Legislature(2003 - 2004)

02/17/2004 08:05 AM House STA

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
HB 329-RETIREMENT INCENTIVE PROGRAM                                                                                           
CHAIR WEYHRAUCH  announced that  the next  order of  business was                                                               
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."                                                                                           
CHAIR WEYHRAUCH reminded the committee  that before the committee                                                               
is  CSHB 329,  Version 23-LS1109\H,  Craver, 1/28/04,  along with                                                               
two fiscal notes.                                                                                                               
Number 1690                                                                                                                     
MELANIE MILLHORN, Director, Health  Benefits Section, Division of                                                               
Retirement &  Benefits, Department of Administration,  noted that                                                               
the [division]  has provided a  fiscal note [dated  2/14/04] that                                                               
reflects the  cost to administer  HB 329.   The fiscal  note made                                                               
calculations  based  on  the   personnel  [costs]  and  resources                                                               
dedicated for the retirement  incentive program (RIP) legislation                                                               
from 1996-1999 as well as the existing staff and resources.                                                                     
The committee took an at-ease from 8:28 a.m. to 8:30 a.m.                                                                       
MS.  MILLHORN  recalled  that  the  committee  requested  a  cost                                                               
analysis  associated  with the  cost  to  the employers  and  she                                                               
deferred to Mr. Reynolds for that.                                                                                              
Number 1954                                                                                                                     
BOB   REYNOLDS,  Mercer   Human  Resource   Consulting  (Mercer),                                                               
informed the  committee that Mercer  works with the  division and                                                               
the  respective  boards  for  the  Public  Employees'  Retirement                                                               
System (PERS)  and the  Teachers' Retirement  System (TRS).   Mr.                                                               
Reynolds  turned  to  the  fiscal note  [dated  2/13/04  and  the                                                               
attached letter  from Mercer].   He  explained that  [Mercer] has                                                               
estimated the value of the  benefits that would be provided under                                                               
HB 329 versus  the value of the benefits the  members expected to                                                               
be eligible  would receive in the  absence of HB 329.   For PERS,                                                               
the total employer  cost was determined to be  $786.3 million and                                                               
for TRS it was $431.6 million.                                                                                                  
MR.  REYNOLDS, in  response to  Representative Seaton,  clarified                                                               
that the figures represent the  incremental [cost] only, the cost                                                               
over  and above  the cost  of the  benefits the  individuals have                                                               
earned  in the  absence of  HB 329.   This  represents additional                                                               
cost.   In  response to  Representative Berkowitz,  Mr. Reynolds'                                                               
confirmed that his  letter assumes all eligible  people will take                                                               
advantage  of the  RIP.   Therefore,  these  figures provide  the                                                               
maximum cost.                                                                                                                   
REPRESENTATIVE  BERKOWITZ  inquired  as   to  the  percentage  of                                                               
eligible people who have historically taken advantage of RIPs.                                                                  
MR. REYNOLDS deferred to Ms. Millhorn or Ms. Lea.                                                                               
Number 2140                                                                                                                     
KATHY  LEA,  Retirement   Supervisor,  Health  Benefits  Section,                                                               
Division of Retirement &  Benefits, Department of Administration,                                                               
informed  the committee  that  during the  last  RIP 10,500  PERS                                                               
members  were eligible  of which  1,359  actually retired,  which                                                               
represents  approximately  13  percent.   There  were  3,200  TRS                                                               
employees eligible  to RIP of  which 850 actually  retired, which                                                               
represents approximately 26 percent.                                                                                            
REPRESENTATIVE BERKOWITZ  surmised then that a  "really great RIP                                                               
program" might  result in 20  percent of those  eligible actually                                                               
MS. LEA agreed.                                                                                                                 
MR.  REYNOLDS, in  response to  Representative Berkowitz,  agreed                                                               
that  if  the  percentage  retiring  was  20  percent,  then  the                                                               
[incremental cost figures] would decrease considerably.                                                                         
REPRESENTATIVE  BERKOWITZ  turned  to  page 2  of  Mr.  Reynolds'                                                               
letter in which  the first paragraph refers to  the present value                                                               
of  the benefits.   He  inquired  as to  how long  a period  that                                                               
MR.  REYNOLDS  explained that  is  the  value of  the  additional                                                               
benefits in today's  dollar.  The methodology the  systems use to                                                               
fund for that has been to pay for cost increases over 25 years.                                                                 
REPRESENTATIVE  BERKOWITZ surmised  then that  the present  value                                                               
means extending  the value of  services that might take  place 25                                                               
years from now.  Is that included in the calculation, he asked.                                                                 
Number 2235                                                                                                                     
MR.  REYNOLDS  clarified that  the  figures  shown represent  the                                                               
total cost  increase that  the systems  would incur.   Therefore,                                                               
the  figures represent  the difference  between the  benefits the                                                               
eligible members receive under the  RIP, assuming they obtain the                                                               
extra service and retire within  the window, and the benefits the                                                               
eligible  members would  receive  if they  stayed  in the  system                                                               
until  their assumed  retirement age  under [Mercer's]  valuation                                                               
assumptions  and  then  retire  without the  extra  RIP  service.                                                               
"Actuarially, the  method that  the systems use  to ...  fund for                                                               
the program benefits is to attempt  to fund for benefits over the                                                               
