FY2011-24 PERS Requirements Changes 1 Introduced by: Borough Manager
2 Requested by: Alaska Municipal League
3 Drafted by: Alaska Municipal League
Introduced on: 04/07/2011
4 Adopted on: 04/07/2011
5
6 KODIAK ISLAND BOROUGH
7 RESOLUTION NO. FY 2011 -24
8
9 A RESOLUTION OF THE KODIAK ISLAND BOROUGH ASSEMBLY
10 SUPPORTING A BILL TO END REQUIREMENTS THAT EMPLOYERS WHO
11 TERMINATE SOME OR ALL PARTICIPATION IN THE PUBLIC EMPLOYEES'
12 RETIREMENT SYSTEM OF ALASKA PAY TERMINATION COSTS, AND
13 MAKING THE CHANGES RETROACTIVE
14
15 WHEREAS, the Alaska State Legislature, in SB 125, helped Alaska's PERS employers
16 tremendously by adopting the flat statutory 22% rate of salary to help fund current costs and
17 the unfunded liability of the PERS system; and
18
19 WHEREAS, our legislators, in crafting SB 125 struggled hard to come up with a fair and
20 equitable solution to a problem that most of them did not create. Further, in crafting SB 125,
21 legislators never envisioned, intended, nor did they want to create any inequitable financial
22 damage to any PERS member employer, nor negatively interfere with the current or future
23 delivery of any member's services or programs because of SB 125, which the termination
24 studies law does do; and
25
26 WHEREAS, 2 AAC 35.235. Calculation of termination costs states: (a) An employer that
27 proposes to terminate coverage of a department, group, or other classification of employees
28 under AS 39.35.615 or 39.35.957, or terminate participation of the employer under AS
29 39.35.620 or 39.35.958, must have a termination study completed by the plan actuary to
30 determine the actuarial cost to the employer for future benefits due employees whose
31 coverage is terminated. And (b): In addition to the costs calculated in (a) ...the employer
32 under AS 39.35.620 or 39.35.958, is required to pay to the plan until the past service liability
33 of the plan is extinguished an amount calculated by applying the current past service rate
34 adopted by the board to salaries of the terminated employees as required by AS 39.35.625
35 (a). This payment shall be made each payroll period or the employer may enter into a
36 payment plan acceptable to the administrator for each fiscal year; and
37
38 WHEREAS, if a PERS employer reduces its employee count because it made a decision to
39 alter or suspend one of its programs or services, per 2 AAC 35.235 PERS might send it three
40 bills. The first bill will be for the cost of doing a termination study. The second bill will be what
41 the study says you owe the System, due to the employee change(s) you made. The third bill,
42 the big bill, is the one that will require the employer to pay the past service cost (PSC) on
43 each position's salary PERS said needed to be opted out of PERS. The employer will be
44 required to pay the PSC (currently 18.63 %) on the salary(s) of the position(s) PERS said the
45 employer needed to opt out, until the unfunded obligation is paid off, maybe 30 years from
46 now. These three bills cumulatively can run from hundreds of thousands of dollars to several
47 millions of dollars; and
48
Kodiak Island Borough Resolution No. FY2011 -24
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49 WHEREAS, the underlying fear that certain employers would purposely act in a manner
50 that jeopardized payment of the unfunded obligation, and thus shrink the salary base that
51 pays off the unfunded obligations, has simply not happened. The total PERS salary base
52 must be sustained and have reasonable growth, which it has to the tune of about 19% since
53 the 6/30/2008 last pay period floor was set; and
54
55 WHEREAS, the future financial stability of PERS employers, and their ability to efficiently
56 and effectively manage the delivery of their programs and services, is being directly impacted
57 and undermined by 2 AAC 35.235; and
58
59 WHEREAS, equitable and consistent application of the State's termination law does not
60 seem to be occurring, nor likely can it ever occur given the uniqueness of all PERS
61 employers' positions. A law like this that has such a material financial impact on PERS
62 employers should at a minimum be able to be fairly, equitably, and consistently applied to all
63 PERS employers, yet the Division of Retirement and Benefits has taken the position that the
64 State, with half of the PERS salary base is exempt from termination studies and their financial
65 impacts; and
66
67 WHEREAS, there is an inescapably inequitable impact to small PERS employers. This
68 State law, or its application by PERS creates a clear and unconscionable inequitable impact
69 on small PERS employers, versus larger PERS employers. Many smaller communities only
70 have "one" employee for a program or service. If they lose a grant, or simply are faced with
71 budget constraints and they have to cut a person, say a nurse in a school, they'd be required
72 to have a termination study done, then pay all of the related costs because they actually cut a
73 "function or a group"; and
74
75 WHEREAS, termination studies negatively impact our decision, and our ability to accept
76 grants because of the potential future liability. Grant funded positions may become subject to
77 the termination studies, once the positions are terminated due to grant funding ending.
