Legislature(2003 - 2004)

03/03/2004 03:25 PM House L&C

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
HB 329-RETIREMENT INCENTIVE PROGRAM                                                                                           
CHAIR ANDERSON announced  that the final order  of business would                                                               
be HOUSE BILL  NO. 329, "An Act relating  to retirement incentive                                                               
programs  for  the  public   employees'  retirement  system,  the                                                               
judicial retirement system, and  the teachers' retirement system;                                                               
relating to  separation incentives  for certain  state employees;                                                               
and providing for an effective date."                                                                                           
Number 1905                                                                                                                     
CHAIR  ANDERSON moved  to adopt  CSHB  329, Version  23-LS1109\U,                                                               
Craver,  3/3/04, as  a  work  draft.   Hearing  no objection,  he                                                               
announced that Version U was before the committee.                                                                              
Number 1915                                                                                                                     
HEATH  HILYARD, Staff  to  Representative  Lesil McGuire,  Alaska                                                               
State  Legislature, spoke  on behalf  of Representative  McGuire,                                                               
sponsor.  He referred to  Version Q [CSHB 329(STA)], saying there                                                               
are  two substantive  policy changes.   The  first is  on page 2,                                                               
lines 16-23,  in particular, lines  18-21.  He explained  that in                                                               
addition to  the requirement that  someone be a Tier  I employee,                                                               
this further restricts the  proposed retirement incentive program                                                               
[RIP] to employees who have 20  years of service and are 50 years                                                               
of  age;  the  one  [differentiation] is  with  regard  to  peace                                                               
officers and fire  fighters, lines 20-21.   He remarked, "Because                                                               
they  are  a 20-and-out  system,  we  went  ahead and  made  that                                                               
provision at 17 years of service."  He continued:                                                                               
     Similar comments have been made  with regard to the TRS                                                                    
     [Teachers'  Retirement System]  members, the  teachers.                                                                    
     And I believe that the  sponsor would have no objection                                                                    
     to making, also, an appropriate  change, either in this                                                                    
     committee ...  or prior  to being  heard in  [the House                                                                    
     Finance Committee].  But that  was simply an oversight.                                                                    
     ...   We were including  a general blanket policy  - 20                                                                    
     years of  service and  50 years  of age -  as a  way to                                                                    
     further  mitigate  concerns   that  [the  Division  of]                                                                    
     Retirement and  Benefits has expressed with  respect to                                                                    
     the  actuarial soundness  of this  program.   There  is                                                                    
     concern about  ... unusually young people  retiring and                                                                    
     the long-term  effects on the actuarial  soundness.  So                                                                    
     that was an attempt to address that.                                                                                       
Number 2005                                                                                                                     
MR. HILYARD  drew attention  to page 3,  lines 21-22,  Version U,                                                               
subsection (d),  with regard to  all the sections  discussing the                                                               
indebtedness rates.  He noted  that it says, "plus an appropriate                                                               
share of the  administrative costs of the program."   He remarked                                                               
that  in  addition  to the  indebtedness  rates,  the  respective                                                               
employees  will pay  an appropriate  share of  the administrative                                                               
costs  of the  program -  basically, the  cost to  administer the                                                               
program "at  the Department of  Administration and  [Division of]                                                               
Retirement and  Benefits level."   He said  this was  added after                                                               
[CSHB 329(L&C), in Version U].                                                                                                  
MR. HILYARD highlighted  two amendments added in  the House State                                                               
Affairs Standing Committee [thus  included in CSHB 329(STA)] that                                                               
the sponsor  wholly concurred  with and  that he  said ultimately                                                               
make the bill better.  He  first pointed out page 8 of Version U,                                                               
lines   23-27;   noting  that   this   amendment   was  made   by                                                               
Representative  Gruenberg,   Mr.  Hilyard  said   the  respective                                                               
retirement systems  or boards can  stop the  RIP if it  begins to                                                               
threaten the actuarial soundness.   He then referred to [page 12,                                                               
lines  7-9], credited  Representative  Weyhrauch,  and said,  "We                                                               
wanted to make it clear that  in no way would this ... retirement                                                               
incentive  program threaten  the benefits  currently received  by                                                               
those individuals ... who are already under retirement."                                                                        
Number 2079                                                                                                                     
MR. HILYARD, in reply to  questions from Representative Rokeberg,                                                               
said this whole bill is only  for Tier I employees in either [TRS                                                               
or  the  Public  Employees'  Retirement   System  (PERS)].    The                                                               
statutory reference  is on  page 2,  lines 16-17  [AS 14.25.110].                                                               
He explained:                                                                                                                   
     As we've  been working on  this bill, both  through the                                                                    
     interim  and during  the session,  having conversations                                                                    
     with  the Department  of  Administration and  [Division                                                                    
     of] Retirement  and Benefits, our  deep concern  was to                                                                    