lifetime of the  membership, which generally is  about 25 years,"                                                               
he explained.                                                                                                                   
REPRESENTATIVE  BERKOWITZ  related  that  his  quick  calculation                                                               
results in about $100,000 per employee.                                                                                         
MR. REYNOLDS agreed  that for PERS the cost  was roughly $100,000                                                               
while for TRS it was a  bit higher at around $120,000 per member.                                                               
Mr. Reynolds, in response  to Representative Berkowitz, explained                                                               
that the  $100,000 benefit  for an individual  would be  paid for                                                               
over  a 25-year  period.   However, the  value of  the additional                                                               
benefits is roughly $100,000 per member.                                                                                        
REPRESENTATIVE BERKOWITZ  surmised that would result  in a [cost]                                                               
of $4,000 per year per person.                                                                                                  
MR. REYNOLDS agreed.                                                                                                            
REPRESENTATIVE BERKOWITZ opined  that if more than  $4,000 a year                                                               
per  person is  saved, then  this would  be a  good deal  for the                                                               
state.  Representative Berkowitz inquired  as to what is included                                                               
in Mercer's present value calculation.                                                                                          
Number 2365                                                                                                                     
MR. REYNOLDS  informed the committee  that he looks at  the value                                                               
of  the benefits  that eligible  members would  receive under  HB
329.   Therefore, it was  assumed that [the eligible  members who                                                               
RIP] would receive the extra service  outlined in HB 329 and that                                                               
they  would retire  within  the  RIP period.    At  the point  of                                                               
retirement,  the  individual  would   receive  both  the  pension                                                               
benefit  and whatever  medical benefits  for which  he or  she is                                                               
eligible.   For  example,  if  the window  were  to occur  today,                                                               
[those who  RIP] would receive  a pension benefit based  on three                                                               
additional years of service as well  as medical benefits.  In the                                                               
absence of  the investment program, [those  who retired] wouldn't                                                               
receive the  extra service and  would remain in  employment until                                                               
their  assumed retirement  age.   Furthermore, those  individuals                                                               
wouldn't  collect  medical  or   pension  benefits  until  [their                                                               
assumed  retirement  age].   As  mentioned  earlier, the  average                                                               
incremental  cost  per member  is  roughly  $100,000 or  $120,000                                                               
depending upon the system.                                                                                                      
MR. REYNOLDS said:                                                                                                              
     I think  ... it would  be unrealistic given the  age of                                                                    
     the membership  and who's eligible to  expect that they                                                                    
     would  stick around  for 25  years.   So, although  the                                                                    
     actuarial  methodology for  the  system does  typically                                                                    
     ... pay  for benefits over  a 25-year period,  for this                                                                    
     membership the  future working lifetime is  expected to                                                                    
     be much less  because they are generally  already at or                                                                    
     fairly close to  retirement age.  So, I  think that you                                                                    
     would  divide  these figures  by  a  much shorter  time                                                                    
     period in  order to  get the  annual cost  savings that                                                                    
     you would need to have.                                                                                                    
Number 2472                                                                                                                     
REPRESENTATIVE  BERKOWITZ  specified  that   his  point  is  that                                                               
although these numbers  look huge, when they are  broken down and                                                               
analyzed they aren't that large.                                                                                                
MR. REYNOLDS reminded  the committee that the  $120,000 isn't the                                                               
funding target in 25 years, rather  it's the amount of money that                                                               
would need  to be set  aside now.  He  likened the $120,000  to a                                                               
principal on a mortgage.                                                                                                        
Number 2547                                                                                                                     
REPRESENTATIVE SEATON  surmised that  the concern is  with regard                                                               
to  the  cumulative   debt  to  the  retirement   system  or  the                                                               
cumulative  liability the  retirement system  would acquire  from                                                               
this program.   He  related his understanding  that the  PERS and                                                               
TRS percentages  have increased because  there is  an accumulated                                                               
debt  amount or  payout amount.   "These  figures ...  or the  20                                                               
percent of  those would ...  have to increase other  retirees for                                                               
the  state's  contribution  for other  retirees  in  the  current                                                               
system to pay this accumulated  indebtedness.  Is that right," he                                                               
MR. REYNOLDS  replied yes.   For example, the  unfunded liability                                                               
in PERS,  as of the  end of fiscal  year 2002, was  $2.6 billion.                                                               
If the aforementioned  was increased by the full RIP  cost of $.8                                                               
billion, then there would be  an approximate increase in the rate                                                               
by 3-4  percent of the  entire system  payroll, not just  for the                                                               
affected members.  In further  response to Representative Seaton,                                                               
Mr. Reynolds expressed the need  to be cautious when working with                                                               
ratios  because  the members  who  would  take advantage  of  the                                                               
retirement program  would be those  whose average cost  is higher                                                               
than  that  average.    Therefore, the  members  who  would  take                                                               
advantage  [of the  retirement program]  would benefit  the most.                                                               
Mr.  Reynolds  related  his  assumption that  if  20  percent  of                                                               
