SB 6-RIP FOR PUBLIC EMPLOYEES/TEACHERS  9:46:58 AM CHAIR HOLLAND reconvened the meeting and announced the consideration of SENATE BILL NO. 6 "An Act relating to retirement incentives for members of the defined benefit retirement plan of the teachers' retirement system and the defined benefit retirement plan of the Public Employees' Retirement System of Alaska; and providing for an effective date." He invited Joe Hayes to present the bill. 9:47:18 AM JOE HAYES, Staff, Senator Scott Kawasaki, Alaska State Legislature, Juneau, Alaska, read the sponsor statement for SB 6: Senate Bill 6 would implement a temporary, voluntary Retirement Incentive Program to increase state savings by allowing public employees to retire up to three years early. Long-serving public employees are among the highest paid in the state. In many cases, pensions paid to retiring employees would cost the state less money than their current salaries. Providing high-salaried employees the option to retire early would save Alaska money through lower personnel costs. SB 6 could also help prevent layoffs. The bill presents a method of cost-cutting and payroll reduction without forcing anyone out of the workforce before they are ready to retire. This gives the State of Alaska the opportunity to reduce operating costs by opening vacancies that enable the placement of more junior employees. Retirement incentive programs are regularly used in the private sector to efficiently control personnel costs through market incentives rather than heavy-handed layoffs. Retirement Incentive Programs have been used on a temporary basis three times in Alaska's history and was last proposed in 2004. In 1986, Senator Jim Duncan estimated savings at approximately $25 million. A Legislative Audit of the 1989 Retirement Incentive Program demonstrated a savings of $22.9 million with nearly 1,764 individual participants. In 1996, Rep. McGuire calculated the state gained $41 million in savings through identical legislation. Senate Bill 6 is an innovative policy option for state agencies, municipalities and school districts to consider as a means to reduce payroll costs without layoff 9:49:13 AM MR. HAYES presented the sectional analysis for SB 6: Section 1: Defines the purpose and intent of the bill to make Retirement Incentive Programs (RIP) temporarily available to state agencies, municipalities and school districts. Includes intent for state agencies that adopt authorized RIPs to adopt an accompanying policy to prohibit hiring of new employees. Section 2: Allows public employers, including the University of Alaska, to elect to adopt a RIP under the bill. The employer may limit the program to specific components, job classifications, geographic locations or a combination of the three. Specifies the commissioner of administration or the commissioner's designee ("administrator") has the sole authority to approve or deny an employee's RIP application. An employer adopting a RIP shall propose the program to the administrator to approve if it meets the requirements set forth under sec. 9 of this bill. Establishes the requirements for any RIP proposed by a public employer: (1) Designate job classifications and specific budget and administrative components of employees eligible to participate; and (2) For each participating employee, the employer must reimburse the defined benefit retirement plan within three years after the end of the fiscal year in which the employee retires. This reimbursement must be equal to an amount that is the difference between the benefits the RIP participant receives after the credit and the benefits the participant would have received without the credit, less the amount the participant has paid on the indebtedness provided later in this section. The reimbursement agreement requires the employer's contributions must be given priority over other financial obligations. 9:51:01 AM An employer adopting a RIP may request the administrator to establish one or more application periods open to at least one eligible employee. The RIP application period must be at least 30 days and at most 60 days in duration. RIP application periods may only be established between 30 days after the program is established and no later than June 30, 2024. An administrator may allow an employee to retire early under a RIP no later than six months after the last day of the application period, or a date set by the RIP as the date employees are eligible to retire earlywhichever is earlier. Establishes RIP eligibility requirements for an employee: (1) The employee is vested in a defined benefit retirement plan in PERS or TRS; (2) The employee has credit for service under Tiers 1, 2 or 3; (3) The employee is at least 50 years old and has at least 17 years of credited service as a peace officer or firefighter, or at least 20 years of credited service in any other public agency; (4) The employee is qualified to retire under their defined benefit plan after receipt of the approved early retirement credit; (5) An employee of a state agency satisfies the requirements under sec. 3; and (6) The savings in personal services costs for the participating employee's position will exceed the cost to the employer for that vacating position within three years after the employee is appointed to retirement. Sets the level of indebtedness for RIP participants. For TRS members, participants pay 25.95 percent of the year's annual compensation for the school year, or the calculated school year compensation if they work a partial year, plus a share of the administrative costs. The indebtedness for peace officers and firefighters is 22.5 percent and 20.25 percent for all other PERS members. For any RIP participants, annual or personal leave may be applied toward indebtedness. Pension benefits shall be reduced by an actuarial adjustment if the participant has not paid the indebtedness at the time of retirement. 