MINUTES SENATE FINANCE COMMITTEE March 31, 1999 8:03 AM TAPES SFC-99 # 74, Side A and Side B CALL TO ORDER Co-Chair John Torgerson convened the meeting at approximately 8:03 AM PRESENT Senator John Torgerson, Senator Sean Parnell, Senator Randy Phillips, Senator Dave Donley, Senator Gary Wilken and Senator Al Adams were present when the meeting convened. Senator Loren Leman, Senator Pete Kelly and Senator Lyda Green arrived shortly thereafter. Also Attending: GUY BELL, Director, Division of Retirement and Benefits, Department of Administration; BILL CHURCH, Retirement Supervisor, Division of Retirement and Benefits, Department of Revenue; JUANITA HENSLEY, Administrator, Division of Motor Vehicles, Department of Administration; TAMMY STROMBERG, Fiscal Analysis, Division of Legislative Finance; CHRISTOPHER ROBINSON, Executive Director, Special Education Services and member of Alaska Association of School Districts; Carl Rose, School Board; Don Etheridge, lobbyist; DON VALESKO, Business Manager, Public Employees Local 71; SUSAN ANNIS, Vice President, NEA-Alaska; LINDA MCCREA, employee of the Anchorage School District; PAM LABOLLE, President, Alaska Chamber of Commerce; DARROLL HARGRAVES, Executive Director, Alaska Council of School Administrators; LARRY WIGGIT, Executive Director of Public Affairs, Anchorage School District. Attending via Teleconference: From Anchorage: BARBARA HUFF, Teamsters Local 959. SUMMARY INFORMATION SB 9-PERS CREDIT FOR NONCERTIFICATED EMPLOYEES The committee heard testimony from the sponsor, the Division of Retirement and Benefits and the public. The bill was reported out of committee with no changes. SB 85-CREDITED SERVICE FOR TEMP EMPLOYEES:PERS The committee heard testimony from the sponsor, the Division of Retirement and Benefits and Teamsters Local 959. The bill was held in committee. SB 33-TASK FORCE ON PRIVATIZATION This bill was scheduled but not heard. CS FOR SENATE BILL NO. 9(HES) "An Act relating to the calculation of employee contributions and credited service in the public employees' retirement system for noncertificated employees of school districts, regional educational attendance areas, the special education service agency, the Alaska Vocational Technical Center, and the state boarding schools; and providing for an effective date." Senator Gary Wilken, sponsor of the bill, testified. He explained this bill addressed non-certified (or classified) school district employees. They made up the janitors, secretaries and the support staff who kept the schools running as they should and supported the teachers and administrators. They were treated differently than the teaching and professional staff as they only accrued 9 months of retirement each year while the others accrued a full year. So at the end of thirty years working in the school district they only had 22 1/2 of retirement. SB 9 would change that. It would still allow them to work nine months out of the year but they would make twelve months worth of contribution. They were requesting the additional three months of accrual for which they were willing to pay. There would be no cost to the state system. He noted the positive fiscal note of $72,400 in the first year to set up the program. After that, there would be zero expense to the state. This bill would recognize that those workers were just as important as the teachers and administrators. He listed the school districts and other groups across the state in support of the bill. He also pointed out that this bill had been before the Legislature in the past. Co-Chair John Torgerson asked if there was a retroactive clause for employees who may be already out of the system. Senator Gary Wilken said there was not, that the program began on its effective date. Co-Chair John Torgerson wanted to know how the bill would effect to the retirement incentive plan. Senator Gary Wilken didn't believe it would. He deferred to Guy Bell of the Division of Retirement and Benefits to better explain. Senator Loren Leman said it seemed to him that if someone elected to participate in the system, they believed it would provide some value to them. Since the state was not putting into the system, how would it benefit the employees, where would it come from? Senator Gary Wilken explained that the additional value would come from the increase in the employee contribution given today's value, thus allow them to save more money in today's dollars. Currently, these employees contributed 6.75 percent of their salary across nine months. Under this bill, they would contribute eight percent during the nine months. GUY BELL, Director, Division of Retirement and Benefits, Department of Administration, testified. He explained the fiscal note saying the only change was to the division's computer programming to accompany the increased withholdings. The collected funds would be placed in a trust fund. Co-Chair John Torgerson asked if the funds for the programming would be initially forward funded from the trust and then recuperated based on a formula. Guy Bell affirmed and explained the employee would be responsible for actuarial cost of this additional benefit. The division built in a small factor for the overhead expenses and also for possible