     offer a  retirement incentive program that  would be of                                                                    
     value  to state  agencies,  municipalities, and  school                                                                    
     districts  and  that  ultimately ...  would  yield  the                                                                    
     greatest cost savings.                                                                                                     
     There's been  some concern expressed  by, particularly,                                                                    
     school  districts that  ... allowing  some of  the more                                                                    
     senior Tier IIs  to be included might  decimate the ...                                                                    
     experienced teacher  levels to  such an extent  that it                                                                    
     would  be  problematic.    And so  that's  one  of  the                                                                    
     reasons  why  we  wanted  to   make  it  Tier  I  only,                                                                    
     particularly for the school districts.                                                                                     
Number 2185                                                                                                                     
REPRESENTATIVE GATTO  asked why  there are  two separate  dates -                                                               
July 1, 1990 and July 1, 1986 - on page 2, lines 16-17.                                                                         
MR. HILYARD  replied that  AS 14.25.110  refers to  options under                                                               
the  TRS system,  for which  the Tier  I cutoff  date is  July 1,                                                               
1990; AS 39.35.370 refers to options  under the PERS  system [for                                                               
which the Tier I cutoff date is July 1, 1986].                                                                                  
REPRESENTATIVE GUTTENBERG referred to page  3 [line 22], "plus an                                                               
appropriate share  of the administrative  costs of  the program."                                                               
He asked if that [share] has been calculated.                                                                                   
MR. HILYARD  pointed out that  there was  a fiscal note  from the                                                               
Department  of  Administration  regarding  the  overall  cost  of                                                               
administering the  program, but he  couldn't say exactly  what an                                                               
individual's share would  be.  Noting that  a reasonable estimate                                                               
could  be  extrapolated,  however, he  said  approximately  1,800                                                               
people  retired  under the  1989  program;  to  the best  of  his                                                               
knowledge, about 1,200 retired under the 1996 RIP.  He added:                                                                   
     Our overall  point here was,  the employer also  has to                                                                    
     pay ... the actuarial adjustment.   And so, in order to                                                                    
     mitigate  the  Department  of  Administration's  fiscal                                                                    
     note and perhaps, hopefully, zero  that out, our intent                                                                    
     was to suggest  that in deciding whether or  not to opt                                                                    
     in to  the retirement ... program,  ... employees would                                                                    
     have to consider that factor as well. ...                                                                                  
     I have a  spreadsheet that was included  in your packet                                                                    
     from   Melanie  Millhorn,   from   [the  Division   of]                                                                    
     Retirement and  Benefits, and there  was a  number, ...                                                                    
     administrative  costs,  that  cited  something  to  the                                                                    
     effect   of   $300-and-some-odd   and  change   as   an                                                                    
     administrative  cost;  I  believe that's  an  actuarial                                                                    
     adjustment,  but   that  was  roughly  our   idea,  ...                                                                    
     something in that neighborhood in  terms of the overall                                                                    
     ...  cost to  the individual  employee who  might elect                                                                    
     ... to  retire under the retirement  incentive program.                                                                    
     So we're  not looking for  exorbitant numbers.   We are                                                                    
     simply trying  to mitigate the  cost to  the Department                                                                    
     of Administration.                                                                                                         
Number 2280                                                                                                                     
[Chair Anderson handed the gavel to Vice Chair Gatto.]                                                                          
REPRESENTATIVE  GUTTENBERG asked  if people  taking advantage  of                                                               
the RIP  would be  penalized by  having to pay  a higher  cost to                                                               
retire early  than they'd  have paid  otherwise, and  whether the                                                               
administrative costs were [the only additional costs].                                                                          
MR. HILYARD  suggested either  Ms. Millhorn or  Ms. Lea  from the                                                               
Division  of Retirement  and Benefits  could answer  that better,                                                               
but said,  "At least our intent,  and the way I  read the current                                                               
language, is that  this would just cover any  additional costs as                                                               
a result of applying for the RIP itself."                                                                                       
VICE CHAIR  GATTO posed the  question of whether  the forgiveness                                                               
equals  the  penalty, and  whether  any  difference is  large  or                                                               
MR.  HILYARD  said he  couldn't  answer  that, noting  that  this                                                               
provision about  the administrative  fee had  just been  added in                                                               
Version U and that he hadn't had  a chance to closely look at the                                                               
Number 2370                                                                                                                     
REPRESENTATIVE  CRAWFORD  recalled  bills   in  the  House  State                                                               
Affairs Standing Committee  the last couple of  years in response                                                               
to a [shortage of teachers].                                                                                                  
TAPE 04-24, SIDE B                                                                                                            
Number 2345                                                                                                                     
REPRESENTATIVE CRAWFORD asked whether there's  a surplus now.  He                                                               
told of  a state trooper who  retired under a RIP  but has worked                                                               
