SB 24-REEMPLOYMENT OF RETIREES    4:55:22 PM CHAIR GENE THERRIAULT announced SB 24 to be up for consideration. He remarked the committee heard an overview on the issue but hadn't heard the bill. He asked whether the sponsor would be addressing his comments to the sponsor substitute. CHAIR GARY STEVENS, Sponsor, said he would address his comments to the Senate HESS committee substitute. [CSSSSB 24(HES)] The committee took an at-ease and reconvened at 5:00:29 PM. SENATOR GARY STEVENS explained that SB 24 extends the retiree rehire program established in 2001. That program allowed retired state workers and teachers to rejoin the workforce without giving up retirement payments. He reminded members that no employee of an early Retirement Incentive Program (RIP) is allowed to return unless employed as a commissioner. Employers who use the program are required to pay any resultant increase to the unfunded liability in the retirement system. It also requires the PERS and TRS administrators to give an annual report to the Legislature on the effect of the program. Municipalities or public organizations that use the program would be required to adopt a policy and resolution that permits the employment of retirees. In addition, they must show that a true shortage of qualified applicants exists. TRS employees already have such a program and Governor Murkowski just issued Administrative Order 225, which sets very strict sideboards for recruitment of state employees. Extending the program would help public employers attract and retain qualified workers in hard-to-fill positions. It would give employers four more years to transition the current workforce before the reemployment provisions sunset. Finally, it is cost neutral in that it eliminates any additional retirement credit during re-employment. 5:03:46 PM SENATOR HUGGINS said he can see the merit in the proposal, but he is concerned that this would allow older employees to remain in the workforce and prevent entrance to younger employees. He recalled a graph from the Department of Administration that showed seven teachers aides were rehired and several rehires were in urban areas. He suggested the qualifications for those positions aren't that high and many people would probably apply. He said, "That's my case in point and concern of what we do is we choose, through the good old boy network, we just retain our buddies." SENATOR STEVENS said he became interested in the issue when he realized several outstanding teachers in his district had retired and decided they wanted to return to work a few years later but were precluded from doing so. Those teachers were lost to Oregon, which is a terrible shame. It's not his intention to create a good old boys club. Rather, this extension would allow retirees to be rehired for hard-to-fill positions. It requires employers to begin thinking about how they will eventually replace certain positions. SENATOR WAGONER said he understands the intent, but this program is one of the most abused programs he has ever seen. He suggested other approaches could be taken to address shortages in the education area. He pointed to SB 98, which lists the villages that have difficulty recruiting teachers and suggested limiting the bill's application to specific areas. 5:08:31 PM SENATOR GARY STEVENS said he appreciated the concern and certainly there have been abuses, but this is an effort to tighten the program. In addition, Administrative Order 225 does a fine job of setting up sideboards for the rehiring process for public employees. He repeated TRS retirees have already been addressed and a true shortage of applicants must be demonstrated before this could occur. SENATOR KIM ELTON declared a potential conflict of interest, because he is a retired public employee. 5:10:20 PM SENATOR ELTON said the sponsor has noted that the employer would pick up any hit on either of the retirement accounts. However, this bill goes further in that it has a retroactive clause for both TRS and PERS accounts. He agreed with Senator Wagoner that the previous extension assumed good behavior on the part of all employers, but abuses probably did occur. This bill makes the director of the Division of Retirement and Benefits the responsible party and he or she would have to certify that the employer proved a failed recruitment and they would have to demonstrate how in-house training would occur to bring skills up to date to "bring in new blood." He credited the Murkowski Administration with stepping forward to address abuses. He offered two instances for consideration. First is the community hospital, which is a PERS employer that has rehired retired nurses. Recruiting nurses has been difficult because the field is competitive and the hospital is no longer competitive. Without this program, service in each of the elements in the hospital would be impacted. The second instance relates to the potential impact on local school districts with regard to hiring long-term subs. According to statewide contract provisions, any sub that is hired for longer than 20 days automatically becomes a TRS member. Having to pay the employer TRS contribution creates an additional cost to the school district and without this program school districts couldn't rehire a retired teacher as a long-term sub. A number of different issues come into play regarding rehiring retirees, and the last two situations speak to the need for a rehire program in place that is better written and precludes abuse, he concluded.   