Legislature(2003 - 2004)

04/14/2004 09:31 AM House STA

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
HB 331-RETIREMENT:TEACHERS/JUDGES/PUB EMPLOYEES                                                                               
[Contains brief discussion of SB 135, SB 232, and HB 254.]                                                                      
Number 0044                                                                                                                     
CHAIR WEYHRAUCH  announced that the  first order of  business was                                                               
HOUSE BILL NO. 331, "An  Act relating to federal requirements for                                                               
governmental  plan and  other  qualifications  for the  teachers'                                                               
retirement system,  the public employees' retirement  system, and                                                               
the judicial  retirement system;  and providing for  an effective                                                               
CHAIR WEYHRAUCH reminded the committee  members that at the prior                                                               
hearing they  had adopted  the committee  substitute (CS)  for HB
331,  Version  23-GH1009\D,  Craver,  4/1/04, as  a  work  draft;                                                               
therefore, Version D was still before the committee.                                                                            
Number 0097                                                                                                                     
MELANIE MILLHORN,  Director, Division  of Retirement  & Benefits,                                                               
Department  of  Administration,   emphasized  that  the  proposed                                                               
legislation  is  important  to the  division,  because  it  would                                                               
ensure  that the  division  is in  compliance  with the  Internal                                                               
Revenue  Service  (IRS)  code.    She noted  that  there  was  an                                                               
initiative launched  by the division  in January 2001,  to obtain                                                               
plan  determination letters  and  private  rulings regarding  the                                                               
Public  Employees'   Retirement  System  (PERS),   the  Teachers'                                                               
Retirement System  (TRS), the  Judicial Retirement  System (JRS),                                                               
and  the Supplemental  Benefits System  (SBS), to  ensure federal                                                               
plan compliance.                                                                                                                
MS.  MILLHORN  noted that,  in  May  2001, Senator  Rick  Halford                                                               
introduced  SB  135 in  the  Twenty  Second Legislative  Session,                                                               
which  added  village  public  safety   officers  (VPSOs).    She                                                               
continued as follows:                                                                                                           
     Now, this particular piece of  legislation was not made                                                                    
     operative,   pending   an   IRS  ruling   to   make   a                                                                    
     determination if  VPSOs could  be included in  PERS for                                                                    
     classification purposes.  So,  [in] October 2001, there                                                                    
     was  a comprehensive  submission to  the IRS  to obtain                                                                    
     [a]  positive determination  letter  on  the plans  and                                                                    
     private letter rulings.                                                                                                    
     [In] May  of 2002,  HB 254  ... made  some requirements                                                                    
     for changes  in the plan.   [In] June of 2002,  the IRS                                                                    
     provided a  positive private letter  ruling on  SBS and                                                                    
     TRS,  and the  private  letter  ruling was  conditioned                                                                    
     upon putting into  law all of the  changes requested by                                                                    
     the IRS.  [In] November  of 2002, the division received                                                                    
     notice  from  the  IRS  that   they  intended  to  rule                                                                    
     negatively  on  the  ...  VPSO  issue,  which  was  the                                                                    
     inclusion  of VPSOs  in  [PERS].   There  was a  formal                                                                    
     conference  of right  that  was held  with  the IRS  in                                                                    
     Washington, D.C.,  to make  a final  plea ...  to allow                                                                    
     the VPSOs for inclusion in [PERS].                                                                                         
     In  April   of  2003,   there  was  a   favorable  plan                                                                    
     determination  letter for  PERS,  ...  TRS, JRS,  [and]                                                                    
     SBS, based  on voluntary compliance requirements.   ...                                                                    
     In May  of 2003, SB 232  was introduced.  In  August of                                                                    
     2003,  the  IRS  ...  provided   the  division  with  a                                                                    
     positive letter ruling on TRS  and PERS, and a negative                                                                    
     ruling on VPSO inclusion in PERS.                                                                                          
     [In] November  of 2003,  regulations [were]  adopted by                                                                    
     PERS and  TRS boards on issues  required in regulations                                                                    
     as  to  the  actuarial reduction  factors,  which  were                                                                    
     required  by  the  IRS,  and   these  changes  must  be                                                                    
     implemented  in order  to maintain  PERS, ...  TRS, and                                                                    
     JRS as plan-qualified  status ..., and they  have to be                                                                    
     made in statute.                                                                                                           
     Which brings us  to January of 2004:   The IRS required                                                                    
     [statute] changes through SB 232  and HB 331, which are                                                                    
     identical  bills, and  it made  a requirement  that the                                                                    
     VPSO  language   that  was  never  made   operative  be                                                                    
     repealed  from  statute.   And  these  changes must  be                                                                    
     implemented in  order to maintain  PERS, TRS,  and JRS,                                                                    
     as plan-qualified status ....                                                                                              
ANSELM STAACK, Chief Financial Officer,  Division of Retirement &                                                               
Benefits, Department  of Administration, told the  committee that                                                               
he has  been a fully  licensed certified public  accountant (CPA)                                                               
