CS FOR SPONSOR SUBSTITUTE FOR SENATE BILL NO. 24(STA) "An Act relating to reemployment of and benefits for retired teachers and public employees and to teachers or employees who participated in retirement incentive programs and are subsequently reemployed as a commissioner; and providing for an effective date." This was the first hearing for this bill in the Senate Finance Committee. MIKE TIBBLES, Deputy Commissioner, Department of Administration, testified in support of the bill. Co-Chair Wilken moved to adopt CS SS SB 24(FIN), Version 24- LS0211\X as the working document. Co-Chair Green objected for explanation. 1:10:56 PM Mr. Tibbles informed the Committee that this bill would address concerns that have been raised in the past regarding the State's rehiring of retirees practices. The Version "X" committee substitute would address "perceived abuses in the past and offer a solid management tool going forward for the State, school districts, and municipalities". Mr. Tibbles communicated that the practice of rehiring retirees could be attributed to the difficulty the State has had in recruiting "specific job classifications" such as Nurse III positions in the Department of Health and Social Services Pioneer Homes. One such position was advertised for 34 days without success of attracting a qualified candidate. The "tool" being addressed in this legislation was utilized to rehire a retired nurse for that position. Another example of a difficult position to fill is the Children Services Manager position which requires a masters degree and four years of professional "social work experience providing programs or services focused on serving children at risk". This Range 21 position was advertised for 21 days and "neither of the two applicants met the minimum qualifications". A retired individual was rehired to fill this position as well. Retirees have also been successfully rehired to fill engineer and biologist positions. 1:13:05 PM Mr. Tibbles stated that "the two primary concerns" regarding the rehiring of retirees are the "cost to the system" and that hiring retirees prevents "other employees from moving up into higher level positions". Mr. Tibbles communicated that the work draft before the Committee would allow "a program going forward that meets the original intent" and addresses these two concerns. Mr. Tibbles stated that this bill would address the question regarding "the potential liability of what the State had told these individuals coming back from retirement", as the bill is "very very clear … that the program ends, the period of reemployment ends, at the point that the program sunsets". Intent Language and State Statutes would also further clarify the program. Mr. Tibbles continued that Sec. 2 of Version "X" would require rehired retirees "to be covered by their employer's active health plan". In the past, employment contracts were negotiated that allowed the rehired retiree to be covered by their retirement health plans. This action was contrary to the intent of experiencing cost savings in the retirement health plan systems. Therefore, Sec. 2, which is specific to the Teachers Retirement System (TRS), would clarify that a rehired retiree would be offered, and must accept, the active health insurance offered to other full time employees within that school district. 1:14:54 PM Co-Chair Green asked the reason that the continuance of retirement health benefits for rehired retirees was preferred to including them on the active health insurance benefit. Mr. Tibbles explained that an employer would experience an expense of approximately $830 per month for each employee eligible for active health insurance. Therefore, allowing a rehired retiree to continue to be covered by the retirement health plan "would shift" that expense from the employer and save them money. This legislation would prevent that from occurring going forward. Mr. Tibbles also conveyed the understanding that many of the active health plans have higher co-pays and deductibles than the retirement health plans. While the existing retirement plan benefits would continue to be available upon retirement, they would be suspended during the time of reemployment and the rehired employee would be subject to the conditions of the active health plan provided to their co-workers. 1:16:09 PM Co-Chair Green characterized this as being "an integral part" of the proposed language in that neither the employer nor the employee would view the rehiring "as a great thing". The employer would be unable "to shift the cost" to the retirement medical plan and the employee would be subject to the conditions of the active health coverage "which might have less generous benefits". 1:16:52 PM Mr. Tibbles noted that Sec. 4 of the proposed work draft would implement a change that is "consistent with Sec. 2, although it does specify that teachers coming back on a part time basis could continue to receive the retired medical benefit coverage". To that point, he expressed the Department's desire that all part-time rehired retirees would "be offered the same health benefits" as other active employees in that any employee working part-time hours of between 15 and 30 hours a week would be provided health insurance but could be required to pay half of the premium. Rehired retirees working less than 15 hours per week who might not be eligible for any health benefits would continue to be covered by their retirement benefit. 