Legislature(2017 - 2018)ADAMS ROOM 519

04/09/2018 01:30 PM FINANCE

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Delayed to 2:00 pm --
Moved CSHB 233(FIN) Out of Committee
Moved SB 165 Out of Committee
-- Public Testimony --
Heard & Held
-- Public Testimony --
Heard & Held
-- Public Testimony --
+ Bills Previously Heard/Scheduled TELECONFERENCED
Moved CSHB 129(FIN) Out of Committee
HOUSE BILL NO. 306                                                                                                            
     "An  Act relating  to  disbursement  options under  the                                                                    
     Public Employees'  Retirement System of Alaska  and the                                                                    
     Teachers' Retirement System  of Alaska for participants                                                                    
     in the defined contribution  plan; and providing for an                                                                    
     effective date."                                                                                                           
4:12:15 PM                                                                                                                    
Representative  Wilson asked  if there  was a  legal opinion                                                                    
about why there was not an  actuarial on the bill. She could                                                                    
not find one in the back-up documents.                                                                                          
SYLVAN ROBB, DEPUTY  DIRECTOR, DEPARTMENT OF ADMINISTRATION,                                                                    
introduced  herself. She  indicated  Commissioner Ridle  was                                                                    
not available.                                                                                                                  
KATHY   MS.  LEA,   CHIEF  PENSION   OFFICER,  DIVISION   OF                                                                    
RETIREMENT  AND  BENEFITS,   DEPARTMENT  OF  ADMINISTRATION,                                                                    
answered that there was only  a requirement for an actuarial                                                                    
analysis if there was an impact  to the funds. HB 306 had no                                                                    
financial impact to the funds.                                                                                                  
Representative Wilson  remarked that she did  not understand                                                                    
the bill.  Ms. Robb relayed that  currently the disbursement                                                                    
options for PERS Tier IV and  TRS Tier III were contained in                                                                    
statute. She  reported that the bill  moved the disbursement                                                                    
from  statute  to  regulation. Currently,  any  changes  the                                                                    
department  would like  to make  in order  to modernize  the                                                                    
disbursement  options  or  to   meet  new  Internal  Revenue                                                                    
Service (IRS)  regulations required a statutory  change. The                                                                    
bill would  allow the  division to be  nimbler and  to offer                                                                    
better  services to  state retirees.  She  added that  there                                                                    
were vested  employees in the  two tiers that  were impacted                                                                    
that  were  starting  to  retire.  Moving  the  disbursement                                                                    
options  from statute  to regulation  would  offer the  same                                                                    
flexibility  the state  currently had  for the  SBS and  the                                                                    
deferred compensation  plans. It still  provided significant                                                                    
transparency  for   the  public.   The  discussion   of  new                                                                    
disbursement options would be  covered at ARM Board meetings                                                                    
that  were  done  in  a  public forum  and  again  once  the                                                                    
recommendations were done  by the ARM Board  before going to                                                                    
regulation. There was a public  comment period at regulation                                                                    
as  well.  The ARM  Board  had  unanimous approval  for  the                                                                    
change proposed in the bill.                                                                                                    
Co-Chair Seaton understood  that under Tier III  and Tier IV                                                                    
TRS  they were  separate accounts  that were  accounted for.                                                                    
The  bill  only  had  to  do with  the  disbursement  of  an                                                                    
individual's  money. It  would not  impact the  fund because                                                                    
the money  was held for particular  individuals. He wondered                                                                    
if he  was correct.  Ms. Lea  confirmed Co-Chair  Seaton was                                                                    
correct.  She  elaborated that  she  was  talking about  the                                                                    
