HOUSE COMMUNITY AND REGIONAL AFFAIRS STANDING COMMITTEE April 11, 1997 8:09 a.m. MEMBERS PRESENT Representative Ivan Ivan, Chairman Representative Fred Dyson Representative Scott Ogan Representative Joe Ryan Representative Jerry Sanders Representative Al Kookesh Representative Reggie Joule MEMBERS ABSENT All Members Present COMMITTEE CALENDAR SPONSOR SUBSTITUTE FOR HOUSE BILL NO. 164 "An Act providing that employment as a legislator or with the National Education Association is not credited service under the teachers' retirement system; prohibiting membership in the teachers' retirement system for holders of limited certificates; removing teachers holding limited certificates to teach Alaska Native language or culture from membership in the teachers' retirement system; and repealing a provision permitting members of the teachers' retirement system to count unused sick leave credit as credited service." - MOVED CSSSHB 164(CRA) OUT OF COMMITTEE (* First public hearing) PREVIOUS ACTION BILL: HB 164 SHORT TITLE: TEACHERS RETIREMENT: ELIGIB. & SICK LEAVE BILL VERSION: SSHB 164 SPONSOR(S): REPRESENTATIVE(S) VEZEY JRN-DATE JRN-PG ACTION 02/27/97 510 (H) READ THE FIRST TIME - REFERRAL(S) 02/27/97 510 (H) CRA, HES, STATE AFFAIRS 03/10/97 607 (H) SPONSOR SUBSTITUTE INTRODUCED-REFERRALS 03/10/97 607 (H) CRA, HES, STATE AFFAIRS 03/12/97 (H) CRA AT 8:00 AM CAPITOL 124 03/12/97 (H) MINUTE(CRA) 03/19/97 (H) CRA AT 8:00 AM CAPITOL 124 03/19/97 (H) MINUTE(CRA) 04/02/97 (H) CRA AT 8:00 AM CAPITOL 124 04/02/97 (H) MINUTE(CRA) 04/07/97 (H) CRA AT 8:00 AM CAPITOL 124 04/07/97 (H) MINUTE(CRA) 04/09/97 (H) CRA AT 8:00 AM CAPITOL 124 04/09/97 (H) MINUTE(CRA) 04/11/97 (H) CRA AT 8:00 AM CAPITOL 124 WITNESS REGISTER BILL CHURCH, Retirement Supervisor Division of Retirement and Benefits Department of Administration P.O. Box 110203 Juneau, Alaska 99811-0203 Telephone: (907) 465-4460 POSITION STATEMENT: Testified on SSHB 164 JOSEPH EASAW, Legislative Administrative Assistant to Representative Al Vezey Alaska State Legislature State Capitol, Room 13 Juneau, Alaska 99801 Telephone: (907) 465-3719 POSITION STATEMENT: Testified on SSHB 164 ACTION NARRATIVE TAPE 97-17, SIDE A Number 016 CHAIRMAN IVAN IVAN called the House Community and Regional Affairs Standing Committee meeting to order at 8:09 a.m. Members present at the call to order were Representatives Dyson, Sanders and Joule. Representatives Ryan, Ogan and Kookesh arrived at their respective times: 8:10 a.m.; 8:11 a.m.; and 8:15 a.m. HB 164 - TEACHERS RETIREMENT: ELIGIB. & SICK LEAVE Number 025 CHAIRMAN IVAN indicated that the committee would consider HB 164, "An Act providing that employment as a legislator or with the National Education Association is not credited service under the teachers' retirement system; prohibiting membership in the teachers' retirement system for holders of limited certificates; removing teachers holding limited certificates to teach Alaska Native language or culture from membership in the teachers' retirement system; and repealing a provision permitting members of the teachers' retirement system to count unused sick leave credit as credited service." He added that the committee had adopted a committee substitute to this legislation, 0-LS0636/L, dated April 7, 1997, and an amendment, L0S06363/L.2, dated April 8, was moved and objected to. This amendment is still before the committee. He invited Representative Ryan, the sponsor of this amendment to discuss it further. Number 195 REPRESENTATIVE JOE RYAN outlined that the amendment he proposed was to version "L" of this legislation. He asked the committee to look at page 2, line 1, of the proposed CS. "'Teacher contributions may not be required for credited unused sick leave.' The second...line three of the amendment starts out a, a section which says, starting with the passage of the bill, new people coming in. 'School districts shall compensate a teacher who first began employment...in effective date of the Act, either by retirement or otherwise for accrued sick leave for which a teacher does not elect to receive credited service.' That gives a teacher the option of something you don't have now which is a cash out. If a teacher takes, works eight or ten years, has sick leave accrued, and I think if I remember correctly, Mr. Church established the fact that sick leave was a benefit by statute. You can change a statute to say new teachers won't get sick leave if you choose, but teachers who have it now, it's an earned benefit and you can't take it away from them without compensating for them or you'll be sued and you're going to lose." REPRESENTATIVE RYAN continued to note the cash out for sick leave feature in this amendment. Employees can also use their sick leave for credited service for retirement purposes but they have to make a contribution that would normally be made by the employee toward their retirement at 6.85 percent. The benefit is set, the employee contribution is set and the only variable would be the employer contribution. If the 6.85 percent is not paid then the employer will have to pay it. If an individual wants to gain a benefit by using sick leave to add to their retirement it's only equitable that they make this contribution. He understood that the NEA did not have a problem with this amendment. Number 521 REPRESENTATIVE FRED DYSON stated that he didn't understand how they could get sued under House Bill 164 because he understood that it only applies to teachers joining the system after the effective date of this legislation. REPRESENTATIVE RYAN responded that it was his understanding, and according to Mr. Church, that sick leave is a benefit as defined in statute and unless this is