5:15:16 PM  SENATOR BETTYE DAVIS declared herself a retired public employee. SENATOR WAGONER declared himself a retired TRS member with no thought of coming out of retirement. Acknowledging recruitment and pay scale issues in the nursing field, he suggested that this type of program could be used to get around increasing pay scales. He opined that when people retire the ulterior motive is to change lifestyle, but the ulterior motive of this process has become nothing but money. People are retiring and returning to work to substantially increase their annual income. For instance the Alaska Department of Fish and Game has at least 37 rehired employees that are affected. "It became a good old boys system," he asserted. He urged members to be very careful before re-enacting the program. "Even with the sideboards that are there, I'm not very comfortable with it," he said. 5:17:57 PM SENATOR GARY STEVENS declared himself to be a retired TRS member. Responding to the comment that it's nothing more than money, he said a retiree could go anywhere and get a job and continue to work while collecting retirement. "I don't know that it should be seen as such a negative thing that someone wants to have retirement and earn a salary," he said. And remember, this is only for a year at a time Certainly everyone recognizes the difficult situation with PERS and TRS and from the start the intention was to ensure that PERS and TRS weren't impacted. "I think we've achieved that," he concluded. 5:19:13 PM CHAIR THERRIAULT declared he isn't old enough to retire. Referencing demographic information from the 2/10/05 overview on the impact of the retiree/rehire program, he noted that 45 people age 45 to 49 retired from TRS and were subsequently rehired. He suggested that the general public's discontent with the program stems in part from the fact that the system allows a person to draw retirement after working for 20 years when he or she is clearly not of retirement age. However, the situation isn't outside the norm in his district that has two military installations. It's not at all uncommon for military personnel retire after 20 years. "Certainly if you've spent 20 years in the military moving around and possibly in active duty, I don't begrudge people the right to do that," he said. He acknowledged that a number of constituents offered the opinion that, at the very least, the system needed sideboards. It's still not clear whether or not the sideboards established through Administrative Order 225 are adequate. SENATOR ELTON commented the retired PERS employees who were "20 and out" are generally in public safety. For those PERS employees who weren't in the line of fire, the earliest retirement age was age 50 and that was considered an early retirement. 5:21:39 PM SENATOR WAGONER indicated the savings of $1,091,720 is correct as far as it goes. However, had the retirees not been allowed to return under contract and had other people taken those jobs contributions would have been made to the PERS/TRS accounts. The number is misleading, he argued, because rehires create a negative impact on those accounts and if new people had been hired the impact would have been positive. SENATOR HUGGINS agreed with the previous statement then reported that reemployment after military retirement has sideboards. He asked that the administration discuss the net effect to the people currently working under the provision if it's renewed. Taking exception to the comment that a retired teacher is the best substitute teacher, he said that if he were making the decision he would insist on hiring a new person rather than a retiree. That way the new hire could gain experience. This is a contrast in styles he said. There isn't a right or wrong answer. CHAIR THERRIAULT told members he was ready to take testimony from the public. SENATOR ELTON referenced Senator Wagoner's comment and said his understanding is that bringing a retired teacher into the system is preserving the status quo and if a new person is brought in it would increase the unfunded liability. SENATOR WAGONER didn't believe that to be the case and said the Division of Retirement and Benefits could weigh in. CHAIR THERRIAULT said he had questions on the fiscal note, but would open teleconference testimony first. 