HOUSE BILL NO. 475 "An Act describing contributions to the health reimbursement arrangement plan for certain teachers and public employees; clarifying eligibility for membership in that health reimbursement arrangement plan; relating to the 'administrator' of the Public Employees' Retirement System of Alaska; and providing for an effective date." 3:20:43 PM At-Ease 3:21:53 PM Representative Kerttula MOVED Amendment #2, 24-LS1685\L.1, Wayne, 4/11/06: Page 2, line 2, following "program;": Insert "providing for an effective date by amending  sec. 148, ch. 9, FSSLA 2005, which contains an  effective date;" Page 2, following line 3: Insert new bill sections to read:  "* Section 1. AS 14.25.009 is amended to read: Sec. 14.25.009. Applicability of AS 14.25.009 -  14.25.220. The provisions of AS 14.25.009 - 14.25.220 apply only to members first hired before July 1, 2008 [2006].  * Sec. 2. AS 14.25.012(c) is amended to read: (c) Employees first hired after June 30, 2008 [2006], are not eligible to participate in the plan established in AS 14.25.009 - 14.25.220." Page 2, line 4: Delete "Section 1" Insert "Sec. 3" Renumber the following bill sections accordingly. Page 3, following line 12: Insert a new bill section to read:  "* Sec. 7. AS 14.25.310 is amended to read: Sec. 14.25.310. Applicability of AS 14.25.310 -  14.25.590. The provisions of AS 14.25.310 - 14.25.590 apply only to teachers who first become members on or after July 1, 2008 [2006], or to members who transfer into the defined contribution plan under AS 14.25.540." Renumber the following bill sections accordingly. Co-Chair Meyer OBJECTED. Representative Kerttula explained that the amendment is a two-year delay to enable more work to be done on the issues just mentioned. It would allow time for corrections of numerous problems and time for a reasonable decision to be made. 3:23:24 PM At-Ease 3:25:15 PM Representative Kerttula clarified that the amendment would delay the Committee Substitute for two years. REPRESENTATIVE PAUL SEATON commented that Amendment 2 would delay SB 141 for two years. He noted that that HB 475 is for technical cleanups to SB 141, and the amendment is a definite policy change, rather than a technical change. He proposed that the other body and the Administration would not agree with the amendment, and it would prevent HB 475 from going into affect. He suggested that this would create compliance problems with the IRS, and prevent the establishment of a new Tier Five. 3:27:30 PM Representative Kelly commented that the amendment would cause implementation problems and is irresponsible, since Retirement and Benefits has already been tasked with the job to implement SB 141 smoothly. He proposed that the legislature should take advantage of the work already completed. He suspected that there would be attempts to bring more people into the plan, and suggested that this would not, in affect, occur. 3:29:27 PM At-Ease 3:37:06 PM Representative Hawker offered a Conceptual Amendment to Amendment 2 to delay the implementation one year to July 1 of 2007. Representative Kelly OBJECTED to the Conceptual Amendment to Amendment 2. He maintained that the implementation should not be delayed at all. Representative Hawker spoke to the Conceptual Amendment to Amendment 2. He referred to last year's testimony on the bill stating no need for changes to be made. Now there are 34 pages in HB 475 to correct issues. He pointed to extensive testimony about unknown liabilities and IRS issues. He maintained that a 2-year deferral is a very comfortable deferral in order to resolve the many problems. The Conceptual Amendment offers a more reasonable time period to clean up issues. He termed it a sensible approach. Representative Kelly said if SB 141 is delayed, over 8,000 new employees will come into this failed system. He voiced concern about the $5.7 billion unfunded liability. He emphasized that it is irresponsible to delay the bill any longer. 3:44:29 PM Representative Hawker offered a point of clarification. He indicated that the governor's budget had 400 employees in it. He questioned the number of employees mentioned by Representative Kelly. Co-Chair Meyer clarified that it would be 4,000 employees statewide, including municipalities. Representative Seaton said the number is about 4,400 per- year turnover of new employees. He clarified that changes to SB 141 that were made on the floor and in conference committees added complexity to the bill. Those are what are being cleared up in HB 475. A roll call vote was taken on the motion to ADOPT the Conceptual Amendment to Amendment 2. IN FAVOR: Hawker, Joule, Kerttula, Moses OPPOSED: Foster, Holm, Kelly, Stoltze, Wehyrauch, Meyer, Chenault The MOTION FAILED 4-7. 3:47:46 PM Representative Kerttula addressed Amendment 2. She noted that it would be responsible to work for two years more on the bill. Representative Hawker stated strong support for Amendment 2. It is the financially responsible and conservative approach to properly implement the policy decision made last year to adopt SB 141. A roll call vote was taken on the motion to ADOPT Amendment 2. IN FAVOR: Hawker, Joule, Kerttula, Moses OPPOSED: Weyhrauch, Foster, Holm, Kelly, Stoltze, Meyer, Chenault The MOTION FAILED 4-7. Representative Joule MOVED to ADOPT Amendment 3: Page 2, line 15, following "AS 14.25.065.": Insert "The maximum change in the contribution rate for  an employer from one year to the next shall be not more  than five percentage points, as actuarially calculated,  whether the change is an increase or a decrease." Page 3, line 1: Delete "The" Insert "Subject to the limitation on maximum change from one year to the next under (a) of this section, the" Page 16, line 2, following "section.": Insert "The maximum change in the contribution rate for  an employer from one year to the next shall be not more  than five percentage points, as actuarially calculated,  whether the change is an increase or a decrease." Page 17, line 9: Delete "The" Insert "Subject to the limitation on maximum change from one year to the next under AS 39.35.250(a), the" Co-Chair Meyer OBJECTED for discussion purposes. 