SB 110-PUBLIC PENSION FORFEITURE FOR BRIBERY ETC    3:35:01 PM CHAIR FRENCH announced the consideration of SB 110. SENATOR THERRIAULT, Sponsor, explained that SB 110 would require pension forfeiture for a public officer who had been convicted of a felony crime of public corruption. According to the National Conference of State Legislatures, 13 states have constitutional provisions to deny pension benefits to a public official or legislator who has been convicted of a crime related to execution of his/her public duties. Congress is considering similar legislation. Because the state has a substantial interest in maintaining the public's trust in government, this provision should be considered, he stated. The process would be established through regulation so as to give considerable latitude to the executive. SENATOR THERRIAULT said that the major constitutional issues that legislative legal highlighted have been addressed. Those include the provision in Article XII, Section 7, which says that state retirement and benefits shall not be diminished; Article I, Section 1, which says equal rights shall be guaranteed; Article I, Section 12, which prohibits cruel and unusual punishment; and Article I, Section 15, which says no conviction shall work corruption of blood or forfeiture of estate. SENATOR THERRIAULT continued to explain that when a public official is convicted of a federal or state felony crime of bribery, receiving a bribe, perjury, subordination of perjury, scheme to defraud or fraud, the pension that is accrued from the date of offense forward would be surrendered. He clarified that it's the state contribution that is forfeited and not the individual employee contribution. Furthermore, the felony offense would have to have been committed in connection to the duties of the office and the conviction must be proven beyond a reasonable doubt. The pension benefits accrued prior to the date of the crime are not to be diminished and the benefits that are subject to forfeiture do not include insurance, voluntary wage deductions, supplemental or health benefits, or things such as 401-K rollovers that may have been transferred to the pension. SENATOR THERRIAULT explained that administration of pension forfeiture would be added to the ARM Board duties. That board would hear appeals of the forfeitures, which would include a due process appeal right. Under the evidence rules in the Administrative Procedures Act, the state would have the burden of proving the case through a preponderance of the evidence. In the event of multiple convictions, the earlier or whichever crime is proven would be the one forfeited. The ARM Board would have the option of paying all or some of the forfeited benefits to a spouse or former spouse after considering a totality of the circumstances. A notice provision is added to all employees that if they are convicted of such a crime they will be subject to this provision. Ex post facto is also addressed by making the provision subject to crimes committed on or after the effective date of the act. 3:40:41 PM CHAIR FRENCH questioned who is charged with enforcing the provision. SENATOR THERRIAULT suggested that the committee consider whether it wants notice to be sent to the ARM Board or another entity after the public official is convicted, which would start the process. He knows of one state where the pension stops when there's an allegation. That might not be allowed or desirable here and he's open to suggestions. CHAIR FRENCH asked if this affects both the PERS and the SBS accounts. SENATOR THERRIAULT said it would definitely involve the state contribution to PERS, but there's an issue with regard to whether SBS can be included. "The way the bill operates it's specifically to the PERS account." CHAIR FRENCH asked what the issue is with respect to SBS. SENATOR THERRIAULT explained that public employees don't make Social Security contributions under an SBS provision, so incorporating SBS would lead to complications. CHAIR FRENCH asked if SBS is the state analog to social security. SENATOR THERRIAULT said that's correct. SENATOR HUGGINS asked if this would apply to 403(b) under TRS. SENATOR THERRIAULT noted that his staff indicated it would apply to TRS employees. CHAIR FRENCH asked if a public officer would contribute to TRS adding that that brings up the issue of the definition of "public officer." 3:44:57 PM SENATOR THERRIAULT highlighted the following issues that might be addressed in a CS: 1)the definition of "convicted" requires clarification with regard to when to start the process. 2)the need to affect the service time under the defined benefits plan and allow for direct refund to the employee's contribution during the service time that's no longer valid. 3)the need for clarity regarding the term "dependent" because under the current PERS system the spouse or former spouse has a right but not dependent children. 