5:26:20 PM ROBERT McHATTIE, retired PERS employee from Fairbanks, said he is interested in protecting the PERS retirement program against too many people occupying state, borough, or municipal jobs while not paying into PERS or TRS. The argument that experienced employees can't be replaced doesn't wash because employees go on vacation, become ill, die and are terminated and the various organizations don't fall apart as a result. Every employee is replaceable and it's an administrator's job to ensure that the rehiring effort is effective, aggressive and one in which a competitive wage is offered. His experience is that state human resource personnel tend to be passive when replacing high-level employees and he suggested following: · Consider the retirement check to be a payment for retirement, not just a quasi pay increase. · Find a replacement since one will be necessary sooner or later. · If a person must be rehired, hire that person as a temporary and continue to look for a replacement. Allow one year for this process. · Increase mentoring or training so that the workplace can move on when a person retires. 5:30:30 PM CHARLES SWANTON, 20-year employee with the Alaska Department of Fish and Game (ADF&G), testified via teleconference. He is currently under the 30-year retirement program and his comments related strictly to ADF&G. He opposed the retiree rehire program in its current form as it is a benefit to a select few and won't benefit the department's core employees, who are unlikely to be offered participation in a similar program in the future. It's ironic, he said, that most department employees who currently participate in the program are making more money than the department commissioner. MR. SWANTON said the basis for the 2001 legislation was ill founded and without appropriate instruction for application. He commended the sponsor of SB 24 for the addition of the application criteria, however he continued to oppose the bill on a number of elements. PERS needs fiscal input from all current active employees to remain semi-solvent. If the program didn't exist the department would be provided an opportunity for a new era of positive change. Specialized knowledge and skills is acquired while working up through the ranks and can be replaced albeit with some bumps. "Keeping the bumps from occurring are worth what to the state in terms of cost?" He offered the opinion that several program participants are very deserving of additional compensation, but they are the exception and not the rule. This program has and will continue to diminish departmental morale. "And at what cost," he asked. 5:32:58 PM SENATOR WAGONER asked what the program has done to the overall morale of employees that are trying to work up the ladder to administrative level. MR. SWANTON said he could best describe it as a kick in the gut. 5:33:48 PM TIM VIAVANT, Fairbanks resident and current ADF&G employee, testified via teleconference to urge members to oppose SB 24. The concept goes against the principle of how PERS is supposed to work. Language in the CS requires the employer to make up the shortfall in contributions, but the employee's share wouldn't be added to the PERS account. The concept has a negative affect on employee morale and on the recruitment of new employees. In addition it has a negative affect on retaining employees who may not yet be vested in PERS. Certainly the argument about a potential "brain drain" has been overblown. Finally, the whole idea of recruitment and retention would be less problematic if adequate cost-of-living allowances had been negotiated in contracts over the last 18 or 19 years. 5:36:59 PM JACK KERIN, testified from Fairbanks, to comment on previous testimony about rehired retirees who were incorrectly told they would be grandfathered in when the original legislation sunset. Concern has been expressed about possible litigation if the employees aren't grandfathered, but he questioned whether there shouldn't be greater concern about litigation from all retirement age employees over the discriminatory process used to determine who is offered the "platinum parachute benefit." The concept is poor and the program needs to sunset. With regard to the argument that the program is cost neutral, he suggested that the actuaries for Tier I employees who don't retire because they can't afford to are often overlooked. Those employees aren't offered the opportunity to receive a double salary and they're supporting PERS with 50 to 58 percent of their salary. 5:39:56 PM TINA HABIB testified from Craig in opposition to the bill. She is a retired PERS employee working for the municipality. She agreed with former comments about animosity among employees and how the system is abused. She reminded members that PERS has been in existence since 1961 and for 40 years the provision was unnecessary. Employers and employees have had 5 years to get prepared for the July 1 sunset. With regard to the argument that the sunset would impact cities she pointed out that Craig's employer obligation is 20.33 percent so it's already an impact. The more people that are out of PERS the greater the impact, she said. 5:41:44 PM MIKE TIBBLES, Deputy Commissioner, Department of Administration spoke in support of SB 24. He said he would highlight two important goals that SB 24 would provide then discuss two main concerns that were raised and how the department has worked to resolve those concerns. SB 24 would allow the approximately 335 employees currently working under the HB 242 waiver to continue receiving retirement benefits beyond the original sunset date. That's important for several reasons. First, it's unfortunate but a number of those employees were