3:50:15 PM ALLISON ELGEE, STAFF, REPRESENTATIVE JOULE, addressed Amendment 3. She related that this amendment would limit the Alaska Retirement Management Board to rate adjustments for the retirement systems in any one year to 5 percent, both up and down. Previously, the PERS Board adopted a regulation that limited those rate adjustments to 5 percent per year, and that has been the experience for the last several years. This would put into statute what has in the past been effective regulation. Representative Hawker spoke against Amendment 3. He related that the policy call in SB 141 was to bankrupt the old plan, trigger a public bailout, and put a new plan in place to pick up where the old plan left off. It would be irresponsible not to start funding it as soon as possible. This amendment would dig the hole deeper. 3:52:36 PM Representative Joule said he raised the issue because there has been no discussion on the amount of money that would be involved. There is $40 million in TRS alone. He wanted to draw attention to the fear that the schools and cities will carry the brunt of the cost. Ms. Elgee said that based on the underfunding just for the school districts, the amount is approximately an additional $200 million to the foundation formula to cover the cost, were it to go to the full actuarial calculated cost in 2008. Representative Joule asked if that is a check the legislature is willing to write next year. 3:54:36 PM Representative Seaton appreciated the mention of the unfunded liability. He stated that the purpose of the bill is for a long-term plan. The amendment would delay the money for the unfunded liability. He agreed with Representative Hawker. Representative Joule stated that this is not going to be a liability. Representative Seaton drew attention to education funding with the 5 percent increase, and no lack of funding for TRS. He stated full commitment to fund TRS, as it is included in the formula. Representative Weyhrauch recalled that this was an amendment offered last year to HB 141. He concurred with Representative Hawker's view that "we are going to have to pay for the problem". He opined that Amendment 3 is not the correct solution. 3:57:58 PM Representative Kelly said that we should resist going the route of Amendment 3. It will take work by the state, the cities, and the schools to solve the problem. BUCK provides actuarial services to many state and local government pension systems. This is the first time BUCK has had a client that was prohibited from increasing deductibles, full pays, and prescription drugs for its retirees. In normal circumstances, there would be some way to have assistance from those being served. He spoke against the amendment, but said it is in the right spirit. Representative Joule said he raised this idea because it involves real dollar figures. He urged caution in the future with the respect to school districts. He WITHDREW Amendment 3. 4:01:59 PM Representative Weyhrauch MOVED to ADOPT Amendment 4: Page 4, line 8: Delete "AS 14.25.485 and 14.25.487" Insert "AS 14.25.310 - 14.25.590" Page 9, lines 21 - 23: Delete "[BENEFICIARIES] based on the deceased member's gross monthly compensation at the time of occupational death [(1)" Insert "[BENEFICIARIES BASED ON THE DECEASED MEMBER'S GROSS MONTHLY COMPENSATION AT THE TIME OF OCCUPATIONAL DEATH (1)" Page 19, lines 12 - 13: Delete "AS 39.35.890 and 39.35.892" Insert "AS 39.35.700 - 39.35.990" Page 25, lines 26 - 28: Delete "[BENEFICIARIES] based on the deceased employee's gross monthly compensation at the time of occupational death [(1)" Insert "[BENEFICIARIES BASED ON THE DECEASED EMPLOYEE'S GROSS MONTHLY COMPENSATION AT THE TIME OF THE OCCUPATIONAL DEATH (1)" Representative Weyhrauch related that on pages 4 and 9 of HB 475, the statutory reference has been changed to include all disability and death benefits. He explained that without the change it is too narrow. This amendment would allow employer contributions to be collected in order to fund death and disability benefits. The second part of the amendment, on pages 19 and 25, clarifies that the calculation of the employer contribution is for survivor pension benefits, as well. An unnecessary reference is also deleted. 4:03:26 PM Representative Seaton said Amendment 4 is a clean-up amendment and not a policy call. Representative Kerttula asked how it was figured out without the amendment, and how it is changed with the amendment. 4:04:36 PM KATIE SHOWS, STAFF, REPRESENTATIVE PAUL SEATON, explained that with the amendment, the employer contribution rate for death and disability benefits would be calculated in the same manner. It provides a shorter mechanism to get to that point. In Section 55 for PERS, and in Section 16 for TRS, the benefit formula is laid out, which takes 13 percent of the deceased member's gross monthly salary at the time of death and multiplies it by the number of years until that member would have reached normal retirement. That figure is then actuarially calculated for a percentage of contribution that the employer will have to make annually. It does not change the way that the benefit is calculated. Co-Chair Meyer WITHDREW his objection. Representative Hawker OBJECTED to the motion to adopt Amendment 4. He noted that he has been repeatedly told that the bill needs no changes. He asked what else should be changed. Co-Chair Meyer noted that the sponsor is in favor of Amendment 4. A roll call vote was taken on the motion to ADOPT Amendment 4. IN FAVOR: Holm, Joule, Kelly, Stoltze, Weyhrauch, Foster, Meyer OPPOSED: Hawker, Kerttula, Moses The MOTION PASSED 7-3. 4:08:06 PM Representative Foster MOVED to REPORT CSHB 475 (FIN) out of committee with individual recommendations and the accompanying fiscal note. Representative Weyhrauch OBJECTED. 4:08:38 PM At ease. 4:10:08 PM A roll call vote was taken on the motion to move HB 475 out of Committee. IN FAVOR: Holm, Kelly, Stoltze, Foster, Hawker, Meyer, Chenault OPPOSED: Joule, Kerttula, Moses, Weyhrauch The motion passed 7-4. CSHB 475 (FIN) was REPORTED out of Committee with a "no recommendation" and with a new zero fiscal note by the Department of Administration.