Legislature(1995 - 1996)
04/27/1996 01:20 PM FIN
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
SENATE BILL 148 "An Act relating to a defined contribution retirement plan for state employees." MARY RUBADEAU, SUPERINTENDENT, JUNEAU SCHOOL DISTRICT, ALASKA COUNCIL OF SCHOOL ADMINISTRATORS, JUNEAU, stated that the Alaska Council of School Administrators strongly opposes SB 148. She believed that the legislation would place the State of Alaska and the students of the State at risk because they would no long be able to attract the brightest and best educators to work in Alaska. Of the sixty-nine retirement systems compared, 53 plans allow for some combination of a Teacher Retirement System (TRS) and Social Security (SS) coverage. (Tape Change, HFC 96-144, Side 2). Ms. Rubadeau continued, SB 148 would reduce the current multiplier of 2% or 2.5% to 1.5%. Of the 69 retirement programs studied, thirty-one pension plans use an accrual 6 rate equal to or greater than 2% percent; twenty-four plans use an accrual rate between 1.79% and 1.99%. Only 7 plans use 1.5% or less as the multiplier for computation of retirement benefits. If Alaska were to adopt 1.5% multiplier, Alaska will be at the "bottom of the list" for attractive retirement system plans. She continued, the third tier retains the highest paid teachers in the system longer, at a time when districts are looking for means to reduce expenses, suggesting that the biggest budget area which could show a savings would be staff salaries. She asserted that the benefits for retaining the current retirement system out weigh the reasons for the proposed language. SB 148 would place Alaska at the bottom of quality and value when compared with other states. Ms. Rubadeau thought that Alaska teacher salaries are becoming more in line with those of other states. Alaska is now having difficulty in some districts retaining quality educators under the present system. Adoption of SB 148 would create more reasons not to come to Alaska to teach. She urged that the Committee not pass SB 148. Representative Therriault inquired if the Alaska Council had voiced blanket opposition to the legislation. Ms. Rubadeau noted that the TRS system works and is a good system. She believed it would make more sense to amend the current system as opposed to adopting the third tier system. Ms. Rubadeau commented on the opposition to the concept of the Tier III. Representative Therriault pointed out that the legislation could be amended in order to better work for the groups involved. In response to Representative Therriault's comment, Ms. Rubadeau explained that the number of people applying for jobs within the Alaska school districts has decreased by one-quarter in the past year. Recruitment considerations are a critical factor for the school system in Alaska. She added, teaching is a taxing profession; new people with energy and vision need to be given the opportunity to work to keep up the challenging concerns. Specifically why school districts supported the early retirement incentive program. Representative Parnell asked if there was a waiting list of qualified teaching positions in Juneau. Ms. Rubadeau responded that there have been qualified applicants who have not been able to obtain employment because there have been no new hires in the past few years. Representative Mulder suggested that the decision be based 7 on "financial reality" rather than trying to modify social behavior in terms for employment practices. He suggested that teachers be held to the same level as other professions in determining when they should leave their post. Ms. Rubadeau spoke to the realities which face school districts; once teachers are tenured, they stay in the teaching system, and that many of their choices evolve around financial issues regarding the retirement system. JUDY MURPHY, (TESTIFIED VIA TELECONFERENCE), BARROW, stated that new retirement proposals would not encourage teachers to stay in the system nor would it encourage new students to pursue degrees in education. She emphasized that the proposed changes would be too drastic and urged members to vote against the proposed legislation. BILL DONALDSON, (TESTIFIED VIA TELECONFERENCE), KODIAK, spoke in favor of the legislation, specifically the portion which addressed the Early Retirement Incentive Program (RIP) for state employees. He agreed that it was fiscally responsible to reduce state government. MIKE LAUNDRY, (TESTIFIED VIA TELECONFERENCE), KODIAK POLICE DEPARTMENT, KODIAK, spoke in support of the legislation. He thought that the bill would be of benefit to the Kodiak Police Department, pointing out that people would be eligible for early retirement through passage of the legislation. He thought that could create more options for entry level employees. DENNIS OAKLAND, (TESTIFIED VIA TELECONFERENCE), CITY OF HOMER, HOMER, commented that the City of Homer is facing declining city revenues, forcing down-sizing and restructuring of the city work force. SB 148, RIP portion of the bill would allow the city to reduce the work force and bring on new employees at lower costs, creating substantial savings. He concluded, the City of Homer supports SB 148 and urges the Committee's approval and passage. NICK DUDIAK, (TESTIFIED VIA TELECONFERENCE), SELF, STATE EMPLOYEE, HOMER, testified in favor of SB 148, echoing that savings would be provided