for 30 years and  is also an attorney at law.   He indicated that                                                               
a qualified  [retirement] plan offers  good benefits;  members of                                                               
TRS, PERS, and  JRS can make contributions to  the plan, pre-tax,                                                               
which is  valuable to the  plan and lowers  the plan's cost.   He                                                               
explained  that, under  the  IRS code,  in order  for  a plan  to                                                               
remain qualified, a  plan document must be  maintained in concert                                                               
with  the IRS  code.   He revealed  that the  plan documents  for                                                               
PERS, TRS,  and JRS are  the statutes.  He  noted that SBS  has a                                                               
separate plan  document; it  has a statutory  link, but  its main                                                               
operative provisions  are not in  the statute itself.   He stated                                                               
that  it is  under IRS  review and  control, but  it's separately                                                               
linked.  In  response to a question from  Representative Holm, he                                                               
explained that  SBS is the  plan for the  State of Alaska  and 14                                                               
other public employers  and is a substitute  for social security.                                                               
Mr. Staack continued as follows:                                                                                                
     So, we went to  the IRS ... to ask for  a review to see                                                                    
     if you're in  compliance.  And we also went  to the IRS                                                                    
     because there was a desire  that people could pay their                                                                    
     indebtedness  to   the  system   -  to   purchase,  for                                                                    
     instance,   military  time,   and   to  purchase   back                                                                    
     previously refunded  service -  to be  able to  do that                                                                    
     with pre-tax  dollars ...,  and also  to be  allowed to                                                                    
     transfer monies from certain  kinds of qualified plans,                                                                    
     in  order to  pay for  that  service.   Well, that's  a                                                                    
     tremendous benefit;  it helps  both the system  and ...                                                                    
     the member.  It's no real cost to the plan.                                                                                
     Well, in  order to get that,  the IRS has to  do a full                                                                    
     review of  your plan.   So, this  is where you  have to                                                                    
     step up to the plate and  you have to have every bit of                                                                    
     your plan  reviewed.  And  that is precisely  what they                                                                    
     did.   What you  see here  is, in  2002, ...  the first                                                                    
     series of changes were adopted  as HB 254 in the Twenty                                                                    
     Second  Legislature,   second  session.     There  were                                                                    
     additional changes  made, and that is  what is included                                                                    
     here in HB  331.  Now, the reason it  was introduced on                                                                    
     the very last day of  the session last year was because                                                                    
     we  are  under  a  compliance agreement  to  get  these                                                                    
     changes in effect.                                                                                                         
MR.  STAACK, in  response  to a  question  from Chair  Weyhrauch,                                                               
stated that  all of the  language in  [HB 331] is  "precisely how                                                               
the IRS accepts  it."  He indicated that [the  version before the                                                               
committee]  was  "after  twelve iterations."    He  continued  as                                                               
     As to the  VPSO matter that was  originally passed ...,                                                                    
     I personally,  along with  three other  tax [counsels],                                                                    
     argued  that case  with  four members  of  the IRS,  in                                                                    
     order to try ... to convince  them to keep the VPSOs in                                                                    
     the PERS system.  However, they disagreed with that.                                                                       
MR. STAACK stated  his understanding that the  committee had been                                                               
provided with  copies of that  ruling [included in  the committee                                                               
Number 0775                                                                                                                     
MR. STAACK noted that the actual  employer of the VPSO is what is                                                               
called   the   501(c)(3)   nonprofit  -   a   private   nonprofit                                                               
corporation.   In  order  to  get the  VPSOs  that  work for  the                                                               
regional Native  corporations to be declared  employees who could                                                               
be  in  a governmental  plan,  the  organization itself  must  be                                                               
declared  to be  the practical  equivalent of  a government.   He                                                               
clarified, "You can't  be a private nonprofit  and a governmental                                                               
plan at the same time."                                                                                                         
MR. STAACK  summarized that the  first issue was one  of control.                                                               
He  stated, "We  even used  an argument  with the  IRS to  try to                                                               
convince  them  that ...  we  considered  these least  employees.                                                               
They felt it was creative, but  it wasn't good enough to convince                                                               
them."   He credited  the IRS  with trying  hard to  overcome the                                                               
problems,  and  it  reviewed  over   1,000  pages  of  background                                                               
documentation regarding the VPSO issue.                                                                                         
Number 0895                                                                                                                     
REPRESENTATIVE  HOLM  moved to  report  CS  HB 331,  Version  23-                                                               
GH1009\D,  Craver,  4/1/04,  out  of  committee  with  individual                                                               
recommendations and  the accompanying fiscal notes.   There being                                                               
no objection, CSHB  331(STA) was reported out of  the House State                                                               
Affairs Standing Committee.                                                                                                     

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