Legislature(1995 - 1996)

04/27/1996 01:20 PM FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
  SENATE BILL 148                                                              
       "An Act  relating to a defined  contribution retirement                 
       plan for state employees."                                              
  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                 
  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                 
  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                 
  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.                                      
  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.                                       
  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.                                      
  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.                                                       
  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                 
  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.                                 
  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                 
  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.                   
  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.                                   
  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.                         
  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                 
  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.                                                                 
  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.                       
  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.                          
  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                 
  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                 
  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.                               
  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                 
  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.                   
  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.                         

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