4)page 2, line 9 after "fraud" there's a suggestion to insert "or offense with similar elements." 5)add a right to appeal by an administrative law judge because it might be less costly. 6)the ARM Board decision may be appealed to the office of administrative hearings. 7)decide whether to use "public officer" or "public official" and whether to add judges or not. 3:47:20 PM SENATOR WIELECHOWSKI asked if this would only apply to Tiers I, II, and III. SENATOR THERRIAULT replied it would also apply to people in the new defined contribution plan in Tier IV. The state's contribution would still be at issue from the point of the bad act, he stated. SENATOR WIELECHOWSKI questioned whether there might be an equal protection issue comparing the potential forfeiture under Tiers I, II, and III with Tier IV. SENATOR THERRIAULT said there is an issue in the way the contributions are made, but he isn't sure it's equal protection because you can't take away something the person doesn't have. 3:48:51 PM SENATOR McGUIRE joined the meeting. KATHY LEA, Retirement Manager, Division of Retirement & Benefits, Department of Administration, said it will be easier to implement this bill under the new defined contribution plan (DCR). Because it's a straight money plan it would be easy to remove the employer contributions from the account. It's a little more difficult under the old defined benefit plan (DB) because the benefits are dependent on the service that's accrued and the salary that's earned rather than the contributions. "Simply removing the employer contributions from the member's account will not change the amount of benefits they receive, it will simply reduce the funding for the benefit," she cautioned. SENATOR THERRIAULT explained that to bring as much parity as possible the bill would need amendment so that the accrued service days would not accrue to the defined benefit employee. That's the only way to decrease their benefit, he stated. CHAIR FRENCH asked how it would work for him as a Tier II employee. MS. LEA explained that he makes a 6.7 percent contribution to the account each pay period and the employer also makes a contribution on his behalf. CHAIR FRENCH asked if it's the same percentage. MS. LEA said no; it changes every year due to the actuarial valuation, which is required under the defined benefit plan. Under the DCR plan it's a set amount. CHAIR FRENCH commented that the DCR contribution looks like the SBS contribution because it's a mathematical addition each month. MS. LEA said yes. CHAIR FRENCH added that for the DB plan it's not a set dollar addition each month. MS. LEA added that for the DB plan the actuarial determined rate is done once a year and the employer pays that rate, which funds benefits for that year and any past service costs that the employer may have incurred. The employer pays that amount each pay period for that particular fiscal year. 3:52:25 PM SENATOR McGUIRE asked the sponsor why he chose this fairly complicated approach instead of imposing a monetary penalty for someone who committed a crime of the sort described. If the goal is to send a message and punish someone for abusing their public office then impose a half million dollar penalty. This is just a bit of political rhetoric that looks good but does it really do any good, she asked. There's also the issue of the innocent people who are also entitled to those benefits. What about the innocent wife or husband or children? SENATOR THERRIAULT said he didn't know if the scope could be narrowed to just the public official you're trying to keep on the straight and narrow. SENATOR McGUIRE pointed out that police officers are prohibited from using color of title to their personal benefit or monetary gain. She noted that the committee heard a bill recently that established that if a police officer uses color of title to commit murder then the penalty will be life in prison. That's different than for private citizens, she stated. SENATOR THERRIAULT compared someone who committed a bad act last week to someone who committed a bad act ten years ago. SENATOR McGUIRE said she gets his point and everyone understands what's going on in Alaska politically. Think about it, she said. If you're really trying to get at the person who did the bad act why go through the pension plan when that's often the one thing that will be a family safety-net. Make the bad actor individually responsible, she stated. SENATOR THERRIAULT said if the half million dollar penalty came out of his joint checking account it wouldn't necessarily be any less burden to his wife and family. He reiterated that thirteen other states have this type of law and Congress is considering federal legislation. Although there is some complexity in setting this up, retirement and benefits has said it can handle it. He hopes it would be used infrequently, but it would be there to assure the public that public officials will stay on the straight and narrow. 