9:53:18 AM Provides a credit of three years of service to be given to an employee participating in the program. The three years credit must be applied in an order of priority until the credit is met: to meet the age or service required for normal retirement eligibility; to meet the age required for early retirement; to reduce the actuarial adjustment required for early retirement; as years of credited service for calculating benefits. Section 3: Requires interested eligible state employees must be employed for at least 12 months prior to application to an approved RIP. Prohibits the governor, lieutenant governor, commissioners, deputy commissioners or assistant commissioners from participating in a RIP. Section 4: Authorizes University of Alaska employees who are members of PERS or TRS may participate in a RIP under the appropriate requirements for their defined benefit retirement program established under this bill. Section 5: Allows PERS or TRS members to receive a credit for service while employed in a political or public organization prior to that organization's participation in PERS or TRS. The credit may not be applied to determine the amount of retirement benefits that employee receives. Section 6: Allows the commissioner of administration to recover a delinquency owed to the state by an employer. Provides a delinquency may be recovered by withholding money owed to the employer equal to or less than the amount of the delinquency, and by bringing action against the employer. Section 7: Allows an administrator to close an adopted RIP to new applicants if it has been determined that an increase in the number of participants will have a significant negative effect on the actuarial soundness of PERS or TRS. 9:55:08 AM Section 8: Requires an employee who participated in a RIP that is reemployed under PERS or TRS or the judicial retirement system to forfeit the incentive credits received or due as established under sec. 2. That employee must also incur an indebtedness to the reemploying defined benefit plan at 110 percent of the amount received solely as a result in participating in a RIP, including health insurance premium costs. The administrator shall apply the amount the employee paid in indebtedness under sec. 2 as a credit toward the member's reemployment indebtedness. Interest on the reemployment indebtedness accrues from the date of reemployment until the date the individual is appointed to retirement and accepts an actuarial adjustment to future benefits, or until the employee repays the indebtedness in full. The rate of interest is established by the Alaska Retirement Management Board. Prohibits a state agency or the University of Alaska from employing or contracting an individual who retired under a RIP for a period of three years. Establishes several exceptions for the University of Alaska, school districts and the legislative branch. 9:56:19 AM Section 9: Requires the director of the Office of Management and Budget (OMB) to determine if each RIP adopted will reduce net operating costs for the state agency for a five-year period beginning July 1, 2021 and report the outcome of the review to the administrator. Prohibits the administrator from approving a RIP unless the OMB determines the program is expected to reduce the agency's net operation costs. The state agency adopting a RIP shall cooperate with and provide information to the OMB to aid with the preparation of the review and the annual report submitted to the legislature. 9:56:58 AM Requires the OMB to submit to both legislative chambers an annual report of established RIPs beginning January 15, 2022, through January 15, 2025. Sets the requirements for those annual reports so that the legislature can evaluate the RIPs, their impacts on PERS and TRS, and their economic impact to employing agencies. 9:57:19 AM Section 10: Provides that an employee does not have a vested or contractual right to a benefit under this bill until an agreement is executed with the administrator that authorizes the employee to participate in the RIP. Allows the legislature to change a RIP as it relates to employees for whom an agreement has not been executed. Section 11: Allows the commissioner to adopt regulations to implement and interpret the Act. Section 12: Provides definitions of administrator, employer, OMB, PERS, TRS, public organization and state agency for purposes of the Act established under this bill. Section 13: Prohibits sections 1-12 from impairing the benefits of a person appointed to retirement under PERS or TRS before the effective date of this bill. Section 14: Sections 1-12 apply to contracts made on or after the effective date. Section 15: Repeals sections 1-12 on July 1, 2024. Section 16: Enacts the bill immediately under AS 01.10.070(c) 9:58:29 AM SENATOR BEGICH noted that in Section 10, Mr. Hayes said, "for whom an agreement has been executed." He suggested Mr. Hayes meant to say "for whom an agreement has not been executed MR. HAYES agreed. SENATOR BEGICH said that Section 8 is to keep people from taking advantage of the system and coming back immediately after executing an RIP. He asked if that was correct, and Mr. Hayes affirmed it was correct. 