Legislature(2015 - 2016)BUTROVICH 205

04/16/2015 09:00 AM Senate STATE AFFAIRS

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Moved CSSB 74(STA) Out of Committee
Moved HB 135 Out of Committee
-- Public Testimony --
Heard & Held
-- Public Testimony --
+ Bills Previously Heard/Scheduled TELECONFERENCED
           HB 135-PUBLIC EMPLOYEE ROTH CONTRIBUTIONS                                                                        
9:19:39 AM                                                                                                                    
CHAIR STOLTZE announced the consideration of HB 135.                                                                            
9:20:05 AM                                                                                                                    
JOHN   BOUCHER,  Deputy   Commissioner,   Alaska  Department   of                                                               
Administration, Juneau,  Alaska, provided  an overview of  HB 135                                                               
as follows:                                                                                                                     
     HB  135  is an  act  establishing  a Roth  contribution                                                                    
     option for  public employees who choose  to participate                                                                    
     in the deferred  compensation program. This legislation                                                                    
     enables plan members to take  control of one portion of                                                                    
     their retirement  portfolio that they currently  do not                                                                    
     have a choice  over, essentially that is  the timing of                                                                    
     the  taxation of  the contributions  that they  make to                                                                    
     their deferred  compensation plan. The  current statute                                                                    
     has  been   in  effect  since  1973   and  the  statute                                                                    
     currently only allows deferred  compensation to be made                                                                    
     as part of  a pretax contribution. HB 135  is an effort                                                                    
     to modernize and update the  options that are available                                                                    
     to members  of the  plan to  comport with  changes that                                                                    
     have been made on a  national level with other deferred                                                                    
     compensation plans.                                                                                                        
CHAIR STOLTZE asked if the new opportunities are because of                                                                     
federal laws.                                                                                                                   
MR. BOUCHER answered correct. He continued his overview as                                                                      
     In  January   of  2011,  Congress   passed  legislation                                                                    
     enabling  governments to  implement  a designated  Roth                                                                    
     contribution  option and  HB 135  would  allow for  the                                                                    
     incorporation of  this option  to public  employees who                                                                    
     participate   in   the   State   of   Alaska   deferred                                                                    
     compensation plan. The bill  enables members to control                                                                    
     the   timing  of   the  taxation   of  their   deferred                                                                    
     compensation contributions,  whether it be at  the time                                                                    
     that  the   contribution  is   made  to   the  deferred                                                                    
     compensation  plan  or  at the  time  of  distribution.                                                                    
     Should  HB  135  pass  as  purposed,  it  would  enable                                                                    
     members to choose to have  their contributions taxed at                                                                    
     the  time of  contribution, which  would mean  that the                                                                    
     income could  be considered tax-free  at the time  of a                                                                    
     qualified  dividend  distribution. The  default  option                                                                    
     for existing members would be  the current pre-tax plan                                                                    
     and members  would have to  positively elect to  a Roth                                                                    
     investment  to have  their contributions  changed to  a                                                                    
     taxable  status.   This  proposed  legislation   is  in                                                                    
     response  to requests  by members  to  the Division  of                                                                    
     Retirement & Benefits to offer this option to members.                                                                     
9:21:58 AM                                                                                                                    
SENATOR WIELECHOWSKI joined the committee meeting.                                                                              
CHAIR STOLTZE asked if the request was from organized employee                                                                  
groups or individuals.                                                                                                          
MR. BOUCHER replied that the request came from individual                                                                       
CHAIR STOLTZE asked if there have been any formalized requests                                                                  
from any employee groups or retired groups.                                                                                     