disbursement   of   an   employee's   contribution   account                                                                    
comprised   of    their   contributions,    the   employer's                                                                    
contributions  made  during  employment, and  any  gains  or                                                                    
losses on the fund.                                                                                                             
4:16:12 PM                                                                                                                    
Representative Wilson  was trying to figure  out the problem                                                                    
with  disbursement.  Ms.  Lea answered  that  currently  the                                                                    
state offered  a lump sum  disbursement, a  periodic payment                                                                    
of twice per year,  and different annuity options (lifetime,                                                                    
joint survivor,  and various period-certain  annuities). The                                                                    
ARM Board was  considering some newer products  that were on                                                                    
the market  that mimicked a  guaranteed income. One  of them                                                                    
was  called a  qualified longevity  annuity contract,  which                                                                    
allowed  an employee  to postpose  any disbursements  from a                                                                    
portion of  an employee's account  until they reached  80 or                                                                    
82 years of  age. The option was designed to  do two things:                                                                    
It removed  that portion of  an employee's account  from the                                                                    
required minimum  distribution that currently  occurred when                                                                    
an  employee reached  72  years of  age.  It also  protected                                                                    
against  longevity risk.  If  a person  was  running out  of                                                                    
money, they would have a pot of money to draw on later.                                                                         
Ms.  Lea  continued  that  another  disbursement  option,  a                                                                    
guaranteed lifetime withdrawal,  which provided an insurance                                                                    
wrapper  around  the  amount in  an  employee's  account.  A                                                                    
person  would  typically enroll  in  the  option anytime  10                                                                    
years before retirement or up  to retirement. They would not                                                                    
enroll  before  that time.  During  the  time a  person  was                                                                    
enrolled  in  the  program  they   would  pay  an  insurance                                                                    
premium. The  employee's monthly  benefit would be  based on                                                                    
whatever  the highest  balance was  at the  end of  the term                                                                    
(when a person  was past retirement and even  when the state                                                                    
was paying  out benefits). It protected  the individual from                                                                    
the downside  of investments  but allowed  them to  have the                                                                    
Representative Guttenberg  had been  reading more  about his                                                                    
investments.  He  suggested that  there  was  a plethora  of                                                                    
different  payout  options.  He  liked the  idea  of  having                                                                    
additional options.  He thought  that having the  options in                                                                    
statute made it  difficult for the ARM Board  to offer other                                                                    
Representative Pruitt asked  if there was not a  risk to the                                                                    
state.   He   wondered  if   there   were   risks  for   the                                                                    
participants. He  asked about the  disbursement of  funds if                                                                    
an employee died. He asked for clarification.                                                                                   
Ms. Lea responded  that the change was  simple. The division                                                                    
was  not   looking  to  change   any  of  the   options  for                                                                    
disbursement currently available. The  ARM Board was looking                                                                    
at  adding  options  that would  benefit  participants.  The                                                                    
state was  required by  the IRS to  fully disclose  all fees                                                                    
and  conditions  on any  of  the  disbursement products.  In                                                                    
terms  of  his  question regarding  survivors,  the  options                                                                    
under  review were  those that  would provide  full survivor                                                                    
