Legislature(2003 - 2004)
04/19/2004 03:25 PM House L&C
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
HB 331-RETIREMENT:TEACHERS/JUDGES/PUB EMPLOYEES [Contains discussion of SB 145] CHAIR ANDERSON announced that the next order of business would be CS FOR HOUSE BILL NO. 331(STA), "An Act relating to federal tax requirements for and other provisions of the teachers' retirement system, the public employees' retirement system, and the judicial retirement system; removing village public safety officers from the public employees' retirement system; eliminating the public employees' retirement system conditional duty to refund contributions under $1,000 to inactive employees; limiting service credit for village public safety officer service in the public employees' retirement system to five years; and providing for an effective date." Number 1720 MELANIE MILLHORN, Director, Health Benefits Section, Division of Retirement and Benefits, Department of Administration, explained that HB 331 is a tax compliance bill, which is an extremely important piece of legislation for the division, but also for all of the members [of various retirement systems]. She mentioned that the bill has been three and a half years in the making. She pointed out that there is a zero fiscal note in the committee members' packets, which would remain a zero fiscal note so long as the bill passes out of committee in the form it is currently written. The bill is required to place into law those changes into the statutes in the public employees' retirement system (PERS), teachers' retirement system (TRS), and the judicial retirement system that are required as a result of the review by the Internal Revenue Service (IRS), she explained. Changes must be implemented so the plans remain qualified under the Internal Revenue Code (IRC), she added. Number 1788 MS. MILLHORN reviewed the events of the past three and a half years which impacted this legislation. She explained that the changes introduced with this CS add the changes requested by the IRS and repeal prior legislation (SB 145, 2001 Legislative Session) which would have allowed village public safety officers (VPSO) employed under village public safety officer program to become members of the public employees' retirement system. The repeal of the inclusion of VPSOs in PERS results directly from a specific negative Private Letter Ruling that does not allow for the inclusion of VPSOs in PERS as specified in SB 145, she noted. CHAIR ANDERSON asked Ms Millhorn for a condensed summary of the bill. MS. MILLHORN said, "What we need to be able to do, we've received a review by the IRS on our qualified plan status and in order to maintain our qualified plan status, the IRS and the division have come to an agreement that certain language must be inserted in statute to remain qualified." CHAIR ANDERSON asked if the language is not inserted in statute, then what will happen to the PERS, TRS and other affected retirement plans. MS. MILLHORN replied that they will become non-qualified and there would be grave tax consequences. CHAIR ANDERSON termed the bill a "housekeeping mechanism." Number 2035 REPRESENTATIVE GUTTENBERG asked which version of the bill the committee is working from. CHAIR ANDERSON replied Version H. REPRESENTATIVE GUTTENBERG asked about the considerable title change between Version A and Version H and other significant changes. Number 2052 ANSELM STAAK, Chief Financial Officer, Division of Retirement and Benefits, Department of Administration, noting that he is also a certified public accountant and an attorney, explained the changes in HB 331. He pointed out that in the A version of the bill last session it was too late to make all the changes requested by the IRS. During the interim the agreed-to language was added and twelve different versions were drafted until the H version was finally settle upon, he said. REPRESENTATIVE GUTTENBERG asked if the changes reflect the negotiations with the IRS and not committee work. MR. STAAK replied yes. REPRESENTATIVE ROKEBERG asked why the VPSO was removed. Number 2118 MR. STAAK explained that the IRS tried very hard to include the VPSO, filing over 1,000 pages of documents to try to include them. "What it comes down to is this; the regional native corporation would have to declare that a portion of itself is a government, and not a private, non-profit organization. Only government employees can be in governmental plans," he reported. "These are employees of a private, non-profit, 501C3 corporation, like any other non-profit, and they were simply not willing to go that far. Second, the way the program itself is constructed, most of the actual supervision comes at the village level. But the most important issue is, is that if you declare this organization a government, you can't declare it a private non-profit," he noted. REPRESENTATIVE ROKEBERG asked Mr. Staak to clarify what the dire consequences mentioned by Ms. Millhorn are. Number 2216 MR. STAAK said that if this bill is not passed, "We would have to self-inform the IRS that we are out of compliance, and what we get for being in compliance on retirement plans is that both for PERS, and TRS, and the judicial retirement system, the SBS contributions can be made pre-tax." He explained that not being able to pay pre-tax would increase the costs to the retirement system to well over $700 million per year and it would also put into question some of the past retirement accounts. REPRESENTATIVE GATTO asked if future payments would be post-tax and he wondered what would happen to all of the payments that have already been made and if they would now have to pay more tax. MR. STAAK said that is entirely possible because it is a straightforward matter of compliance with the tax law and all contributions made to date that have not been paid out yet could become taxable. REPRESENTATIVE CRAWFORD asked for clarification on the status of the VPSOs. MS. MILLHORN replied that the VPSOs were never actually included for PERS purposes, so nothing will happen to them. REPRESENTATIVE CRAWFORD summed it up by saying that the attempt to include VPSOs in a retirement system didn't work in this route. MR. STAAK said that is correct and the language has to be removed. Number 2325 CHAIR ANDERSON announced that HB 331 was heard and held.