Legislature(1995 - 1996)

04/27/1995 09:25 AM FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
txt
                                                                               
  SENATE BILL NO. 148                                                          
                                                                               
       An Act  relating to  a defined  contribution retirement                 
       plan for state employees.                                               
                                                                               
                                                                               
  Senator Rieger MOVED to adopt a draft CSSB 148, "O" version,                 
  dated 4/27/95,  as a  working document.   No  objection been                 
  raised, it  was  ADOPTED.   The Senator  explained that  the                 
  original bill would   establish a defined  contribution plan                 
  for state workers in place of   the present defined benefits                 
  plan.  The primary difference  between the two approaches is                 
  that  a defined benefit  plan is based on  a guess of future                 
  costs.   It involves an actuarial  study which estimates how                 
  much  money needs to be  saved each year  to fund the future                 
  guess as well as a 25-year approach for paying an obligation                 
  which is  enacted immediately.   The  result of  the state's                 
  defined benefits plan  is a $240 million  unfunded liability                 
  in the public  employee retirement  system.  Senator  Rieger                 
  noted that  there is  a similar  unfunded  liability in  the                 
  teacher  retirement  system.   A  defined  contribution plan                 
  eliminates unfunded liabilities.  In a  defined contribution                 
  plan, the amount of money set  aside by the employer belongs                 
  to  the  employer.   Earnings  on  the money  accrue  to the                 
  employee, and the employee has the full benefit of the money                 
  upon retirement.   The new  draft replaces present  employer                 
  and employee contributions  to a  defined benefit plan  with                 
  new  employer   and  employee  contributions  to  a  defined                 
  contribution plan.  The employee contribution is %5, and the                 
  employer  contributes  6%, for  a  total  of 11%.    The two                 
  components  are   in  addition  to   employee  and  employer                 
  contributions under the  existing SBS  system, which is  not                 
  changed by the proposed bill.  Those two contributions total                 
  12.26%.   There  is  thus a  23.26%  contribution  per  year                 
  feeding  the  employee's  retirement  fund.    The  bill  is                 
  designed to remain  under the IRS  maximum of 25%.   It also                 
  provides  for  self-directed  retirement.   The  new  Public                 
  Employees Retirement  System would allow  self direction  by                 
  employees with a transition  provision allowing employers to                 
  select retirement investments.                                               
                                                                               
  The  Retirement Incentive Program is included in the bill as                 
  well.  Senator  Rieger explained  that  with the  savings in                 
  employer contributions  to the new  Tier III, as  opposed to                 
  contributions to  the present  Tier I  or II,  the RIP  will                 
  result in cost savings.                                                      
                                                                               
  Co-chairman Halford directed that the newly adopted draft be                 
  held in committee for 24-hour review.                                        
                                                                               

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