every year  since then as  a state trooper.   He asked  where the                                                               
savings is, if that's the case.                                                                                                 
MR.  HILYARD responded  that those  concerns have  been mentioned                                                               
before,   and  that   the  Matanuska-Susitna   ("Mat-Su")  School                                                               
District has  been one of  the most vocal school  districts about                                                               
wanting  this RIP,  but also  somewhat mindful  of the  long-term                                                               
effects  of a  lack  of  qualified people  to  replace those  who                                                               
either take  normal retirement or  would retire early  under this                                                               
bill.  He said:                                                                                                                 
     We've  made  a  specific provision  under  Section  10,                                                                    
     which begins on  page [9, lines 24-28]  ... with regard                                                                    
     to  reemployment, particularly  of  teachers to  school                                                                    
     districts:  ... "the  individual may  accept employment                                                                    
     with a school  district as a substitute  teacher" - and                                                                    
     that was for  all individuals; then, to  go on further,                                                                    
     "an  individual  who   participated  in  the  teachers'                                                                    
     retirement system  may accept employment with  a school                                                                    
     district if  the employment is  on an hourly  basis and                                                                    
     does not entitle the  individual to receive retirement,                                                                    
     health, or leave benefits."                                                                                                
     And our  intent there was not  necessarily to encourage                                                                    
     teachers -  retirees, if  you will  - to  "double dip,"                                                                    
     but to provide an opportunity,  in the event that after                                                                    
     these individuals  RIPed out,  ... the  school district                                                                    
     would not  be left  in the  lurch for  an indeterminate                                                                    
     period  of  time  without not  only  more  seasoned  or                                                                    
     experienced educators, but educators in general.                                                                           
Number 2280                                                                                                                     
MR. HILYARD continued:                                                                                                          
     So, our intent was to say,  "We want to offer this as a                                                                    
     management  tool  that will  attempt  to  allow you  to                                                                    
     reduce personnel  costs [and]  at the same  time, offer                                                                    
     you a small loophole ...  as it applies particularly to                                                                    
     substitute teaching  and then those teachers  that want                                                                    
     to  come back  in unspecified  positions on  an hourly,                                                                    
     contractual basis, to  fill potential, temporary gaps."                                                                    
     So our intent  there was to provide  an opportunity for                                                                    
     any school  districts to  rehire ...  their individuals                                                                    
     at reduced personnel costs.                                                                                                
     Now,   there  has   been   some   discussion  of   that                                                                    
     constituting  double  dipping,  and  I  understand  the                                                                    
     general concern.   However,  in particular,  Mat-Su has                                                                    
     expressed   that  this   RIP   would  be   particularly                                                                    
     beneficial  to  them  ... for  reduction  of  personnel                                                                    
     costs; at  the same time,  they've said, "Well,  we are                                                                    
     somewhat   concerned   about   our  ability   to   find                                                                    
     appropriate  substitutes  or   to  rapidly  fill  those                                                                    
     positions vacated  by RIPed teachers."   So, we  made a                                                                    
     creative  policy decision  to  try to  address both  of                                                                    
     those issues.                                                                                                              
Number 2234                                                                                                                     
VICE CHAIR GATTO added that  Mat-Su had an undesirable experience                                                               
during the  last RIP:   it  paid to  have teachers  retire early;                                                               
discovered that  it needed  them back; and  was prevented  by the                                                               
RIP  from rehiring  them.   He said  this clause  eliminates that                                                               
"prevention" and  allows an  opportunity for  them to  come back.                                                               
He  said he  hadn't heard  of an  hourly contract,  and expressed                                                               
concern about  contractual language such  as an agreement  with a                                                               
union  that  might preclude  hiring  teachers  "permanently as  a                                                               
MR. HILYARD reported that this  particular change was recommended                                                               
by Robert  Doyle, head of the  Matanuska-Susitna School District;                                                               
he  said,  however,  that this  creative  policy  decision  could                                                               
potentially benefit  a number of school  districts throughout the                                                               
state.    He  pointed  out  that it  is  each  school  district's                                                               
decision  as to  whether to  offer a  RIP to  its employees.   He                                                               
noted  that some  school  districts have  remained  silent as  to                                                               
whether  they'd offer  it;  some have  said,  given their  fiscal                                                               
scenarios, it  is unlikely they  will; and the  general consensus                                                               
he's heard from the senior  levels of administration from various                                                               
school  districts seems  generally supportive  of having  another                                                               
option  for managerial  decisions.   As an  additional check,  he                                                               
said, the commissioner of [the  Department of] Administration has                                                               
