Legislature(2019 - 2020)ADAMS ROOM 519

04/18/2019 01:30 PM FINANCE

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Audio Topic
01:30:57 PM Start
01:31:37 PM HB79
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Heard & Held
-- Public Testimony --
+ Bills Previously Heard/Scheduled TELECONFERENCED
HOUSE BILL NO. 79                                                                                                             
     "An  Act  relating  to participation  of  certain  peace                                                                   
     officers  and firefighters  in the  defined benefit  and                                                                   
     defined  contribution  plans  of the  Public  Employees'                                                                   
     Retirement  System of  Alaska;  relating to  eligibility                                                                   
     of  peace   officers  and   firefighters  for   medical,                                                                   
     disability,  and death benefits;  relating to  liability                                                                   
     of the  Public Employees'  Retirement System  of Alaska;                                                                   
     and providing for an effective date."                                                                                      
1:31:37 PM                                                                                                                    
REPRESENTATIVE   CHUCK   KOPP,   BILL   SPONSOR,   introduced                                                                   
himself. He  thanked members  for hearing  the bill.  He read                                                                   
from a prepared statement:                                                                                                      
     "Thank  you Co-Chairs  Wilson and  Foster and  committee                                                                   
     members  for hearing  this  bill today  which I  believe                                                                   
     powerfully  addresses both  themes  of our  Legislature,                                                                   
     the public  safety challenges  across our state,  at the                                                                   
     heart  of   which  is  our  recruitment   and  retention                                                                   
     crisis,  and the  budget,  keeping our  fiscal house  in                                                                   
     I  want to  the  thank the  many  municipal and  borough                                                                   
     leaders   across  our   state  who   have  so   strongly                                                                   
     supported   this   effort,   the   Alaska   Professional                                                                   
     Firefighters  Association,  PSEA, Anchorage  Firefighter                                                                   
     Local 1264 and  the APDEA who have worked  for more than                                                                   
     a dozen  years to bring  forward a retirement  plan that                                                                   
     would  keep   our  best  and  brightest   public  safety                                                                   
     employees here  at home, and God forbid  if they perish,                                                                   
     provide  their loved  ones  with a  measure of  security                                                                   
     into the  future. Seated with  me is Tom Wescott  of the                                                                   
     Anchorage Fire Department.                                                                                                 
     I  served 23  years as  a  police officer,  all here  in                                                                   
     Alaska. It  was a great honor to serve  communities from                                                                   
     Kenai, to Anchorage,  to Bristol Bay in  the profession.                                                                   
     The best and  toughest experiences of my  life came with                                                                   
     the job.  It was hard on  my wife and kids, and  hard on                                                                   
     my police family. But I would do it all again.                                                                             
     The job is  different, it begins with an oath  -As a law                                                                   
     enforcement  officer, my  fundamental duty  is to  serve                                                                   
     mankind,  to safeguard  lives and  property; to  protect                                                                   
     the  innocent   against  deception,  the   weak  against                                                                   
     oppression  or intimidation,  and  the peaceful  against                                                                   
     violence    or   disorder;    and    to   respect    the                                                                   
     Constitutional  rights of all  to liberty, equality  and                                                                   
     In  this work You  save people's  lives; solve  terrible                                                                   
     crimes;  walk  with people  through  unbelievable  grief                                                                   
     and  loss; help people  put their  lives back  together,                                                                   
     and if  you're lucky, you  help keep lives  from falling                                                                   
     apart  by  being  ready   and  willing  to  do  what  is                                                                   
     necessary at  the moment it  is needed. But it  comes at                                                                   
     a  cost  to our  men  and  women in  these  professions.                                                                   
     Nobody does  this for the money, frankly,  you can't pay                                                                   
     people  enough  to do  this  job. Run  towards  gunfire.                                                                   
     Fight  violently  with bad  guys. Confront  evil  almost                                                                   
     every  day.  Get hurt.  Risk  your life.  And  sometimes                                                                   
     Police  and firefighters  do all  this together.  We can                                                                   
     bicker  like siblings,  but like  brothers and  sisters,                                                                   
     we are close  as hands and feet. On December  25, 2003 I                                                                   
     was  working  for  the  Kenai   police  department  when                                                                   
     Senior Patrol  Officer John  Watson was shot  and killed                                                                   
     in  the line  of duty,  we  could not  recover his  body                                                                   
     because  the shooter had  a clear view  of a  large area                                                                   
     where he  was gunned down  with nowhere for  approaching                                                                   
     officers  to be  concealed.  It wasn't  police  officers                                                                   
     that helped us,  it was the  Kenai Fire  Department that                                                                   
     drove an Engine  right up to the shooters  residence and                                                                   
     turned  the truck  sidewise blocking  his line of  fire.                                                                   
     This was not  practical, it was not planned,  and it was                                                                   
     not safe. But it was necessary. And they did it.                                                                           
     The  job is  harder  now.  Less political,  public,  and                                                                   
     media  support  for  the  policing  profession,  greatly                                                                   
     increased  liability  for  officers personally  and  for                                                                   
     their municipal  and state  employers. The small  reward                                                                   
     I had  for hanging in there  through the tough  times, a                                                                   
     predictable retirement  benefit, has gone away.  And now                                                                   
     we   have  the   greatest   recruitment  and   retention                                                                   
     challenge  in the  public  safety  professions that  our                                                                   
     state  has ever  seen.  You will  hear  from police  and                                                                   
     fire agencies  from the North  slope to Ketchikan,  from                                                                   
     the Bristol  Bay to  the Kenai  Peninsula that  they are                                                                   
     losing  millions of  dollars  in training  on a  regular                                                                   
     basis  when new  officers and  firefighters leave  after                                                                   
     getting trained  and certified to agencies  that officer                                                                   
     a defined benefit retirement.                                                                                              
     HB  79  takes  the  lessons   we  learned  from  Tier  3                                                                   
     (unfunded  liability due  to unaffordable benefits)  and                                                                   
     Tier  4  (losing  our  employees)   and  brings  forward                                                                   
     something  brand   new  that  avoids  the   pitfalls  of                                                                   
     earlier  plans  and  provides   a  sure  foundation  for                                                                   
     employee   retirement   planning   and   employer   cost                                                                   
     stability into the future.                                                                                                 
     Thank you, Mr.  Chairman. If I may, I would  like to now                                                                   
     turn it over  to Tom Wescott of the  Alaska Professional                                                                   
     Firefighters Association for some remarks."                                                                                
1:36:21 PM                                                                                                                    
TOM WESCOTT, CAPTAIN, ANCHORAGE FIRE DEPARTMENT, read from                                                                      
a prepared statement.                                                                                                           
     "I would  like to  start by  thanking the committee  for                                                                   
     the willingness  to work  on this important  issue. This                                                                   
     is  an issue  that is  important  to the  men and  women                                                                   
     serving  Alaska  in  public  safety  jobs.  It  is  also                                                                   
     important  to  the state  as  it wrestles  with  serious                                                                   
     budget issues  and a desire  to tackle important  public                                                                   
     safety  problems facing  the  state. Having  experienced                                                                   
     and fully  staffed departments  is critical  when taking                                                                   
     on   crime,   handling   the   prison   population,   or                                                                   
     delivering   emergency   medical   care.   Dollars   are                                                                   