adverse selection. This was a ten- percent factor in addition to the calculated cost. Senator Pete Kelly asked for explanation of actuary rate. Guy Bell explained that when an actuary calculated a rate, they calculated a single rate for a whole group. It was an average. It was desired that there be a single rate that the employee would know they would be paying every year until they retire. The estimate was 1.25 percent additional that the employee would pay. They built in a factor to try to offset the impact. Senator Lyda Green wanted to know the involvement of the school districts. Guy Bell replied that the division had a computer system that was sent to the school districts. There was a possibility they would have to also update their systems using the provided software. The districts would enter the information and return it to the division. Senator Lyda Green asked if the financial impact on each school district would be minimal. Guy Bell affirmed. Senator Gary Wilken told her he had contacted the school districts and was assured it would be minimal. Senator Lyda Green wanted to make sure that school districts weren't forced to incur a large expense to implement this program. Co-Chair John Torgerson asked about employees who were no longer employed in the school district but decided they wished to contribute. Guy Bell said this would not apply to employees no longer working in the school district. If they came back to work they could then participate. It would only apply to work performed after the effective date of the bill. Co-Chair John Torgerson asked about the effect to any retirement incentive plan. Guy Bell couldn't see how this would have any effect on a RIP. Co-Chair John Torgerson wanted to know if an employee's qualifying years would increase in a RIP program if they bought into this program. BILL CHURCH, Retirement Supervisor, Division of Retirement and Benefits, Department of Revenue, said they would. Co-Chair John Torgerson wondered if there was a risk or any additional costs to the fund because of that. Bill Church answered no. CHRISTOPHER ROBINSON, Executive Director, Special Education Service Agency and member of the Alaska Association of School Administrators, testified. Both organizations were in support of the bill. He detailed the benefits to the employees. The effect would be to delay the period of work required in order for the employee to become eligible for retirement. The employee could put themselves on a timeframe for retirement comparable to other employees in the school district. Co-Chair John Torgerson had another question of Guy Bell. He did not see any minimum requirement of the amount of time an employee needed to work to be eligible. Could an employee who worked only five months buy into the program at a higher rate? Guy Bell explained that an employee could buy into it but he didn't know if it would be to the employee's benefit. Bill Church added that the reason the 9-month employees were targeted for examples was because they wanted the employee to have the option of choosing. Co-Chair John Torgerson asked about a nine month employee who opted to participate then was cut back to only five months, would they be forced to continue to participate. Guy Bell answered that they would still participate but would still be only required to pay the same eight- percent. SUSAN ANNIS, Vice President, NEA-Alaska, testified. In the years she had been involved with the school district this item had always been a priority. She spoke about the current situation where the employees could only accrue retirement for 15 years when they had worked for 20, while their teaching counterparts were eligible to retire with a full pension. She also pointed out that even though they were seasonal employees, they were ineligible for collecting unemployment due to special provisions. LINDA MCCREA, employee of the Anchorage School District, testified. She worked ten months and wished to participate. DON VALESKO, Business Manager, Public Employees Local 71, representing Anchorage School District employees, testified. He spoke about the "little people" who made the schools run. He testified in support of the bill. He had questions on the amount each employee would be required to contribute based on the number of months they worked. He pointed out that if the contributions were based only on the nine-month factor, then the system would make money off of the ten and eleven month employees. He felt the bill needed a little work to fix this problem. DARROLL HARGRAVES, Executive Director, Alaska Council of School Administrators, testified. He brought a message from the Alaska Association of School Administrators that they supported the bill. It was a human thing, he said. This addressed a group of employees who were under-appreciated and unrecognized. He told of a time when there was no retirement for these employees and a janitor who retired after 23 years of service and the Legislature issued a citation and granted the retirement benefits. LARRY WIGGIT, Executive Director of Public Affairs, Anchorage School District, testified. He referred to written testimony submitted earlier. He gave examples of employees who would be affected and worked