3:57:49 PM SENATOR McGUIRE asked which section contains provisions that protect innocent family members. SENATOR THERRIAULT directed attention to Section 5(d), page 2 line 22. He read the section and suggested an amendment to also include former spouse. "We do need to make it clear that the existing spouse or a former spouse may have…a right to that and they would go to the ARM Board to…assert their right," he stated. SENATOR McGUIRE took issue with paragraph (2) on page 2, lines 29-30, which relates to a dependent or former spouse profiting financially. SENATOR THERRIAULT said that is one of a list of things that the ARM Board would take into consideration. SENATOR McGUIRE said that's fair, but she needs a definition for "profited financially." SENATOR THERRIAULT said the intent is that the board would consider whether the act involved more than just the employee. SENATOR McGUIRE pointed out that paragraph (1) says that, but paragraph (2) does not. SENATOR THERRIAULT suggested working with the drafters to clarify a more of a direct link between the two paragraphs. SENATOR McGUIRE stated that "To the degree that this is your political sound bite, I'll vote for it." SENATOR THERRIAULT clarified that it is not his intent to wave this bill around. It's existing law in other states and it's not targeted at anybody. It's only prospective. 4:02:05 PM CHAIR FRENCH noted the lengthy legal opinion Mr. Wayne issued on March 12 and asked him to touch on the four points with respect to constitutionality. DANIEL WAYNE, Attorney, Legislative Legal and Research Services Division, said item 1 talks about Article XII, sec. 7 of the Constitution of the State of Alaska. SB 110 does diminish accrued benefits, but only after the date of the criminal offense. The argument is that those benefits are tainted by the offense. It comes down to a balancing test and his opinion is that the state's interest in maintaining public trust in government is substantial. With regard to limits on the forfeiture, he believes that when the court applies the balancing test it would favor the state. Item 2 deals with equal rights, which the constitution guarantees. Noting that the definition of public officers in AS 39.52 is a very large group, he said these people are put in a special class that denies them something that everyone else in a similar circumstance would be allowed to have. That raises the equal protection issue so the court would apply a high level of scrutiny to that. Ultimately he believes the court would favor the state. However, there is an issue with respect to collective bargaining agreements and state employees, he said. If there's an agreement in effect and an employee is covered by it, then he doesn't believe the court would uphold pension forfeiture if it conflicted with the agreement. When a new agreement is negotiated then it would be consistent with the pension forfeiture law and the court would allow it. 4:07:00 PM SENATOR WIELECHOWSKI noted the different classes of people and commented that under the current structure two people who commit the same offense could be treated very differently. He asked if he'd looked into the potential for equal protection issues. MR. WAYNE acknowledged that there are equal protection issues but overall the idea of pension forfeiture creates a situation where there could be very different loss amounts. It's totally unrelated to the degree of misconduct or other things that a court takes into consideration in a criminal case. He opined that there is an imbalance, but it isn't unconstitutional. It's a public policy issue. 4:09:45 PM CHAIR FRENCH asked him to touch on cruel and unusual punishment. MR. WAYNE advised that the court could find that a person's right to a pension is outweighed by the governmental interest that's at stake. This is a civil thing that's not really directly part of the criminal case and I think that the cruel and unusual punishment prohibition mostly has to do with criminal matters, he stated. CHAIR FRENCH asked him to comment on point 4, which states that "No conviction shall work corruption of blood or forfeiture of estate." MR. WAYNE explained that stands for the principle that punishment for a crime shouldn't reach beyond the offender and shouldn't affect the right to property that's been acquired legitimately. The bill addresses that by allowing some or all of the forfeited benefits to be awarded to an innocent party. 4:11:54 PM SENATOR HUGGINS asked the sponsor to explain what page 2, line 12 really means. SENATOR THERRIAULT explained it says that all contributions that are made before the offense that the person was tried and convicted for are not impacted. It's only the state contributions from the date of the bad act forward. 4:13:04 PM CHAIR FRENCH announced he would hold SB 110 in committee.