     crucial,  and they  are  being siphoned  off  as we  are                                                                   
     forced   to  deal  with   separations  and   an  already                                                                   
     difficult recruiting  process made worse by  our benefit                                                                   
     package. That  is why labor,  and management  are united                                                                   
     in our effort to pass HB 79.                                                                                               
     That brings me  to Tier 4. I will spare  the history and                                                                   
     instead just  stick to the  facts. On the  pension side,                                                                   
     Tier 4  provides a 5  percent 401A match  - less  than a                                                                   
     Social  Security  contribution.   It  does  not  mandate                                                                   
     Social  Security or  SBS  and it  makes no  distinctions                                                                   
     for public  safety careers. You cannot find  a plan like                                                                   
     it anywhere  in the country.  I am aware of  3 different                                                                   
     sets  of modeling  on how  Tier 4 would  perform over  a                                                                   
     career,  and all  paint a  dismal  picture. Our  Actuary                                                                   
     William Fornia  looked at it and predicted  a 31 percent                                                                   
     income replacement after a 25-year career.                                                                                 
     The  Division  of  Retirement and  Benefits  within  the                                                                   
     Department  of Administration  also  did some  modeling,                                                                   
     and they  predicted 38 percent  after a 25-year  career.                                                                   
     The model had  a finite retirement period  vs that being                                                                   
     unknown. If  you outlived their period, you  were out of                                                                   
     Bob Mitchell,  the CIO for the state, ran  scenarios. He                                                                   
     did  not  do  a  model  for  a  25-year  police  officer                                                                   
     without  SBS or Social  Security, but  he did  a 30-year                                                                   
     teacher without  SBS and Social Security  and determined                                                                   
     a high  likely hood  they would  run out  of money  in a                                                                   
     30-year  retirement.  Two  notes  - if  the  average  PS                                                                   
     employee where  to get 30 years they would  be 61 at the                                                                   
     end  of their  career. That  is not  always feasible.  A                                                                   
     Teacher  receive a  higher contribution,  so our  likely                                                                   
     hood  would be  even worse  dues to  the lower  employer                                                                   
     We provided  the legislature  with a  table of  PS plans                                                                   
     from every  state. You cannot  find one like Tier  4 and                                                                   
     no amount of  education or salesmanship will  change the                                                                   
     reality that  the referenced modeling has  exposed, this                                                                   
     is not an adequate plan                                                                                                    
     The described  inadequacy  leads us to  our next  set of                                                                   
     problems the  recruitment and retention of  in demand PS                                                                   
     professionals.  Alaska  is at  a clear  disadvantage  in                                                                   
     this  process. Police  officers  and  paramedics are  in                                                                   
     high demand  across our nation.  we must compete  in the                                                                   
     recruitment  arena and right  now we  are doing  so with                                                                   
     one hand tied behind our backs.                                                                                            
     Once Alaska  agencies find  an employee and  invest time                                                                   
     and  money into then  there is  a need  to keep  them in                                                                   
     order  to get a  ROI. The  troopers have listed  190,000                                                                   
     as the  cost for training  a new trooper. Over  the last                                                                   
     several  years you  have  heard from  DPS  as they  have                                                                   
     described  losing  non-retirement   eligible  employees.                                                                   
     Last year  they testified they  had lost 67 in  the last                                                                   
     3  years  alone.  That  is  nearly  13  million  dollars                                                                   
     walking  out the  door. Correction  this year  testified                                                                   
     to  large numbers  of separation  and  talked about  the                                                                   
     hollowing  out of  their agency.  I am  not here to  say                                                                   
     pension is the  only factor, but it is no  doubt a large                                                                   
     If we  look out into the  future, we can  theorize about                                                                   
     future problems.  What PS  agencies will look  like when                                                                   
     they are  staffed by an  older workforce that  lacks the                                                                   
     financial security  to retire. Tier 4 is too  new to see                                                                   
     the  results,  but we  are  likely  to see  things  like                                                                   
     increased  workers  comp  costs.  According  to  a  rand                                                                   
     study  in  Cal  older employees  in  physical  jobs  are                                                                   
     going   to   get   hurt   more   frequently   and   take                                                                   
     significantly longer  to recover. I am  fast approaching                                                                   
     50  and  I can  tell  you  my  body  feels a  whole  lot                                                                   
     different  after a fire  now than I  did when I  was 34.                                                                   
     We also may  see a struggle to fill upper  management as                                                                   
     we see  some of our best  and brightest leave  when they                                                                   
     should be  moving up the  ranks and becoming  sergeants,                                                                   
     captains, and chiefs.                                                                                                      
     With  these  problems  in mind  we  set  out to  find  a                                                                   
     solution.  A solution that  took into consideration  the                                                                   
     legitimate  concerns  of the  state  and  also the  real                                                                   
     need  for improvement.  We  started  by looking  at  why                                                                   
     certain plans  got into trouble and also  why other plan                                                                   
     avoided  trouble.  How  did the  most  successful  plans                                                                   
     manage to  stay that way.  It was not about  reinventing                                                                   
     the  wheel  but  rather   copying  the  best  ideas  and                                                                   
     avoiding  the bad  ones. You  heard from  R&B on  Monday                                                                   
     that the  state holds  all the risk  in a DB  plan. That                                                                   
     is not HB 79.                                                                                                              
     HB 79 does 3 things:                                                                                                       
         It greatly reduces benefits from Tier 3 levels                                                                      
         It is built of more conservative assumptions                                                                        
         It contains mechanisms to share risk and deal                                                                       
          with adverse experience.                                                                                              
     Benefits reductions:                                                                                                       
     There  are no  paid Pre-Medicare  health premiums  under                                                                   
     HB  79.  Health  care  accounts  for  somewhere  in  the                                                                   
     neighborhood  of  36  percent  of  the  PERS  liability.                                                                   
     Again, Pre-Medicare  premiums are off the  table and 100                                                                   
     percent  on  the  participant. Our  plan  has  identical                                                                   
     medical  benefits  to  Tier  4  -  health  reimbursement                                                                   
     account,  post  Medicare   secondary  coverage  with  25                                                                   
     years  of service.  You  must  be 55  with  20 years  of                                                                   
     service  to   begin  collecting  a  benefit.   The  COLA                                                                   
     benefit  is   removed  (10  percent  for   remaining  in                                                                   
     Alaska).  The  final benefit  is  based  on 5  years  as                                                                   
     opposed to  3 years. This is a larger  smoothing period.                                                                   
     The  plan was  built on  a more  conservative 7  percent                                                                   
     expected  rate  of  return.  The  plan  requires  steady                                                                   
     consistent   funding   from   both  the   employee   and                                                                   
     We allow  for employee's  rates to  adjust upward  to 10                                                                   
     percent but  never below 8 percent. The  post retirement                                                                   
     pension  adjustment  can be  withheld  from retirees  if                                                                   
     the  funding falls  below  90 percent.  When you  couple                                                                   
     all the benefit  reductions with the best  practices and                                                                   
     triggers,  you get  a  reasonable  plan with  reasonable                                                                   