1:17:45 PM Mr. Tibbles communicated that rehired retirees working less than full-time would be assured of having access to health coverage. 1:18:00 PM Co-Chair Green asked whether the part-time provisions specified in Sec. 4 could be utilized as "a loophole … to avoid the participation of the employer". Mr. Tibbles shared that a situation in which an employer might hire two part-time retirees rather than one fulltime one had been considered. The conclusion was that recruiting for a part-time position would be more difficult that recruiting for a full-time position. Furthermore, the hiring of a part-time rehired retiree would allow for the upward progression of another individual, as was previously mentioned as a concern. In addition, the employer would be required receive approval of the position and to adhere to the "tough standards" included in the bill prior to being able to rehire a retiree. 1:19:07 PM Co-Chair Green asked whether language should be included in the bill regarding how the rehiring of a less than full time retired employee would "recoup the costs to the system". 1:19:30 PM Mr. Tibbles viewed the costs to the system "in terms of the unfunded liability and how we're paying off that through the employees' wage base. There's a provision in the bill that requires an employer to contribute the same past service rate for the rehire as they do for all other employees." Co-Chair Green asked for confirmation that that provision would include those employees working less than full-time. 1:20:04 PM Mr. Tibbles expressed that the language in Version "X" would require employers who are currently contributing for their half- time employees to do likewise for any rehired retirees working halftime. He was unsure of the scale of those obligations. Co-Chair Green understood therefore that the bill would make employers' actions regarding rehired retired halftime employees consistent with the current hiring and rehiring practices. Mr. Tibbles affirmed. 1:20:34 PM Senator Stedman asked whether the Department of Fish and Game has developed a plan through which to address its "extensive number of rehires", were this bill not to advance or were a shorter termination date of the current practice implemented. Mr. Tibbles replied that he has not seen such a plan; however, he noted that the Division of Personnel, Department of Administration, would be assisting departments in the development of business rules, hiring practices and recruitment efforts. The Version "X" committee substitute would provide sufficient time for this activity to occur. Mr. Tibbles continued that any rehired retirees who had a waiver prior to the November 3, 2004 notification that the current program would terminate would be allowed to continue their waiver until December 2006. Sufficient time would be provided in which to develop such things as transfer plans and to identify "the critical components of a job" in regards to "what is so specific about that position" that makes it difficult to recruit for and to transfer some of those responsibilities to other employees. 1:21:53 PM Senator Dyson asked whether the Alaska State Troopers have developed a plan to address its rehiring of retirees practice. Mr. Tibbles stated that his response to the question about the Department of Fish and Game would apply here as well. 1:22:10 PM Mr. Tibbles stated that Sec. 5 of Version "X" would provide conformity and consistency language pertaining to the rehiring of both the TRS and Public Employee Retirement System (PERS) retired employees, specifically commissioners. Mr. Tibbles continued that Sec. 6 would require all employers to contribute the same unfunded liability rate for rehired retirees as contributed for other employees. Mr. Tibbles communicated that Sec. 7 is the transition point at which the language in the bill moves from the TRS system to the PERS system. Language in Sec. 7(b), page four, beginning on line 27, would affirm that any current rehired retiree's employment would terminate when the current program is repealed. "This would eliminate any question in the future of whether or not there is an entitlement for the employee beyond the sunset date of the bill … Individuals on the program" must decide by the termination date of the current program as to "whether they want to continue to stay employed and stop their retirement benefits or to separate from service to continue to receive those retirement benefits". 1:23:12 PM Co-Chair Green asked for further information regarding the time frame periods pertinent to the differing groups of rehired retirees. Mr. Tibbles clarified that the rehired retirees could be separated into three groups. The first group would consist of those rehired prior to November 3, 2004 who might have been hired with the condition that they could remain in the program as long as they were continuously employed. That liability issue was addressed by notifying those individuals that, while the program would be terminated, their "window" would be extended until December 2006. Mr. Tibbles stated that the second group of individuals would consist of those rehired retirees hired between November 4, 2004 and July 1, 2005. Those individuals were hired knowing that the program would terminate on July 1, 2005. The liability issue