HB 17 - PERS CREDIT FOR NONCERTIFICATED EMPLOYEES Number 0001 CHAIRMAN ROKEBERG announced the committee's next order of business is HB 17, "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." The chairman confirmed from Representative Brice that the legislation had been heard the previous legislative session as "HB 223" [HB 323]. He noted the bill had been completely rewritten in the House Finance Standing Committee. Number 0087 REPRESENTATIVE BRICE indicated the changes had been made to address AVTEC [Alaska Vocational Technical Center] but the bill had not been completely rewritten. Representative Brice stated HB 17 addresses an inequity within the Alaska's school districts between certificated and noncertificated employees. Certificated employees, teachers and principals, receive a year's credit for a nine-month contract year. This additional cost is split between the school district and the employee. Noncertificated employees such as janitors and secretaries receive a day-for-day credit in their retirement system. This means they have to work 40 years to receive a 30-year retirement if they are on a nine-month contract. House Bill 17 would allow the employees the option of buying that extra three months of credit, covering the entire cost themselves. It is applicable to state boarding schools, school districts, REAAs [Rural Education Attendance Areas] and "Alaska Voc-Tech Centers." It is voluntary, the employee chooses to participate. In response to questions from Representatives Halcro and Murkowski based on NEA-Alaska's position paper in the bill packet, Representative Brice noted that position paper also refers to other legislation. [The sponsor statement for HB 17 reads: Alaska has many noncertificated employees in its schools who work nine, ten or eleven months out of the year along with their certificated counterparts. The certificated employees receive full year credit for the part of the year they work while the noncertificated employee only get credit for the actual time worked. Because of this, a nine month employee has to work 40 years to receive a 30-year retirement. This bill addresses the inequity in state law and PERS system [Public Employees' Retirement System] by giving noncertificated school employees who work a comparable amount of days the option to use the same retirement formula that certificated employees use. This bill will allow those noncertificated school district employees to receive the same amount of credit toward retirement as those certificated employees who work the same amount of time and receive a full year of credit toward retirement. The cost of changing the PERS system, under this bill, will be supported by the employees, rather than increasing the burden to school districts. Employees currently active in the system will have 180 days to opt into the new program. New employees will have the option to participate within 90 days of inception. That is within beginning employment within the system.] Number 0381 REPRESENTATIVE HARRIS referred to the comment in the fiscal note, "The $72.4 [$72,400] is needed to hire contractors to update the division's computer system to accommodate the proposed changes." Representative Harris questioned what the obligation of the education units described here would be to these employees for their retirement. He asked if there would be added financial responsibility for those institutions. REPRESENTATIVE BRICE responded there is no added financial responsibility in terms of the retirement system itself. He indicated there might be a cost of a couple hundred to a thousand dollars to provide the paperwork for an employee to elect in. He stated there is no financial obligation to the school district; the school employee shoulders the entire burden of the change to ensure actuarial soundness of the system. In response to the chairman's question about the whether the fiscal note was a disappointment and/or surprise, Representative Brice indicated there is some question with the Department of Administration about the costs of developing the tracking and estimating computer programming. On the other hand, he noted those are non-general fund dollars; the employees would pay for the cost of those changes. Representative Brice agreed with the chairman that that could be discussed in the House Finance Standing Committee. Number 0548 RICK HELMS, Southeast Political Alternate, Board of Directors, Alaska Public Employees Association/Alaska Federation of Teachers (APEA/AFT), came forward to testify in support of HB 17. He asked for the committee's support, noting this legislation would benefit the approximately 600 APEA/AFT members who work nine months out of the year. These members are professionals just like the teachers and administrators; they should not be penalized for choosing this career. Referring to Representative Brice's comments, Mr. Helms said it takes 37.5 years of work for 30 years of service. He commented a companion Senate bill, SB 9, has already passed out of the Senate Labor and Commerce Standing Committee, and he encouraged this committee to do the same. Mr. Helms noted, as Representative Brice had also mentioned, this legislation had passed the previous session as HB 323, which died on the Senate floor due to late action. Mr. Helms expressed the hope that with sooner action, HB 17 or SB 9 might be passed into law this year. Number 0667 JOHN CYR, President, NEA-Alaska, came forward to testify in support of HB 17. He noted NEA-Alaska, the National Education Association of Alaska, represents about 11,000 employees. Three thousand of these are classified employees: janitors, classroom aides, food service workers. House Bill 17 would directly affect these employees' lives. Mr. Cyr noted the committee has NEA-Alaska's position statement. He said this has been a priority of NEA and its members for a number of years. They believe they have finally worked out a way to do this where the employees would bear the total costs and he reiterated NEA-Alaska's support for the legislation. REPRESENTATIVE MURKOWSKI asked who would actually be covered under this plan. Number 0722 MR. CYR replied that it covers anyone who works in a school who is not certified. Teachers, principles and administrators are certified employees and are in TRS [Teachers' Retirement System]. CHAIRMAN ROKEBERG confirmed with Mr. Cyr that the classified employees would be under the state program, PERS. The chairman asked if they receive any SBS [Supplemental Benefits System] and whether it varies by district. MR. CYR replied some districts get SBS and some do not. For example, the classified employees in "Mat-Su" [Matanuska-Susitna Borough] are eligible. He believes that was a one-time opt-in provision districts had. CHAIRMAN ROKEBERG questioned if the employees have social security, or if they are not allowed. MR. CYR replied he thinks they do not have social security, indicating he is not really familiar with PERS. Referring to the previous questions about the NEA-Alaska position statement, Mr. Cyr indicated he believes the inability of classified employees to collect unemployment during layoff does have a bearing on HB 17 because custodians and secretarial staff used to be year-round employees in Alaska. However now because of budget cuts, et cetera, they are nine-month, and some even less. The employees are laid off, cannot collect unemployment, and do not receive retirement for that period. Mr. Cyr stated that to NEA-Alaska this really is equity: if the classified employees are willing to pay their own way, the state should allow them to do so. CHAIRMAN ROKEBERG invited Guy Bell and Bill Church forward [Bill Church, Retirement Supervisor, Division of Retirement and Benefits, Department of Administration]. Number 0885 GUY BELL, Director, Division of Retirement and Benefits, Department of Administration, came forward to testify on HB 17. Mr. Bell said he has little to add to Representative Brice's testimony. He noted a couple of small points: this will be prospective only; it would apply from the date of passage forward. Those people in the system today would be able to, within six months of the bill's effective date, elect to pay a higher charge for the future service they would accrue. New employees would have 90 days to make that determination. In working on the bill last year with Representative Brice, Mr. Bell indicated the concern was expressed to the division that this be a fixed charge to the employee, so the employee would know the charge from year to year. This concern was brought to the division's actuaries in the development of the rate calculation. The revised number given last week by the actuaries is approximately 1.25 percent. Mr. Bell explained that if a person wants this service they would be paying approximately 8 percent of their salary as opposed to 6.75 percent, the current PERS contribution. He confirmed to the chairman that it is an irrevocable election; once the decision is made it cannot be changed. In response to the chairman's further question about what kinds of problems a revocable decision would add to the administration, Mr. Bell said he thinks technically it would become more difficult to administer because each year the employee would have to be asked his or choice for that year; he thinks that why it was drafted as irrevocable. Number 1011 CHAIRMAN ROKEBERG said this is done all the time with benefits and health insurance, noting elections and open periods. MR. BELL stated, "Our thought was to try to keep this as benign as possible and the way we thought about administering it is develop a form in our division [and] send it out to the school districts. When the people come in on the job at the beginning of the school year, they would provide that form with some basic education, sign the form and that's the time they make their decision. Certainly it could be done otherwise, it would -- the bill would need to be changed if that were the decision." Number 1044 REPRESENTATIVE BRICE indicated that there have been other systems where a move was made from a 30-year retirement plan to a 20-year plan, specifically correctional officers. This vote [election] has been patterned along that same irrevocable system to insure that the administrative costs would stay very low. The intention is to minimize the impact as much as possible. CHAIRMAN ROKEBERG asked Mr. Bell if there are problems with Section 1 regarding the contribution surcharge. He mentioned the stipulated amount. MR. BELL indicated that, since it will be a fixed cost, the alternative could be the deletion of the second sentence in Section 1 which discusses the way the calculation would be made and the insertion "of 1.25 percent" on page 1, line 11, after "surcharge". It does the same thing, it just says it more directly. In response to the chairman's question about where the 1.25 percent comes from, Mr. Bell noted it comes from the language in the second sentence. It is the actuarial cost of that additional benefit the employees would receive if they made the selection. CHAIRMAN ROKEBERG asked if it could vary by contract. MR. BELL explained that the actuary did it on a universal charge basis, which means it may vary slightly from individual to