9:23:46 AM                                                                                                                    
KATHY  LEA, Chief  Pension Officer,  Division  of Retirement  and                                                               
Benefits,  Alaska Department  of Administration,  Juneau, Alaska,                                                               
explained that  the requests  have come  to the  division through                                                               
its regional  counselors who travel  all over the state  and meet                                                               
individually  with members.  She  specified that  the option  was                                                               
published a  couple of  years ago  when Congress  inaugurated the                                                               
bill and the option has been a topic of conversation.                                                                           
SENATOR  WIELECHOWSKI asked  if  the option  is  common in  other                                                               
MS. LEA  answered that more  states are adding a  designated Roth                                                               
option.  She detailed  that approximately  12 states  offered the                                                               
SENATOR WIELECHOWSKI  asked if the  maximum that can  be deferred                                                               
is the same as the current maximum.                                                                                             
MS. LEA answered that the  current limit is $18,000. She detailed                                                               
that  the  Roth  option  would  take on  all  of  the  rules  and                                                               
contribution limits of the deferred compensation plan.                                                                          
SENATOR  WIELECHOWSKI asked  if  contributions  can be  "stacked"                                                               
where $18,000  is deferred to  each plan or "split"  where $9,000                                                               
is deferred to each plan.                                                                                                       
9:25:36 AM                                                                                                                    
MS. LEA  answered the contributions can  be split as long  as the                                                               
$18,000 limit is not exceeded.                                                                                                  
SENATOR HUGGINS noted that education  and healthcare workers have                                                               
a Roth 403(b) contribution option.  He asked what the differences                                                               
were in the various retirement plans.                                                                                           
MS. LEA  answered that she is  not versed in Roth  403(b) details                                                               
because the division does not administer the plan.                                                                              
SENATOR HUGGINS  asked why  public employees  are not  covered by                                                               
Social Security and how that came about officially.                                                                             
MS. LEA explained that the  early 1950s, the state's teachers had                                                               
an opportunity  to come  into Social Security  and the  option at                                                               
that  time was  the  teachers did  not need  to  opt into  Social                                                               
Security due to an existing  retirement plan. The State of Alaska                                                               
signed  an agreement  with Social  Security  that their  teachers                                                               
would not  participate, many  states did  the same.  She revealed                                                               
that in 1980,  state employees held a referendum and  voted for a                                                               
Social  Security   replacement  plan,  the   Alaska  Supplemental                                                               
Annuity Plan. She noted that the  option to choose has sunset and                                                               
Social Security  only allows an  option choice for  new entities;                                                               
for example, when a borough and city merges.                                                                                    
9:28:28 AM                                                                                                                    
SENATOR  HUGGINS asked  if Ms.  Lea  had history  on whether  the                                                               
teachers supported the state not opting into Social Security.                                                                   
MS.  LEA answered  that the  division  does not  have any  public                                                               
SENATOR  WIELECHOWSKI assumed  that the  same investment  options                                                               
would  be   available  that  would   be  treated   like  deferred                                                               
compensation.  He  asked  if  there would  be  a  separate  state                                                               
account  or could  the  deferred compensation  be  directed to  a                                                               
personal Roth  Individual Retirement  Account (IRA).  He inquired                                                               
that  if  there  is  a  state  account,  would  the  same  Alaska                                                               
Supplemental  Annuity  Plan  (SBS-AP) and  deferred  compensation                                                               
investment options be offered.                                                                                                  
MS. LEA answered as follows:                                                                                                    
     This  is an  option  within  the deferred  compensation                                                                    
     program, so  you would not  be able  to direct it  to a                                                                    