told they would be able to stay on after July 1. Also, if the issue isn't addressed a number of senior employees might exit the system to retain their retirement benefits. This would have a great impact on school districts, municipalities, and the state. Finally, SB 24 would provide an effective management tool to help employers fill positions they aren't otherwise able to fill, which was the intent of the original legislation. MR. TIBBLES pointed out the state is facing severe recruitment challenges; it can't compete with the 25 percent federal COLA and it doesn't pay market wages. The system is based on internal alignment so the state classification and pay system isn't based on market wages. For example, it doesn't allow salary increases based on inequities between the State of Alaska and Providence Hospital. To ensure internal alignment, the system compares a nurse working for the state to like duties and responsibilities in another state position such as a social worker. What the program can do is fill those positions on a short-term basis. MR. TIBBLES referenced the cost and savings aspects and explained that individuals that come back on a 242 waiver don't accrue any additional retirement benefits and the employer doesn't contribute the normal cost rate on the employee's behalf. However the cost comes into play because the pool of employees that are otherwise contributing to pay off the unfunded liability becomes smaller. The actuaries indicate that there is currently an impact for the TRS system at a rate of $106,000 per year. The impact can be quantified by .02 percent of the base salary. The savings of bringing someone back who is no longer contributing the normal cost rate is 12.75 percent for the PERS system. So even though there's a cost to the system, there's a larger savings for that employer. SB 24 requires that employers pay into the system at the point that a cost is triggered. The computation involves taking the wage base of the employee and calculating it into the past service rate. That contribution would still represent a savings to the employer. As was previously stated, "There's been a $1 million savings to the State of Alaska since this program's been in place because the state is not contributing for those individuals to a normal cost rate - not in the past service rate." MR. TIBBLES addressed the concern about making sure the program is used as intended, which is only when there are demonstrated recruitment difficulties. Referencing Administrative Order 225 he said the requirements are: · That agency is going to have to competitively recruit the position. · If somebody would like to retire then come back they could take the risk that that position is going to be competitively recruited for a minimum of 15 days. SENATOR WAGONER suggested that the person that retires from a position should be excluded from the pool of future applicants until after the position is competitively advertised and the pool is generated. MR. TIBBLES said under AO 225 the individual could apply but the recruitment must be statewide and once the applicant pool is gathered a recruitment challenge would have to be demonstrated to the Division of Personnel indicating why no other candidate has the knowledge, skill, and ability to perform the job. Also, if the recruitment brings more than five qualified applicants then the retiree wouldn't be eligible. "It's in effect and it has been working," he said. Because the process of bringing people back is a short-term solution, the Division of Personnel in the Department of Administration will be very proactive in working with departments that want to bring people back from retirement to make sure they are building workforce plans. 5:53:38 PM CHAIR THERRIAULT asked Mr. Tibbles touch on the highlights so that public testimony could be closed. Ms. Steinberger from the Attorney General's Office was on line to talk to the committee under an executive session about the possible legal ramifications of grandfathering or not grandfathering. 5:54:35 PM MR. TIBBLES advised that Administrative Order 225 requires the following before an agency could bring someone back from retirement to fill a position: · The position must be recruited through a competitive process · The competitive process must post the position for a minimum of 15 days · The hiring authority must consider all applicants not just a selected pool · All individuals brought back under 242 must be separated from state service for a minimum of 30 days · Before a position is offered to an applicant, the administrative order would require that the recruitment process result in an applicant pool of fewer than 5 qualified, eligible and available applicants · The hiring authority must demonstrate why no other individual has the knowledge, skills and ability to perform those duties · The approval for hire must be secured in writing from the director of personnel · Within 60 days after receipt of the director of personnel's approval for a waiver, the department seeking the waiver must identify the critical components of the position · The department must identify the knowledge skills and abilities that need