     risk  - A  plan that  greatly reduces  the risk  through                                                                   
     benefit reductions  and more conservative  estimates and                                                                   
     then  has  built  in  mechanisms  to  share  risk  among                                                                   
     employees,  retirees and employers.  This is  unlike any                                                                   
     plan Alaska has seen.                                                                                                      
     Alaska faces  a real problem related to  recruitment and                                                                   
     retention.  It should  not  be shocking  that  employees                                                                   
     are speaking  with their  feet. We  are not exempt  from                                                                   
     the  laws of  economics. If  you offer  the most  frugal                                                                   
     plan  in  the nation,  we  should  not be  shocked  that                                                                   
     individuals  with better options  elect to act  on them.                                                                   
     Sunk  cost is  a real cost.  When individuals  are  in a                                                                   
     defined benefit  plan, they have the sunk  cost of time.                                                                   
     That  is why we  do not  see Tier  3 members leaving  at                                                                   
     the pace of Tier 4.                                                                                                        
     Let me  close by  saying it  is totally appropriate  for                                                                   
     this  committee to consider  risk and  cost. I  only ask                                                                   
     that  both  sides  are  measured.   We  have  heard  the                                                                   
     testimony  on  risk and  cost  and seen  the  documents.                                                                   
     What is  the risk in  maintaining the status  quo? House                                                                   
     Bill 79 has  risk, greatly reduced and  shared but still                                                                   
     risk.  We don't  live  in a  riskless  world. You  can't                                                                   
     walk  across  the  street  with  absolute  certainty.  A                                                                   
     police  officer  walking  into  a  domestic  disturbance                                                                   
     faces  risk, a  corrections officer  handling a  violent                                                                   
     criminal faces  risk, a fire fighter entering  a burning                                                                   
     structure faces  risk. We measure it and  then deal with                                                                   
     it  appropriately,  and  that  is  what we  ask  of  the                                                                   
     The  problems   are  real.  Management  and   Labor  are                                                                   
     speaking  with one voice  on this  issue. House  Bill 79                                                                   
     is the  result of years  of work.  It is a well  thought                                                                   
     out,  well-constructed  plan that  is  built to  address                                                                   
     the   problems   Alaska  faces.   I   look  forward   to                                                                   
     addressing the  committee's questions and  concerns, and                                                                   
     again I  thank you for taking  the time to work  on this                                                                   
     important issue."                                                                                                          
1:46:19 PM                                                                                                                    
WILLIAM FORNIA, ACTUARY, FELLOW OF THE SOCIETY OF ACTUARIES                                                                     
(via teleconference), introduced himself and the PowerPoint                                                                     
presentation: "Alaska Public Safety Pension Fix: HB 79."                                                                        
Mr. Fornia reviewed his credentials on slide 2 titled                                                                           
"William B. Fornia, FSA Credentials":                                                                                           
       Highest Actuarial Credentials  Fellow of the                                                                             
       Society of Actuaries (1986)                                                                                              
       Enrolled Actuary under ERISA (1984)                                                                                      
     Member of the American Academy of Actuaries (1983)                                                                         
       Active in national actuarial organizations                                                                               
      (elected to SOA board)                                                                                                    
       Author  and Frequent  Speaker    "Still A Better  Bang                                                                   
     for  the Buck"  (with National  Institute on  Retirement                                                                   
     Security), 2014                                                                                                            
       "Are California Teachers Better off with a Pension                                                                       
        or 401(k)" University of California Berkeley Labor                                                                      
        Center and Journal of Retirement, 2016                                                                                  
       Frequent Testimony to Legislatures  and City Councils                                                                    
        Regular  Expert Witness  (Detroit,  Stockton,  Puerto                                                                   
Mr. Fornia discussed a sample of his work history listed on                                                                     
slide 3 titled "Sample Work History":                                                                                           
        Corporate  actuary  for  Boeing  1980-1984     Alaska                                                                   
     related experience    ARMB first ongoing  review actuary                                                                   
       Audited Alaska PERS/TRS actuarial valuations 2009                                                                        
       Former  leader of Buck Consultants'  Denver retirement                                                                   
        Advisors  to  labor  groups   since  2011,  including                                                                   
        Consulting  services   for  22  statewide  retirement                                                                   
     systems  in Alaska,  Colorado,  Missouri, North  Dakota,                                                                   
     Oklahoma,   Puerto  Rico,   Utah,  Texas,  Wyoming   and                                                                   
     others.    Served as  system actuary  for most  of these                                                                   
     (including CO, MO, ND, OK,WY)                                                                                              
       Ongoing  consultant to Ohio Retirement  Study Council,                                                                   
     including reform                                                                                                           
       Expert  testimony and consulting for  pension systems,                                                                   
     governments, and labor groups                                                                                              
        Other clients  have  included  the US  Department  of                                                                   
     State, Cities  of Baltimore, New York  and Philadelphia,                                                                   
     IBM, US WEST and Ford                                                                                                      
1:50:13 PM                                                                                                                    
Vice-Chair Johnston asked what kind of expert witness Mr.                                                                       
Fornia had been. [Mr. Fornia's phone connection was lost.]                                                                      
1:51:28 PM                                                                                                                    
AT EASE                                                                                                                         
1:52:24 PM                                                                                                                    
Vice-Chair   Johnston  repeated   her   question  about   Mr.                                                                   
Fornia's expert  witness testimony. Mr. Fornia  answered that                                                                   
in Detroit  he had  been hired  by an  overseas banker  about                                                                   
the pension  obligation  bonds that they  purchased from  the                                                                   
city  regarding  the  city's declaration  of  bankruptcy.  He                                                                   
testified  in federal bankruptcy  court  on their behalf.  He                                                                   
explained that the  City of Stockton had  declared bankruptcy                                                                   
and  he was  hired by  the municipal  bond  insurers. He  had                                                                   
also worked for the pension fund for Puerto Rico.                                                                               
1:55:27 PM                                                                                                                    
Mr.  Fornia  continued  to slide  4:  "Alaska  Public  Safety                                                                   
Pension Fix."                                                                                                                   
       Why is change necessary?                                                                                                 
     ? Proposed structure of Public Safety Pension Fix                                                                          
     ? Illustration of Financial Projections                                                                                    
Mr. Fornia examined  slide 5: "Why is change  necessary? Tier                                                                   
3 provided adequate benefits; Tier 4 does not."                                                                                 
   Typical Average Pension Illustration for Police & Fire                                                                       
     Hire Age 31                                                                                                                
     Retirement Age 56                                                                                                          
     Years of Service 25                                                                                                        
     DB Benefit as Percent of Final Average                                                                                     
     Compensation (based on Tier 3 provisions) 57%                                                                              
    DCR Benefit as Percent of Final Average Compensation                                                                        
     (calculated based on reduced return and uncertain                                                                          
     longevity) 31%                                                                                                             
     Reduction of Benefit % due to DCR program 26%                                                                              
