SB 85-CREDITED SERVICE FOR TEMP EMPLOYEES:PERS MS. JEAN SMITH, aide to Senator Mackie, sponsor of SB 85, said that currently temporary employees in the PERS can buy back their temporary time; however, they can't count that towards their time needed for retirement. This legislation amends AS 39.35. 345(d) by enabling employees covered by PERS to buy back their temporary time and have it credited toward the minimum service time for retirement. This legislation provides equity among all state employees in temporary positions by enabling them to count their temporary time towards their retirement eligibility. MS. SMITH said the Department of Administration fiscal note, dated 3/1/99, said the full actuarial cost of this service is to be paid by the member. There is no anticipated cost to the Public Employee Retirement System employers. The Public Employees Retirement Trust Fund is the designate fund source and will be charged $4,000 for approximately 40 hours of computer system modifications that will be required to initiate this change. As stated in the Department of Administration's position paper, dated 3/1/99, this bill will have the effect of allowing employees to meet the retirement eligibility threshold sooner than would otherwise be anticipated. Since the employees likely to use this for retirement credit are employees with higher service totals on the higher end of the pay scale, it's more likely for the State to realize cost savings. MS. SMITH noted there are a number of support letters and petitions from Kodiak and several other geographic areas of the State. There are also letters of support from AFL-CIO and the Teamsters. She concluded that SB 85 adds a responsible piece to our long-term budget solution. In meeting budget reductions, this is an economic tool that may be used to minimize the impact of downsizing government. The passage of SB 85 is an opportunity to send a positive message to Alaska's State employees during a critical economic period within our state. MS. SMITH said they also have an amendment that Mr. Church would explain. SENATOR LEMAN said actuaries have testified to what is known as "adverse impact" in some cases, because those who benefit select something and those who don't benefit, don't select it. He asked if she had discussed this issue. MS. SMITH answered that the employee would pay the cost of this and it's a considerable amount - perhaps $50,000 for someone who is trying to get five years. CHAIRMAN MACKIE said they discussed this issue and Mr. Bell and Mr. Church would testify on it. MR. BELL explained that this bill will allow a person who has had temporary service to use that time towards "20-and-out" or "30-and- out" by buying it. The actuarial cost is the net present value equation. A person makes his own determination whether it's worth it to them. He didn't think there was an adverse selection with this particular piece of legislation as their actuaries had already factored it into the rate. SENATOR LEMAN asked if it would benefit an employee to retire and make lifestyle choices that would extend their lives longer, thus saving more from the system. MR. BELL answered yes. He added regarding Amendment #1 that a question was asked if this could possibly put a person in an earlier tier. For example, if a person were employed in a temporary capacity only before July 1, 1986, when tier two retirement came into effect, and permanent service after July 1, 1986, if they purchased this service, would that make them tier one employees. The purpose of this amendment is to clarify that that's not the case. The date of hire for PERS purposes is the date the person became a permanent employee. Consequently, this does not change the original date of hire for a benefit calculation. The main issue with tier one is that a person is eligible to receive a medical retirement benefit on normal retirement, regardless of the age they retire. There is an age limitation of 60 - 65 for tier two. SENATOR DONLEY moved to adopt Amendment #1: on page l, line 9, to insert, "An election under this subsection does not change the date that an employee is considered to have commenced participation in the system under AS 39.35.120." There were no objections and it was so ordered. SENATOR KELLY asked how many tiers there are. MR. BELL replied that there are three: tier one is up until June 30, 1986, tier two is from July 1, 1986 to June 30, 1996, and tier three starts on July 1, 1996. The main issue is the 10-year vesting for the medical benefit. MR. CHURCH added that the benefit in SB 9 is determined over the high five consecutive years as opposed to the high three consecutive years. SENATOR KELLY asked when that started. MR. BELL answered July 1, 1996. SENATOR KELLY asked if the difference between SB 85 and SB 9 is that SB 9 covers school