membership took  the RIP,  then the  cost would  be more  than 20                                                               
percent  of the  cost  shown.   He explained  that  this is  what                                                               
[Mercer] refers to as anti-selection.                                                                                           
Number 2752                                                                                                                     
REPRESENTATIVE GRUENBERG turned to the  second page of the fiscal                                                               
note dated 2/14/04, which estimates  that two permanent employees                                                               
and six  long-term non-permanent  employees will  be needed.   He                                                               
asked  if the  assumption  is that  the  two permanent  employees                                                               
would fully participate.                                                                                                        
MS.  MILLHORN  replied  no  and recalled  that  was  reviewed  in                                                               
relation  to the  staffing levels  required during  the 1996-1999                                                               
RIP and was compared to the  existing staffing levels in order to                                                               
determine the staffing  level necessary.  In  further response to                                                               
Representative   Gruenberg,   Ms.   Millhorn  agreed   with   his                                                               
understanding that RIP  programs [similar to that  proposed in HB
329] are supposed to save  the state money because some positions                                                               
would remain unfilled or become filled by lower paid employees.                                                                 
REPRESENTATIVE  GRUENBERG commented  that  he didn't  see any  of                                                               
that reflected in the fiscal note.                                                                                              
MS.  MILLHORN explained  that the  fiscal note  prepared for  the                                                               
division  doesn't look  at the  savings  rather it  looks at  the                                                               
resources  necessary to  provide the  adequate staffing  level to                                                               
allow the parties to retire.                                                                                                    
REPRESENTATIVE GRUENBERG said that he  didn't see any fiscal note                                                               
showing  the  other  side  of  the  equation,  and  therefore  he                                                               
requested an explanation.                                                                                                       
Number 2855                                                                                                                     
KEVIN   JARDELL,   Assistant    Commissioner,   Office   of   the                                                               
Commissioner, Department  of Administration, commented  that it's                                                               
difficult to  show the savings.   He related his belief  that the                                                               
legislation is set up  such that it has to be  a neutral cost and                                                               
on  top of  that there  would be  some savings.   Therefore,  the                                                               
actuary has  reviewed the costs,  which will  have to be  done in                                                               
any instance  in which a  RIP is  presented to the  Department of                                                               
Administration.   The  aforementioned  needs to  work  out to  be                                                               
neutral  and  although  there  could  potentially  be  additional                                                               
savings,  it  would have  to  work  out  to  at least  be  [cost]                                                               
neutral.  "The bill assumes it'll be  a zero cost or you can't do                                                               
it," he clarified.   Therefore, Mr. Jardell opined  that the more                                                               
important analysis  is to  review the cost  per employee  and how                                                               
likely it is  that enough savings will be achieved  to offset the                                                               
cost to  reach the neutral  requirements of the legislation.   In                                                               
further  response   to  Representative  Gruenberg,   Mr.  Jardell                                                               
related  his  understanding  that   the  legislation  requires  a                                                               
neutral cost savings before [a RIP] can be authorized.                                                                          
REPRESENTATIVE  SEATON asked  if  the term  "neutral cost"  means                                                               
that the state  would save money in  current administrative terms                                                               
while shifting the expense to the retirement system.                                                                            
TAPE 04-16, SIDE B                                                                                                            
MR. JARDELL  deferred to  the representative  from the  Office of                                                               
Management & Budget.                                                                                                            
Number 2956                                                                                                                     
JACK KREINHEDER,  Chief Analyst,  Office of the  Director, Office                                                               
of  Management  &  Budget,  Office of  the  Governor,  turned  to                                                               
Representative Seaton's  question regarding the liability  to the                                                               
retirement system.   He explained  that the  legislation requires                                                               
that the liability  to the retirement system be  offset before an                                                               
employee  is  allowed  to  participate.    In  other  words,  the                                                               
employee  is required  to contribute  three years  of his  or her                                                               
contributions,  which  would  be  roughly 18-20  percent  of  the                                                               
employee's  salary.   The employer  is  required to  pick up  the                                                               
difference.  For example, if the  cost per PERS employee is about                                                               
$100,000  for additional  retirement benefits  specified in  this                                                               
legislation,  the  employee  would   contribute  three  years  of                                                               
contributions  and the  employer  would  contribute the  balance.                                                               
The  intent is  to be  cost  neutral for  the retirement  system.                                                               
Therefore, using  Mercer's $432  million and assuming  that every                                                               
[PERS] employee participated, the  state and municipalities would                                                               
end up  writing checks to PERS  for that $432 million.   Although                                                               
the  legislation  intends  to  be  cost  neutral,  Mr.  Reynolds'                                                               
2/13/04 letter  specifies the following:   "future  changes (such                                                               
as improvements  in longevity or higher  than anticipated medical                                                               
cost increases)  may affect the  ultimate cost neutrality  of the                                                               
Number 2823                                                                                                                     
REPRESENTATIVE  SEATON   highlighted  that  there  has   been  an                                                               
increase in PERS  and TRS of 4  and 5 percent.   According to the                                                               
actuarial information  presented [to the House  Special Committee                                                               