for him. He said this was not a matter of someone retiring at age 25 rather than 30. It was a difference of someone being able to retire at age 63 versus age 67. Co-Chair John Torgerson asked if there were any employees who worked twelve months under this same system. Larry Wiggit said there was one and detailed. BARBARA HUFF, Teamsters Local 959, testified via teleconference from Anchorage. The union represented Anchorage School District Employees and supported the bill. Senator Randy Phillips asked Guy Bell to respond to Mr. Valesko's concerns. Guy Bell responded that if the program was to apply to a variable system to collect based on the number of months worked at different times by different employees it would be administratively complicated. Therefore, they had chosen to go with a flat rate. He said it would be consistent with the TRS system. Senator Gary Wilken made a motion to move from committee CS SB 9 (HES). Without objection, it was so ordered. CS FOR SENATE BILL NO. 85(L&C) "An Act relating to credited service in the public employees' retirement system for temporary employment." JEANNIE SMITH, staff to Senator Jerry Mackie sponsor of the bill, testified. Currently, employees in the PERS system could buy back their temporary time. However, this time did not count toward the minimum service needed for their retirement eligibility. She told the committee this bill would allow these employees currently covered under PERS to buy any temporary time and have it credited toward that minimum service time for retirement. It would provide equity among state employees. It was an issue of fairness. They should be allowed to pay for months that they actually worked. The fiscal impact on this legislation for temporary service as recognized under the retirement system provided that the employee would pay the full actuarial cost. There were no general funds involved. There would be computer programming necessary to implement the program as reflected in the Department of Administration fiscal note. The legislation would allow the state to realize immediate cost savings by enabling employees to meet the retirement eligibility threshold sooner. The employees prone to use this for retirement credit were employees with the higher service codes thus they are on the higher end of the pay scale, according to Jeannie Smith. She continued saying SB 85 was a responsible piece of the puzzle in the development of Alaska's long term budget solution. This was a reasonable economic tool that may be used to minimize the impact of downsizing Alaska's state government. She spoke of a position statement submitted by the Department of Administration. It said that the bill would have the effect of allowing the employees to meet the retirement eligibility threshold sooner than they would otherwise be anticipated. She then noted a list of Alaskan employers who were included within the umbrella of this bill who did not work for the State Of Alaska. She concluded by stating that this bill sent a positive message to state workers and other employers and employees across the state. Guy Bell and Bill Church returned to the table to address this bill. Guy Bell commented that this would allow employees to pay the cost to use temporary service that they had worked as membership service toward their retirement. Public employees with temporary service time would be affected. Currently, they could buy that temporary service time but could not use it toward retirement eligibility for 20 or 30 and out contracts. This would allow them to pay some extra, which would be the actuarial costs. He gave examples of the police or firefighter component of PERS. The full responsibility for paying the cost would rest with the employee. Senator Randy Phillips asked if there was a difference between seasonal and temporary employees. Guy Bell explained that a seasonal employee was considered permanent and they did pay into PERS during their period of work. A temporary employee was not a PERS employee. There was no deduction from their salary and they did not receive PERS credit. Senator Randy Phillips wanted to know how many temporary employees were in the state system and what was the average length of service in that status. Bill Church said the division did not know since people did not claim their temporary service. Senator Randy Phillips asked how many permanent temporary workers were there. Bill Church responded that the division did not track that information. Based on the employees who did claim their temporary service, they could prepare an estimate. Guy Bell added that there were many public employees in the retirement system and state employees were only a part. There were people with temporary service who worked for other employers. Senator Al Adams asked about the fiscal note for SB9 and wanted to know if this program could be implemented with the computer modifications made to the other program for school employees. Bell replied that the changes were slightly different but that it was a small cost to the system. The two were calculated separately because it was not known if both bill would be adopted. Co-Chair John Torgerson asked if this would be handled on an individual basis or would