Mr.   Fornia   indicated  that   the   Defined   Contribution                                                                   
Retirement  (DCR) would  only  return 31  percent  of pay  in                                                                   
retirement  compared to 57  percent based  on Tier  3 Defined                                                                   
Benefit  (DB) provisions.  He  emphasized  that  it would  be                                                                   
difficult  to  retire on  the  DCR  amount. He  continued  to                                                                   
slide   6:   "Illustration   of    hypothetical   police/fire                                                                   
benefits: $80,000  Final Average  Salary." He pointed  to the                                                                   
chart  that   showed  a  25   year  employee   would  receive                                                                   
approximately $46  thousand in retirement under   Tier 3, $25                                                                   
thousand  under   Tier  4  and  $21  thousand   under  Social                                                                   
Security.  He  highlighted  that  Tier 4  was  only  slightly                                                                   
better  than   Social  Security  benefits,  which   were  not                                                                   
eligible under the state plans.                                                                                                 
Mr.  Fornia  discussed  slide 7  titled  "Key  Considerations                                                                   
with PSF":                                                                                                                      
     ? DB Plans are more cost effective at providing                                                                            
       retirement benefits                                                                                                      
       DB pension plans pool "longevity risks"                                                                                  
       DB pension plans can maintain a better diversified                                                                       
       portfolio because, unlike individuals, they do not                                                                       
       DB pension plans achieve better investment returns                                                                       
       because of professional asset management and lower                                                                       
     ? DC Plans are more consistent with individual                                                                             
       Benefit is a clearly defined contribution from the                                                                       
       employer and employee to a trust                                                                                         
       Benefit is more under the control and full ownership                                                                     
       of the individual                                                                                                        
       Benefit is much more portable                                                                                            
       No risk of unfunded liabilities to employer                                                                              
Mr. Fornia  pointed out  that the chart  showed the  pros and                                                                   
cons  per  plan.  He  explained   that  DC  plans  pay  large                                                                   
bequests  for employees  who die shortly  after they  retire,                                                                   
and  DB plans  do  not due  to  pooling longevity  risks.  He                                                                   
reported that the  advantages to the DC plan  was the absence                                                                   
of  risk   to  the  employer   of  assuming  an   underfunded                                                                   
liability, but  poor returns  merely shifted the  underfunded                                                                   
liability risk to the employee.                                                                                                 
2:01:01 PM                                                                                                                    
Co-Chair  Wilson asked  what other  states  offered the  plan                                                                   
Mr. Fornia  was suggesting. Mr.  Fornia responded  that every                                                                   
state  had  differently  structured plans.  He  offered  that                                                                   
South  Dakota  and  Wisconsin   had  similar  plans  but  not                                                                   
identical  to the  proposed plan.  Co-Chair  Wilson asked  if                                                                   
any  other states  had similar  plans currently  in use.  Mr.                                                                   
Fornia responded  that South Dakota, Wisconsin,  and Colorado                                                                   
all  had similar  plans  already  in place.  Co-Chair  Wilson                                                                   
asked if Wisconsin  currently had an unfunded  liability. Mr.                                                                   
Fornia  could not  recall  but  he thought  the  plan was  at                                                                   
least  95 percent  funded.  He  knew that  the  contributions                                                                   
were stable. He  added that any plan could go  above or below                                                                   
its  liability. He  relayed  that any  plan  would have  risk                                                                   
over a long  period of time, but  the solution was  to act in                                                                   
the bad years and avoid complacency in the good years.                                                                          
2:05:44 PM                                                                                                                    
Mr.  Fornia reviewed  slide  8  titled "How  HB  79 struck  a                                                                   
     ? Start with 12% fixed employer contribution and                                                                           
       manage plan within that target as possible                                                                               
     ? Design current target benefit levels                                                                                     
       Consider benefits provided by DCR and latest Mr.                                                                         
     ? Build in benefit and/or employee contribution                                                                            
       adjustment mechanisms                                                                                                    
     ? Utilize lower discount rate to provide cushion                                                                           
       against adverse experience                                                                                               
Mr.  Fornia addressed  the last  bullet  point. He  explained                                                                   
that  actuaries used  an assumed  rate  of investment  return                                                                   
when   measuring  the   unfunded   liability  and   typically                                                                   
actuaries  had been  too  optimistic.  He built  the  current                                                                   
plan based on a  7 percent rate of return. He  thought it was                                                                   
important to estimate returns conservatively.                                                                                   
Co-Chair  Wilson asked  if he  knew what  the fixed  employer                                                                   
contribution  was  for  the  State   of  Alaska.  Mr.  Fornia                                                                   
answered  that  the  current  employer  contribution  was  22                                                                   
2:07:57 PM                                                                                                                    
AT EASE                                                                                                                         
2:10:56 PM                                                                                                                    
Co-Chair  Wilson  interjected  that  the  state  had  several                                                                   
tiers  of pension  plans and  was  currently on  Tier 4.  She                                                                   
wanted   to   have  a   comparison   between   the   employer                                                                   
contribution in Tier 4 versus the plan in HB 79.                                                                                
Mr. Wescott indicated  that the Tier 4  employer contribution                                                                   
was  roughly  8.5  percent. The  difference  between  Tier  4                                                                   
versus the proposed plan in HB 79 was about 3.5 percent.                                                                        
Co-Chair  Wilson  asked  whether   the  employees  under  the                                                                   
proposed  plan would contribute  the same  percentage  of pay                                                                   
as employees currently under the Tier 4 plan.                                                                                   
2:13:38 PM                                                                                                                    
KATHY  LEE, CHIEF  PENSION  OFFICER, DIVISION  OF  RETIREMENT                                                                   
AND    BENEFITS,    DEPARTMENT   OF    ADMINISTRATION    (via                                                                   
teleconference),  clarified that  the Tier  4 members  do not                                                                   
pay  anything towards  the unfunded  liability  of the  other                                                                   
tiers.  The employer  contributed  5 percent  and  additional                                                                   
contributions   for    the   retiree   medical    plan,   the                                                                   
occupational   death  and  disability   plan  totaling   6.70                                                                   
percent,  and  the  health  reimbursement  arrangement  plan,                                                                   
which  was a  flat  dollar  amount totaling  approximately  8                                                                   
percent.  She  furthered  that  employers  were  required  to                                                                   
contribute 22 percent  and anything over the  amount required                                                                   
under the DCR  plan was used towards the  unfunded liability.                                                                   
The proposed  plan in HB  79 excluded employer  contributions                                                                   
toward the unfunded liability.                                                                                                  
Vice-Chair Johnston  clarified that  the pilot program  in HB                                                                   
79  would not  pay  toward the  unfunded  liability. Ms.  Lee                                                                   
responded that her  statement was accurate, and  the employer                                                                   
contribution  was 12 percent.  Vice-Chair Johnston  looked at                                                                   
the  fiscal  note   and  asked  whether  the   Department  of                                                                   
Administration  (DOA)  addressed  the  issue  in  the  fiscal                                                                   
note.  Ms.   Lee  responded  that   DOA  had   not  currently                                                                   
submitted an actuarial  fiscal note. The fiscal  note she was                                                                   