     private IRA and this type  of option is only allowed in                                                                    
     a  457   plan  because   the  limits  are   higher  for                                                                    
     contribution,   it  is   a  taxation   option  so   the                                                                    
     investment   lineup   that    are   in   the   deferred                                                                    
     compensation  plan   don't  change,  it  is   the  same                                                                    
SENATOR  WIELECHOWSKI  asked  if  the investments  are  the  same                                                               
investments that currently exist in the deferred compensation.                                                                  
MS. LEA answered correct.                                                                                                       
SENATOR WIELECHOWSKI asked if a  state employee has the option of                                                               
rolling their Roth  IRA into their own private Roth  IRA when the                                                               
individual leaves state-service.                                                                                                
MS. LEA answered  yes. She specified that  the investment product                                                               
is "rollable" and can go into a Roth IRA.                                                                                       
9:30:38 AM                                                                                                                    
SENATOR  WIELECHOWSKI asked  if there  is any  opposition to  the                                                               
MR. BOUCHER answered that he is not aware of any opposition.                                                                    
SENATOR WIELECHOWSKI  commented that  the proposition  looks like                                                               
another employee option.                                                                                                        
MR. BOUCHER answered  correct. He opined that  the option depends                                                               
on how  the future of taxation  is viewed where a  person decides                                                               
between the  certainty in  current rates  and the  uncertainty in                                                               
future rates. He  noted that one option could be  setting aside a                                                               
portion  of  tax-free  income  for   an  individual's  heirs.  He                                                               
summarized that the option is just another tool.                                                                                
SENATOR  COGHILL asked  to verify  that taxes  are paid  prior to                                                               
MR. BOUCHER answered yes.                                                                                                       
SENATOR  COGHILL  asked  what  tax rates  are  applied  prior  to                                                               
MS. LEA  answered that an  individual is taxed at  the applicable                                                               
rate during the time of the pay period contribution.                                                                            
SENATOR COGHILL  asked to  verify that  an individual  decides on                                                               
what percentage of income is deferred.                                                                                          
MS. LEA answered correct. She  specified that the contribution is                                                               
a positive election that the employee has to make.                                                                              
9:33:46 AM                                                                                                                    
SENATOR  WIELECHOWSKI assumed  that excess  money after  taxes of                                                               
$18,000 could be  put into a Roth  IRA. He asked if  a person has                                                               
to wait a certain amount of time for withdrawal.                                                                                
MS.  LEA  answered that  there  are  some restrictions  that  are                                                               
different from  a personal  IRA and  withdrawal is  allowed under                                                               
the following conditions:                                                                                                       
   · Account must be maintained for at least 5 years.                                                                           
   · In the case of a disability.                                                                                               
   · A survivor may remove the money.                                                                                           
   · Age 59-1/2 and employment has been terminated.                                                                             
MS.  LEA   summarized  that  any   investment  earnings   on  the                                                               
contributions are not taxed as long as the qualifiers are met.                                                                  
SENATOR WIELECHOWSKI asked to verify  that a person strictly pays                                                               
taxes on  the dividends  or interest if  money is  withdrawn from                                                               
the plan within the first five years.                                                                                           
MS. LEA  answered that  money cannot be  removed from  a deferred                                                               
compensation plan unless a person is terminated from employment.                                                                
CHAIR STOLTZE  asked if the  plan can be  used as a  loan account                                                               
where  an individual  can  borrow  on the  money  and repay  with                                                               
interest to oneself.                                                                                                            
9:35:33 AM                                                                                                                    
