CS FOR HOUSE BILL NO. 116(L&C) "An Act relating to the use of credited military service by retired peace officers and firefighters to meet certain requirements for major medical insurance coverage; and providing for an effective date." 3:29:00 PM KATHY LEA, CHIEF PENSION OFFICER, DIVISION OF RETIREMENT AND BENEFITS, DEPARTMENT OF ADMINISTRATION, introduced herself. VASILIOS GIALOPSOS, STAFF, REPRESENTATIVE CHARISSE MILLET, explained the legislation. He announced that Honorably discharged members of our nations' military service who come to work for the State of Alaska are currently allowed to purchase qualifying time within the PERS system for their previous military service. Under current law, this purchased time may not be used to satisfy the credited service requirements for normal retirement. This exemption precludes persons from using their purchased time to qualify for health care benefits. He state that HB 116 proposes that peace officers or firefighters be allowed to use the time they purchase for normal retirement. Already these brave individuals have served their country. They have then made a career providing public safety and rescue in one of the most hazardous working environments to be found. Their service to others, by placing themselves in harm's way on a continuous basis, merits consideration in the development of Alaska's retirement and benefit system. He announced that HB 116 makes a minor, and tightly tailored, modification to our retirement laws to allow a person to use their purchased service to qualify for normal retirement benefits. The intent of HB 116 is that peace officers or firefighters who choose to purchase the service time bear the cost to the state that the additional benefits will create. He stated that HB 116 creates an appropriate recognition of their service to their country and their state by ensuring the have a fair retirement in their future. Vice-Chair Fairclough queried the length of time it takes for a firefighter or police officer to qualify for benefits. Ms. Lea replied that a police officer or firefighter could reach eligibility for retirement benefits with 20 years of service; but they needed to have 25 years of service to have system-paid medical coverage if they are in tiers 2 or 3. Vice-Chair Fairclough remarked that there was a disparity between what was required to acquire a pension and medical coverage in tiers 2 and 3. Ms. Lea agreed, and stated that the five extra years was required to gain system-paid premium health care. She stated that there was access to health care, but they must have five extra years in order for the system to pay for the premiums. Vice-Chair Fairclough wondered if an honorable discharge was recognized under military service. Ms. Lea replied that the military service required an honorable discharge. Co-Chair Meyer wondered if Vice-Chair Fairclough was concerned about "double dipping." 3:33:48 PM Vice-Chair Fairclough stressed that she was attempting to determine what benefit would be achieved, and what the individual was currently receiving. She stressed that there was a 25 percent buy back over 20 years, and a 25 percent buyback with the 25 year requirement. She understood that there was an actuarially draw for the pension, but felt that there was a possible allowance for double benefits. Ms. Lea replied that she could not speak to the intent of the legislation. She announced that there were some restrictions within the system for claiming benefits under the military category, if one was already eligible for retirement benefits from one's military service. A person with 20 years of military service that would qualify for a federal benefit could not claim the service if they were tier 2 or 3. She furthered that she was unsure about the health care benefits related to that issue. Mr. Gialopsos looked at AS 39.35.340(a): A vested employee is entitled to credited service for active military service in the armed forces of the United States, either by enlistment or induction, if the employee received a discharge under conditions and was not entitled to receive retirement benefits from the United States government for the same service. Senator Olson wondered what efforts were being made for the tier 4 employees. Mr. Gialopsos responded that, because tier 4 was a defined contribution system, the provisions of health care after a person left service were fundamentally different. Ms. Lea agreed with Mr. Gialopsos, and furthered that, under tier 4, there were no provisions to claim any type of service in the plan. There were no predications on years of service to claim service. A tier 4 employee must retire directly from the plan, must have at least 10 years of service, and be Medicare age eligible to receive retirement health coverage. Vice-Chair Fairclough stated that, usually, when a policy or bill was considered, the reason was because an individual was adversely affected. She wondered if there was an adversely affected individual who may have influenced the drafting of the bill. Mr. Gialopsos replied that there were several peace officers and firefighters who purchased their military time, under the assumption that it would bring them full retirement. He stated that there were several letters of support who were looking to retire early that would like to purchase their medical time, because they recognized that they were a liability to their colleagues because of their age. 3:38:53 PM Vice-Chair Fairclough asked if the individual's payments into the plan would count toward their health benefits. Ms. Lea replied that those were two different calculations. The calculation to use military service to increase the number of years of service to increase their retirement benefit was partially subsidized by the employer, so it was a flat percentage of their vesting year salary. The legislation outlined an additional cost, if the member wanted to claim it for pension purposes and health care services. Vice-Chair Fairclough wondered if there would be a negative impact to those that were already in the system, because there was a change to the cost of the system. Ms. Lea replied that there would be no impact on the remainder of the population in the system, because the claimant would pay the full cost for the coverage. Vice-Chair Fairclough surmised that the calculations were based on a certain set of assumptions. Ms. Lea agreed. Senator Bishop queried the cost of the full five years. Ms. Lea replied that the cost would be approximately $60,000 to $70,000, depending on age, circumstances, and number of years purchased. Senator Hoffman wondered what other categories under tiers 2 and 3 could be a net zero. Ms. Lea replied that there were other types of claim service that were full actuarial costs. She stated that purchasing temporary service to be used for retirement eligibility already existed in statute. She stated that the legislation was similar to the statute, and furthered that there was a public service benefit that was full actuarial cost. Senator Hoffman surmised that all other programs already had the option to purchase in tiers 2 and 3 for other categories of 20 and 30 years for buyback. Ms. Lea responded that all others did not have the specific provision to purchase military time to be used toward their 30 year retirement. Senator Hoffman wondered why other positions or categories of employment were not offered the option to purchase the time for a 30 year retirement, if it was a net zero. Mr. Gialopsos replied that it was the sponsor's intent to look at a particular segment within tiers 2 and 3, who post the highest risk in the actuarial pool. He could not specifically address the reasons why it would not directly apply to the purchase of a 30 year retirement. 3:44:48 PM AT EASE 3:46:11 PM RECONVENED Co-Chair Meyer CLOSED public testimony Vice-Chair Fairclough MOVED to REPORT CSHB 116(L&C) out of committee with individual recommendations and the accompanying fiscal note. There being NO OBJECTION, it was so ordered. CSHB 116(L&C) was REPORTED out of committee with a "do pass" recommendation and with previously published zero fiscal note: FN1(ADM). 3:47:07 PM AT EASE 3:48:39 PM RECONVENED Co-Chair Meyer handed the gavel to Vice-Chair Fairclough.