Legislature(1995 - 1996)
05/06/1995 01:42 PM FIN
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
SENATE BILL NO. 148 1 "An Act relating to a defined contribution retirement plan for state employees." BOB STALNAKER, DIRECTOR, DIVISION OF RETIREMENT AND BENEFITS, DEPARTMENT OF ADMINISTRATION observed that the Department had reviewed the impact of CSSB 148 (RLS) am(efd fld) in regards to the soundness of the state retirement system, as required by AS 24.08.036. He noted that he was informed by the actuaries that CSSB 148 (RLS) am(efd fld) would not adversely impact the retirement system. He stated that the actuaries estimated that the employer contribution if all employees were at the Tier III level would be approximately 5.5 percent of pay. The 5.5 percent contribution would be reached over time as Tier I and Tier II employees are retired and replaced by Tier III employees. Representative Martin questioned the employee contribution. Mr. Stalnaker noted that the employee contribution would be set in statute at 5.5 percent for PERS and TRS. He added that police officers would contribute 6.0 percent. The current employee contribution is 6.75 percent for PERS and 8.61 percent for TRS. He summarized that while employer contributions would be reduced, benefits would also be substantially less. ANNALEE MCCONNEL, DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET, OFFICE OF THE GOVERNOR gave a brief overview of events leading to the introduction of SB 148. She noted that a Retirement Incentive Program (RIP) for state workers, local government workers and school district employees was introduced by request of the Governor in HB 270. She noted that Senator Rieger combined the RIP provision with a defined contribution program, which was offered in SB 148. She observed that the plan adopted in CSSB 148 (FIN) was based on a proposal by the Administration. She noted that the Administration is developing a defined benefit proposal with the intention of bringing it forth during the 1996 legislative session. She stressed that the proposal has not had full review within the Administration. She emphasized that the legislation has not been reviewed by local governments, school districts, the Retirement Board or labor unions. She expressed concern that questions regarding the proposal have not been reviewed. She emphasized that a significant change to the retirement system, as represented by CSSB 148 (RLS) am(efd fld), should only be adopted after all aspects of the proposal have been considered. She cautioned that additional tiers could be required to correct problems in the Tier III plan if sufficient review is not given to the proposal. She recommended that work continue during the interim and a proposal be brought forth at the 2 beginning of the next legislative session. She suggested that the RIP provision could be used only where positions would be eliminated so that new employees could be hired with a revised proposal at a later date. She reiterated that the impacts of CSSB 148 (RLS) am(efd fld) have not been sufficiently addressed. MARILYN ROSENE, TEACHER, DILLINGHAM testified via the teleconference network. She testified in opposition to CSSB 148 (RLS) am(efd fld). She expressed concern that qualified teachers will not be encouraged to return to teaching. She maintained that TRS and PERS are two of the strongest systems created by the Legislature. She observed that teacher turnover in rural Alaska is high. She noted that individuals with experience and training would be retired under RIP. She emphasized that teacher turnover impacts students and programs. JOHN MONHAN, SUPERINTENDENT, IDITAROD SCHOOL DISTRICT, MCGRATH testified via the teleconference network. He testified in opposition to CSSB 148 (RLS) am(efd fld). He emphasized that the State's retirement system helps to attract qualified teachers and state employees. He urged caution and recommended further review of the legislation. KAREN MAHURIN, PRESIDENT, KENAI PENINSULA EDUCATION SUPPORT ASSOCIATION testified via the teleconference network. She spoke against CSSB 148 (RLS) am(efd fld). She noted that Kenai Peninsula employees, who only work 10 months a year, will have to work 35 years to receive a 30 year retirement credit. She stated that retirement equity is a top priority for education support employees around the State. She maintained that the legislation is regressive. She asserted that the elimination of spousal health benefits is punitive. She urged the Committee to hold the legislation for further review. JUDY MURPHY, BARROW testified via the teleconference network. She spoke in support of the RIP provision. She emphasized that RIP is a necessary management tool. She recognized that retirement benefits provided by the state of Alaska should be reviewed in order to reduce state expenditures. CHRISTINA BARRON, BARROW testified via the teleconference network. She spoke in support of the RIP provision. She stressed that schools are revitalized by the introduction of younger and more enthusiastic personnel. Representative Martin expressed concern that the State realize its investment in its teachers. 