benefits  to  participants  should   they  die  before  they                                                                    
exhausted their funds.                                                                                                          
4:21:58 PM                                                                                                                    
Co-Chair  Foster  OPENED  and CLOSED  public  testimony  for                                                                    
HB 306.                                                                                                                         
Co-Chair Foster asked to review the fiscal notes.                                                                               
Representative  Wilson wanted  to wait  until the  following                                                                    
meeting  before moving  the  bill, as  she  needed a  better                                                                    
understanding of the bill.                                                                                                      
Co-Chair   Foster  wanted   to   make   sure  members   were                                                                    
comfortable with the bill.                                                                                                      
Representative Guttenberg provided  a hypothetical scenario.                                                                    
If his  pension annuity  paid out $1000  per month  until he                                                                    
was 92, but  he lived to be 125, and  he bought the lifetime                                                                    
guarantee which paid him $750  per month, he wondered if the                                                                    
state would  take the other  $250 to purchase  insurance. In                                                                    
other  words, he  would be  losing money  by receiving  less                                                                    
money per month, but in doing  so the state was covering the                                                                    
Ms.  Lea  answered  that  she  would  hesitate  to  claim  a                                                                    
specific  number because  different  products had  different                                                                    
ways of funding a benefit.  The division had eight different                                                                    
products presented  to them. The Treasury  Division was also                                                                    
developing  a  few  custom  products.   Usually,  it  was  a                                                                    
combination of  the insurance premium  paid by  the employee                                                                    
while employed  that guaranteed the payment.  Some companies                                                                    
would also have a reduction to  the paid benefit. Much of it                                                                    
depended on how long an individual had been in the program.                                                                     
Representative Guttenberg  thought the  payout money  had to                                                                    
come from  some place. He  suggested it would come  from the                                                                    
employee's benefit. He wondered if  he was accurate. Ms. Lea                                                                    
responded  that he  was absolutely  correct. She  elaborated                                                                    
that the fees  that were paid through  the insurance premium                                                                    
or reductions  taken from the benefit  amount was particular                                                                    
to the  participant. The participant sustained  the cost and                                                                    
there was no cost to the plan.                                                                                                  
4:25:57 PM                                                                                                                    
Representative Pruitt  suggested that  the deletions  in the                                                                    
bill helped  to simplify the  products. He wondered  why the                                                                    
legislature  chose  to  put  specific  products  in  statute                                                                    
rather than leaving it open.                                                                                                    
Ms.  Lea recalled  that at  the time  there was  no specific                                                                    
reason for  certain products to  be in statute.  In drafting                                                                    
the  bill, the  bill sponsor  used a  combination of  a bill                                                                    
structure   that  came   from   the   National  Council   of                                                                    
Legislators  and   different  provisions  lifted   from  the                                                                    
state's supplemental annuity  plan. The disbursement options                                                                    
that  could   currently  be  seen   in  the  PERS   and  TRS                                                                    
distribution plan  were the ones  that were in the  SBS plan                                                                    
at the time  of the bill's passage. The  difference was that                                                                    
the SBS structure  was codified in statute.  However, it was                                                                    
operated by a plan document.  The division had an easier way                                                                    