individual. However, in the aggregate, that is the cost arrived at if a fixed rate which would apply to the entire group is being sought. Doing it on an individual-by-individual basis would produce something similar but it would also be much more costly because characteristics and status - age, salary, et cetera - would have to be examined for each individual. Number 1190 REPRESENTATIVE BRICE indicated there has been some discussion on whether a specific percentage should be included, or not included "but ... have one number generated that every employee would have to kick in if they wanted to opt to discuss." It comes down to the possibility of a future change that might affect the actuarial soundness of the system, whether an increase or decrease in contribution. Representative Brice noted he wants to ensure that a number is not set in statute and then left to the political whims of the legislature: if that number were to increase and the administration has no authority to increase that number. He commented he is willing enter into this discussion, and added that the fiscal note had not surprised him, it is the same or very close to the previous session's. CHAIRMAN ROKEBERG commented on the apparent size of the fiscal note this year as compared to the previous year. MR. BELL said the fiscal note is smaller this year. Number 1289 REPRESENTATIVE MURKOWSKI asked if HB 17 is basically the same bill that went through last year. REPRESENTATIVE BRICE answered it is very substantially the same. He thinks there was one change on page 1, line 10, and that the first word, "and", should probably be "or" for complete clarity. Representative Brice indicated "or" was used in the previous legislation but legislative legal counsel feels it can be either one. [HB 17, page 1, lines 9 and 10, "of a state boarding school, of a school district or regional educational attendance area, and of the Alaska Vocational Technical Center determined by reference to".] CHAIRMAN ROKEBERG stated that AVTEC was added. REPRESENTATIVE BRICE explained that the addition of AVTEC was the primary change from last year's House Labor and Commerce Standing Committee version. He indicated the changes were made last year in the House Finance Standing Committee. CHAIRMAN ROKEBERG commented lightly he probably shouldn't take it personally that the entire bill had been changed after leaving House Labor and Commerce the previous session. REPRESENTATIVE BRICE replied that the election of participation had come from discussions with the Administration, and the addition of AVTEC from other discussions. He indicated it was the continuation of the committee process. Number 1390 BARBARA HUFF TUCKNESS, Director, Governmental and Legislative Affairs, General Teamsters Local 959 State of Alaska, came forward to testify in support of HB 17. She referred to a letter of support in the bill packet in lieu of giving more detailed testimony. Ms. Huff Tuckness noted HB 17 would have an impact on several hundred members within the Anchorage School District including food service employees, bus drivers, and a few maintenance workers. [The March 8, 1999, letter mentioned is to the committee from Gerald L. Hood, Secretary-Treasurer, Teamsters Local 959, and reads: Teamsters Local 959 represents non-certified employees most predominantly in the Anchorage School District. Several hundred of those members actually work less than twelve months of the year due to the nature of their jobs. As we understand HB 17, it would allow those members, by individual choice, the opportunity to receive the same credited year as their certified counterparts for purposes of retirement. Any increased cost under this bill would be born by the employee, not the employer (Anchorage School District). We urge your support and passage of this bill to allow, by employee choice, the opportunity to increase their credited service time as is currently the option for the certified employees.] Number 1426 CHAIRMAN ROKEBERG indicated to Representative Brice that there had been conversations about some special education personnel. REPRESENTATIVE BRICE replied there had been some talk by SESA, the Special Education Service Agency [stated as "Special Education Support Agency"], at the end of the previous session. He noted SESA is a function of state government [Department of Education], not necessarily of a school district. Representative Brice said he had been contacted after the end of the previous session but had not heard from the organization in three months. He indicated he would be happy to follow this up if the chairman wished. Number 1493 CHAIRMAN ROKEBERG responded it was just something that had been brought to his attention and that he did not have an opinion on. Confirming there were no further witnesses, Chairman Rokeberg announced the public testimony on HB 17 was closed. He commented on the absence of a supporting letter from the Anchorage School District (ASD) in the bill packet. REPRESENTATIVE BRICE replied that Larry Wiget [Director, Government Relations, Anchorage School District] had said there is no problem with the bill during an informal discussion. Representative Brice noted this discussion had been after the strike. However, he indicated he does not know if the Anchorage School District has taken a formal position on HB 17. CHAIRMAN ROKEBERG indicated ASD was not in opposition to the legislation. Number 1606 REPRESENTATIVE HARRIS made a motion to move HB 17 out of committee with individual recommendation and the attached fiscal note. There being no objection, HB 17 moved out of the House Labor and Commerce Standing Committee.