3 Ms. Murphy maintained that retired teachers continue to work with children in summer and other programs. She emphasized that retired teachers continue to work with younger teachers during in services. FRANK SMITH, BARROW testified via the teleconference network. He expressed concern that the fiscal ramifications of the plan have not been adequately reviewed. DOROTHY WELLS, NEA-ALASKA testified against CSSB 148 (RLS) am(efd fld). She stressed that the state of Alaska has one of the best retirement systems in the country. She stated that she would "hate to see us go from having the best one (teachers retirement system) to probably the worst one." She noted that other states that have a 1.5 multiplier also offer their teachers social security. She stressed that teachers in Alaska do not participate in social security or the Supplemental Benefits System (SBS). She stated that teachers cannot retire with more than 100 percent of their salary. She estimated that a teacher would have to teach 40 to 50 years of service to receive 100 percent of their salary. Ms. Wells observed that the retirement system was begun in 1955 before oil was discovered in the state of Alaska. She stressed that TRS is 89 percent funded. She observed that the purpose of the retirement system is to recruit and retain competent, good teachers. She acknowledged that the legislation may not inhibit recruitment of new teachers. She maintained that the retention of teachers will be affected. Ms. Wells observed that under current law teachers can retire after 20 years of teaching in the State or after 25 years of teaching in total. Benefits are calculated by multiplying 2 percent times the number of years taught times the three highest year salaries. Years taught after 1990 in excess of 20 years can use a multiplier of 2.5 percent. A teacher can retire after 20 years at 40 percent of salary and after 25 years at approximately 50 percent of salary. The legislation would drop the multiplier to 1.5 percent. Teachers would be required to meet the 85 rule. The number of years taught plus the teachers age must add up to 85. Representative Martin stressed that a 10 percent COLA is paid to teachers that stay in state. He asked if the State can opt in or out of social security. Mr. Stalnaker stated that public employers can no longer opt in or out of social security. The State cannot opt in to social security. 4 Representative Martin asserted that employees are better off without participating in social security. Mr. Stalnaker observed that the state of Alaska established SBS when it opted out of social security. He estimated that most people would agree that SBS coupled with PERS is superior to social security. He emphasized that PERS provides many of the services afforded by social security. He observed that teachers do not participate in social security. School districts do not participate in SBS. ROD MCCOY, ANCHORAGE testified in opposition to CSSB 148 (RLS) am(efd fld). He stressed the importance of teachers. He asserted that self respecting persons will not be attracted to teach under the provisions of CSSB 148 (RLS) am(efd fld). He observed that a 30 year teacher would not have medical coverage for their spouse. He maintained that the legislation is an insult to teachers and should be placed in the trash. BRUCE LUDWIG, ALASKA PUBLIC EMPLOYEES ASSOCIATION, ALASKA FEDERATION OF TEACHERS, AFC-LIO spoke in opposition to CSSB 148 (RLS) am(efd fld). He stated that the legislation is two bills in one, one good and one bad. He spoke in support of the RIP provision. He spoke against the PERS and TRS portion of the bill. He observed that the legislation has only been in review for a week. He asserted that the "only thing driving that train was saving money." He stressed that the retirement system has been built and fine tuned over 40 years. He suggested that the legislation be held and that school districts, municipalities and the State work together to meet the needs of all the elements. JOHN CYR, VICE PRESIDENT, NEA-ALASKA testified in opposition to the legislation. He stated that he is a teacher at Wasilla High School. (Tape Change, HFC 95-116, Side 1) Mr. Cyr maintained that the TRS system is sound and one of the best in the United States. He alleged that it is uncertain if the legislation will save the State money. He maintained that the provision will have a negative impact on the system. He noted the lack of agency and public input on the legislation. He questioned if the authorization section provides the RIP option for classroom teachers. DON ETHERIDGE, LOCAL 71 testified in opposition to CSSB 148 (RLS) am(efd fld). He stressed that his union supports the RIP provision. He stated that if RIP and the Tier III provision remain together that they would not support passage of CSSB 148 (RLS) am(efd fld). He maintained that the Tier III provision would not be fair to future 5 employees. TRENA RICHARDSON, TEACHER, SOLDOTNA testified in opposition to CSSB 148 (RLS) am(efd fld). She pointed out that a member of the Committee indicated that he did not know what was in the legislation. She asserted that the legislation needs more review. She urged members to hold the legislation for further review. CLAUDIA DOUGLAS, PRESIDENT, NEA-ALASKA testified that NEA- Alaska strongly opposes CSSB 148 (RLS) am(efd fld). She maintained that CSSB 148 (RLS) am(efd fld) would gut the retirement system. She stressed that the plan is a divisive way to deal with public employees and teachers of the State. She alleged that CSSB 148 (RLS) am(efd fld) is inequitable and would be unfair to the children of the State. She urged members to not pass CSSB 148 (RLS) am(efd fld). She clarified that the 10 percent COLA only refers to benefits. She emphasized that the retirement system is actuarially sound. Mr. Stalnaker explained that the average funding ratio for state pension plans is 85 percent. He