on] Education [the PERS and  TRS percentages] to fund the balance                                                               
should be at 34 and 35  percent of employee salaries.  Therefore,                                                               
there  is the  probability  that  it will  increase  from the  16                                                               
percent contribution rate  this year.  He  informed the committee                                                               
that  the  7.5 percent  for  health  care  was increased  by  3.5                                                               
percent in 2002 and thus it  now totals 12 percent.  Furthermore,                                                               
the federal  government has  adopted a  new longevity  table that                                                               
extends longevity  by another  two or  so years.   Representative                                                               
Seaton opined  that without  including the  aforementioned, there                                                               
will be a deficit to the program.                                                                                               
MR.  KREINHEDER  said  that Representative  Seaton's  concern  is                                                               
valid.  Any  unanticipated increases in costs  later would result                                                               
in the RIP not being fully  cost neutral.  All the costs expected                                                               
today are included in the calculation.                                                                                          
REPRESENTATIVE  BERKOWITZ  suggested  obtaining  input  from  the                                                               
Alaska Municipal League (AML) and  those municipalities that will                                                               
be impacted.                                                                                                                    
Number 2704                                                                                                                     
REPRESENTATIVE SEATON returned to  the fact that this legislation                                                               
is revenue neutral  and inquired as to why Mercer  would say that                                                               
there would be  a 3-4 percent increase if  everyone eligible RIPs                                                               
or an .6-.8 percent increase  in everyone's rate of contribution.                                                               
He related his understanding that  this $100,000 to $120,000 that                                                               
would have to be  made up by the employee and  his or her present                                                               
dollar input shouldn't impact the rates  at all.  However, the 3-                                                               
4  percent  rate  increase  seems  to  be  significantly  out  of                                                               
MR.  KREINHEDER  remarked that  he  believes  there may  be  some                                                               
confusion  on that  point.   He said  that he  believes that  Mr.                                                               
Reynolds' response was  that the dollar amounts  reflected in his                                                               
letter  for the  total potential  costs  to the  system if  every                                                               
eligible  employee  participated would  be  equivalent  to a  3-4                                                               
percent rate  increase.  However,  the aforementioned  would only                                                               
occur  if  the  required  contributions weren't  made.    If  the                                                               
required  contributions  were  made,  the only  risk  of  a  rate                                                               
increase would be  from these unanticipated future  costs such as                                                               
higher medical or longevity costs.                                                                                              
MR. REYNOLDS  agreed.  However,  Mr. Reynolds clarified  that his                                                               
figures   have   already   taken  into   account   the   employee                                                               
indebtedness.    The aforementioned  is  specified  in the  first                                                               
sentence of page  2 of Mercer's letter dated  2/13/04, which says                                                               
"The total  employer cost under proposed  HB 329 is equal  to the                                                               
increase in  the total  present value  of benefits,  minus member                                                               
indebtedness to be paid to the Systems."                                                                                        
Number 2568                                                                                                                     
MR.  KREINHEDER  turned   to  Representative  Berkowitz'  earlier                                                               
question regarding participation rates of  prior [RIPs].  For the                                                               
State of Alaska  [as an employer] the participation  rates were a                                                               
bit   higher  while   Ms.  Lea's   figures   reflect  that   some                                                               
municipalities and school districts  didn't opt to participate in                                                               
the prior program.  For  example, the statewide totals, including                                                               
state agencies,  the university,  the legislature, and  the court                                                               
system, for  the prior  [RIP] amounted  to about  2,600 employees                                                               
who were  approved to  participate of  which about  1,250 applied                                                               
and  retired under  the program.    Therefore, it  amounted to  a                                                               
little less  than 50 percent  for employees who were  offered the                                                               
Number 2509                                                                                                                     
CHAIR  WEYHRAUCH asked  if there  is any  way that  HB 329  could                                                               
impact the  benefit received by  those who are  currently retired                                                               
PERS and TRS members.                                                                                                           
MR. KREINHEDER deferred to Mr. Jardell.                                                                                         
MR. JARDELL  responded, "The  simple answer is  no."   In further                                                               
response to  Chair Weyhrauch, Mr.  Jardell said,  "The definitive                                                               
answer is still no."                                                                                                            
CHAIR WEYHRAUCH related his understanding  that the policy behind                                                               
this  legislation is  to provide  a cost  neutral manner  for the                                                               
state to  move out  higher paid employees  with lower  paid newer                                                               
MR. JARDELL deferred to the sponsor.                                                                                            
CHAIR  WEYHRAUCH  asked if  previous  RIP  legislation has  [been                                                               
introduced] under the same policy basis.                                                                                        
MR. JARDELL deferred to Mr. Kreinheder.                                                                                         
Number 2400                                                                                                                     
MR. KREINHEDER explained that prior  RIPs were [intended] to help                                                               
avoid layoffs, absorb some of  the cost increases the departments                                                               
were  facing.   In  the most  recent  RIP there  was  more of  an                                                               
emphasis  on  trying  to  delete  positions  or  reclassify  them                                                               
downward to  streamline operations.   Mr.  Kreinheder highlighted                                                               