referring  to  was  for  administrative  costs  and  she  had                                                                   
recently  learned that  the actuarial  fiscal  note would  be                                                                   
available in the following two weeks.                                                                                           
2:16:20 PM                                                                                                                    
Representative  Kopp  drew attention  to  section  16 of  the                                                                   
bill on  lines 20-21 that  stated the increased  contribution                                                                   
rates   were  included   to  cover   the  accrued   actuarial                                                                   
liability.    The contribution  rate  was  set  at up  to  12                                                                   
percent by the  Alaska Retirement Management (ARM)  Board and                                                                   
any remainder would be directed  to the unfunded liability.                                                                     
Mr. Wescott  corrected that the  "intention of the  bill" was                                                                   
to continue  collecting 22 percent  with 12 percent  going to                                                                   
the Public Safety  Fix (PSF) plan and the remainder  would go                                                                   
towards the unfunded liability.                                                                                                 
Vice-Chair Johnston  summarized that the employee  rate would                                                                   
be discounted,  and the employer's  amount would  not change.                                                                   
Mr.   Wescott  maintained   that   Vice-Chair  Johnston   was                                                                   
Co-Chair  Wilson requested  a side  by side  analysis of  the                                                                   
plans from the division.                                                                                                        
2:18:56 PM                                                                                                                    
Representative  Josephson asked  about the  new "Tier  5" and                                                                   
whether Tier  4 employees  would be allowed  to buy  into the                                                                   
new plan. Representative  Kopp relayed that Tier  4 employees                                                                   
would have  an opportunity to  buy into the plan.  He thought                                                                   
that   only   a  "subset   of   eligible   employees"   would                                                                   
participate   in  the   plan,  because   it  would  be   more                                                                   
attractive to  new hires. Mr.  Fornia interjected  that slide                                                                   
12 showed how it would work.                                                                                                    
Co-Chair  Wilson asked  Ms. Lee  on how the  plan will  "play                                                                   
out"  15 years  in the  future.  Ms. Lee  indicated that  the                                                                   
actuary report  would predict  the following 5  fiscal years.                                                                   
Co-Chair  Wilson asked  why the  actuary  could not  forecast                                                                   
farther than 5  years. Ms. Lee indicated they  could possibly                                                                   
extend  out to  10  years, but  no further.  Co-Chair  Wilson                                                                   
requested the 10 year actuarial outlook.                                                                                        
2:21:11 PM                                                                                                                    
Representative  Carpenter  suggested   that  since  the  plan                                                                   
would cover  new hires no one  would retire within  the first                                                                   
10 years.  He deduced that the  period to analyze  was beyond                                                                   
10 years.                                                                                                                       
Co-Chair Wilson did  not understand why the  actuary was only                                                                   
looking  at a  10 year  period if  it wasn't  enough time  to                                                                   
provide  answers regarding  any unfunded  liability. Ms.  Lee                                                                   
relayed  that the actuary  was not  comfortable going  beyond                                                                   
10  years.  She  could  request that  the  actuary  offer  an                                                                   
opinion  concerning  how  the  "levers"  in  the  plan  would                                                                   
address  an  unfunded  liability.  Co-Chair  Wilson  wondered                                                                   
whether  Representative  Carpenter's  deduction  was  correct                                                                   
and if  there was  a way  to get  such an  analysis. Ms.  Lee                                                                   
answered in  the negative since  the data did not  exist. She                                                                   
could  ask  the actuaries  if  they  could  look at  how  the                                                                   
proposed  plan would address  ongoing liability  past  the 10                                                                   
year  period.  The  bill included  "some  levers"  to  adjust                                                                   
contribution rates  and cost of  living rates if  the funding                                                                   
was impaired.                                                                                                                   
Mr.  Fornia responded  that the  unfunded  liability was  the                                                                   
projection of future  benefits and much information  would be                                                                   
available in 10  years regardless of whether  anyone retired.                                                                   
He  delineated   that  the  actuaries  measured   all  future                                                                   
anticipated  events. While  there  would be  a projection  of                                                                   
the  fiscal impact  in  the following  5  years, he  believed                                                                   
that it would  be beneficial to extend the  analysis out into                                                                   
the  future. Over  the years  if the  fund was  significantly                                                                   
underfunded,  the state  would be  able to  react. The  state                                                                   
would likely  manage the  plan proactively  within a  15-year                                                                   
timeframe.  He encouraged  the actuarial  firm to review  his                                                                   
projections  as well as  the plan  projections well  into the                                                                   
Co-Chair  Wilson   commented  that  the  state   was  already                                                                   
carrying  a $300  million unfunded  liability  and wanted  to                                                                   
tread very carefully.                                                                                                           
Representative   Kopp   commented  that   Co-Chair   Wilson's                                                                   
caution  was well  taken.  He  highlighted that  the  current                                                                   
liability applied  to all state employees. The  pilot program                                                                   
was much smaller than the total pool.                                                                                           
2:26:55 PM                                                                                                                    
Mr. Fornia turned  to slide 9: "Plan Comparison."   The chart                                                                   
showed a  comparison of plans  between Tier 3  Public Safety,                                                                   
Tier   4  and   PSF.   He   delineated  that   the   employer                                                                   
contribution with  the PSF plan  was 22 percent with  no less                                                                   
than 12  percent going  to PSF.  The largest  change was  the                                                                   
retirement  age  of 55  with  20  years  or 60  without.  The                                                                   
benefit multipliers  were the  same as  Tier 3 Public  Safety                                                                   
and  Tier 4.  The final  average pay  that was  based on  the                                                                   
highest  3 years  under Tier  3 was  based on  the highest  5                                                                   
years  under  PSF. The  COLA  was  eliminated under  the  PSF                                                                   
2:28:09 PM                                                                                                                    
Mr.  Fornia  continued  to  review  the  plan  comparison  on                                                                   
slide 10. The  Post-Retirement Pension Adjustment  (PRPA) was                                                                   
Automatic for disabled,  over 60 and 5 years  retired but for                                                                   
PSF   the  benefits were  the  same as  Tier 3  but could  be                                                                   
withheld if  plan funding  is below  90 percent. The  medical                                                                   
coverage and disability would remain the same as Tier 4.                                                                        
2:28:50 PM                                                                                                                    
Mr. Fornia  reviewed slide  11 titled  "The Changes  from the                                                                   
Old Data Base System":                                                                                                          
     ? Removal of full medical coverage                                                                                         
   ? Funding level built on more conservative 7% rate of                                                                        
       return vs current 7.38% ARM board uses                                                                                   
     ? Employee contribution can adjust upward from 8% to                                                                       
       10% ? COLA benefit is eliminated                                                                                         
   ? PPRA is not automatic and can be withheld if funding                                                                       
       level is below 90%                                                                                                       
     ? Minimum age of 55 year old                                                                                               
   ? Final average salary is based on high 5 year instead                                                                       
       of high 3 years                                                                                                          
Co-Chair  Wilson  referred  to   slide  10  and  asked  about                                                                   
disability. She  reminded Mr. Fornia that he  stated coverage                                                                   
would remain  the same as  Tier 4 and  the slide  showed Tier                                                                   