9:59:45 AM SENATOR HUGHES referenced a bill allowing retired teachers to come back. She understands what Senator Begich is saying but wonders if that would make sense if there is a shortage. In Section 2, an employee could be 50 years old. If this is truly something where there could be a net cost savings, she questioned the reason for an age limit. Someone could meet the minimum years of credited service at a younger age. MR. HAYES responded that he is not sure how many state employees would be hired at 18 without a degree, but he will review that. SENATOR HUGHES said someone could start at age 25 and still meet that requirement before age 50. SENATOR BEGICH said Senator Micciche's bill that became law excluded teachers from coming back into the retirement system. There are exceptions in Section 8 for things like substitute teaching. The retirement incentive bill would not be affected by this. 10:02:41 AM SENATOR MICCICHE said the financial benefits to the state have been questionable with the RIPs passed in the past. The state is in a perfect storm of not being able to fill teacher positions, which is why the legislature passed the retiree rehire bill. He is struggling. The economic benefits are questionable. The Legislative Research Services report had mixed reviews. With some calculations there actually was a cost to the state. He understands the economic value of giving an economic incentive to replace a highly compensated 30-year teacher with another teacher at a lower cost, but right now, the state is in dire straits in keeping teaching positions filled. That worries him. He appreciates the idea. Maybe at some point it will be more beneficial, but right now he is worried about it. MR. HAYES responded that Senator Kawasaki views this bill as win-win. It is an opt-in rather an opt-out bill. Each governmental agency decides if it works for them. The state is not saying that anyone has to do an RIP, but if there are cost savings, agencies could proceed. It is a morale booster because of the amounts of layoffs coming from the state with reduced budgets. This is a better way for folks to walk away and retain morale in certain segments of the state. CHAIR HOLLAND called on invited testimony. 10:05:26 AM DOUG WOOLIVER, Deputy Administrative Director, Alaska Court System, Anchorage, Alaska, said the court has no position on SB 6, but he was asked to testify about a RIP program the court developed in 2016. The court was looking to reduce personnel costs. It had long-time employees who cost more than newer employees. The court had no authority to have an early retirement program such as this. It could only incentivize those who were already eligible for retirement to retire. With the court program, employees must have been eligible to retire for at least three years, must have been an employee of the court system for at least 10 years, and agree to retire by August 31 of 2016. Only 28 people were eligible and 16 of them opted to retire. The incentive was three months salary. The net savings was $680,000 a year, which is not big relative to PERS (Public Employee Retirement System) or TRS (Teacher Retirement System), but for the court system budget, $680,000 was a real help at the time. It was a morale booster. The court was able to say goodbye to people on good terms and saved a lot of money by the court's standards. It is a different kind of program, but it worked for the court system. 10:07:54 AM SENATOR MICCICHE said he is only looking at the bill from an education standpoint because it is in the Education Committee. He feels differently about the bill as far as TRS vs. PERS. With PERS he sees some practical benefit. The ageism aspect of this has been challenged in the past. The court system was based on years of service or something not related to age. This bill seems more age directed. He asked if Mr. Wooliver had any concerns about that or would he rather not speak to the legal aspects of the bill. MR. WOOLIVER replied that it would be best to turn to Legislative Legal for that, but retirement incentives are common across the country. He would guess that whatever the law is, it is well established. SENATOR HUGHES said that to veer off education a bit, from reading the Legislative Research information, the 1989 program was to mitigate the social hardships of layoffs. Those positions were not replaced. As lawmakers they need to think about that. They have seen that per capita the number of state employees is high. Alaska is a unique state and provides a lot of services, so it is not comparable. It might be something to consider if a position would remain vacant sooner under this if the state decides to downsize. She is just throwing that out. That could be of benefit to the state. 10:10:18 AM JIM PUCKETT, Deputy Director, Division of Retirement and Benefits, Department of Administration (DOA), Juneau, Alaska, said he was available for questions. CAROLINE SCHULTZ, Chief Policy Analyst, Office of Management and Budget, Office of the Governor, Juneau, Alaska, said she was available to answer questions. SENATOR MICCICHE asked Mr. Puckett about the legal ability to remove the TRS section of the bill and let it move forward with PERS. He is just curious about that. This would not work for TRS right now. He asked if it would be legal to have an RIP without a TRS option. MR. PUCKETT answered they are two separate retirement systems, so there could be a bill that is only for PERS and not TRS. There would be nothing wrong about that legally. MR. HAYES said, unfortunately, the superintendent from Sitka could not be present. Sitka is doing an RIP. He would like him to testify at some point. 10:12:47 AM CHAIR HOLLAND held SB 6 in committee.