observed that TRS is at 89.6 percent and PERS is at 94 percent with the inclusion of prefunded health insurance. He emphasized that no other state prefunds health insurance. He stated that if the state of Alaska retirement system was compared to other states that it would be over 100 percent funded. He pointed out that in 1990 a sound funding provision was passed to guarantee prefunded cost of living increases to retirees. He explained that the 1990 change recognized a large unfunded liability. This provided for a second tier. He noted that the unfunded liability is being reduced over 25 years. He observed that the funding ratio has been increasing since 1990. He noted that earnings in 1994 were low. The earnings assumption was also lowered in 1994. He explained that these two factors caused the ratio to be reduced from 92 percent to 89.6 in the past year. He asserted that the State's retirement systems are among the most sound in the country. Representative Parnell noted that the unfunded liability is estimated at $1 billion dollars by the year 2019. He asked if the proposal will make the system more sound. Mr. Stalnaker replied that the system will maintain its soundness as long as the actuaries are free to recommend the assumptions that should be adopted and to calculate the employers contribution for each year. He stressed that the unfunded liability should be compared to the value of the assets. He observed that the funding ration is estimated to increase to 96 - 97 percent for both systems. He emphasized that a billion dollar unfunded mandate in the year 2019 will 6 be within 3 - 4 percent of 100 percent funding. He observed that it is a conscious strategy not to over fund the system. In response to a question by Representative Parnell, Mr. Stalnaker stated that if the system contained only Tier II employees PERS would run at approximately 10 percent a year. The system is currently at 14 percent because of the Tier I employees. He stressed that as long as the system is funded at 10 percent it is sound. He clarified that the proposal will lower the cost to the employer but not influence the soundness of the system. He stated that the issue is what is the fair benefit level for the cost to the employer. In response to a question by Representative Mulder, Mr. Stalnaker clarified that Tier I and II benefits will not be affected by the Tier III proposal. He stated that the employer/employee's contribution will change over time. In response to a question by Representative Therriault, Mr. Stalnaker restated that TRS employees do not receive any social security or SBS benefits. He observed some districts have 403 B plans. There is no requirement for the employer to provide an alternative to social security aside from TRS. Representative Grussendorf observed that spousal medical benefits would not be provided to Tier III employees. Mr. Stalnaker explained that Tier I employees receive full health benefits for themselves, their spouse and their dependents when they retire. Retired Tier II employees under age 60 pay the full cost of medical benefits for the first 5 years in PERS and the first 8 years in TRS or until they reach age 65. The system would pay half the cost after the 5 or 8 year period until the retiree is 65 years old. At age 65 the system would pay the entire cost. Tier II retirees would receive coverage for themselves, their spouse and their dependent children. Tier III would pay health insurance for the retiree only, paid by the system. Spousal or dependent coverage could be purchased at the group rate. LINDA MOATS, ALASKA COUNCIL OF SCHOOL ADMINISTRATORS testified against CSSB 148 (RLS) am(efd fld). She emphasized that Tier III is the system that our children will be hired and will retire under if CSSB 148 (RLS) am(efd fld) is adopted. She asked that all aspects of the provision be investigated. Representative Therriault asked how many categories of employees can draw benefits after 20 years. Mr. Stalnaker stated that teachers, police officers and fire fighters can retire at 20 years, all others have to serve 30 years before retirement. 7 In response to a question by Representative Martin, Mr. Stalnaker stated that teachers can purchase up to 10 years of outside services. He clarified that the 20 year-and-out provision is only for teachers whose service is all in Alaska. Teachers with outside service can retire at 25 years. There is no age limit on any of the year thresholds. RICHARD KERN, NEA-ALASKA, BETHEL testified in opposition to CSSB 148 (RLS) am(efd fld). He observed that as a teacher he is preparing students to become teachers in their communities. He emphasized that the benefits that were permitted to him as a non-member of the community will not be available to those that were raised in the community. He observed that a teacher will have to teach 30 years if they begin teaching at 25 years old. He stressed that jobs in rural communities are scarce. He emphasized that scarce jobs will be kept an additional 10 years before being turned over to other members of the community. Representative Parnell emphasized that if overall state spending is not reduced our children will not have the opportunities that are available now. Representative Therriault expressed concern that an individual of the age of 44 or 45 should feel that they are entitled to draw a retirement. Representative Mulder noted that a teacher who began teaching at 25 years old could retire at the age of 45 and begin receiving a benefit. PAUL JARVI, TEACHER testified