CS FOR SENATE BILL NO. 9(HES) "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 special education service agency, the Alaska Vocational Technical Center, and the state boarding schools; and providing for an effective date." Senator Gary Wilken, sponsor of the bill, testified. He explained this bill addressed non-certified (or classified) school district employees. They made up the janitors, secretaries and the support staff who kept the schools running as they should and supported the teachers and administrators. They were treated differently than the teaching and professional staff as they only accrued 9 months of retirement each year while the others accrued a full year. So at the end of thirty years working in the school district they only had 22 1/2 of retirement. SB 9 would change that. It would still allow them to work nine months out of the year but they would make twelve months worth of contribution. They were requesting the additional three months of accrual for which they were willing to pay. There would be no cost to the state system. He noted the positive fiscal note of $72,400 in the first year to set up the program. After that, there would be zero expense to the state. This bill would recognize that those workers were just as important as the teachers and administrators. He listed the school districts and other groups across the state in support of the bill. He also pointed out that this bill had been before the Legislature in the past. Co-Chair John Torgerson asked if there was a retroactive clause for employees who may be already out of the system. Senator Gary Wilken said there was not, that the program began on its effective date. Co-Chair John Torgerson wanted to know how the bill would effect to the retirement incentive plan. Senator Gary Wilken didn't believe it would. He deferred to Guy Bell of the Division of Retirement and Benefits to better explain. Senator Loren Leman said it seemed to him that if someone elected to participate in the system, they believed it would provide some value to them. Since the state was not putting into the system, how would it benefit the employees, where would it come from? Senator Gary Wilken explained that the additional value would come from the increase in the employee contribution given today's value, thus allow them to save more money in today's dollars. Currently, these employees contributed 6.75 percent of their salary across nine months. Under this bill, they would contribute eight percent during the nine months. GUY BELL, Director, Division of Retirement and Benefits, Department of Administration, testified. He explained the fiscal note saying the only change was to the division's computer programming to accompany the increased withholdings. The collected funds would be placed in a trust fund. Co-Chair John Torgerson asked if the funds for the programming would be initially forward funded from the trust and then recuperated based on a formula. Guy Bell affirmed and explained the employee would be responsible for actuarial cost of this additional benefit. The division built in a small factor for the overhead expenses and also for possible adverse selection. This was a ten- percent factor in addition to the calculated cost. Senator Pete Kelly asked for explanation of actuary rate. Guy Bell explained that when an actuary calculated a rate, they calculated a single rate for a whole group. It was an average. It was desired that there be a single rate that the employee would know they would be paying every year until they retire. The estimate was 1.25 percent additional that the employee would pay. They built in a factor to try to offset the impact. Senator Lyda Green wanted to know the involvement of the school districts. Guy Bell replied that the division had a computer system that was sent to the school districts. There was a possibility they would have to also update their systems using the provided software. The districts would enter the information and return it to the division. Senator Lyda Green asked if the financial impact on each school district would be minimal. Guy Bell affirmed. Senator Gary Wilken told her he had contacted the school districts and was assured it would be minimal. Senator Lyda Green wanted to make sure that school districts weren't forced to incur a large expense to implement this program. Co-Chair John Torgerson asked about employees who were no longer employed in the school district but decided they wished to contribute. Guy Bell said this would not apply to employees no longer working in the school district. If they came back to work they could then participate. It would only apply to work performed after the effective date of the bill. Co-Chair John Torgerson asked about the effect to any retirement incentive plan. Guy Bell couldn't see how this would have any effect on a RIP. Co-Chair John Torgerson wanted to know if an employee's qualifying years would increase in a RIP program if they bought into this program. BILL CHURCH, Retirement Supervisor, Division of Retirement and Benefits, Department of Revenue, said they would. Co-Chair John Torgerson wondered if there was a risk or any additional costs to the fund because of that. Bill Church answered no. CHRISTOPHER ROBINSON, Executive Director, Special Education Service Agency and member of the Alaska Association of School Administrators, testified. Both organizations were in support of the bill. He detailed the benefits to the employees. The effect would be to delay the period of work required in order for the employee to become eligible for retirement. The employee could put themselves on a timeframe for retirement comparable to other employees in the school district. Co-Chair John Torgerson had another question of Guy Bell. He did not see any minimum requirement of the amount of time an employee needed to work to be eligible. Could an employee who worked only five months buy into the program at a higher rate? Guy Bell explained that an employee could buy into it but he didn't know if it would be to the employee's benefit. Bill Church added that the reason the 9-month employees were targeted for examples was because they wanted the employee to have the option of choosing. Co-Chair John Torgerson asked about a nine month employee who opted to participate then was cut back to only five months, would they be forced to continue to participate. Guy Bell answered that they would still participate but would still be only required to pay the same eight- percent. SUSAN ANNIS, Vice President, NEA-Alaska, testified. In the years she had been involved with the school district this item had always been a priority. She spoke about the current situation where the employees could only accrue retirement for 15 years when they had worked for 20, while their teaching counterparts were eligible to retire with a full pension. She also pointed out that even though they were seasonal employees, they were ineligible for collecting unemployment due to special provisions. LINDA MCCREA, employee of the Anchorage School District, testified. She worked ten months and wished to participate. DON VALESKO, Business Manager, Public Employees Local 71, representing Anchorage School District employees, testified. He spoke about the "little people" who made the schools run. He testified in support of the bill. He had questions on the amount each employee would be required to contribute based on the number of months they worked. He pointed out that if the contributions were based only on the nine-month factor, then the system would make money off of the ten and eleven month employees. He felt the bill needed a little work to fix this problem. DARROLL HARGRAVES, Executive Director, Alaska Council of School Administrators, testified. He brought a message from the Alaska Association of School Administrators that they supported the bill. It was a human thing, he said. This addressed a group of employees who were under-appreciated and unrecognized. He told of a time when there was no retirement for these employees and a janitor who retired after 23 years of service and the Legislature issued a citation and granted the retirement benefits. LARRY WIGGIT, Executive Director of Public Affairs, Anchorage School District, testified. He referred to written testimony submitted earlier. He gave examples of employees who would be affected and worked for him. He said this was not a matter of someone retiring at age 25 rather than 30. It was a difference of someone being able to retire at age 63 versus age 67. Co-Chair John Torgerson asked if there were any employees who worked twelve months under this same system. Larry Wiggit said there was one and detailed. BARBARA HUFF, Teamsters Local 959, testified via teleconference from Anchorage. The union represented Anchorage School District Employees and supported the bill. Senator Randy Phillips asked Guy Bell to respond to Mr. Valesko's concerns. Guy Bell responded that if the program was to apply to a variable system to collect based on the number of months worked at different times by different employees it would be administratively complicated. Therefore, they had chosen to go with a flat rate. He said it would be consistent with the TRS system. Senator Gary Wilken made a motion to move from committee CS SB 9 (HES). Without objection, it was so ordered.