to be developed in the workplace to assure that the work can be accomplished when the rehired retiree separates from service again · A development plan that accomplishes a transfer of knowledge is required · Applicable statutes and personnel rules will apply · State agencies are encouraged to develop a strategic view of human resource needs including development of a workforce plan with the assistance of the division of personnel 5:57:51 PM SENATOR HUGGINS commented, "There's something fundamentally wrong that a person says, 'I'm going to retire.' and they turn the switch off and they come back to work in 30 days in the same job." MR. CHRIS CHRISTENSEN, Deputy Administrative Director, Alaska Court System, informed members that the court system has found the retiree rehire program to be very helpful and it hopes the program will be extended. The court system has approximately 650 non-judicial employees of which 10 participate in this program. Given the nature of those positions, those employees are significant to court system operations. The program has helped address two problems. First, the court system has a large number of one-person job classifications such as the state law librarian. When the primary responsibility of a position is unique, continuity of service is problematic. When such a position becomes vacant, no one on staff can pick up the work. He stressed the importance for these one-person job classes to remain filled with knowledgeable and experienced people. Internal recruitment is difficult because the positions often require an advanced degree and in the court system most employees are range 15 or less clerical workers. Another problem is that the court system frequently has few qualified applicants for its supervisory positions so supervisors are often retained. The fundamental problem and reason for this is high turnover. More than 50 percent of court system employees are paid at ranges 6, 8 or 10 so an annual 50 percent turnover is typical. Forty percent of the court system's employees are located in Anchorage so it is competing with the Municipality of Anchorage (MOA). Although the salary structure is similar, MOA pays more employee benefits. In some rural locations the court system has experienced 100 percent turnover in one year. Certainly public service doesn't have the draw it did years ago and the court system would be struggling without the retiree rehire program. The RIP program became extremely problematic for the court system and the retire rehire program partially compensates for those problems. CHAIR THERRIAULT asked if he had requested that the Legislature not participate in the RIP program. MR. CHRISTENSEN didn't recall. 6:03:12 PM MS. BARBARA HUFF-TUCKNESS, Director of Governmental and Legislative Affairs for Teamsters Local 959, stated support for SB 24. She represents employees with the MOA who have participated in this program and for whatever reason MOA hasn't suffered from the program. When this program first went into effect, language was negotiated in the collective bargaining agreements that addressed the retiree rehire issue. Of the 18 waivers requested by the MOA, 12 retirees were rehired in a system that has over 2,025 employees. MOA has a tremendous number of retired military that have returned to classified, non-classified and politically appointed positions. This isn't viewed as a negative because they bring valuable resources and knowledge to the workplace. The program has been used very successfully in the engineering and public health sectors because it's been difficult to keep up with cost of living increases, health benefit changes, and competition with the private sector. Individuals that are currently enrolled in the program and are within MOA were under the belief that they would be grandfathered in. In fact many structured work and retirement plans based on that fact. "For the record I would request that the least that could be done here would be grandfather in those particular individuals that are currently participating in the program," she said. The Municipality of Anchorage has saved over $.25 million with the 12 individuals that have been participating in the program. She urged the committee to seriously look at the pros and cons of the program and move the bill from committee. 6:07:26 PM SENATOR WAGONER announced that U.S. Senator Ted Stevens mentioned that this might be the last year that federal employees living in Alaska receive the cost of living allowance differential. CHAIR THERRIAULT noted there was no further testimony. He asked for a motion that the committee move into executive session to take testimony from the Department of Law on whether the grandfathering question raises a legal issue. SENATOR WAGONER moved that the Senate State Affairs Committee go into executive session under AS 44.62.310 to consider matters the immediate knowledge of which could clearly have an adverse affect upon the finances of the State of Alaska. There being no objection, the committee went into executive session. SB 24 was held in committee. CHAIR THERRIAULT reconvened the meeting after the executive session and adjourned at 6:51:52 PM.