changed new employees are entitled to sick leave. Number 650 REPRESENTATIVE SCOTT OGAN asked what the fiscal ramifications of this amendment would be if they are required to compensate pay outs of sick leave. REPRESENTATIVE RYAN responded that a teacher can use accrued sick leave for retirement purposes or they can take the sick leave and the district must arrangement for a substitute. This doubles the cost. The fiscal implications are that employees use this as a retirement benefit and the state pays for it. The fiscal impact is that a person has the option of cashing this time out. If a teacher decided to use all their sick leave at once a substitute would have to be hired and this would be expensive. Number 839 BILL CHURCH, Retirement Supervisor, Division of Retirement and Benefits, Department of Administration, came forward to testify on HB 164. He noted that benefits could not be reduced to present members because of the Alaska Constitution which states that benefits vest upon hiring and not upon eligibility. The ability to accrue sick leave came about before statehood through regulation. In 1977, the ability to claim unused sick leave and add it to retirement benefits was enacted by the legislature. At this time it became a benefit of the Teachers Retirement System (TRS). Making a change to the statute would be prospective in nature and would not affect those who are presently employed or who have been employed prior to the change in the law. MR. CHURCH continued that the funding for the unused sick leave is calculated as far as the overall costs to provide benefits to members of the retirement plan. The cost is borne in part by the members whose contribution rate is 8.65. The rest of the cost is borne by the employer. This is spread out over the years. In Section 1 of the amendment where it discusses the ability to receive an amount equally to the credit for the sick leave, he did some calculations. Last year the average salary was a little over $50,000 for a teacher. If the average school year is calculated at 188 days, this would be a daily per diem rate of $266 a day. If someone had ninety days of unused sick leave, the district would have to compensate this person $23,940 upon termination. The district would have to come up with this hard cash right away and this would be a large, sudden impact to the school districts financially. Under the present system, this is an accrually determined cost. MR. CHURCH asked about Section 1 and the use of a teacher's average base salary to calculate the compensation. Since this is a term used in the retirement statute, not in an education statute, he wasn't sure that this is defined for those purposes. Number 1079 REPRESENTATIVE RYAN gave an example of a teacher who comes into the system at entry level earning $30,000 per year and building sick time. At retirement they're making $55,000 to $60,000. If the sick leave were credited at the salary of which they retire they would be getting an extra benefit because they earned part of it at a much lower wage. If this is averaged over the average base salary this makes it more equitable for what this person earned when they were making low wages combined with what they made for higher wages. The financial impact is spread across this time and it's less of a financial impact. It's more fair and reflects an amount over the period of time they've been paid. Otherwise, a person works for a long time at low wages but all of a sudden they cash it all out at the highest range. He didn't think this was equitable. MR. CHURCH asked if he was indicating that they use the average salary as compensated in the TRS. This is where there is a direct formula. Average base salary is calculated based on the three high years. Number 1136 REPRESENTATIVE RYAN thought the three high years would defeat the purpose. He understood this to be the average salary across from the time of employment from where it was earned. He noted that perhaps he hadn't made this clear enough or that the drafter didn't understand what he meant. CHAIRMAN IVAN stated that he respected Representative Ryan's efforts to introduce this amendment. He said his bottom line position was to give the responsibility of compensating sick leave to the school districts which is reflected in current statute. He said that if they mandated this amendment there would be some costs passed onto the school districts of which they don't know the impact of at this time. Number 1212 REPRESENTATIVE OGAN asked Mr. Church if this amendment would increase costs to the school districts. MR. CHURCH responded that he thought it would. This will be a cost that they will not be able to pre-fund in a sense, to be put in as part of what they need each year. They will have to make assumptions about how many teachers will terminate, what the average amount of sick accrued will be and other compensation involved. They would have to pre-figure this amount and have it on hand in the event someone does terminate. Number 1251 REPRESENTATIVE DYSON stated that the sponsor of this bill says that it returns the decision making of what to do with sick leave to the individual district and their bargaining unit negotiations. He asked if this was Mr. Church's understanding as well. MR. CHURCH responded that since the granting of unused sick leave is a function of the Department of Education he said he was not as well versed in this area as he should be. He didn't have a direct answer. He wasn't sure if this was a bargainable item or a benefit granted under statute. He was inclined to think it was the latter. Number 1334 REPRESENTATIVE DYSON understood that this bill removes this sick leave issue from statute