North Dakota Employee Benefits -- Legislative Committee Review

NORTH DAKOTA LEGISLATIVE MANAGEMENT
Minutes of the
EMPLOYEE BENEFITS PROGRAMS COMMITTEE
Thursday, August 6, 2009
Harvest Room, State Capitol
Bismarck, North Dakota
Representative Bette B. Grande, Chairman, called
the meeting to order at 9:00 a.m.
Members present: Representatives Bette B.
Grande, David Drovdal, Ralph Metcalf, Francis J.
Wald, Lisa Wolf; Senators Ray Holmberg, Ralph L.
Kilzer, Karen K. Krebsbach, Carolyn Nelson
Others present: See Appendix A
At the request of Chairman Grande, committee
counsel reviewed the Supplementary Rules of
Operation and Procedure of the North Dakota
Legislative Management.
At the request of Chairman Grande, committee
counsel distributed a copy of the July 2009 issue of
Retirement Today published by the Teachers' Fund
for Retirement and a copy of the July 2009
REPORTCard published by the Teachers' Fund for
Retirement. Copies of these newsletters are on file in
the Legislative Council office.
At the request of Chairman Grande, committee
counsel reviewed a memorandum entitled Employee
Benefits Programs Committee - Statutory
Responsibilities and Assigned Studies - Background
Memorandum describing the statutory responsibilities,
past procedures, and assigned studies of the
Employee Benefits Programs Committee. He said the
committee was established in response to difficulties
experienced in past legislative sessions resulting from
inadequate prior study of the actuarial impacts of
proposed legislative changes in retirement programs.
He reviewed the statutory authority of the committee,
procedures for solicitation and review of retirement
proposals, actuarial services, and additional
committee responsibilities. He said the committee
has the authority to establish rules for its operation,
including rules relating to the submission and review
of proposals and the establishment of standards for
actuarial review. In prior years, he said, including the
2007-08 interim, the committee has limited the
persons and entities permitted to submit to the
committee legislative proposals affecting retirement
programs to legislators and state agencies with the bill
introduction privilege and required that the proposals
be in bill draft form and submitted to the committee
before April 1 of even-numbered years to allow
enough time for actuarial evaluation. He said the
committee has the authority to waive its self-imposed
deadline for proposals received after any deadline
established by the committee.
Committee counsel said the Legislative
Management has also assigned two studies to the
committee. The first study, he said, is a study of the
feasibility and desirability of an appropriation to the
Office of Management and Budget for a state
employee tuition reimbursement pool program. The
second study, he said, is a study of the feasibility and
desirability of establishing an administrative leave
program for use by executive branch agencies to
allow employees to attend legislative hearings or
meetings, grievance meetings, disciplinary hearings,
labor and management meetings, negotiating
sessions, or other meetings or activities jointly agreed
upon by the chief administrative officer of the
employing agency. In addition to the statutory
responsibilities and assigned studies, he said, the
Legislative Management has also directed that the
committee receive a number of reports throughout the
interim.
It was moved by Representative Wald,
seconded by Senator Nelson, and carried on a
voice vote that the committee only accept
legislative proposals affecting retirement
programs that are submitted to the committee by
legislators and state agencies with the bill
introduction privilege, that the proposals be in bill
draft form, and that the proposals must be
submitted to the committee before April 1, 2010.
OVERVIEW OF RETIREMENT,
INSURANCE, AND RETIREE HEALTH
INSURANCE PROGRAMS
Mr. Steve Cochrane, Executive Director,
Retirement and Investment Office, presented an
overview (Appendix B) of the state's investment
program and the current investment climate. He said
the State Investment Board manages the pension
trust fund, the two largest components of which are
the Teachers' Fund for Retirement and the Public
Employees Retirement System fund, and the
insurance trust fund, the largest component of which
is the Workforce Safety and Insurance fund. He said
the preliminary market value of the pension trust fund
as of June 30, 2009, is $2.8 billion and the preliminary
market value of the insurance trust fund as of
June 30, 2009, is $1.3 billion. Thus, he said, the State
Investment Board has approximately $4.2 billion
under management as of June 30, 2009. He said the
asset allocation of the Teachers' Fund for Retirement
is slightly different from that of the Public Employees
Retirement System fund. He said the Teachers' Fund
for Retirement is composed of 61 percent stocks while
Employee Benefits Programs 2 August 6, 2009
the Public Employees Retirement System fund is
composed of 55 percent stocks, and thus, the
Teachers' Fund for Retirement is slightly more volatile
but would be expected to have a slightly higher return
over time.