to the State through passage of the legislation. He pointed out that without passage of the bill, many lower paid recruitment positions would be laid off resulting from the proposed budget plan. GREG MACDONALD, (TESTIFIED VIA TELECONFERENCE), PUBLIC SAFETY EMPLOYEE ASSOCIATION, ALASKA STATE FIRE FIGHTERS ASSOCIATION, ANCHORAGE, stated that members of the associations which he represents strongly urge the Committee to separate the RIP and Tier III sections of the proposed 8 legislation. Each should stand on their own merit. He pointed out that there was broad support for the RIP portion of the bill, although, citizens felt strongly about the "Tier III" portion and would not support the legislation with that included. He pointed out that SB 148 would cut spouse and dependent health care for the police and fire workers. Mr. MacDonald stressed that these employees have stressful work lives. If they have to remain in service longer, that increases family stress and will make it "tough" to recruit quality people. KEITH PERIN, (TESTIFIED VIA TELECONFERENCE), BOARD OF DIRECTORS, PATERNAL ORDER OF STATE TROOPERS, ANCHORAGE, advised that the Tier III retirement portion of the bill would be detrimental to all State troopers. In order to maintain the quality work force in the State, changes as proposed in Tier III would not be advisable. The current plan in Alaska is considered to be in the "middle of the road" compared to other states. Mr Perin commented that Tier III will put Alaska at the "bottom of the barrel". California and Delaware have superior plans. He urged that the two portions of the bill be separated. LUCY HOPE, (TESTIFIED VIA TELECONFERENCE), PRESIDENT, MAT-SU EDUCATION ASSOCIATION, ANCHORAGE, spoke in opposition to SB 148. She pointed out that the Mat-Su School District has a difficult time recruiting specialty teachers; the proposed legislation would make it more difficult. Representative Therriault commented on the actuarial soundness referenced by Ms. Hope, suggesting that fear was ungrounded. Representative Therriault noted that the different tiers are individually funded and by adding a Tier III would not jeopardize other employees retirement. BILL BJORK, (TESTIFIED VIA TELECONFERENCE), PRESIDENT, FAIRBANKS EDUCATION ASSOCIATION, FAIRBANKS, spoke in opposition to SB 148 because it will negatively impact Alaska's ability to retain teachers and to attract new teachers throughout the State. He added that the association is concerned about the bills negative influence on TRS participants. Teacher shortages still exist in rural Alaska. If SB 148 becomes law, teachers will be forced to moon-light after school and during the summers to qualify for a modest social security annuity. Representative Martin noted that he did not favor the RIP or the Tier III program. He thought that neither would provide a cost savings. Representative Kelly inquired if University of Alaska was 9 able to supply the number of needed replacement teachers. Mr. Bjork replied that the University can not supply the number of graduates necessary especially in the "special needs" area. DON DAVIS, (TESTIFIED VIA TELECONFERENCE), FAIRBANKS, spoke against SB 148. He stated that it was an additional step made by the Legislature to punish the working class individual. Without a retirement incentive, one would assume that a stable work force would be less available for state employment. He pointed out, the Legislature had voted an additional raise for themselves while funds were depleted taken from the working class. Co-Chair Foster indicated that the proposed legislation was the Governor's bill. ANNALEE MCCONNELL, DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET, OFFICE OF THE GOVERNOR, commented that the proposal prepared last year by the Governor differs in many respects from current retirement incentive suggestion. (Tape Change, HFC 96-145, Side 1). Ms. McConnell reported that the legislation would not provide an automatic age in which to be able to retire, but rather it would be used at the Administration's discretion to determine which work units could achieve savings to allow employees to retire early. The program would calculate how much savings would occur by either eliminating the position or by replacing the employee at a lower pay range. The other calculated portion would be the employers contribution toward retirement, an amount paid by the Department over a three year period. Representative Martin voiced concern with the fiscal impact. He maintained that the retirement program would be at the expense of new employees, who would need to provide personal savings three times greater than current employees. Ms. McConnell explained that the initial bill submitted by the Administration was a "straight-forward" retirement and separation incentive. It did not include any adjustments to retirement. In the Senate, that bill was combined with a bill prepared by Senator Rieger addressing retirement benefits. The Administration stated that this was not the preferred approach and then suggested alternatives. MARK BOYER, COMMISSIONER, DEPARTMENT OF ADMINISTRATION, commented that the assumption is that wages which drive retirement will continue to rise with the consumer price index (CPI). These will have increased benefits added so that the future retiree should have a base which has kept 10 pace with retirement costs. Commissioner