employees and isn't retroactive, whereas, SB 85 is state and local and is retroactive. MR. BELL replied that was correct. SENATOR KELLY asked if an employee buys time at today's retirement amount or at the amount he would have paid 10 years ago when he did the temporary time. MR. BELL answered it would be based on today's salary and age. SENATOR KELLY asked for an example of how much money they were talking about. MR. BELL said they had not asked their actuary to come up with a table for this bill. There was no table for the last bill, but the direct percentage required to provide additional benefits. SB 85 would be set up just like the system for temporary service claims. For each age there is a percentage of salary a person would pay to buy a year of service. For example, a 30-year old person who is vested would pay 10.269 percent of their vesting year's salary to buy these benefits. Someone who is 40-years old would be paying twenty-odd percent of salary, because they are closer to retirement. SENATOR KELLY asked if the department is assuming it would be withheld from a paycheck or if the employee could write a check. MR. BELL answered some people might be able to just write a check. If an individual chooses to use this as a "20-and-out," like a police officer. TAPE 99-6, SIDE B The indebtedness would be required to be paid before retirement. CHAIRMAN MACKIE said he had asked if it would cost the State more money in terms of employee contributions or anything else. He was told that this is clearly an optional thing for an employee to do at their own expense and it would not have an adverse effect on retirement and benefits. He asked Mr. Bell to explain how he arrived at that conclusion. MR. BELL replied that the additional benefits would be fully paid by the individual with no impact to the employer. Another way it benefits the employer is that someone claiming this time will be eligible to retire sooner and lower the impact on the employer for ongoing employer contributions. If the position is subsequently filled, it would be at a lower range or step which equates to lower employer contributions. SENATOR KELLY asked Mr. Bell when he talks about "employer" was he referring to the PERS Trust Fund or would the State be contributing the money. MR. BELL answered he is talking about the nine percent of the payroll the employer would pay. He said there is no negative impact to the PERS Trust Fund. SENATOR KELLY asked why anyone would pay more money if they don't expect to get more out of it. MR. BELL replied that the advantage to the employee is they will get more money out of it through receiving retirement benefits earlier. A peace officer or fireman would not receive any more in value for the temporary time, but could have the temporary service treated as membership service which, when paid off, allows him to retire after 20 years. If he is in an elected position, he could retire after 30 years of service. SENATOR KELLY asked how many people would respond to this. MR. BELL replied that initially he thought they would be impacted with hundreds. SENATOR KELLY asked, "Not thousands? You don't have thousands of people who have worked in temporary positions in the last 30 or 40 years?" MR. BELL replied yes, but it won't help most people reach the service threshold. It will only benefit someone who has permanent service of less than 20 years, but when they add their temporary service to their credited service, it totals 20 or more years of service. They could pay that indebtedness, retire, and not work the additional time. SENATOR KELLY asked about someone who buys their time, pays one month of the increased calculation, then quits state government, waiting till they're 55. "Would they have a benefit based on the time they bought, although they didn't pay for it?" MR. BELL answered if they make this election, even though they are waiting until retirement age eligibility, if the benefits they are going to receive are greater than the indebtedness cost, then, yes, they would be credited with that service, even though they hadn't paid for it. SENATOR KELLY said the same might be true of someone who bought this time and died before it was paid. Their spouse would continue to get the higher benefit based upon the time they never paid money for. MR. BELL said that was correct. SENATOR KELLY asked how far back the temporary service goes. MR. BELL answered as far back as the initial point in time when an employee was hired by an employer under this system - back to January 1, 1961 for the State. SENATOR KELLY asked if a vested employee is entitled to credit service for periods in which the employee regularly rendered full- time personal service to an employer excludes a four-month legislative stint. MR. BELL answered before legislative time became covered