final authority with  regard to whether to accept  plans that are                                                               
proposed to the department, for  example, if a plan is predicted,                                                               
upon review, to cause more long-term damage than it's worth.                                                                    
VICE  CHAIR  GATTO  added,  "That's why  they  have  a  financial                                                               
officer  who  will run  the  numbers,  do  the math,  and  decide                                                               
whether that's  good or not good  for the district.   We'll leave                                                               
it ... in their hands to make that decision."                                                                                   
Number 2088                                                                                                                     
REPRESENTATIVE GUTTENBERG  asked whether the legislature  has any                                                               
hourly employees now.                                                                                                           
MR. HILYARD said he didn't know, but could find out.                                                                            
REPRESENTATIVE GUTTENBERG  asked whether this program  leaves out                                                               
any group  or subset  from the possibility  of "RIPing"  and then                                                               
returning on an hourly or contractual basis.                                                                                    
MR. HILYARD  replied that the  only reemployment option  that was                                                               
limited  in any  way  was  referred to  on  page  9, lines  26-28                                                               
[quoted above],  which says someone  who participated in  TRS may                                                               
accept unemployment  in the school  district on an  hourly basis.                                                               
He continued:                                                                                                                   
     Now, with respect to being  reemployed as a substitute,                                                                    
     that would apply  to anyone who RIPed  who was eligible                                                                    
     under  that  school  district's   provisions  to  be  a                                                                    
     substitute.   For instance,  some school  districts ...                                                                    
     may not  require a college  degree, whereas  others do.                                                                    
     Now, that's a different provision.   But this says, not                                                                    
     including  whatever restrictions  an individual  school                                                                    
     district may have, if you've  RIPed under this, you are                                                                    
     still eligible to be a substitute teacher.                                                                                 
     My  understanding  is,  all the  other  ...  exemptions                                                                    
     apply  to   anyone  who  would  take   this  retirement                                                                    
     incentive program,  with the  exception of  that hourly                                                                    
     contractual basis for school districts.                                                                                    
Number 2038                                                                                                                     
VICE CHAIR GATTO remarked:                                                                                                      
     Just  a thought:   if  you  have a  teacher that  RIPed                                                                    
     under a previous program, in  that statute they are not                                                                    
     allowed to  return.   Now we  have a  teacher -  and it                                                                    
     doesn't  address   this  individual  statute,   but  an                                                                    
     individual  who participated  in  a teacher  retirement                                                                    
     system,  without  mentioning  any specific  one  -  may                                                                    
     accept [reemployment]  with the school district.   So I                                                                    
     have this conflict that this  allows a teacher, without                                                                    
     reference to  which retirement system they  RIPed from,                                                                    
     to be  reemployed, while the previous  statute prevents                                                                    
     the teacher  from being  reemployed under  the previous                                                                    
MR. HILYARD said  he doesn't think that's the case.   He referred                                                               
to  page 8  [Section  10],  continuing to  page  9,  line 3,  and                                                               
mentioned AS  39.35, AS 14.25,  and AS  14.40.661.  He  read from                                                               
page  9, line  3,  "after appointment  to  retirement under  this                                                               
Act", which  relates to forfeiture  of the incentive credit.   He                                                               
offered his  belief that  the language all  the way  down applies                                                               
only to people who retire under this particular RIP.                                                                            
VICE CHAIR  GATTO replied, "So,  these teachers  are reemployable                                                               
and the  previous teachers are  not."   He suggested it  would be                                                               
nice to decide to reemploy  teachers that had retired under [any]                                                               
RIP, rather than classify them in separate groups.                                                                              
MR.  HILYARD related  his understanding  that then-Representative                                                               
and  now-Senator  [Gary]  Stevens  had a  similar  bill  in  both                                                               
Houses, but said he doesn't know  what happened with it.  He said                                                               
he'd talked  to [Senator Stevens']  office briefly about  some of                                                               
the language therein, and believes that was his intent.                                                                         
VICE CHAIR GATTO suggested there  might be a conceptual amendment                                                               
offered in that regard.  He called on Ms. Millhorn.                                                                             
Number 1926                                                                                                                     
MELANIE MILLHORN, Director, Division  of Retirement and Benefits,                                                               
Department  of Administration,  testified that  the division  had                                                               
adopted a neutral policy position with  regard to HB 329, but has                                                               
concerns if there would be costs  to the system.  She pointed out                                                               
that  PERS  and  TRS  are   underfunded:    for  2003,  PERS  has                                                               
approximately a $2.9  billion shortfall, with a  funding ratio of                                                               
75 percent; and TRS has a  $1.4 billion shortfall, with a funding                                                               
ratio  of 68  percent.   Noting that  the funding  ratio compares                                                               
