Co-Chair Chenault, Co-Chair Meyer and members of the House Finance Committee, my name is Tom Harvey and I serve as the Executive Director of NEA-Alaska. NEA-Alaska represents over 11,400 active public school employees and over 1,300 retirees. I appreciate the opportunity to testify on HB 475.
Today we are here looking at HB 475 which “is a clean up bill to” SB 141. The reason for HB 475 is that SB 141 is flawed. One reason it is flawed is because it was hurried through the legislative process. More importantly, it is bad public policy. Do not make the same mistake with HB 475. Take the time to get all the corrections to SB 141 done. NEA-Alaska urges you to amend HB 475 and delay the implementation of SB 141 until July 1, 2008.
AS 24.08.036 relates specifically to bills affecting the state retirement systems.
AS 24.08.036. Fiscal notes on bills affecting retirement systems.
Before a bill which would have an effect on the retirement systems of the state is reported to the rules committee, there shall be attached to the bill an analysis of the long-term and short-term costs to the state if the bill is adopted, as well as the impact of the bill on the actuarial soundness of the fund. The analysis is in addition to the fiscal note requirements of AS 24.08.035.
Last session, NEA-Alaska urged you to consider the impact on the present retirement plans if the plans are closed and, thus, the payroll based contributions are reduced. There was testimony that there was no impact. Today we know better. According to the Administration, “employer rates for past service costs will continue to rise as amortized liability is applied to a shrinking payroll paid to members of the defined benefit plans.” Thus, not only did SB 141 not address the liability of the retirement plans, it increased the liability for employers. Are you sure that the proposed change will not lead to a greater liability? Do you have the actuarial data to make this determination? NEA-Alaska believes the answer is no to both questions. Thus, I repeat NEA-Alaska's request that you amend HB 475 and delay the implementation of SB 141 until July 1, 2008.
Are you sure that the proposal to delay the effective date until 2008 of the provision in SB 141 that establishes a floor on employer contributions does not add liability to the plans and ultimately the taxpayers? If you delay the requirement for a minimum normal cost contribution rate for all those employers that are behind in payments, does that not mean the plans will have even less money for investment purposes and thus add to the liability. Remember, the lowering of employer contribution rates beginning in 1998 had a lot to do with the “unfunded liability” today. The reason, the plans did not have those contributions to invest. While you allow some to recover their “over contribution”, many will not contribute the minimum amount needed to begin the recovery of the plans. Thus, I repeat NEA-Alaska's request that you amend HB 475 and delay the implementation of SB 141 until July 1, 2008 .
Clarifying the provisions regarding how the PERS/TRS death and disability benefits will be funded, is a sound proposal. The question is, “what is the actual cost”. For 2006-2007 the rates are established. For each year thereafter the rates “will be actuarially calculated.” What assumptions will be used for this calculation? What does this mean in increased costs? The answers to these questions are what AS 24.08.036 require. The answers may not be a liability to the plans, but the answers are surely a liability to the employers and the State of Alaska. If you do not have the answers, NEA-Alaska's request that you amend HB 475 and delay the implementation of SB 141 until July 1, 2008.
I would seek clarification of the rationale for the amendment to clarify the basis for calculating employer contribution rates. I believe the reasoning states that the “dollar contributions would remain the same, but the past service cost rate would escalate to over 100%.” What does this mean in terms of the elimination of the “unfunded liability?” Would we be eradicating it sooner? Would the DB plans have funding ratios over 100%? And if the answer to those questions is yes, is that not what wee want? Remember the ad hoc Post Retirement Pension Adjustment can only be awarded if the fund ratio exceeds 105%. We want the fund ration to be at least 106% each year so the ad hoc PRPA can be awarded. Otherwise the retirees' pensions will be eroded annually by inflation above 2%.
Changing the basis for the calculating HRA contributions to meet IRS tax qualification status is prudent. The question is what does that do to the employer costs? As SB 141 is presently written, an employer pays on the salary base of their employees, not the entire plan. I suspect that the Municipality of Anchorage has a wage base lower than many other employers in the state. Thus, this change would be a major added cost to Anchorage. Because SB 141 was not properly drafted, municipalities were not able to address this issue. For the sake of good public input, NEA-Alaska's request that you amend HB 475 and delay the implementation of SB 141 until July 1, 2008.
The definition that “clearly defines that a DOL or DEED member whose position requires a teaching certificate is in TRS and not PERS”, should earn NEA-Alaska's support. But it does not. The language change actually gives the employer the choice, not the employee. The old language allowed the employee the opportunity to choose, if they had the ability to hold a teaching certificate.
NEA-Alaska does support the amendment to disallow employment with NEA as counting towards retirement eligibility.
Before I close my remarks, I want to make it clear that NEA-Alaska's criticism of HB 475, which is really a failing grade for SB 141, is not a reflection on the sponsor, Rep. Seaton. We believe that if he and the House State Affairs Committee had been given the time to develop the original HB 238 last year, it could have led to a hybrid solution that would have been a good solution for all parties. The committee was not given the time. Provide the time by amending HB 475 and delaying the implementation of SB 141 until July 1, 2008.
As the committee knows from NEA-Alaska's testimony last year, we believe a defined benefits plan is far superior to a defined contributions plan for retirement purposes for public employees. We understand the concerns of the entire legislature that predictability of costs and limitation of liability must be primary components of any new plan. NEA-Alaska believes a defined benefits plan can be fashioned based on a set contribution from the employer and the employee and the legislature should have the opportunity to choose between SB 141 and such a plan. Last year's forced choice was not good public policy. Thus, I repeat NEA-Alaska's request that you amend HB 475 and delay the implementation of SB 141 until July 1, 2008.
Thank you for your time. |
