SENATOR KELLY announced SB 188 (MUNICIPAL PARTICIPATION ST. DEFERRED COMP) to be up for consideration. JOE AMBROSE, staff to Senator Taylor, said the City/Borough of Sitka requested this bill. PETE HALGREN, Sitka Assembly, said he didn't think this bill would add any employees or cause additional expense to the state. He said the state has much better buying power than a city in terms of the investments made for the deferred compensation program. This bill allows political subdivisions that are participating in the Supplement Benefits System (SBS) program to go to the state deferred compensation program. SENATOR KELLY asked who he thought should have the liability to make sure those funds are accurate. MR. HALGREN said he didn't have a problem with the City having the liability that the money the state transfers is accurate. However, once the money is transferred, it goes to Great West Insurance, and neither the City nor the state should have liability for investment losses. BOB STALNAKER, Director, Division of Retirement and Benefits, said they don't support SB 188, because the state is not the appropriate entity to administer deferred compensation plans for other political subdivisions. He remarked that there are private sector financial institutions and insurance companies that will provide deferred compensation plans for any employer, public or private. Secondly, if Alaska Federal is eliminating 14 or 15 different public employers, he didn't think it was a good idea to limit this to just those who are participating in the SBS program. There is no tie with the 457 deferred compensation plan and social security, he explained. The fact that a public employer may be participating in social security doesn't mean they don't need a deferred compensation plan or that they wouldn't like to have the same advantage Sitka would gain from this. The 457 plan is a provision in the Internal Revenue Code that allows an employer to sponsor a plan. This bill intends to allow the Department of Administration to become a third party administrator for these political subdivisions. SENATOR KELLY asked if we were doing any of that right now. MR. STALNAKER said we weren't. He said they have estimated it would increase their staff by two people which he thought was a conservative estimate on what the interface requirements would be in accepting contributions. Number 435 SENATOR SALO asked him to explain how limiting the scope of participation wasn't fair. MR. STALNAKER explained that you cannot participate in supplemental benefits if you are participating in social security. MR. STALNAKER said the cost to the state for administering the program is .95 percent which is supposed to be paid by the participants. He admitted that there are economies of scale with larger groups. SENATOR LINCOLN commented that she didn't think the costs had been explored fully. She asked if he had been working with Senator Taylor's office to come up with some solution. He said he had not discussed the issue with his office, but he would like to. MR. STALNAKER said the difficulty with the fiscal note was that it should be considered for all political subdivisions and not just a few, because if Sitka does it this year, Ketchikan will do it next year, etc. They are talking about varying degrees of sophistication with different employers. TAPE 93-28, SIDE B Number 580 MR. HALGREN said he wanted it made clear they were not trying to get into anything different than what the state already has. SENATOR SALO asked if he thought it a good idea for the state to charge a 1.5 percent fee. MR. STALNAKER said no. The Department's position is that they shouldn't be getting into the role of a third party administrator for third party political subdivisions when those concerns can be met in the private sector. SENATOR KELLY said they would hold the bill for another time and announced a 10 minute recess.