78 Employers will find themselves paying the past service cost rate on former grant funded
79 position salaries with other revenues. Essentially, if an employer accepts a grant it is possible,
80 depending upon the circumstances, that once those grant funded positions are ended that
81 employer will need to use other dollars to pay the PSC on those former grant funded salaries
82 that the employer is no longer paying; and
83
84 WHEREAS, there are no offsets taken into account for salary increases in one area, for
85 decreases in other areas. In other words, the ability for entities to adjust their programs and
86 services to meet their constituent's needs is negatively impacted. If an employer needs to cut
87 in Area A, and add in Area B, that employer could find itself paying the PSC rate times the
88 salary(s) it is no longer paying in Area A because it shifted its employees to Area B where
89 there is more need, whether driven by local need or a mandate; and
90
91 WHEREAS, over time, more and more resources will go toward paying for positions that no
92 longer exist than go to the delivery of services such as fire protection, law enforcement,
93 teaching, recreational services, landfill services, library services, flood control services,
94 emergency response services, and the list goes on from here. Once you start shifting
95 employee resources from one area of responsibility to another, you start a negative
96 downward spiraling in your programs and services; and
97
Kodiak Island Borough Resolution No. FY2011 -24
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98 WHEREAS, an employer will pay more toward the unfunded obligation every pay period on
99 positions that no longer exist than they will for existing paid positions. This is true because the
100 rate set by statute is capped at 22 %. The 22% first covers the current normal cost rate then
101 the difference is applied to the unfunded obligation. The current (FY '11) normal cost rate is
102 9.33 %; therefore, an employer pays 11.67% times the working employee's salary toward the
103 unfunded obligation. This same employer is required to pay 18.63% times the salary of an
104 employee they are no longer paying toward the unfunded obligation. That employer is paying
105 almost 7% more for positions that no longer exist because of the unfunded obligation than it
106 pays on salary dollars for existing positions; and
107
108 WHEREAS, termination studies nullify the intent of SB 125 that employers pay the exact
109 same rate. It is clear that one result of these termination studies is that different employers will
110 in fact be paying different net rates, and therefore, there will not be a single uniform
111 contribution rate for PERS employers. The adoption of SB 125 was based on the
112 acknowledgement that we do not have a single- agent, multiple employer PERS system, but
113 rather we have had a consolidated un- equitable cost share system. The intent of SB 125 was
114 that all employers would pay the same exact rate. That cannot happen when each employer
115 pays a different termination cost amount, or pays none at all; and
116
117 WHEREAS, the Borough supports a sustainable salary base to pay off the PERS unfunded
118 obligations, and
119
120 WHEREAS, the termination language in SB 125 was a solution to a problem that never
121 materialized, and it's not needed. The negative consequences, the additional charges and the
122 payments that result from the termination language, were never contemplated or intended by
123 the legislature, and they are destructive; and
124
125 WHEREAS, A.S. 39.35.625, that requires termination studies, and any other similar
126 statutes or regulations, should be repealed.
127
128 NOW, THEREFORE BE IT RESOLVED, THAT THE ASSEMBLY OF THE KODIAK ISLAND
129 BOROUGH while supporting a sustainable salary base to pay off the PERS unfunded
130 obligation, believe that AS 39.35.625 and any other similar statutes or regulations that require
131 termination studies, should be repealed and supports adoption and passage of a bill removing
132 termination study requirements from the law.
133
134 ADOPT ED BY THE ASSEMBLY OF THE KODIAK ISLAND BOROUGH
135 THIS SEVENTH DAY OF APRIL, 2011
136
137 KODIAK ISLAND BOROUGH
138 1.-
-
139
140 �i
141 ATTEST: Je 'me M. Selby, Borough Ma or
142
143 /7 /141L
144
145 ova M. Javier, MMC, ;orough Clerk
Kodiak Island Borough Resolution No. FY2011 -24
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