanted to stay in the current state health plan. 3:46:05 PM REPRESENTATIVE COGHILL reiterated his belief that the committee will need to make a policy decision on the benefits and costs necessary to keep the public safety work force employed. MR. BROOKS, in response to a prior question by Representative Chenault, clarified that $567,000 estimate is an estimate of the change in the present value of the future benefits. Therefore, paying the cost over time could result in a greater cash stream. 3:47:51 PM CHAIR OLSON, after first determining no one else wished to testify, closed public testimony on HB 87. He announced that HB 87 would be held over.