the importance of noting that  per Mercer's figures the number of                                                               
employees  who would  show a  savings  and would  be eligible  to                                                               
participate [in a  RIP] would likely be much less.   He explained                                                               
that it would be much more  difficult to "pencil out" the savings                                                               
under  a scenario  in which  a higher  paid employee  is replaced                                                               
with a  lower paid employee.   If  a position is  eliminated, the                                                               
savings  would be  calculated  over three  years  and thus  [that                                                               
situation] could show savings.                                                                                                  
REPRESENTATIVE HOLM recalled  that under the last  RIP roughly 13                                                               
percent  retired.   Given that  it costs  more to  buy the  three                                                               
years, he  inquired as  to the percentage  who will  retire under                                                               
this proposal.                                                                                                                  
MR.   KREINHEDER  said   that   he  wouldn't   hazard  a   guess.                                                               
Furthermore,  he  said  he  wasn't sure  he  could  determine  an                                                               
answer.   However, he did  say that  the number of  employees who                                                               
would  qualify  is   likely  to  be  substantially   less.    Mr.                                                               
Kreinheder  pointed   out  that   the  employee  cost   that  the                                                               
department  or  municipality has  to  contribute  varies by  each                                                               
individual employee and thus it's difficult to predict.                                                                         
REPRESENTATIVE HOLM clarified  that he is interested  in what the                                                               
employee has to  contribute because if it's  higher, he suspected                                                               
that people won't retire as quickly.                                                                                            
MR.  KREINHEDER  related  his  understanding  that  the  employee                                                               
contribution   wouldn't  change   from  the   prior  RIP.     "My                                                               
understanding  is  that  constitutionally  we cannot  --  it's  a                                                               
contract  with  the  employee so  the  state  can't  unilaterally                                                               
increase the employee contribution rate,"  he said.  For example,                                                               
the employee rate  for state employees is 6-7  percent, which has                                                               
changed from  the prior  RIP.   Therefore, the  employee wouldn't                                                               
pay more and  thus it wouldn't be less attractive.   However, the                                                               
problem is  that the employer cost  is nearly four times  what it                                                               
was in  the last RIP  and thus it's  difficult to show  a savings                                                               
from replacing higher paid employees with lower paid employees.                                                                 
MS. MILLHORN agreed that the  employee contribution rate wouldn't                                                               
be changed  because it's set by  statute.  For PERS  the employee                                                               
contribution rate is 6.75 percent, she noted.                                                                                   
Number 2116                                                                                                                     
REPRESENTATIVE SEATON pointed out  that this legislation offers a                                                               
new contract  that is  mandatory.  Therefore,  he inquired  as to                                                               
whether  anything prevents  the legislature  from increasing  the                                                               
PERS  and  TRS  contribution  rate   if  someone  wants  to  take                                                               
advantage of the RIP.                                                                                                           
MR.  JARDELL related  his  belief that  under HB  329  if one  is                                                               
retiring, then that  individual's employer contributions wouldn't                                                               
be there.  The legislation  specifies what percentage an employee                                                               
would have to put in  before retiring.  Therefore, the percentage                                                               
that was mentioned as the employee's  part of buying into the RIP                                                               
could  be  changed.    However,  once  the  employee  enters  the                                                               
retirement program  the [individual] doesn't have  an opportunity                                                               
to contribute.                                                                                                                  
REPRESENTATIVE SEATON  remarked that  it seems like  this program                                                               
has  assumed  that  the  employee rate  was  fixed,  although  it                                                               
doesn't necessarily have  to be a fixed rate.   He then turned to                                                               
the fiscal  note [dated 2/14/04]  which specifies on page  2 that                                                               
the  legislation also  allows for  separation  bonuses for  state                                                               
employees.   He asked if there  are any limits on  the separation                                                               
Number 1985                                                                                                                     
HEATH  HILYARD, Staff  to  Representative  Lesil McGuire,  Alaska                                                               
State  Legislature, spoke  on behalf  of the  sponsor of  HB 329,                                                               
Representative McGuire.  He explained  that the CSHB 329, Version                                                               
23-LS1109\H,  Craver, 1/28/04,  no longer  has any  references to                                                               
the separation incentive program.                                                                                               
MR.  JARDELL acknowledged  that  although 100  percent of  [those                                                               
eligible] won't  participate, those  inquiring about  the program                                                               
will amount to  close to [100 percent] or greater.   Therefore, a                                                               
tremendous amount  of resources  go into a  program like  this in                                                               
order to explain it and provide information to people.                                                                          
CHAIR  WEYHRAUCH  related  his understanding  that  this  program                                                               
wouldn't impact a person who is already retired.                                                                                
MR. JARDELL confirmed Chair  Weyhrauch's understanding, but noted                                                               
that such an explanation isn't always enough.                                                                                   
MS. MILLHORN agreed with Chair Weyhrauch's understanding.                                                                       
Number 1865                                                                                                                     
REPRESENTATIVE   SEATON   related   his   assumption   that   the                                                               
administration will redo the fiscal note.                                                                                       
MR. JARDELL clarified that a new  fiscal note will be prepared if                                                               