that applies to the first group would not apply to this group. This group must make a decision by July 1, 2005 as to whether they would "continue with State service" and pay in "and defer their retirement benefits or separate from service". Co-Chair Green asked that the dates pertinent to the second group to be restated. Mr. Tibbles clarified that these individuals must have been rehired between November 4, 2004 and July 1, 2005. Mr. Tibbles continued that the third group of individuals would consist of those "brought back from retirement" after July 1, 2005, which is the effective date of this Act. Co-Chair Green understood therefore that the third group of individuals would not include anyone who is currently rehired and in the system. Mr. Tibbles concurred. Co-Chair Green concluded therefore that the third group would consist of "anyone hired after July 1, '05 not currently under rehire". 1:25:01 PM Senator Stedman asked for further discussion in regards to the conditions applicable to retirees hired after July 1, 2005. Mr. Tibbles communicated that any retiree rehired after July 1, 2005 would be required to "sign a waiver to come back after retirement". They would "continue to receive their retirement benefit, and they would be allowed to stay in as long as they remained continuously employed, or the sunset date of this Act, which would be July 1, 2009". Senator Stedman asked the reason for incorporating this scenario. 1:25:47 PM Mr. Tibbles explained that, "the purpose of extending the window to allow new individuals to come in … is that" there are many jobs that the State is unable to fill. This "management tool" has been used successfully in the past to fill difficult to recruit for positions. The provisions would insure that the individuals coming back would not "be costing the system". It would allow the program to continue forward "in a consistent and controlled manner". 1:26:24 PM Senator Stedman understood therefore that were a retiree to be rehired in August 2005, for example, that individual would "stop receiving all his retirement benefits, and go right back on the payroll, and start paying back into the system". Mr. Tibbles responded that a retired person rehired in August 2005, for example, would be offered "two options": one would be to come back and "pay into the system, accrue additional benefits, and defer their retirement benefit. That exists now outside this bill". This bill would allow that individual the option "to continue to receive their pension benefit, have the active health coverage from their employer, and not accrue any additional benefits and not pay the Normal Cost Rate going forward". 1:27:25 PM Mr. Tibbles continued that Sec. 8 would primarily apply to municipalities. It would require, in a manner similar to that required of the TRS system, that a municipality must adopt a resolution demonstrating their recruitment problem in certain job classifications. Policy issues that must be adhered to include such things as that the person being rehired must have been separated from service for a minimum of 30-days and that the position must have been recruited for a minimum of 30-days. 1:28:44 PM Co-Chair Green understood that the administrator of the plan must approve the rehire. 1:28:56 PM Mr. Tibbles affirmed. The director of the Division of Retirement and Benefits, Department of Administration would be required to review the qualifying policy and Resolution. It would be a coordinated activity to which the administrator would have the ultimate authority. Co-Chair Green asked whether this scenario would also apply to TRS positions. Mr. Tibbles affirmed. 1:29:21 PM Mr. Tibbles stated that Sec. 9 would address the unfunded liability. It would require PERS employers to contribute the same past service rate for the rehired retirees as they do for other active employees. Senator Stedman referred to language in Sec. 8, and asked whether provisions in the bill would address a situation in which an employee retired with the intention of being rehired and who communicated that intention to other possible candidates. 1:30:14 PM Mr. Tibbles responded that, currently, there is a minimum recruitment period of ten days. The effort could also be limited to internal recruitment. This has occurred in the past, with the outcome being that no qualified candidate emerged. This legislation would require a statewide recruitment for a minimum of 30 days and "tough standards" would be applied. Therefore, an individual who retired with the intent to be rehired would be taking "a gamble" that no other qualified candidates would emerge. Another qualified candidate could fill the position. Senator Stedman communicated awareness of such an event having occurred. He opined that the scenario he presented would be difficult to control in a small area. Perhaps the requirement that a Statewide recruitment effort must occur might address the issue. Mr. Tibbles stated that Sec. 10 would specify the various effective dates of the bill's provisions. 