SENATE BILL NO. 1003 An Act relating to public employees. CHUCK O'CONNEL, BUSINESS MANAGER, ALASKA STATE EMPLOYEES ASSOCIATION (ASEA) spoke in support of SB 1003. He stated that ASEA can accept the compromise represented by the legislation. He observed that the legislation makes changes to the retirement system that ASEA has resisted. He noted that there is no diminishment of benefits for any of the present bargaining units. He observed that contracts would have to be voted on again if there were reductions in benefits for existing bargaining units. MARK BOYER, COMMISSIONER, DEPARTMENT OF ADMINISTRATION reviewed changes to SB 1003 made by the Senate. He observed that references to geographic differentials have been deleted. Reference to the geographic differential as it relates to municipal assistance and revenue sharing were not included in the legislation. He explained that it was unnecessary to restate in Title 29 the differentials in these programs. The legislation maintains the status quo. The legislation would provide that leave be accrued at the rate of pay in which it is earned. Presently, leave paid at cash out is at the current wage rate, not the rate at which 2 it was earned. Retirement will be based on the average salary of the highest five years times the years of service with a multiplier, instead of the highest three years. The legislation also changes the qualification for retirement health benefits. New employees will have to work for the State for a minimum of ten years, instead of five, before qualifying for retirement health benefits. New employees would still be eligible for other aspects of the retirement system after five years. The legislation also contains an early retirement incentive program and clarifies the qualifying criteria for cost of living differentials in the marine units. A person must otherwise qualify as if they were receiving a permanent fund dividend in order to prove residency for the purposes of receiving a cost of living differential. Legislators' salaries will not be increased by the provisions that approve the monetary terms of the contracts. Non-covered employees would also receive a 1.4 percent increase for three years. In response to a question by Representative Brown, Commissioner Boyer noted that section 10 was deleted from the legislation because it duplicated language existing in statute. He noted that it was not the intent of the Governor to change differentials of the municipal assistance and revenue sharing programs. Changes to the retirement system of new police and fire department employees were eliminated. He observed that the benefit calculation was eliminated from sections 20 and 21. He added that sections 22 and 23 were eliminated. He explained that clarifying language was added to provisions regarding salary adjustments for judicial employees. A new section was added to clarify that appropriations made for the University are made for contracts during the current legislation session. A reference to the limitation of employee salaries relating to the geographical differential was eliminated. A traditional period for conversion from an hourly bank to a cash bank was included. In response to a question by Representative Brown, Commissioner Boyer noted that leave conversions only effect non-covered employees. He added that retirement changes are not subject to bargaining. Retirement changes would effect new employees only. He explained that the Constitution prevents modification or impairment of benefits for current employees. The cost of living differential language will effect new contracts in the marine highway system. He observed that a recent Superior Court decision validates the State's position that the State has the authority to change the format of the differential. A new qualifying form has been sent to marine highway employees that conforms to the definition change included in the legislation. 3 Representative Martin asked for more details on the proposed retirement incentive program (RIP). Commissioner Boyer noted that the contracts have a four year span. There would be no increase the first year of the contract. The total four year cost for the contract increase is approximately $32 - $34 million dollars. He observed that the changes included in the legislation would save approximately $17.0 million dollars over the first five years. This amount would grow exponentially over time. The total savings over 25 years would be approximately 51 million dollars. BOB STALNAKER, DIRECTOR, DIVISION OF RETIREMENT AND BENEFITS, DEPARTMENT OF ADMINISTRATION reiterated that the only remaining cost reduction provisions in the legislation are the five year average salary and ten year requirement for retirement health insurance. These will result in an employer savings of approximately 1.8 percent. Employer cost would be approximately 8 percent upon transition into the Tier III environment. He noted that the RIP provision has not been altered. In response to a question by Representative Martin, Mr. Stalnaker stressed that employees determine their ability to RIP based on the level of salary they would receive at retirement. He pointed out that some of the highest paid employees are excluded from the RIP provisions. He estimated that the majority of employees exercising early retirements are at the mid range level. Representative Therriault noted that the University saved the most money in the previous RIP. Commissioner Boyer noted that the University is eligible to implement the RIP provisions. Representative Mulder MOVED to report CSSB 1003 (FIN) am out of Committee with individual recommendations and with the accompanying fiscal notes. There being NO OBJECTION, it was so ordered. Commissioner Boyer noted that the two accompanying fiscal notes were not adopted by the Senate. He stressed that the Department of Administration will ask the Legislative Budget and Audit Committee for authority to expend retirement funds if the fiscal notes are not appropriated. CSSB 1003 (FIN) am was reported out of Committee with "no recommendation" and with two fiscal impact notes by the Department of Administration. CSSB 1005 (FIN) am was reported out of Committee with a "do 4 pass" recommendation.