this  committee adopts  and reports  from  committee a  committee                                                               
substitute (CS).                                                                                                                
REPRESENTATIVE SEATON  turned to  the fiscal note  dated 2/14/04,                                                               
which  says, "Reemployment  into  the  PERS, TRS  or  JRS or  the                                                               
optional  university retirement  program after  appointment to  a                                                               
RIP retirement will  require members to repay 110  percent of the                                                               
amount they received  as a result of RIP  participation plus they                                                               
will forfeit  the RIP credit  when they retire again."   However,                                                               
he recalled that last year  legislation passed allowing people to                                                               
return   to   teach  under   TRS   without   repaying  the   PERS                                                               
MS.  LEA  explained  that  the  legislation  allowing  a  retired                                                               
employee to re-employ  didn't apply to RIP  employees, which were                                                               
expressly excluded from that legislation.                                                                                       
MR.  HILYARD pointed  out that  Version H  includes two  specific                                                               
provisions  regarding  re-employment  as it  pertains  to  school                                                               
Number 1755                                                                                                                     
REPRESENTATIVE GRUENBERG  turned to  Section 9  of Version  H and                                                               
related  that  he  reads  that   provision  to  apply  to  school                                                               
districts as well  as to local governments.   He highlighted that                                                               
page 10, line 1, refers to "an employer other than the state".                                                                  
MR.  HILYARD agreed.    However, he  clarified  that his  earlier                                                               
point regarding re-employment  was referring to the  text on page                                                               
11, lines 3-7.                                                                                                                  
REPRESENTATIVE  GRUENBERG  inquired  as  to  the  liability  that                                                               
Section 9 subjects  to municipalities because he  foresaw that as                                                               
being  a financial  problem.   Representative Gruenberg  surmised                                                               
that the key  triggering mechanism is found on page  2, lines 19-                                                               
21, and  it doesn't seem to  require any review of  the impact of                                                               
an  individual  retirement to  the  retirement  system.   Is  the                                                               
aforementioned a  potential danger  to the retirement  system, he                                                               
MR.  HILYARD remarked  that if  language regarding  the long-term                                                               
impacts could  be penned,  then [the sponsor]  would be  happy to                                                               
include such language.   Certainly, the intent isn't  to create a                                                               
problematic  situation or  further  exacerbate existing  problems                                                               
with  the  retirement  systems.    [The  intent]  is  to  provide                                                               
agencies, municipalities,  and school  districts with  a flexible                                                               
and optional tool for potential personnel reductions.                                                                           
REPRESENTATIVE GRUENBERG  suggested that perhaps  the legislation                                                               
should include a hold harmless provision for the state.                                                                         
MR.  HILYARD  confirmed that  he  didn't  have any  objection  to                                                               
including [a hold harmless provision for the state].                                                                            
Number 1459                                                                                                                     
REPRESENTATIVE  GRUENBERG  surmised  that only  one  person,  the                                                               
administrative director, in the court  system would be allowed to                                                               
participate  in this  proposed RIP  per the  language on  page 8,                                                               
Section 8(a).                                                                                                                   
MR. HILYARD said that he didn't know.                                                                                           
MS. LEA agreed with  Representative Gruenberg's understanding and                                                               
pointed out that other court  system employees who are members of                                                               
PERS would participate  as state employees.   In further response                                                               
to  Representative Gruenberg,  Ms.  Lea confirmed  that no  other                                                               
employees in the judicial retirement  system would be able to RIP                                                               
under this legislation.                                                                                                         
REPRESENTATIVE GRUENBERG  inquired as  to why no  other employees                                                               
in  the judicial  retirement system  would be  able to  RIP under                                                               
this legislation.                                                                                                               
MR. HILYARD  said that  the omission [of  other employees  in the                                                               
judicial retirement system] was unintentional.                                                                                  
Number 1201                                                                                                                     
MARV  ST. CLAIR,  Central  Emergency  Services, Soldotna  Service                                                               
Area, encouraged  moving HB 329  along.   He noted that  he would                                                               
qualify for  this proposed RIP.   Mr. St. Clair  turned attention                                                               
to page  2, lines 19-21,  and recalled that  the last time  a RIP                                                               
program was offered it had to  be approved by the Kenai Peninsula                                                               
Borough  Assembly in  order for  the Kenai  Peninsula Borough  to                                                               
participate.   The individual  service areas  had to  approve the                                                               
service area participation.  [In  order to participate] there had                                                               
to  be  a  cost  savings  to allow  a  senior  employee  to  RIP.                                                               
However,  he  understood  the  committee to  be  looking  at  the                                                               
overall impact to PERS.   Mr. St. Clair related his understanding                                                               
that  each individual  department commissioner,  et cetera  would                                                               
have a right to  participate or not.  He said  he didn't know how                                                               
the aforementioned could  be figured into the  overall costs, but                                                               
he suggested it be reviewed.                                                                                                    
REPRESENTATIVE GRUENBERG  related his understanding that  Mr. St.                                                               
Clair  wanted the  committee to  review accrual  costs, which  he                                                               