assets  to  liabilities,  she  said the  funding  target  is  100                                                               
Number 1845                                                                                                                     
VICE  CHAIR GATTO  asked what  needs  to be  done to  get to  100                                                               
percent someday.                                                                                                                
MS.  MILLHORN  replied,   "We  have  to  look   at  the  employer                                                               
contribution rates; ... the  employers are ultimately responsible                                                               
to bring up  the short-funded status."  In  further response, she                                                               
expressed  hope  that  it  would   take  less  than  [10  years].                                                               
Mentioning  talking to  [the House  Finance Committee  and Senate                                                               
Finance Committee], she  added, "We have been  through two cycles                                                               
in  a 25-year  period  of being  in funded  ratios  where we  are                                                               
MS.  MILLHORN   explained  the  two  fiscal   notes  [both  dated                                                               
February 13, 2004].   The first, number  5, addresses operational                                                               
costs to  the system.  It  was prepared looking at  the 1996-1999                                                               
costs to  the division  and at the  staffing levels  necessary to                                                               
administer  the RIP  for that  three-year period:   $742,000  for                                                               
FY 05 [fiscal  year 2005], $569,000  for FY 06, and  $569,000 for                                                               
FY 07.  She said:                                                                                                               
     Those figures are based  on PERS-eligible retirees, and                                                                    
     there were 1,359  that retired between '96  and '99 for                                                                    
     PERS.   And for TRS, there  were 850.  So  based on ...                                                                    
     Mr. Hilyard's  testimony, I think  we may need  to redo                                                                    
     this  fiscal   note  after  we  look   at  the  further                                                                    
     narrowing and  limitation of the actual  population who                                                                    
     may be eligible.                                                                                                           
Number 1737                                                                                                                     
MS.  MILLHORN  addressed  the  second   fiscal  note,  number  4,                                                               
relating to  the cost to  employers.  She explained  that [Mercer                                                               
Human Resource  Consulting ("Mercer"), the  actuarial consultant,                                                               
looked at the entire "universe"  of the population; at what those                                                               
costs  would be,  given  the three-year  credit;  and what  those                                                               
costs  would have  been when  compared  with "if  the person  ...                                                               
would have received  those otherwise, if eligible."   Thus for an                                                               
eligible PERS  employee, the  employer would have  to be  able to                                                               
support  about  $98,000 in  savings.    For  TRS, it's  a  little                                                               
higher, about $120,000 over a three-year period.                                                                                
Number 1666                                                                                                                     
MS. MILLHORN,  in response to  a question from Vice  Chair Gatto,                                                               
brought attention to  testimony by Bob Reynolds [of  Mercer] in a                                                               
House  State  Affairs  Standing Committee  hearing,  where  she'd                                                               
taken notes in order to explain  the actuarial process.  She said                                                               
Mr.  Reynolds  had  testified  that for  this  fiscal  note,  the                                                               
estimated value of the benefits to  be provided under HB 329 were                                                               
compared with  the value of  the benefits the member  expected to                                                               
be eligible to receive in the absence  of HB 329.  Looking at the                                                               
incremental costs  of the proposed  legislation, she  said they'd                                                               
noted  that  for PERS,  it  is  $786,000,000 for  8,008  eligible                                                               
members; for TRS, it is $431,000,000.   If the actual universe of                                                               
who is  eligible is  divided by  the actual  cost, it  results in                                                               
$98,000 for PERS members and $120,000 for TRS members.                                                                          
MS. MILLHORN  also noted that  Jack Kreinheder [of the  Office of                                                               
Management & Budget],  who was involved with  the legislation for                                                               
the 1996-1999  RIP, had  testified that the  average cost  to the                                                               
employer  was $28,000.    However,  she said  the  cost for  this                                                               
proposed RIP  is significantly higher because  of increased costs                                                               
for  benefits.   That includes  a change  in the  year 2000  from                                                               
using  the  1984  mortality  tables to  using  the  1994  tables,                                                               
resulting  in 2.7  years of  extra benefits  for each  recipient.                                                               
Furthermore, the "health care trend"  was changed in 2002 from "a                                                               
trend analysis," an increase of 7.5  to 12 percent.  She reported                                                               
that  those costs  are reflected  in the  second fiscal  note, to                                                               
which Mercer has attached its actuarial analysis.                                                                               
VICE  CHAIR GATTO  asked:   If the  employee says  there will  be                                                               
$60,000 in  savings over  a three-year  period, but  the employer                                                               
sees  that it  will cost  $120,000,  could the  employer say  the                                                               
employee must make up the other $60,000 in some manner?                                                                         
MS. MILLHORN replied  that the employer has a  number of options,                                                               
including eliminating  a position, but  would have to be  able to                                                               
demonstrate the $120,000 in savings.                                                                                            
VICE CHAIR  GATTO surmised  that if a  teacher retired  early and                                                               
returned  immediately   as  a  substitute   teacher,  significant                                                               
savings could be demonstrated.                                                                                                  