MS. LEA  answered that the  state plans do  not allow for  a loan                                                               
option. She specified that a  loan option is considered "leakage"                                                               
from an individual's retirement plan.  She remarked that loans on                                                               
a  retirement plan  is considered  robbing  from an  individual's                                                               
CHAIR  STOLTZE  asked if  the  policy  Ms.  Lea described  was  a                                                               
decision that  she made in  presenting the bill and  offering the                                                               
MS.  LEA  replied  that  the  policy decision  was  made  by  the                                                               
Legislature when the deferred compensation plan was created.                                                                    
CHAIR  STOLTZE assumed  that the  policy decision  was made  with                                                               
guidance from the Department of Administration.                                                                                 
SENATOR HUGGINS  asked if  there is a  provision that  allows for                                                               
rolling  over a  different Roth  IRA into  the public  employees'                                                               
Roth IRA.                                                                                                                       
9:37:19 AM                                                                                                                    
MS. LEA answered  that private IRA roll-in  is permissible except                                                               
for the SIMPLE (Savings Incentive Match PLan for Employees) IRA.                                                                
SENATOR COGHILL asked how a catch-up contribution works.                                                                        
MS.  LEA answered  that a  catch-up provision  is allowed  within                                                               
three  years  of  an individual's  normal  retirement  date.  She                                                               
specified that contributions can be  doubled in each of the three                                                               
catch-up years where the limit is $36,000 rather than $18,000.                                                                  
SENATOR WIELECHOWSKI  asked to verify  that funds from  a private                                                               
Roth  IRA  can  be  rolled  into  the  bill's  Roth  IRA  if  the                                                               
legislation is passed.                                                                                                          
MS. LEA answered yes.                                                                                                           
SENATOR  WIELECHOWSKI asked  if  unlimited  amounts maybe  rolled                                                               
into the plan.                                                                                                                  
MS. LEA answered that she is not sure what the limitation is.                                                                   
9:39:05 AM                                                                                                                    
At ease.                                                                                                                        
9:40:09 AM                                                                                                                    
CHAIR STOLTZE  called the committee  back to order. He  asked Mr.                                                               
Boucher if he had any closing comments.                                                                                         
MR. BOUCHER  commented that  the plan is  a fantastic  option for                                                               
people  who  may want  to  choose  to  have  a portion  of  their                                                               
retirement income  not taxed or  taxed now  and not taxed  in the                                                               
CHAIR STOLTZE  asked to verify  that the  bill has a  zero fiscal                                                               
MR. BOUCHER answered correct.                                                                                                   
9:41:23 AM                                                                                                                    
SENATOR COGHILL  moved to report  HB 135,  [version 29-GH1015\A],                                                               
from committee  with individual recommendations and  the attached                                                               
zero fiscal note.                                                                                                               
9:41:37 AM                                                                                                                    
CHAIR STOLTZE announced that hearing  no objection, [HB 135 moved                                                               
out of Senate State Affairs Standing Committee].                                                                                

Document Name Date/Time Subjects
HJR 22 Ver A - Initial Version.pdf SSTA 4/16/2015 9:00:00 AM
HJR 22
HJR 22 Sponsor Statement.pdf SSTA 4/16/2015 9:00:00 AM
HJR 22
HJR 22 Fiscal Note LEG-SESS 4-8-15.PDF SSTA 4/16/2015 9:00:00 AM
HJR 22
SB74 DHSS Medicaid Spending Forecast without Expansion 4-16-15.pdf SSTA 4/16/2015 9:00:00 AM
SB 74
SB74 Fiscal Note DHSS-PAA 4-15-15.pdf SSTA 4/16/2015 9:00:00 AM
SB 74
SB74 DHSS Position on CS(STA) - Email Commissioner's Office 4-15-15.pdf SSTA 4/16/2015 9:00:00 AM
SB 74
SB74 DHSS Response to Questions on Section 5 of CS(STA) - Email Commissioner's Office 4-15-15.pdf SSTA 4/16/2015 9:00:00 AM
SB 74
HB135 ver A.pdf SSTA 4/16/2015 9:00:00 AM
HB 135
HB135 Supporting Document - Roth 457 FAQs.pdf SSTA 4/16/2015 9:00:00 AM
HB 135
HB135 Support Document - Press Release DOA 3-12-15.pdf SSTA 4/16/2015 9:00:00 AM
HB 135
HB135 Sectional Analysis.pdf SSTA 4/16/2015 9:00:00 AM
HB 135
HB135 Public Employee Roth Contributions Transmittal Letter.pdf SSTA 4/16/2015 9:00:00 AM
HB 135
HB135 Fiscal Note #1 DOA-DRB 2-17-15.pdf SSTA 4/16/2015 9:00:00 AM
HB 135
HJR22 Support Document - Letter Hyder Community Association 4-16-15.pdf SSTA 4/16/2015 9:00:00 AM
HJR 22
SB74 OMB Spreadsheet of Fiscal Notes for Version F - 4-16-15.pdf SSTA 4/16/2015 9:00:00 AM
SB 74