gathered would be in addition to personal services costs.                                                                       
MR. ST.  CLAIR replied  no, reiterating  that each  department or                                                               
department  commissioner, or  finance  directors  at the  borough                                                               
level would have  to review the financial costs.   "Obviously, if                                                               
you  have a  department that  has few  employees that  are highly                                                               
trained, that would  be very hard to replace, I  would think that                                                               
department head, according  to what you have  drafted here, would                                                               
have a right to not participate in the program.  Am I correct?"                                                                 
Number 0872                                                                                                                     
REPRESENTATIVE GRUENBERG  directed attention to page  2, line 19,                                                               
of Version  H, which  says "savings to  the employer  in personal                                                               
services  costs".    He  asked  if Mr.  St.  Clair  believes  the                                                               
language "personal services  costs" is too narrow  and thus other                                                               
possible types of costs should be included.                                                                                     
MR. ST.  CLAIR expressed the need  to review what it  may cost in                                                               
the future if a fair amount  of the employees who participated in                                                               
the RIP didn't exist after several  years and didn't reach the 25                                                               
years of  participation in the  program.   Mr. St. Clair  said he                                                               
liked the  language [on page  2, line 19]  and felt it  should be                                                               
Number 0693                                                                                                                     
CARL  ROSE,  Executive  Director, Association  of  Alaska  School                                                               
Boards (AASB), announced AASBs support of  HB 329.  He noted that                                                               
AASB  is  concerned  with  regard to  costs,  solvency,  and  the                                                               
actuarial soundness [of  the proposal in this  legislation].  Mr.                                                               
Rose  informed the  committee that  he was  first elected  to the                                                               
school board  in 1974 when the  world looked very different.   In                                                               
no way  could the school  board then project what  these programs                                                               
would look like 30 years later.   Therefore, the same question is                                                               
being asked  today and that  is:   "What will be  the anticipated                                                               
costs of  a future  that we  don't even see  yet?"   However, Mr.                                                               
Rose viewed this  as an economic tool that can  be used in school                                                               
districts to manage the decline  of the public schools, which has                                                               
been the case for the last decade and a half.  Mr. Rose said:                                                                   
     So, our inability  to keep pace with  an adequate level                                                                    
     of funding,  the increased  state and  federal mandates                                                                    
     that we  are under  that are redirecting  the resources                                                                    
     of  the school  districts,  decreased  capacity in  our                                                                    
     schools  meet  the  expectations  that  are  being  set                                                                    
     forth, the  inability to  attract and  retain qualified                                                                    
     teachers and administrators, all  of these things we're                                                                    
     faced with and we're looking  anywhere we can to create                                                                    
     savings.   And  if this  bill  can provide  a level  of                                                                    
     savings we will eat the seed corn ... if we have to.                                                                       
MR. ROSE urged the committee to  review the issue of solvency and                                                               
actuarial  soundness while  providing some  level of  latitude at                                                               
the local levels.   "Ideally, adequacy in funding is  what we are                                                               
looking for; it's  what we need," he specified.   He concluded by                                                               
noting AASB's support for this legislation.                                                                                     
CHAIR WEYHRAUCH  related his understanding that  this legislation                                                               
would create  a financial  savings that  would allow  higher paid                                                               
teachers to  retire and thus newer  teachers could be hired  at a                                                               
lower cost.                                                                                                                     
MR. ROSE agreed.                                                                                                                
CHAIR WEYHRAUCH asked if staff  at school districts would also be                                                               
able to take an early retirement.                                                                                               
MR.  ROSE related  his  view that  this  legislation is  optional                                                               
legislation that  one can take advantage  of or not.   He pointed                                                               
out  that  the brain  drain  is  tremendous,  that is  there  are                                                               
employees  that  one wants  to  retain  while there  is  economic                                                               
pressure to  address.  Mr.  Rose pointed  out that once  the PERS                                                               
and TRS  crisis is reviewed in  terms of the impact  on increased                                                               
rates  that employers  will  face, it  will be  a  factor in  the                                                               
school districts' ability to afford this.                                                                                       
Number 0374                                                                                                                     
CHAIR WEYHRAUCH  asked if this  legislation would  exacerbate the                                                               
brain drain.                                                                                                                    
MS. ROSE  answered that  someone who  has spent  a career  in the                                                               
profession has talents  that new people simply  don't have, which                                                               
has  to be  weighed.   Mr.  Rose stated  that  many teachers  are                                                               
highly talented,  underpaid, and  would like  to pursue  a second                                                               
career.    The school  districts  have  to weigh  [this  proposed                                                               
legislation]  in  terms  of  the  additional  cost  to  a  school                                                               
district and the  impact on the instructional program  as well as                                                               
how to balance the [district's] budget.                                                                                         
CHAIR WEYHRAUCH  asked if  the current  [PERS and  TRS] situation                                                               
has been exacerbated by previous RIP legislation.                                                                               