Number 1511                                                                                                                     
KATHY  LEA, Retirement  Supervisor,  Division  of Retirement  and                                                               
Benefits, Department  of Administration, replied,  "That wouldn't                                                               
be able  to happen."  She  explained that a member  cannot return                                                               
to what  is normally  a TRS-participating  position as  an hourly                                                               
employee for  more than one  school year.   The teacher  could be                                                               
issued  a long-term  substitute-teaching contract  for up  to one                                                               
school year,  but if it  exceeds that, it's a  permanent position                                                               
and the RIP penalties apply.                                                                                                    
MS. MILLHORN acknowledged  that it would behoove  her division to                                                               
prepare new  fiscal notes  based on [Version  U] and  the further                                                               
VICE CHAIR GATTO agreed to the necessity of that.                                                                               
Number 1454                                                                                                                     
MS.  LEA,   in  response  to   a  question   from  Representative                                                               
Guttenberg,   said   each   employer  would   calculate   savings                                                               
individually;   in  general,   though,   hiring   someone  in   a                                                               
nonpermanent  or  contract  position  isn't  considered  in  [the                                                               
calculation] unless  the employer was looking  at eliminating the                                                               
position and  then having  a temporary  contract person  take it.                                                               
She said the key to contract or  hourly work is that it cannot be                                                               
in  a  position  that  normally participates  in  the  retirement                                                               
systems.   It's  more  temporary in  nature.   She  added, "In  a                                                               
personal services contract arrangement,  we would look at whether                                                               
or  not  there still  is  an  employee-employer relationship,  in                                                               
other words,  if the person  ... has  other clients, or  are they                                                               
really an employee."                                                                                                            
REPRESENTATIVE  CRAWFORD  asked,  then,  if the  savings  to  the                                                               
employer  come mainly  from  eliminating  positions, rather  than                                                               
hiring someone  else at lower  pay.   He asked whether  this will                                                               
only work if those public  employee or teacher employee positions                                                               
are eliminated.                                                                                                                 
MS. MILLHORN replied:                                                                                                           
     You are correct.  That is what we believe would be the                                                                     
     circumstance now for this RIP legislation, as compared                                                                     
     to  the  '96-'99, because  the  employer  cost at  that                                                                    
     point was  $28,000.   So the  employer had  vastly more                                                                    
     flexibility in  a couple of  different things.   Either                                                                    
     they  could reclassify  the position  downward, thereby                                                                    
     having a cost  savings; they could leave  it vacant for                                                                    
     a period  of time and then  refill.  So they  have many                                                                    
     more options to actually find that cost savings.                                                                           
     Now, with  the high cost  of almost 100,000  or 120,000                                                                    
     [dollars], we  believe it has very  much narrowed those                                                                    
     opportunities,  to the  extent  that  you would  almost                                                                    
     have to  delete the  position ...  in many  instances -                                                                    
     not  all, but  normally  speaking,  your discretion  to                                                                    
     reclassify  a position  downward  may  not offset  your                                                                    
     ability to  actually demonstrate  the cost  savings; it                                                                    
     may not pencil out.                                                                                                        
Number 1247                                                                                                                     
REPRESENTATIVE  CRAWFORD asked  Ms. Millhorn  whether she  sees a                                                               
lot of areas where teachers or public employees can be laid off.                                                                
MS.  MILLHORN said  she  wasn't  certain and  hasn't  heard of  a                                                               
surplus, but has heard there  are highly compensated individuals;                                                               
in those  instances, employers would  like to be relieved  of the                                                               
personal  services  costs and  be  able  to bring  in  lower-cost                                                               
Number 1202                                                                                                                     
VICE CHAIR  GATTO said  he thinks the  RIP is a  great idea.   He                                                               
asked  whether Ms.  Millhorn could  submit a  new fiscal  note by                                                               
[March 5, 2004].                                                                                                                
MS.  MILLHORN  replied that  it  took  Mercer  almost a  week  to                                                               
recalculate the  last one,  she thought it  would take  that long                                                               
again, and she didn't think that target could be met.                                                                           
Number 1133                                                                                                                     
REPRESENTATIVE ROKEBERG  asked about  analyses of the  past RIPs'                                                               
savings and costs.                                                                                                              
MS. MILLHORN  referred to audit  control number  024404-91, dated                                                               
November  1991, prepared  for  the RIP  in 1989.    She said  the                                                               
comments  in  the  audit  report, prepared  by  the  Division  of                                                               
Legislative Audit,  indicate that  while it  appears the  RIP was                                                               
able to  realize the savings,  caveats in  the back of  the audit                                                               
indicate  that  the  cost  savings in  some  instances  were  not                                                               