1:31:50 PM Mr. Tibbles noted the Sec. 11 would add a PERS report to the reporting requirements. In addition, it would require the Administration to report the efforts being undertaken to address difficult to recruit for job classifications. Measures to address those jobs might include changing business rules to allow, for instance, for fewer Engineer V positions and more Engineer II, III, and IV positions as Engineer V positions are more difficult to recruit for. Allowing for more Engineer II, III, and IV positions would allow more people to become qualified for advancement over time. Rather than focusing on filling the current positions, efforts could be undertaken "to fill the need". Mr. Tibbles stated that Secs. 14 and 15 outline the date determinations regarding the three aforementioned groups of retired rehires. He read the Sec. 15 language as depicted on page seven, line 27 through page eight line seven as follows. Sec. 15. The uncodified law of the State of Alaska is amended by adding a new section to read: WAIVER OF APPLICABILITY OF SEC. 7 OF THIS ACT FOR RETIRED EMPLOYEES WHO MADE AN ELECTION UNDER AS 39.35.150(B) OR (E) BEFORE NOVEMBER 3, 2004, AND CONDITIONS APPLICABLE TO SERVICE FROM JULY 1, 2005 THROUGH DECEMBER 31, 2006. From July 1, 2005, through December 31, 2006, the amendment made to AS 39.35.150(b) by sec. 7 of this Act does not apply to a retired employee who was rehired and made an election under AS 39.35.150(b) or (e) before November 4, 2004, if that person continues to serve in the same position. However, this section does not apply to employees who are required to provide health and medical benefits under AS 39.35.150(b), as amended by sec. 7 of this Act, regardless of whether a member receives retirement medical benefits under this section. Mr. Tibbles stated that this language would allow retirees rehired prior to November 3, 2004, before the notice went out regarding the program's ending, and who were told they could continue their employment, to continue their employment through December 2006. Those being paid solely out of the retirement health account would be the exception, as that aspect would be discontinued and their employer would be required to cover them through the active health plan. Co-Chair Green understood therefore that that coverage would occur "in the meantime". Mr. Tibbles concurred. 1:34:27 PM Mr. Tibbles stated that Sec. 17 would change the termination date from July 1, 2005 to July 1, 2009. Co-Chair Green understood that some amendments would be forthcoming. Mr. Tibbles affirmed that some clarifying language pertaining to the termination dates and the continuing employment terms for the three different rehired retirees groups, specified in Sec. 14 and Sec. 15, is being developed. 1:35:33 PM Co-Chair Wilken noted that a fiscal note pertinent to Version "X" would also be forthcoming. To that point, he asked whether the fiscal note would reflect the provisions being considered in SB 141-PUBLIC EMPLOYEE/TEACHER RETIREMENT/BOARDS and how that legislation might impact the PERS and TRS systems. Mr. Tibbles responded that that impact was detailed in the analysis section of the previous Department of Administration fiscal note #1 dated March 7, 2005. That analysis anticipated a $106,000 a year impact in regards to the TRS component. No impact was anticipated on the PERS side until the point at which the program had 500 participants. There are currently 211 participants in the PERS program. There is an expectation that the PERS participant level would decrease under the new sideboards specified in this bill. Co-Chair Wilken asked that a fiscal note specific to Version "X" be developed that specifically addresses the impact to the PERS and TRS systems. Those expenses should be considered. Co-Chair Wilken noted that while he supports the bill, he would not care to add to PERS/TRS expenses. 1:38:10 PM Co-Chair Green agreed. Continuing, she voiced the understanding that following the signing of the Governor's Administrative Order concerning the rehire of retired employees and the implementation of the Department of Administration's review, the rehiring of retirees scenario "really changed". Mr. Tibbles stated that since the Governor's Administrative Order was released on March 8, 2005, not a single rehire has been approved for the State of Alaska. The first question asked by the Department's Administrator when a department submits a request is "how many qualified individuals did you receive through your recruitment process". It has been demonstrated in every case to date that there has been a qualified pool of applicants to choose from, and therefore, all requests have been denied. Co-Chair Green understood that in the State of Alaska situation, the Administrator's "word would be final"; however, she asked whether this would be the case in regards to municipalities or school districts "that really had their mind set on hiring a certain retired person". To that point, she asked whether the Administrator's decision could be challenged. Mr. Tibbles specified that the Statute would provide the administrator "the proper authority to deny somebody coming back and continuing their retirement benefits if they don't meet the new requirements laid out in the bill". He was uncertain to the steps that could be taken were someone to challenge the administrator's position in Court. Co-Chair Green requested that clarification as to the proper authority in this regard be provided. Co-Chair Green removed her objection to Version "X". There being no other objection, Version "X" was ADOPTED as the working document. The bill was HELD in Committee in order to consider forthcoming amendments. 1:41:09 PM