a single percent be imposed based on the actuarial costs. Guy Bell replied that it would be calculated on an individual basis since each case was different. The difference here was that an employee would purchase time that they worked probably a number of years ago. Very often, a person first worked as a temporary and then worked into a permanent position. That had to be calculated on an individual basis. Senator Randy Phillips compared this to the last bill where seasonal employees had no control of the number of months they could work. He wondered if with the employees addressed in this bill, were there any inequities within the group of temporary employees that needed to be adjusted. He spoke about the different classifications of people and assumed most were serving a probationary period before entering a full time status. Guy Bell said this was different than probationary since they were hired as temporary employees. When a person was first hired in a permanent position they were on probation but still contributed to PERS, he explained. Co-Chair John Torgerson was confused about initial testimony saying that temporary time did not count. Could an employee go back and pick up time served in temporary service even when they were not in the system. Bill Church responded that employees could once they were vested in PERS. Then they could claim all full-time temporary service. That was the main difference with this bill and SB 9. SB 85 dealt with employees who by the nature of their employment were excluded from becoming a vested member of PERS. They could then claim all full-time temporary service and pay the rate for that. Co-Chair John Torgerson wanted to know if buying in counted toward becoming vested. Bill Church answered no; a person must already be vested. Co-Chair John Torgerson asked if once they were vested, how would the division calculate the payment for the five-year period. Bill Church said once they employee is vested they could go back and pay for the earlier temporary service. He detailed his own situation with his three months of temporary service. Co-Chair John Torgerson wanted to know what was the average term of temporary service. Bill Church said it varied and depended on the term of employment. Co-Chair John Torgerson had questions about qualifications for PERS. Church replied it was calculated by time served as a paying member of PERS. Co-Chair John Torgerson asked if this bill had a retroactive clause for an employee who was out of the system. Bill Church replied that an employee would be able to pay into the service to meet the eligibility for retirement. The employee could chose to buy it as just credited service or also for service to be credited for accrual. It was an individual decision. Co-Chair John Torgerson asked if this was an irrevocable election. Bill Church affirmed. Co-Chair John Torgerson asked why there weren't the same triggers in this bill as in the last bill of 90 days and 180 days. Tape: SFC - 99 #74, Side B 8:50 AM Bill Church responded there was already an existing period of service that had happened in the past. The election could be made at any time before the employee retired. The only difference would be the amount of interest accrued and charged based on how long ago the temporary service was performed. He detailed the differences in accrual procedures between this bill and SB 9, which was an on- going program. Co-Chair John Torgerson then asked about the effect this bill would have on the RIP. It seemed to him that this would have a greater direct affect than the last bill had. He noted that in order to qualify a saving to the state had to be shown. Would this change some of those determinations? Bill Church said this would only apply to retirement qualifications and cost savings would still be up to the employer. Senator Randy Phillips asked if there was a difference between union and nonunion employees' retirement. Church said there was not. Senator Randy Phillips referred to a letter in the packet by a school district temporary employee on the Kenai Peninsula. She had worked for nine years as a temporary. It seemed like a long time for temporary. Church clarified that the testimony was directed at the wrong bill and really applied to SB 9 because she was a school district 9- month employee. Senator Randy Phillips noted different classifications for different employees and the different benefits afforded those. He wanted to know if this would cause inequalities for those employees. Bill Church replied that union affiliation would not matter in this program. Barbara Huff testified via teleconference from Anchorage in favor of the bill. She spoke about the difference of this bill from the previous bill. This bill would impact the majority of the members her organization represented within the Anchorage Municipal Employees Association. She did not see a significant number of employees who would be impacted one way or another, but this bill would grant them an opportunity if they chose. She spoke about the temporary employees covered in the bargaining unit. Co-Chair John Torgerson ordered the bill held in committee. ADJOURNED Senator Torgerson recessed the meeting at 8:59 AM. SFC-99 (1) 3/31/99