actually realized.  She explained:                                                                                              
     Certain  things can  happen.   You can  project a  cost                                                                    
     savings and say that  the position would be eliminated,                                                                    
     but three years after,  you could recreate the position                                                                    
     and  the  person could  come  back.   So,  the  initial                                                                    
     realized  savings that  you  were  projecting then  ...                                                                    
     could  go   away.  And  there   were  those   kinds  of                                                                    
     instances, so that's why there  are some caveats in the                                                                    
     very  back  of this  audit  report  that indicate  that                                                                    
     those cost  savings are somewhat elusive.   And because                                                                    
     there's not  a subsequent,  actual case-by-case  to see                                                                    
     later ... if those savings  were realized, ... that was                                                                    
     And we have not, as a  division, gone back to, say, the                                                                    
     RIP legislation for '96-'99 and  ... looked at what the                                                                    
     projected  savings were  by  the different  departments                                                                    
     and  then  said, "OK,  ...  they  are projected  to  be                                                                    
     savings  and they  look like  savings, but  through the                                                                    
     system are  they actually still  savings?"   And that's                                                                    
     ... not known  to us, because we never  did an analysis                                                                    
     thereafter to see what happened.                                                                                           
Number 0963                                                                                                                     
REPRESENTATIVE  ROKEBERG   pointed  out  that  the   fiscal  note                                                               
indicates this could cost the  state $1.1 billion.  He emphasized                                                               
the difference between the projected  costs for the prior program                                                               
and  this  one,  from  $28,000  to  [$120,000].    He  said  [Ms.                                                               
Millhorn's]  testimony  indicates  to  him  that  without  laying                                                               
people  off   or  eliminating  positions,  savings   couldn't  be                                                               
achieved and  thus the objective  of the  bill will be  a failure                                                               
without  eliminating  positions.    He asked  if  that's  a  fair                                                               
MS. MILLHORN replied that on  a case-by-case basis, there are far                                                               
fewer opportunities  for an employer  to do something  other than                                                               
eliminate the position.                                                                                                         
REPRESENTATIVE  ROKEBERG asked  if a  logical conclusion  is that                                                               
the  only way  to  achieve savings  is to  reduce  the number  of                                                               
Tier I teachers  in the state.   He said during the  previous RIP                                                               
the objective was  to replace [personnel] at lower  wages so that                                                               
there wouldn't  be positions eliminated,  but would be  a savings                                                               
in the overall job costs.                                                                                                       
Number 0811                                                                                                                     
VICE CHAIR  GATTO asked, if [teaching]  positions are eliminated,                                                               
whether there is any way to avoid increasing class sizes.                                                                       
REPRESENTATIVE ROKEBERG  also asked what amount  the employee had                                                               
to contribute to retire early.                                                                                                  
MS.  MILLHORN indicated  Representative Rokeberg  was correct  in                                                               
his  analysis  of   her  testimony.    In   response  to  further                                                               
questions, she referred to page 3  and said the teacher would pay                                                               
25.9  percent  of   compensation  for  the  school   year.    The                                                               
employer's cost for PERS is  $100,000, and for TRS it's $120,000.                                                               
She  said in  the  last  RIP there  was  teacher indebtedness  of                                                               
approximately $14,000 to  $18,000, but noted that  this bill also                                                               
assigns [the teacher] an appropriate  share of the administrative                                                               
cost; thus it would be higher.                                                                                                  
REPRESENTATIVE ROKEBERG  surmised a  figure of $20,000  and asked                                                               
whether it's a one-time payment.                                                                                                
MS. MILLHORN  said yes.   It can be  done by making  payments; by                                                               
taking an actuarial  reduction in benefits; or  by a combination,                                                               
using leave to pay for the actual cost.                                                                                         
Number 0648                                                                                                                     
REPRESENTATIVE  ROKEBERG  asked  about prepaying  some  of  these                                                               
obligations if  the bill is  implemented, and whether  that would                                                               
reduce future obligations.                                                                                                      
MS. MILLHORN answered  that this program is designed  to be cost-                                                               
neutral to the system, with  employers paying for their costs and                                                               
employees paying  for their costs.   However, there  are caveats,                                                               
shown in the  fiscal note as prepared by Mercer;  it indicates in                                                               
the analysis  on page  2 that  the RIP was  designed to  be cost-                                                               
neutral under the actuarial assumptions  and methods presently in                                                               
use, and that while these  assumptions are best estimates, future                                                               
changes  such  as  improvements   in  longevity  or  higher-than-                                                               
anticipated medical-cost increases may  affect the ultimate cost-                                                               
neutrality of the program.                                                                                                      
MS. MILLHORN  reiterated her example  about how  mortality tables                                                               