3. She wondered  what was correct. Mr. Fornia  clarified that                                                                   
Tier 3 and Tier 4 coverage was very similar.                                                                                    
Mr. Wescott  interjected that Tier  4 provided an  option for                                                                   
the employee  to opt  back to  Tier 3 for  40 percent  of the                                                                   
gross  monthly   compensation  and  the  employer   paid  the                                                                   
contribution.  He furthered  that when  the employee  reached                                                                   
retirement age at  25 years of service the  person would have                                                                   
the  option to  continue  with  the 40  percent  or take  the                                                                   
amount accumulated under their Tier 4 account.                                                                                  
2:31:26 PM                                                                                                                    
Mr.  Fornia  advanced to  slide  12  titled "Current  Tier  4                                                                   
members transferring into plan":                                                                                                
     ? ARM board will create an actuarially equivalent                                                                          
       formula for purchasing time.                                                                                             
   ? Individual will have 90 days from implementation to                                                                        
       decide on joining plan                                                                                                   
     ? Individual can use their Tier 4 DC account to                                                                            
       purchase service credit or start from 0.                                                                                 
     ? Tier 4 balance may not be enough to cover actual                                                                         
       time employed                                                                                                            
   ? Example individual with 6 years and $100,000 balance                                                                       
       in Tier 4. ARM board determines the cost of                                                                              
       purchasing 6 years is $120,000. Individual could                                                                         
       elect to just purchase 5 years or pay the difference                                                                     
       between the two amounts and purchase the 6 years.                                                                        
Mr. Fornia  detailed slide  13 and  slide 14 titled  "Benefit                                                                   
Comparison."  He shared that  the left  portion of  the slide                                                                   
pertained  to  Tier  III  and   the  right  side  showed  the                                                                   
proposed  public  safety  fix.   He  highlighted  the  public                                                                   
safety fix attributes as follows:                                                                                               
     Public Safety Fix:                                                                                                         
          Final average salary - final 5 high=$95,564                                                                           
          25 years at age 55 - 57.5%x $95,564=$54,949/12=4,579 monthly                                                          
          No COLA                                                                                                               
      Same Formula and criteria, but PRPA is withheld                                                                           
          whenever fund falls below 90% funded.                                                                                 
          HRA = 3% contribution and market return over career.                                                                  
          Defined contribution benefit.                                                                                         
          Health care only after Medicare eligibility                                                                           
          Final Benefit retiree and spouse =                                                                                    
          $54,949 pension + fixed HRA amount                                                                                    
          Final Benefit Retiree and family = Same as above                                                                      
Mr. Fornia  summarized  the slides. He  highlighted that  the                                                                   
PSF benefits  were not  as generous as  the Tier  3 benefits.                                                                   
He specified  the final  average salary  differences;  Tier 3                                                                   
offered  a  final  high  3 year  average  salary  of  $98.374                                                                   
thousand versus  the fix plan at  the 5 year average  high of                                                                   
$95,564. He  noted the Tier 3  final benefit for  the retiree                                                                   
and spouse  receiving a  $56.565 thousand  pension plus  $5.6                                                                   
thousand of  COLA and $19.764  thousand in  medical  benefits                                                                   
totaling $81.985 versus the final PSF pension noted above.                                                                      
2:34:40 PM                                                                                                                    
Co-Chair  Wilson  interjected  that  Tier  3  was  no  longer                                                                   
available. Mr. Fornia  replied that the comparison  to Tier 3                                                                   
was to  demonstrate that PSF would  be more stable  than Tier                                                                   
Representative  Carpenter   asked  if  the   $95,000  average                                                                   
salary was  accurate for Alaska  employees. Ms.  Lee answered                                                                   
that  it was a  reasonable  high for  a 3 or  5 year  average                                                                   
over a long career.                                                                                                             
Mr. Fornia  moved to  slide 15  titled "Safeguard #1:  Reduce                                                                   
benefits vis--vis Tier 3":                                                                                                      
     ? Minimum Age 55 eligibility                                                                                               
     ? Five year average salary                                                                                                 
     ? Eliminate Alaska 10% COLA                                                                                                
   ? Suspend Post-Retirement Pension Adjustment when not                                                                        
     ? Increase employee and employer contributions up to                                                                       
       2% each if not well funded                                                                                               
Mr. Fornia  noted that the idea  was to do what  was possible                                                                   
to avoid an unfunded liability.                                                                                                 
2:37:03 PM                                                                                                                    
Mr.  Fornia  addressed  slide  16  titled  "Preliminary  Cost                                                                   
Estimates."   He  reported  that   the  chart  depicted   the                                                                   
estimated cost  of the proposed  Tier 5. The baseline  Tier 3                                                                   
Public Safety  Plan based  on a return  of 8 percent  cost 17                                                                   
.3 percent of  pay based on its defined benefit  features. He                                                                   
directed attention  to the middle  column Based on  7 percent                                                                   
return and 0.62  percent drop in inflation for  PSF. The plan                                                                   
differences  from  Tier  3  saved  the  following  percentage                                                                   
points for  the Minimum  Age 55  Retirement Eligibility,  1.3                                                                   
percent;  Average   Earnings  Period   to  Five   Years,  0.7                                                                   
percent;  Eliminate  COLA,  0.7  percent;  Withhold  PRPA  if                                                                   
Underfunded, up to 2 percent; and if underfunded would                                                                          
Increase  Employee/Employer Contributions  up  to 4  percent.                                                                   
He reported  that the  Public Safety  Fix Pension Cost  would                                                                   
be  15.7 percent  and  was  contributing 16.9  percent  after                                                                   
health care  cost resulting in  a Contribution Margin  of 1.2                                                                   
percent and  an Additional Margin  for Adverse  Experience of                                                                   
6 percent.  He favored  margins that  minimized the  downside                                                                   
2:39:01 PM                                                                                                                    
Mr.  Fornia  turned   to  slide  17  titled   "Safeguard  #2:                                                                   
Actuarial Methods":                                                                                                             
     ? Build in margin in actuarial assumptions                                                                                 
     ? Build reserves in good times to provide added                                                                            
       funding during bad times                                                                                                 
     ? Compare 12% + 8% = 20% contributions with costs                                                                          
       15.9% for pension based on 7% returns                                                                                    
       HRA & Medicare Supplement are another 3.1%                                                                               
       This provides cushion of 1.0%                                                                                            
       Additional 6.0% available through PRPA suspension                                                                        
       and additional 2%+2% employee and employer                                                                               
Mr.  Fornia  advanced  to  slide  18  titled  "Safeguard  #3:                                                                   
Reduced Discount Rate":                                                                                                         
       Target the pension and health care benefits to be                                                                        
       equal to latest tier DB                                                                                                  
     ? Determine the costs based on 7% discount rate rather                                                                     
       than 8% or 7.38% assumed by PERS actuary                                                                                 
     ? Seek additional funding for this level, and then                                                                         
       commit to this fixed employer contribution rate                                                                          