to make changes for SBS  or the Alaska Deferred Compensation                                                                    
plan. In order  to add any new options or  provisions to the                                                                    
plan  they  went  through  the   ARM  Board  process  and  a                                                                    
regulation process. The legislature  was notified every time                                                                    
regulations  were promulgated.  The public  was invited  and                                                                    
those  groups that  represented the  public were  invited to                                                                    
the  ARM  Board  meetings.  She  emphasized  that  when  the                                                                    
division made a change to  SBS and deferred compensation the                                                                    
process was much faster. Unfortunately  for the PERS and TRS                                                                    
DCR  plans,  the  disbursement  information  was  placed  in                                                                    
statute requiring a  bill to make changes.  The division was                                                                    
not nimble.                                                                                                                     
4:28:32 PM                                                                                                                    
Co-Chair  Seaton added  that  he had  been  involved in  the                                                                    
process  of changing  from a  defined benefit  to a  defined                                                                    
contribution  system. There  were  several details  everyone                                                                    
wanted to lock  down. The newer products  were not available                                                                    
at the  time. The disbursement  options were ones  the state                                                                    
was  already   using  and  were  incorporated   in  statute.                                                                    
Everyone knew  there was  a full  plan and  how it  would be                                                                    
used.   He  favored   making  the   plan  work   better  for                                                                    
Co-Chair  Foster  suggested that  for  those  who wanted  to                                                                    
offer amendments, they  should submit them to  his office by                                                                    
5:00 PM  on Wednesday,  April 11, 2018.  He would  bring the                                                                    
bill up at the afternoon meeting on the following day.                                                                          
HB  306  was  HEARD  and   HELD  in  committee  for  further                                                                    
Co-Chair Foster reviewed the agenda for the following day.                                                                      
4:30:32 PM                                                                                                                    
AT EASE                                                                                                                         
4:31:23 PM                                                                                                                    
Representative Wilson asked if there were documents                                                                             
available for tomorrow's meeting at 5:00 P.M. Co-Chair                                                                          
Foster responded in the affirmative.                                                                                            

Document Name Date/Time Subjects
HB 233 Northrim AK Education Tax Credits Legislation Letter.pdf HFIN 4/9/2018 1:30:00 PM
HB 233
SB 165 Additional Documents CMS Letter Approving Alaska's State Innovation Waiver 4.3.18.pdf HFIN 4/9/2018 1:30:00 PM
SB 165
SB165 Additional Documents ACHI Fund 4.3.18.pdf HFIN 4/9/2018 1:30:00 PM
SB 165
SB165 Sectional Analysis ver A 4.3.18.pdf HFIN 4/9/2018 1:30:00 PM
SB 165
SB165 Sponsor Statement 4.3.18.pdf HFIN 4/9/2018 1:30:00 PM
SB 165
SB165 Supporting Document - Alaska Commission on Aging 4.3.18.pdf HFIN 4/9/2018 1:30:00 PM
SB 165
01.23.18 Speaker Edgmon Transmittal Letter PERS & TRS.PDF HFIN 4/9/2018 1:30:00 PM
HB 306
HB 306 Sectional Analysis.pdf HFIN 4/9/2018 1:30:00 PM
HB 306
HB 399 Additional Documents - Federal Codes, 26 USC Sections 21 to 54AA.PDF HFIN 4/9/2018 1:30:00 PM
HB 399
HB 399 Additional Documents - Indirect Expenditure Report Federal Credits.pdf HFIN 4/9/2018 1:30:00 PM
HB 399
HB 399 Additional Documents - Indirect Expenditure Report Stranded Gas.pdf HFIN 4/9/2018 1:30:00 PM
HB 399
HB 399 Additional Documents - Indirect Expenditure Report Foreign Royalty.pdf HFIN 4/9/2018 1:30:00 PM
HB 399
HB 399 Additional Documents - Indirect Expenditure Report Reduced Rate Capital Gains.pdf HFIN 4/9/2018 1:30:00 PM
HB 399
HB 399 Additional Documents CIT Sector Report FY 2017 3.26.18.pdf HFIN 4/9/2018 1:30:00 PM
HB 399
HB 399 Additional Documents DOR Letter 3.26.18.pdf HFIN 4/9/2018 1:30:00 PM
HB 399
HB 399 Sponsor Statement 3.26.18.pdf HFIN 4/9/2018 1:30:00 PM
HB 399
HB 399 Sectional Sectional Analysis ver O 3.26.18.pdf HFIN 4/9/2018 1:30:00 PM
HB 399
HB 233 - Amendment #2.pdf HFIN 4/9/2018 1:30:00 PM
HB 233
HB 233 - Amendment #1.pdf HFIN 4/9/2018 1:30:00 PM
HB 233
HB 129 - Amendment #3.pdf HFIN 4/9/2018 1:30:00 PM
HB 129
HB 399 - AOGA Comments - 4.9.2018.pdf HFIN 4/9/2018 1:30:00 PM
HB 399
HB 399 RDC letter opposing HB 399.pdf HFIN 4/9/2018 1:30:00 PM
HB 399
HB 233 2018 03 29 UAF CFOS ETC HB 233.pdf HFIN 4/9/2018 1:30:00 PM
HB 233
HB233 SB116 PWSSC support.pdf HFIN 4/9/2018 1:30:00 PM
HB 233
SB 116
HB 233 Support Letter Sitnasuak 2018 (005).pdf HFIN 4/9/2018 1:30:00 PM
HB 233
HB 233 Support.pdf HFIN 4/9/2018 1:30:00 PM
HB 233