were changed in  2000.  She added that the  system is designed to                                                               
collect all costs at the point  at which a person is appointed to                                                               
retirement, but  when these kinds of  changes happen actuarially,                                                               
they don't allow  for that necessary collection.   In response to                                                               
a  further question,  she said,  "I believe  that they  are using                                                               
those actuarial assumptions  in place right now,  which have been                                                               
adopted,  which  is a  12  percent  increase  in the  next  seven                                                               
REPRESENTATIVE  ROKEBERG asked  how  much it  will  cost to  have                                                               
Mercer produce another fiscal note.                                                                                             
MS. MILLHORN replied  that it is very expensive, $400  an hour at                                                               
a minimum.  She offered to find out more information.                                                                           
Number 0336                                                                                                                     
FATE  PUTMAN, Alaska  State Employees  Association (ASEA),  noted                                                               
that ASEA is the general government  unit of state employees.  He                                                               
testified in support of HB 329  in its present form, but said his                                                               
organization would  like to see  it applicable to  all employees,                                                               
regardless  of tier  status,  although  age-eligibility could  be                                                               
applied.  Indicating his organization  first proposed the idea of                                                               
a  RIP, he  noted  that  government is  downsizing  and said  his                                                               
organization sought a  method to allow the  high-end employees to                                                               
retire and  be replaced by new  hires, rather than using  a "last                                                               
hired, first  fired" approach.   He said [ASEA] thought  the best                                                               
way  to approach  this  would  be to  allow  anyone eligible  for                                                               
retirement  [in  any  tier]  to participate,  which  is  how  the                                                               
legislation  began.   He  said he  understands  about the  fiscal                                                               
constraints and limitations, but  would also support widening the                                                               
universe of employees that this program would apply to.                                                                         
VICE CHAIR  GATTO asked whether  there'd been an  indication that                                                               
Tier II employees might be taken care of in a different bill.                                                                   
MR. PUTMAN said no.                                                                                                             
Number 0173                                                                                                                     
CARL ROSE, Director, Association  of Alaska School Boards (AASB),                                                               
     We support this legislation.  ... Our initial testimony                                                                    
     on  this bill  was that  we wanted  to ensure  that the                                                                    
     fund  was solvent;  we  wanted to  assure  that no  one                                                                    
     would be  adversely affected.   And we agree  with this                                                                    
     having to be shown a savings would be made.                                                                                
     What I've  heard here today  tells me that  the economy                                                                    
     is having  a tremendous  impact on  what will  and will                                                                    
     not pencil  out.  And  I would  share with you,  in the                                                                    
     case  of   your  district   in  Mat-Su,   according  to                                                                    
     testimony in  the last committee, ...  about 50 percent                                                                    
     of  their employees  were  eligible for  this.   And  I                                                                    
     would have  to say  that if  you were  to pencil  out a                                                                    
     large number  of those people taking  advantage of this                                                                    
     RIP, it would probably work for them.                                                                                      
     In  other areas  of the  state, it  may not  pencil out                                                                    
     because of  the competition that's going  to be created                                                                    
     to have to  replace these people.  So  we still support                                                                    
     the  bill as  an option,  as a  management tool,  if it                                                                    
     pencils  out. ...  If solvency  cannot be  attained, if                                                                    
     cost savings cannot be realized,  ... we need to pencil                                                                    
     that  out and  see if  it works  for us.   If  it can't                                                                    
     work, the commissioners  are going to have  to give the                                                                    
     approval,  and   the  overall  plan   has  to   be  ...                                                                    
     actuarially sound.                                                                                                         
MR. ROSE  concluded by saying  he understands that  the economics                                                               
are such that  it's going to be very expensive  for employees and                                                               
more expensive for employers.                                                                                                   
TAPE 04-25, SIDE A                                                                                                            
Number 0001                                                                                                                     
BARBARA HUFF TUCKNESS, Director  for Governmental and Legislative                                                               
Affairs,  Local 959,  Alaska Teamsters,  testified in  support of                                                               
HB 329,   including  the   proposed   changes   that  have   been                                                               
incorporated into  the bill.   She said  she would echo  the last                                                               
two speakers, and views this  bill as a proactive management tool                                                               
in a time  when many public-sector employees,  including those in                                                               
municipalities, could be  impacted.  She asked:  "If  it is cost-                                                               
effective, why not  lay it on the table?"   She requested it move                                                               
from committee.                                                                                                                 
VICE  CHAIR  GATTO announced  that  testimony  was concluded  and                                                               
thanked participants.  He noted that HB 329 would be held over.                                                                 

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