in opposition to CSSB 148 (RLS) am(efd fld). He stated that he is a 20 year teacher who has retired at 40 percent of his salary. He viewed his 20 year retirement as an early retirement. He is currently running a business in Ketchikan. He stressed that the benefit package helps to keep people motivated and in public jobs. He spoke against passage of CSSB 148 (RLS) am(efd fld). Representative Kelly asked if Mr. Jarvi pays medical and retirement benefits for his employees. Mr. Jarvi stated that he has medical benefits and retirement for his full time employees. He acknowledged that he cannot afford to pay benefits which equal those he receives. Representative Kelly stated that "most employees in the private sector would kill for this horrible Tier III bill." He stressed that the "party is over." He estimated that people in Tier III would still be above the private sector. In response to a question by Representative Martin, Mr. Jarvi clarified that he receives a 10 percent COLA on benefits for remaining in Alaska. He noted that he receives 8 approximately $1,800 hundred dollars a month. He stated that he retired while he still had productive teaching years. He said he would support a good retirement package and teacher's rights over early retirement. Representative Kohring stressed that the State is facing a monster of a fiscal crisis. He reflected that members must make tough choices. (Tape Change, HFC 95-116, Side 2) In response to a question by Representative Therriault, Mr. Jarvi stated that he is 44 years old. Representative Therriault stated that, in his opinion, Mr. Jarvi is not retired. He stressed that his retirement has become a part of his yearly income. Representative Kelly maintained that teachers retire after only 15 years of service when summer vacation is considered. ROB PFISTERIR, PRESIDENT, ANCHORAGE EDUCATION ASSOCIATION testified in opposition to CSSB 148 (RLS) am(efd fld). He maintained that the legislation sends a message to education professionals that they are not valued. He asserted that the State is not in an economic crisis. He maintained that the State is in a priority crisis. He observed that the state of Alaska is the 50th state in taxation. He maintained that the State has refused to identify taxation as a way of raising revenues that the State needs. He stressed that education is the number one service that the State should provide. He alleged that CSSB 148 (RLS) am(efd fld) would denigrate the retirement system. He asserted that teacher's salaries are not high in comparison to the salaries of other professionals in the State. He noted that the average teacher makes $46.0 thousand dollars a year. He observed that the system is operated by teachers' contribution. He added that state and district contributions have been reduced. Representative Kohring noted the difficulty of prioritizing funding. He acknowledged that education should be the top priority. He requested that Mr. Pfister help identify areas for reduction. Mr. Pfister stated that more money should be directed to the classrooms. Representative Mulder observed that the public would not support the reinstitution of taxes. Mr. Pfister agreed. He pointed out that in other states revenue increases as more people come on to the job market. Representative Therriault discussed the prioritization of reductions in the Department of Administration. He 9 acknowledged that revenues will have to be raised but emphasized that reductions will still have to be made to fill the long term fiscal gap. He noted that the State pays for many services that could be considered municipal or county services. Mr. Pfister spoke to unintended consequences. He cautioned against lowering the professional standards for teachers. SENATOR JUDY SALO spoke against CSSB 148 (RLS) am(efd fld). She maintained that the process was as much as a problem as the bill itself. She observed that there was not sufficient time to meet with affected employee groups. She added that the Administration was unable to determine how much money is saved and when the savings will begin. She questioned if there are other options which would be less agrievous to employees. She reiterated that teachers have never been involved in SBS. She emphasized that job security and a good retirement help to attract good people to the teaching profession. She acknowledged that the proposal may be a cost savings but cautioned that savings should be weighed against the effect on attracting and retaining teachers. She restated that to make a good decision the impacts must be known. She maintained that teachers care about who will follow them into the classrooms in the state of Alaska. In response to a question by Representative Brown, Senator Salo stated that there would be no savings for the next several decades. She observed that a retiree would receive $11.0 to $16.0 thousand dollars less annually. The contribution rate would also be reduced. She emphasized that the Committee should have the recommendation of the TRS, PERS and Investment boards. RICHARD BARLOW, MAT-SU testified in opposition to CSSB 148 (RLS) am(efd fld). He noted that he is a public employee. He maintained that public employees are not over paid. He spoke in support of the RIP provision. He emphasized that RIP is a management tool. He expressed concern in regards to attitudes toward public and school employees. He stressed the importance of school and public employees. In response to a question by Representative Mulder, Mr. Stalnaker stated that projections were based on the contribution rate as it represents the cost per person per dollar. He noted that if the system was entirely composed of Tier III employees, the employer contribution would be 5.5 percent for PERS. He explained that the savings would be realized over time as Tier I and II employees are replaced with Tier III employees. He estimated that some savings would begin in 3 to 4 years and continue over 25 years. 