and then automatically becomes a bargainable unit if the districts and bargaining units choose to. MR. CHURCH believed this to be accurate. Number 1355 REPRESENTATIVE DYSON noted that from an expert labor management perspective he asked what served the state and the people of the state's best interest. Is it to have many items in a contract defined in state law or is it to allow this to be bargained for, to decentralize that decision making. MR. CHURCH responded that the nature of a retirement plan and the associated benefits are geared to attract and retain qualified individuals. He added that this is balanced against the other side of contract negotiations. Are the benefits that we afford to teachers of the state of Alaska enough to attract and retain the qualified people? Number 1408 REPRESENTATIVE DYSON asked if a teacher's contract should be debated by legislators or should it be made by the local districts in negotiations with a bargaining unit. MR. CHURCH responded that he could only respond to this question with his own personal opinion. He believed it was a combination of both. The legislature should set the standards as guides and the rest is up to negotiations with the districts. Number 1505 CHAIRMAN IVAN noted that an objection still remained regarding this amendment. He requested a roll call. Representative Ryan and Sanders voted in favor of the amendment. Representatives Kookesh, Joule, Dyson, Ogan and Ivan voted against the amendment. The amendment, L0S06363/L.2, failed. REPRESENTATIVE DYSON noted that the author of the bill said this legislation would have the net affect of encouraging teachers to run for the legislature in that their retirement under TRS would be continued. Number 1555 MR. CHURCH responded that a member of the TRS, if they elect to run for the legislature and are successful, they may elect to continue coverage under the TRS. This is not mandatory that they do, but it is an option. Historically, they haven't had a great amount of teachers who have run for office. REPRESENTATIVE DYSON asked if the passage of this bill would change this situation. Number 1589 MR. CHURCH stated, "Yes, it would." The net affect of this legislation is that a teacher would not be able to continue their coverage under the TRS. REPRESENTATIVE KOOKESH noted that he had no objection of teachers running for the state house and continuing in this program. He didn't see that there was anything wrong with it. Number 1610 REPRESENTATIVE JOULE stated that he also saw nothing wrong with it but wondered about a teacher who ran for the legislature and if their participation in TRS was terminated. He asked if they would be able to take this TRS and transfer it to the Public Employees Retirement System (PERS)? MR. CHURCH responded that this wasn't possible. There are provisions in statute that allow someone who is vested in one system to be able to receive a conditional service retirement benefit if they have a minimum of two years in the other system. This person would be subject to the rules of the latter. If someone started out in TRS and then they entered the PERS they are subject to the latter's rules. Number 1695 REPRESENTATIVE KOOKESH added that he had not heard any complaints about teachers being a disservice to the state by being a member of the legislature. He took issue with eliminating something that was not a problem. He also knew that a starting teacher's salary is probably a lot more than what a legislator makes. He didn't know how this would impact the retirement system. REPRESENTATIVE RYAN noted that Alaska has a statute that allows someone to be a member of a borough assembly while being a teacher and there's no conflict of interest even though this person might be voting on the local contribution to the school district. "Anybody that can tell me straight up and down that there's no conflict when you're voting for your own wages is a little difficult." He compared this situation to a legislator who votes for education funding, retirement issues, etc. He thought this situation had good potential for a conflict of interest. Number 1758 REPRESENTATIVE DYSON stated that he wanted to clear up what he thought were contradictory statements. He noted his understanding about this bill is that it would make it easier for a teacher to carry forward their retirement benefits into the same system that the legislators are under without a net loss of benefits and is an encouragement for retired teachers or active teachers to serve in the legislature. This legislation would improve a teacher's financial situation. Mr. Church seems to think the contrary. Number 1870 JOSEPH EASAW, Legislative Administrative Assistant, Representative Al Vezey, came forward to testify on SSHB 164. He stated that he had not been privy to the conversation between Representatives Vezey and Dyson regarding the above scenario but he understood the bill to disallow a teacher to continue their accumulation of benefits under the TRS as they serve as a member of the legislature. Under the current law this is allowed, the individual teacher can elect to either continue under the TRS or to elect membership under the PERS. This legislation removes the ability of a teacher to continue accumulation under TRS as they perform their services for the legislature. Number 1937 REPRESENTATIVE OGAN moved and asked unanimous consent to move CSSSHB 164 (CRA) out of committee with individual recommendations and accompanying zero fiscal note. Hearing no objection, CSSSHB 164 (CRA) was moved out of the House Community and Regional Affairs Committee. ADJOURNMENT CHAIRMAN IVAN adjourned the House Community and Regional Affairs Committee at 8:42 a.m.