Legislature(2003 - 2004)

04/19/2004 03:25 PM House L&C

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= 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                                                               
CHAIR ANDERSON asked  Ms Millhorn for a condensed  summary of the                                                               
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                                                               
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                                                               
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                                                               
MR.  STAAK said  that  is  correct and  the  language  has to  be                                                               
Number 2325                                                                                                                     
CHAIR ANDERSON announced that HB 331 was heard and held.                                                                        

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