Concerning fiscal year 2009 investment losses,
Mr. Cochrane said the Teachers' Fund for Retirement
is down approximately $475.5 million, or
25.76 percent, and the Public Employees Retirement
System fund is down approximately $424.5 million, or
23.52 percent. He said the pension trust, combined,
is down an estimated 24.37 percent. However, he
said, the Workforce Safety and Insurance fund is only
down 9.76 percent due to its much more conservative
asset allocation policy. Also, he said, the fact that
82 percent of the total pension fund loss is unrealized
is good news.
Mr. Cochrane said the State Investment Board was
also impacted by the Bernard Madoff financial
scandal. He said the State Investment Board has
written down $40 million and recovered $23 million to
date.
Ms. Fay Kopp, Deputy Executive Director,
Retirement and Investment Office, presented an
overview (Appendix C) of the Teachers' Fund for
Retirement. She discussed the history and structure
of the Teachers' Fund for Retirement and a summary
of the Teachers' Fund for Retirement plan.
Ms. Kopp said the mission of the Teachers' Fund
for Retirement--a trust fund--is to advocate for,
develop, and administer a comprehensive retirement
program for all trust fund members within the
resources available. She said Tier 1 members are
eligible for normal or unreduced benefits at age 85
with three years of service or the Rule of 85--age plus
years of service equals 85. She said Tier 2 members
are eligible for normal or unreduced benefits at age 65
with five years of service or upon reaching the Rule
of 90--age plus years of service equals 90.
Ms. Kopp said for retiree reemployment, the
general rule is that retirees may return to covered
employment after a 30-day waiting period. She said
employment is limited to a maximum number of hours
in a fiscal year based on the length of the applicable
contract. She said retirees continue receiving monthly
retirement benefits and employer contributions are
paid on the retiree's salary. She said the exceptions
to the general rule are for returning to teach in critical
shortage areas or if the member selects a benefit
suspension and benefit recalculation option.
In response to a question from Senator Holmberg,
Ms. Kopp said the list or schedule of critical shortage
areas is determined by the Education Standards and
Practices Board. She said the board reviews the list
each year and has just determined that all areas are
deemed to be critical except elementary education
and physical education. In response to a further
question from Senator Holmberg, Ms. Kopp said only
employer contributions are paid for members who
return to teach under the critical shortage areas
exemption.
In response to a question from Representative
Drovdal, Ms. Kopp said the Attorney General's office
has informally advised the Teachers' Fund for
Retirement that benefits for existing members and
retirees may not be reduced and that contribution
requirements for existing members may not be
increased without a corresponding increase in
benefits as this may violate the contract clause of the
North Dakota Constitution.
Representative Drovdal requested that the
Legislative Council staff contact the Attorney General
and invite him or a member of his staff to address the
contract clause implications of reducing benefits or
increasing contributions for existing members of public
employees retirement systems.
Ms. Kopp said there are 9,702 active teachers and
6,463 retired members of the Teachers' Fund for
Retirement. She said the number of active members
is declining due to student population declines; school
closings, consolidations, and budget reductions; and
teachers retiring earlier and returning to teach part
time. She said the number of retired members is
increasing due to people living longer and teachers
retiring earlier and returning to teach part time. She
said there are 231 participating employers, of which
184 are school districts.
In response to a question from Senator Nelson,
Ms. Kopp estimated that there are approximately
10 school districts that do not participate in the federal
Social Security program. She said she would supply
additional information on this topic at a future
committee meeting.
As a result of market declines in the past one to
two years, Ms. Kopp said most public pension plans
around the country are expected to experience higher
required contribution rates to offset investment losses.
She said predicting the magnitude of increased costs
is difficult and depends on factors unique to the plan
as well as performance of investment markets over
the next several years. She said the Teachers' Fund
for Retirement Board of Trustees is studying funding
improvement options and anticipates proposing
legislation in 2011.
In response to a question from Representative
Wald, Ms. Kopp said the Teachers' Fund for
Retirement Board of Trustees has not commissioned
a specific study concerning the impact of establishing
a defined contribution retirement plan for new
members while retaining the defined benefit plan for
existing members. However, she said, studies done
in other states do not show a cost-savings within a
reasonable period of time of establishing a new
defined contribution plan for new hires. She said this
is especially true for plans that have a large unfunded
liability.
Representative Grande requested that the
Teachers' Fund for Retirement provide a history of the
1977 funding provided to the Teachers' Fund for
Retirement by the Legislative Assembly.