       going forward                                                                                                            
       This is 12% employer contribution for Police and                                                                         
       Fire employers                                                                                                           
       This is 8% to 10% employer contribution for                                                                              
     ? Monitor experience and adjust benefits and/or                                                                            
       Contributions as necessary going forward                                                                                 
Mr. Fornia  restated that he wanted  to ensure that  the plan                                                                   
was structured  conservatively. The slide showed  the reduced                                                                   
discount rate. Historically  the return was based  on an 8.25                                                                   
percent  rate.  The  actuaries  had suggested  an  8  percent                                                                   
rate.  However,   he  employed  a   7  percent  rate   to  be                                                                   
conservative. He  reminded the committee that  benefits would                                                                   
be adjusted downward at a 90 percent funding level.                                                                             
2:40:31 PM                                                                                                                    
Mr.   Fornia  discussed   slide  19   titled  "Benefit   Plan                                                                   
Simulations - Baseline":                                                                                                        
     ? We modelled how plan might have worked under various                                                                     
     ? If fund earns 6.6% for next ten years, as ARMB                                                                           
       investment consultant estimates, then 7.38%                                                                              
       (consistent with long-term PERS actuarial                                                                                
       consultants) thereafter                                                                                                  
       Plan will grow to 107% funded by 20 years                                                                                
       Never below 100% funded                                                                                                  
       Funded ratios based on conservative 7.00%                                                                                
     ? Current actuary uses 7.38%                                                                                               
Mr. Fornia related  that the following 10 slides  showed plan                                                                   
Mr.   Fornia  reviewed   slide   20  titled   "Benefit   Plan                                                                   
Simulations - Historical":                                                                                                      
   ? We modelled how plan might have worked under various                                                                       
       returns consistent with PERS returns                                                                                     
     ? Considering each 20 year period from 1980-2000 to                                                                        
       Median case was if 1994-2004 was replicated                                                                              
     ? Never falls below 90%                                                                                                    
       Worst case was if 1998-2008 was replicated                                                                               
     ? Falls below 90% for 2 of those 20 years, by end                                                                          
       would be 99% funded                                                                                                      
       75%ile best case was if 1985-2005 replicate                                                                              
     ? Would be 133% funded after 20 years                                                                                      
Mr. Fornia noted  that the slide contained an  error and 2008                                                                   
should read 2018.                                                                                                               
2:42:21 PM                                                                                                                    
Mr.  Fornia turned  to  the graph  showing  the benefit  plan                                                                   
simulations  based on  historical  information  on slide  21.                                                                   
The  orange line  represented  the average  median case  from                                                                   
1994 to  2014. The average case  depicted the plan  funded at                                                                   
130 percent  in year six and  began to fall in  2008 dropping                                                                   
to the  current 100 percent  funded. The grey  line, starting                                                                   
in 1998  represented  the worst-case  scenario dipping  twice                                                                   
when  the market  dropped in  year  three and  again in  2008                                                                   
leaving  the plan  funded under  90 percent  in 2014. The  90                                                                   
percent  triggers would  have  been activated  that  included                                                                   
increasing  employee  contributions   by  one  half  percent,                                                                   
helping  the plan  recover by  2018  in year  20. The  yellow                                                                   
line depicted  the 75th  percentile best  case scenario  that                                                                   
he favored. The  plan would have started in  1985 and reached                                                                   
a funding  level of 160  percent by year  15, falling  to 125                                                                   
percent  funded after  one market  crash.  He indicated  that                                                                   
the  current slide  and  slides 22  through  25 attempted  to                                                                   
depict what happened to the plans in the real world.                                                                            
2:45:58 PM                                                                                                                    
Representative  Josephson  suggested   that  there  were  two                                                                   
triggers.  The first  trigger  eliminated the  COLA (Cost  of                                                                   
Living  Allowance)  and the  second  bumped up  the  employee                                                                   
contribution.  Mr. Fornia  answered that  "one trigger  fired                                                                   
three  guns." He  explained that  the  trigger suspended  the                                                                   
inflation  adjustment,  increased the  employee  contribution                                                                   
by   up  to   2   percent,  and   bumped   up  the   employer                                                                   
contribution.  The Alaska Retirement  Management (ARM)  Board                                                                   
had the  discretion to  control the  levers and activate  the                                                                   
triggers  according to  the situation.  He  deduced that  the                                                                   
plan's main  cost savers  beside the  triggers were  that the                                                                   
plan did  not supply health care  between the ages of  55 and                                                                   
65  and postponed  retirement  by  some measure.  Mr.  Fornia                                                                   
responded  in the  affirmative. He  elaborated that  delaying                                                                   
retirement  until age  55 for  young  hires "saved  a ton  of                                                                   
Representative  Carpenter  asked   about  the  activation  of                                                                   
triggers  and who was  responsible for  triggering them.  Mr.                                                                   
Fornia  responded that  the triggers  would  be activated  by                                                                   
the ARM  Board. He explained  that the state's  actuary would                                                                   
forecast the  plan's performance  and suggest the  activation                                                                   
of  triggers  if  necessary.   The  ARM  Board  had  complete                                                                   
discretion on how to activate the triggers.                                                                                     
2:50:26 PM                                                                                                                    
Representative  Carpenter  suggested   that  the  legislature                                                                   
would not have  chosen the previous plans had  someone warned                                                                   
of  the  unfunded  liability the  state  currently  had.  Mr.                                                                   
Fornia was  not sure how the  state made its  prior decisions                                                                   
regarding the state's retirement plans.                                                                                         
Co-Chair Wilson  commented that  the current legislature  was                                                                   
not present  when the  prior decisions  were made which  made                                                                   
them  wary of  the  predictions for  the  performance of  the                                                                   
pension fix plan.                                                                                                               
Representative  Kopp noted  that  he was  the active  manager                                                                   
for the City  of Kenai during the previous  pension plans. He                                                                   
recalled  that there was  "passive management  of the  trust"                                                                   
and active  audits were  not performed;  actuaries were  sued                                                                   
over their inaccurate  guidance. He concluded that  the state                                                                   
"learned a lot of lessons" from prior management issues.                                                                        
Vice-Chair Johnston  reported that  the problems of  the past                                                                   
were caused  by a  huge actuarial issue  and by placing  many                                                                   
different funds "into one basket."                                                                                              
Representative  Josephson commented  that the bill  responded                                                                   
to the problems  of the past by the postponed  retirement and                                                                   
healthcare   benefits  and  triggers   and  adjustments.   He                                                                   
observed  that   the  plan  required  retiree   participation                                                                   
through  the adjustment  mechanisms and  felt that  it was  a                                                                   
substantial concession by the supporters of the plan.                                                                           
2:53:28 PM                                                                                                                    