Boyer pointed out that a 4% gross factor was used to determine the retirement reduction from the employee. Representative Martin asked if that was determined by the 1.5% contribution added per year. Commissioner Boyer replied that the 1.5% is a broad base private industry standard. Base adjustments are still assumed at the 4% per year increase. He agreed that the 1.5% was low and will result in a lower retirement piece. Representative Martin asked if the fiscal note submitted had been calculated at the 1.5%. Commissioner Boyer explained that Tier III savings was built upon blending the Tier I and Tier II employees, eventually being replaced by the Tier III employee. Representative Therriault asked if going to a Tier III would jeopardize the benefit paid to the Tier I and Tier II employees. Commissioner Boyer advised that the tiers are distinctively different and the contributions paid are separate pools of retirement resources. The actuarial assumptions which provide the contribution is based on the individual employees placement. There will be no reduction to the Tier I or Tier II level employee benefits from implementing an additional tier. Representative Therriault asked how the money would be saved from the RIP program. He understood that it was the intent of the Administration to use RIP savings to address department budget reductions. Ms. McConnell offered to provide the Committee with a handout explaining the plan and the impact. Representative Therriault reiterated that the budget reductions should not effect an employee who had already RIP'ed out. Representative Brown referenced the outdated fiscal notes. She asked if they reflected savings expected through the Tier III proposal. Commissioner Boyer explained that the Department would provide a new fiscal note based on Committee action. The budget anticipates a $30 thousand dollar savings in FY97 associated with the implementation of Tier III, based on turnover assumptions. Tier III savings will accrue at a small rate over a period of time. Representative Brown asked if there was any part of the Tier III which the Administration supported and considered good policy. Commissioner Boyer advised that the Administration does not support the Tier III portion of the bill. He suggested that the defined contribution needs to be substituted with the defined benefit approach. 11 In response to Representative Brown's query, Commissioner Boyer replied that the Administration would support an element of the Tier III system, seeking changes to the health benefit provision and the multiplier. Representative Brown asked if those two items were changed, would the remainder of the bill be acceptable. Commissioner Boyer stated that the Administration did not have a final consensus regarding SB 148. Representative Brown emphasized that there is "high" interest understanding the "range of changes" proposed by the Administration. She asked access to the information currently available. Representative Parnell asked if the Administration had calculated the savings. Commissioner Boyer replied that health benefits had been cost-out for a twenty-five year period, and those numbers were available. He added, the system needs to be able to attract and retain good public employees. The goal is to decrease employer contribution to 6% range. Representative Therriault interjected that the effected groups would of course want to continue the status quo; he intended to a change that system. Commissioner Boyer reminded members that savings accrue over time and are incremental; for administrational ease, the blended number would be 13.8% employer contribution. Representative Therriault pointed out that the social security contribution was 6.2%. He stressed that the PERS contribution was too "rich". Commissioner Boyer disagreed with that characterization. He stated that the private sector often had other retirement plans available to their employees. Representative Therriault asked the Administration's objection to a defined contribution plan. Commissioner Boyer replied that plan tends to be of less benefit to large public employers than it is for the private sector employers. He agreed that it was attractive, although, felt that the defined benefits arrangement would provide more certainty to public employees. People are awarded for their longevity as opposed to a defined contribution plan. Representative Therriault agreed that the bill needed adjustments, although recognized the need for change to our current situation. He stressed that it would always be opposed by the private sector. (Tape Change, HFC 96-145, Side 2). Discussion followed between Representative Martin and Commissioner Boyer regarding the information requested from the Administration highlighting options and cost analysis. 12 Representative Therriault asked how the Administration felt about including Tier III and RIP in the same bill. Commissioner Boyer clarified that language was inconsistent, encouraging employees to "leave early" while and on the other hand developing a system to encourage them to stay longer. Representative Therriault pointed out that the time scenarios differed. He stressed that employees have a personal obligation for providing for their own future outside of the retirement accrued through their jobs. Representative Martin agreed. SB 148 was HELD in Committee for further discussion.