Mr. Sparb Collins, Executive Director, Public
Employees Retirement System, presented an
Employee Benefits Programs 3 August 6, 2009
overview (Appendix D) of the Public Employees
Retirement System. He reviewed the structure of the
Public Employees Retirement System Board;
structure of the Public Employees Retirement System
office; retirement programs, including the Public
Employees Retirement System main system, Highway
Patrolmen's retirement system, judges' retirement
system, National Guard security police and
firefighters' retirement system, law enforcement
retirement systems, prior service retiree system,
higher education system, defined contribution plan,
Job Service North Dakota retirement plan, and the
Old-Age and Survivor Insurance System; retiree
health insurance program; health insurance program;
life insurance program; employee assistance program;
deferred compensation program; dental, vision, and
long-term care insurance programs; and the Flexcomp
program.
Mr. Collins said the Public Employees Retirement
System administers five defined benefit plans, two
defined contribution plans, and the retiree health
credit program and provides administrative services
for the prior judges' plan and the Job Service North
Dakota retiree health credit.
In response to a question from Representative
Wald, Mr. Collins said those employees of Workforce
Safety and Insurance who elected to participate in the
defined contribution retirement plan will remain in the
defined contribution plan even if their position
becomes classified under the Workforce Safety and
Insurance reorganization.
Mr. Collins said the employer contribution for the
public employees retirement main plan is 4.12 percent
and the employee contribution is 4 percent for a total
retirement contribution of 8.12 percent. He noted that
the 8.12 percent contribution rate is one of the lowest
in the country. Also, he said, for many employees, the
employer picks up the employee contribution and
pays the entire amount. He said this employer pickup
was in lieu of a salary increase. He said there are
19,042 active members of the Public Employees
Retirement System main system, 6,103 retired
members, and 682 beneficiaries.
TUITION REIMBURSEMENT
POOL PROGRAM STUDY
Chairman Grande called on Ms. Laurie Sterioti
Hammeren, Director, Human Resource Management
Services, Office of Management and Budget. She
distributed a schedule (Appendix E) of agencies with
fewer than 30 employees. She said the study was a
result of concerns raised relating to smaller agencies
that may not have sufficient funds or flexibility to
provide tuition reimbursement programs for their
employees.
ADMINISTRATIVE LEAVE
PROGRAM STUDY
Chairman Grande recognized Ms. Sterioti
Hammeren. She said the administrative leave
program study was a result of 2009 House Bill
No. 1562. She said this bill, as introduced, would
have required the Office of Management and Budget
to provide up to 800 hours per year for administrative
leave for use by executive branch agencies to allow
employees who are members of a public employees'
organization to attend legislative hearings or
meetings, grievance meetings, disciplinary hearings,
labor and management meetings, negotiating
sessions, or other meetings or activities jointly agreed
upon by the chief administrative officer of the
employing agency. She noted that the Governor's
office has approved administrative leave for officers of
the North Dakota Public Employee Association to
attend that organization's annual meeting. She said
Human Resource Management Services is neutral
concerning the study.
In response to a question from Representative
Grande, Ms. Sterioti Hammeren said the North Dakota
Public Employee Association officials are only
authorized time away from work and the state does
not cover their dues or other expenses.
Chairman Grande recognized Mr. Stuart Savelkoul,
Executive Director, North Dakota Public Employee
Association. He said employers in the private sector
may authorize their employees to testify before the
Legislative Assembly or attend meetings that are
beneficial to the organization or the employee. He
said there is no similar mechanism for public
employees.
In response to a question from Representative
Wald, Mr. Ken Purdy, Classification and
Compensation Manager, Human Resource
Management Services, Office of Management and
Budget, said the classification process at Workforce
Safety and Insurance is progressing and going very
well. However, he said, as with any classification
there are several individuals who are unhappy with
their new classification. He said the remedy for the
employees is to appeal the classification to the State
Personnel Board. He said the unhappiness may be
that as a result of the classification the employee may
be at or near the top compensation for that class.
In response to a further question from
Representative Wald, Ms. Sterioti Hammeren noted
the Workforce Safety and Insurance classification did
not result in any employee being subject to a salary
reduction. Also, she said, salaries were not frozen in
that employees are eligible for the minimum salary
increase provided by the Legislative Assembly.
No further business appearing, Chairman Grande
adjourned the meeting at 2:15 p.m.
___________________________________________
Jeffrey N. Nelson
Committee Counsel
ATTACH:5