MR. ROSE replied  that he didn't believe so.   He opined that the                                                               
largest contributor  was the  down turn in  the market,  which is                                                               
the largest contribution to the system.                                                                                         
Number 0228                                                                                                                     
REPRESENTATIVE  HOLM  said he  shared  Mr.  Rose's concerns  with                                                               
regard to  the brain drain.   Representative Holm  suggested that                                                               
[this  legislation] may  be cause  for great  concern.   He noted                                                               
that  since his  wife  is a  teacher, he  has  [heard from]  many                                                               
teachers  of the  highest qualification  who  are very  disturbed                                                               
with  the [new  teachers]  entering the  system.   Therefore,  he                                                               
asked if  [with this legislation]  "we" are trading off  a better                                                               
education for students in order to save money.                                                                                  
MR. ROSE remarked that this is  an issue of displacement.  If the                                                               
talented  teachers  were  kept  at a  higher  rate,  the  economy                                                               
suggests that some programs have to be reduced.                                                                                 
TAPE 04-17, SIDE B                                                                                                            
MR.  ROSE  related his  belief  that  economics are  driving  the                                                               
decisions being  made.   He highlighted that  a large  portion of                                                               
what is  being done now  is driven  by federal legislation.   The                                                               
question  is:   "Quality  of instruction  versus  a reduction  in                                                               
programs and offerings?"   Although one can make  an argument for                                                               
either, that  is the dilemma.   Mr. Rose remarked that  the brain                                                               
drain  is going  to have  an  impact and  if the  costs can't  be                                                               
reduced,  he questioned  what  would be  the  ultimate effect  in                                                               
reduction of services.                                                                                                          
Number 0118                                                                                                                     
REPRESENTATIVE  HOLM posed  a situation  in which  26 percent  of                                                               
those in TRS retire, which  would amount to 900 people statewide.                                                               
He asked  where the  900 replacements  would be  found in  such a                                                               
situation.  He pointed out  that currently there aren't qualified                                                               
people  to be  hired by  the school  districts.   "If what  we're                                                               
trying to do now is provide  a good education for the children of                                                               
Alaska,  this  may   well  not  be  our   best  methodology,"  he                                                               
MR. ROSE  reiterated that these  decisions are  purely economical                                                               
and not  program based  or instructional based.   With  regard to                                                               
finding  replacements for  those who  RIP, Mr.  Rose pointed  out                                                               
that  the ability  to attract  and retain  employees is  hindered                                                               
greatly  because of  the  failure to  keep  pace with  inflation.                                                               
Although  Mr. Rose  acknowledged  that [teachers]  in Alaska  are                                                               
paid fairly  well, he stressed that  the state has lost  its edge                                                               
[in  regard to  pay and  benefits package].   Mr.  Rose explained                                                               
that  [AASB]  is  merely  trying  to  obtain  an  opportunity  to                                                               
REPRESENTATIVE GRUENBERG directed attention  to page 2, lines 19-                                                               
21, and page 9, line 31  through page 10, line 5.  Representative                                                               
Gruenberg pointed out that there  is the employer, the state, and                                                               
the  pension fund  [involved].   From the  point of  view of  the                                                               
pension fund,  there could be  a situation in which  the employer                                                               
fulfills  the requirement  on page  2 and  says there  is a  cost                                                               
saving.   However, with a huge  deficit in the pension  fund, the                                                               
employer, because of the language  on page 10, would basically be                                                               
immunized.   Therefore,  the  pension  fund would  wind  up in  a                                                               
deficit situation worse than the current situation.                                                                             
Number 0635                                                                                                                     
MR.  ROSE recalled  that under  past RIP  legislation, he  didn't                                                               
believe  that recovery  [of employer  delinquencies] was  heavily                                                               
considered.  However,  he believes it will weigh  in heavier now.                                                               
He then inquired  as to how "political subdivision  of the state"                                                               
would  be  defined, pointing  out  that  school districts  are  a                                                               
political subdivision of the state.                                                                                             
REPRESENTATIVE  GRUENBERG  opined  that  under  this  legislation                                                               
school  districts   would  be   the  employer.     Representative                                                               
Gruenberg surmised that  those who could wind up  paying for this                                                               
could  be the  students  due  to the  lack  of future  foundation                                                               
MR. ROSE  noted his  agreement and  highlighted the  inability to                                                               
predict the future situation other than  the fact that there is a                                                               
major problem with PERS and TRS  for which there is no quick fix.                                                               
With regard to whether this  legislation exacerbates the problem,                                                               
Mr.  Rose opined  that  he  didn't believe  so  when taking  into                                                               
account  the requirements.   "If  you're looking  at solvency,  I                                                               
think the ... section of the  bill for recovery is something that                                                               
needs  to be  considered, and  perhaps more  of an  emphasis," he                                                               
CHAIR WEYHRAUCH directed  attention to Section 2(b)  of Version H                                                               
and  asked if  the three  items listed  under subsection  (b) are                                                               
intended to be alternative or cumulative requirements.                                                                          
MR. HILYARD  answered that he  believes they were intended  to be                                                               
[HB 329 was held over.]                                                                                                         

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