Draft paper argues against prorating part-time years for retiree health accounts

A draft paper in the packet for an Alaska Retirement Management Board committee meeting Friday argues against counting part-time years as fractions of a year toward the 10 years public workers need to keep a retiree health account.

Teachers and public employees who first joined the state's retirement systems on or after July 1, 2006, are in its defined contribution plans. Their employers pay into a health reimbursement account for each of them, for medical costs in retirement. State law sets the amount at 3% of average pay across the public employees' and teachers' systems. Workers who leave with fewer than 10 years of service lose the account.

Counting part-time years as fractions changes "how long the member waits," the paper says.

It says that kind of counting makes sense in the older pension plans, where each year of service adds to a liability the pooled fund must cover. In the defined contribution plans, it says, the employer's obligation for a year is complete once it makes the contribution: "Nothing further accrues that someone must fund, so there is no liability for a waiting period to protect."

"A retention incentive such as 10 years can be reasonable," the paper says. "Counting those years in prorated units is the part that does not fit." A longer clock, it says, "raises the odds that the people least able to meet a long service test lose what has already been deposited."

The two-page paper, in the packet for the board's Strategic Review and Action Committee, names no author and is marked "Draft for discussion." The committee can make recommendations to the full board but can't act for it.

The committee discussed the question in July, when Chair Bob Williams and Division of Retirement and Benefits Director Kathy Lea acknowledged that some ambiguity remains in how part-time service should be counted, according to the minutes. Lea described the public employees' system as treating 15 to 29 hours a week as permanent part-time.

In September, Lea said the Department of Law and the outside law firm Ice Miller were reviewing whether eligibility could change for part-time workers, according to draft minutes. Because the same service rules govern vesting, she said, a change may require amending state law.

Williams asked in July for data on how many part-time employees the two systems have and how long they've worked. The minutes don't show that it was delivered, or how many part-time workers have lost their accounts.

A worker who loses the account gets the balance back, adjusted for Anchorage inflation, if they return to a participating employer by Dec. 31 of the year they turn 65.

The committee is tentatively scheduled to meet Dec. 1. The full board meets Dec. 2 and 3.