10 Mr. Stalnaker clarified that the proposal was not the Administration's recommendation. The administration had been researching the proposal with the intent to work with affected persons to see what was a reasonable change. Mr. Stalnaker noted that the bill allows volunteer participation. He explained that a school district, University or public employer, other than the State, could elect to participate. He stressed that actuarial work would be doubled because assumptions would have to be formulated for each of the two systems separately. He maintained that this provision would be extremely costly. Representative Parnell clarified that the Department of Administration's fiscal note for $665.9 thousand dollars would be for a mandatory Tier III. Mr. Stalnaker stated that it would cost $200.0 to $300.0 thousand dollars to allow the optional provision. He discussed the difficulties of setting up two plans. In response to a question by Representative Martin, Mr. Stalnaker noted that the Division's annual report gives the average retiree benefits over the past 10 years. He observed that only 30 percent of employees eligible for early retirement have taken the option. In response to a question by Representative Brown, Mr. Stalnaker reiterated that the fiscal note requirements have been fulfilled. He restated that the soundness of the system would not be affected as long as the actuarial can continue to calculate the cost of the benefits in the term of the employer contribution. He noted that the fiscal note includes the impact on the employer's contribution rate with demonstrations that the impact would be realized over time. (Tape Change, HFC 95-117, Side 1) Mr. Stalnaker stated that if benefits were cut in half the employer's cost would be approximately half. The employer's rate would be cut by more than half if the employee rate stayed the same. He emphasized that the contribution amount is also affected by state salary schedules. He clarified that the total employer contribution rate includes PERS and TRS for Tier I, II and III employees. In response to a question by Representative Kelly, Mr. Stalnaker stated that the purpose of the system is to help the employer attract and retain employees. He observed that if the effective date is March 31, 1996, to allow affected groups to work with the Administration then there will be new proposals next legislative session. If changes occur after the effective date a Tier IV would be created. He emphasize the need to include affected groups. 11 Mr. Stalnaker explained that a defined benefit plan pays for benefits while the employee is working, so that it does not become an obligation to future employees. He clarified that Tier I, Tier II and SBS would not be affected. Mr. Stalnaker stated that one employer contribution rate is figured for all employees. The employer contribution for all employees will be reduced as one rate as the ratio of Tier II employees increase. The estimated 5.5 percent employer contribution would include all employees still in the system. BELINDA DANIELS, NEA-ALASKA, ANCHORAGE testified in opposition to CSSB 148 (RLS) am(efd fld). She asserted that the Committee did not have respect for what it means to be a teacher. She emphasized the responsibility and amount of energy that it takes to be a teacher. She maintained that the legislation is short sided. She stated that PFD's could be used to fund services. She stressed that the State must invest in education and be respectful of those that provide services. DON HADLEY, NEA-ALASKA, TEACHER, DIAMOND HIGH SCHOOL, ANCHORAGE testified against CSSB 148 (RLS) am(efd fld). He emphasized that there is no common retirement schedule for 20 year teachers. He observed that many factors influence a teacher's retirement. He stated that he did not know many teachers that had elected to retire after 20 years. He emphasized that a 20 year teacher does not retire at 100 percent of salary. He noted that military personnel can retire at age 38 if they enlisted at 18 years of age. Mr. Hadley concluded that Alaska "is the first state in the history of the United States that is going to the poor house with billions of dollars in the bank." Representative Martin referred to the State's investment in its teachers. Mr. Hadley stressed that teachers spend money to obtain additional degrees and hours. He pointed out that teachers move up on their salary hours because they have spent money and time for additional training. He accentuated that the amount of tension and stress that is placed on classroom teachers. He questioned the wisdom of requiring teachers to work beyond their physical capabilities. He stated that he has taught for 26 years. Representative Parnell asked if the NEA-Alaska Board has taken a position in regards to income taxes and using the Permanent Fund for education purposes. Mr. Hadley stated that the Board has not taken a stand on taxes. He clarified that the Board has taken a position in favor of using the 12 Permanent Fund for educational purposes. CSSB 148 (RLS) am(efd fld) was HELD in Committee for further discussion.