under the retirement system, yes, as long as it was not previously purchased and claimed. He said legislative employment would only count for the four months of work. SENATOR KELLY asked if a legislative employee gets a full year of credit. MR. BELL replied that, if they work five sessions, under the conditional service provisions, they can receive a retirement benefit, but the benefit is still based only on the period of service that they worked. They don't get a full year credit. SENATOR KELLY asked if he had a position on this bill. MR. BELL said as with the other bill, they had no position. Number 487 SENATOR LEMAN asked if it would be possible to minimize the number of calls by posting the calculations electronically so people could review them. MR. BELL responded it could be put on their Internet system. CHAIRMAN MACKIE asked if it could accurately be said it wasn't going to cost the State of Alaska any more money and could actually achieve a cost savings by allowing people to retire earlier than normally and that it has no adverse effect on the Retirement and Benefit Trust account. MR. BELL answered that is all correct. He clarified that the State of Alaska is one employer in the system; the Municipality of Anchorage is another. MS. BARBARA HUFF TUCKNESS, Teamster Local 959, supported SB 85. She said this bill specifically impacts a few of her members. She represents over 1,000 employees within the Anchorage school district, 650 in the Municipality of Anchorage, and a few folks in Fairbanks. A lot of retired military members work for government in the Municipality of Anchorage. Their years of military service count much more under a military scenario than they would from a temporary perspective, she said. SENATOR KELLY noted that if you're in a uniform, you're at some pretty heavy risk. MS. HUFF TUCKNESS added in the Municipality of Anchorage there are tech engineers who are going to school and may work three or four months in a temporary position and then are fortunate enough to go into a civil engineering position once they have graduated. However, that may or may not be incentive enough 25 years down the road for them to purchase it. Teamsters Local 959 supports SB 85 because it would benefit a few individuals who would "ante up" the additional monies. It also lessens the payrolls. Number 412 MR. LARRY BOYLE, ADF&G biologist, supported SB 85 principally because it's a fairness issue. MR. MICHAEL DEAN, Division of Sport Fish employee, said he has 1.9 years of claimed temporary time that is paid up and if this bill passes, he would apply it to his retirement. He urged the committee to do all they could to pass this through. SENATOR KELLY asked how this affects people who have already elected retirement. MR. CHURCH answered that this would not affect them at all, because they have already retired and this bill targets people who have not retired by giving them the opportunity to retire earlier. CHAIRMAN MACKIE thanked everyone who testified. SENATOR DONLEY moved to pass CSSB 85(L&C) and the accompanying fiscal note from committee with individual recommendations. SENATOR KELLY objected, saying he wanted to know what effect this issue would have on collective bargaining agreements that are going on right now between the Administration and the four outstanding bargaining units. He asserted it seems that SB 85 is a benefit for the employees. MR. BELL answered that this is outside the collective bargaining process since it is a statutory provision and is subject to legislative enactment. CHAIRMAN MACKIE asked if it could potentially be a collective bargaining issue if the Administration wanted it. MR. BELL said he didn't think it would be possible to do that. SENATOR KELLY asked if he agreed this would be a benefit for those employees who are covered under some of the union contracts outside of the process. MR. BELL answered that it wasn't an additional benefit, because the employee would be paying the full cost. SENATOR KELLY asked if it was true that they don't have to put any cash up. MR. BELL replied if a person wanted to do this to reach their "20- and-out" threshold for retirement eligibility, they would have to pay the full cost before retirement. It's not a "freebie." SENATOR KELLY asked if they could do it over a period of years like normal indebtedness. MR. BELL answered no. If a person chose not to use it to qualify for the 20-and-out and said they would just wait for retirement eligibility based on age, then, yes they could; but not when they are using the service to meet that eligibility threshold. That can only be met through service that is paid in full - whether it's temporary service or working for an employer. SENATORS LEMAN, DONLEY, AND CHAIRMAN MACKIE voted yes; SENATOR KELLY voted no and CSSB 85(L&C) moved from committee.