Representative   Kopp  responded   in  the  affirmative.   He                                                                   
believed the concession  was significant. He relayed  his own                                                                   
personal  experience  about  retiring   at  age  44  and  the                                                                   
ability  to receive benefits.  He presumed  that the  benefit                                                                   
gap would  be a hardship. He  offered that the  proposed plan                                                                   
was significantly different than the prior plans.                                                                               
Co-Chair  Wilson   halted  the   presentation  due   to  time                                                                   
2:54:41 PM                                                                                                                    
Co-Chair Wilson OPENED Public Testimony.                                                                                        
2:55:05 PM                                                                                                                    
PAUL MIRANDA,  ALASKA  PROFESSIONAL FIREFIGHTERS,  ANCHORAGE,                                                                   
read a prepared statement:                                                                                                      
     "My name is  Paul Miranda, and I am testifying  today on                                                                   
     behalf   of   the   Alaska   Professional   Firefighters                                                                   
     Association. I  am also an 8-year  Firefighter/Paramedic                                                                   
     with  the  Anchorage  Fire   Department  and  a  Tier  4                                                                   
     Thank  you for  the opportunity  to  testify before  you                                                                   
     I would  like to  say thank  you to Representative  Kopp                                                                   
     and  his staff  for  their  work on  House  Bill 79  and                                                                   
     thank you to the committee for hearing this bill.                                                                          
     In  2006  Alaska   began  placing  all  new   state  and                                                                   
     municipal  employees into  the new defined  contribution                                                                   
     plan known as Tier 4.                                                                                                      
     Since the  change to Tier  4, our state  has experienced                                                                   
     many  unintended  consequences.   Perhaps  the  clearest                                                                   
     consequence is  the competitive disadvantage  Alaska now                                                                   
     faces   in  recruiting  and   retaining  public   safety                                                                   
     employees.   This  problem   is  widespread   throughout                                                                   
     Alaska's  Fire  and  Police  Departments.  It  has  been                                                                   
     brought to  our attention in many letters  from Fire and                                                                   
     Police  Chiefs   from  across  the  state   as  well  as                                                                   
     extensive  testimony   in  House  Labor   and  Commerce.                                                                   
     Alaska  is the  only state  in  our country  to offer  a                                                                   
     mandatory  defined   contribution  retirement   plan  to                                                                   
     public  safety  employees,   and  several  jurisdictions                                                                   
     across  the   country  have  switched  from   a  defined                                                                   
     contribution  plan  back   to  a  defined  benefit  plan                                                                   
     specifically  to address the  same problems that  we are                                                                   
     now seeing in Alaska.                                                                                                      
     Another unintended  consequence from the switch  to Tier                                                                   
     4  is  the  lack of  retirement  security  that  Tier  4                                                                   
     provides for  our public safety employees,  who dedicate                                                                   
     a  career to  serving Alaska  in jobs  that take a  very                                                                   
     physical  and mental toll.  For years, our  professional                                                                   
     actuary has told  us that Tier 4 will  be inadequate for                                                                   
     public safety  in retirement, however this  has now been                                                                   
     validated by  testimony of the State  Investment Officer                                                                   
     at a  2018 Alaska  Retirement Management Board  meeting,                                                                   
     as well  as additional  predictions from the  Department                                                                   
     of  Administration. There  is  no longer  a question  of                                                                   
     whether  Tier 4  works  for public  safety    it  simply                                                                   
     does not.  To make matters  worse, most firefighters  in                                                                   
     Alaska  do  not receive  social  security  or SBS.  They                                                                   
     only receive a 5% contribution to a 401A account.                                                                          
     To  be clear, for  Alaska's firefighters,  the State  of                                                                   
     Alaska  contributes  less   to  our  Tier  4  retirement                                                                   
     accounts  than a social  security contribution  would be                                                                   
     in the  private sector.  Let that sink  in. This  is the                                                                   
     value   that  the   state  has  placed   on  our   first                                                                   
     I have heard  people say that most of  the problems with                                                                   
     recruitment  and   retention  are  due  to   a  lack  of                                                                   
     information   or  education   of  employees  about   the                                                                   
     benefits of  their DC plan.  I am here to  disagree. The                                                                   
     more  I learn about  Tier 4,  the worse  it looks.  I AM                                                                   
     educated,  and no amount  of education will  convince me                                                                   
     that  Tier  4  is  adequate for  public  safety,  or  is                                                                   
     competitive with what other agencies                                                                                       
     offer their employees.                                                                                                     
     House  Bill 79 aims  to make  Alaska competitive  in the                                                                   
     hiring and  retaining of public safety employees.  It is                                                                   
     a  conservative  plan built  by incorporating  the  best                                                                   
     practices of  some of the  most successful plans  in our                                                                   
     country.  It works  to provide  reasonable,  competitive                                                                   
     benefits  and at the  same time  protect the state  from                                                                   
     adverse experience.  It starts out  by being built  on a                                                                   
     7  percent  expected  rate   of  return.  This  is  more                                                                   
     conservative  that the return  assumptions that  the ARM                                                                   
     board uses.  Next, it mandates a minimum  retirement age                                                                   
     of 55, eliminates  the COLA benefit provided  in the old                                                                   
     defined    benefit    tiers,   allows    the    employee                                                                   
     contribution  to be adjusted up  to 10 percent  from the                                                                   
     8   percent  minimum,   calls   for  steady   consistent                                                                   
     employer  contributions, allows  the withholding  of the                                                                   
     PRPA  if funding should  fall below  90 percent,  uses a                                                                   
     high  5 year  average as  opposed  to high  3 for  final                                                                   
     benefit calculation  and lastly, uses the  Tier 4 health                                                                   
     reimbursement   arrangement   account   as  opposed   to                                                                   
     providing  full  pre-Medicare  coverage as  in  previous                                                                   
     retirement tiers.                                                                                                          
     All of these  tools and benefit modifications  contained                                                                   
     in  House  Bill  79  help  to  build  a  reasonable  and                                                                   
     conservative   retirement   plan   for   public   safety                                                                   
     employees,  reduce  risk  for  the  state,  make  Alaska                                                                   
     competitive in  the recruitment and retention  of public                                                                   
     safety employees,  and provides a secure  retirement for                                                                   
     our  first   responders.  This  is  a  bill   that  both                                                                   
     management  and   labor  strongly  agree   on.  Becoming                                                                   
     competitive  will help Alaska's  public safety  agencies                                                                   
     retain  highly  skilled  employees  and  better  fulfill                                                                   
     their missions  and responsibilities to  the communities                                                                   
     they  serve,  as  well  as  preserve  important  dollars                                                                   
     being lost when employees leave our state.                                                                                 
     On behalf of  the over 500 professional  firefighters in                                                                   
     Alaska,    the    Alaska    Professional    Firefighters                                                                   
     Association  strongly   supports  House  Bill   79,  and                                                                   
     recognizes that  it is a good compromise  to address the                                                                   
     issues  that public  safety  faces in  Alaska today.  We                                                                   
     cannot  afford to  do nothing to  address these  issues,                                                                   
     the costs are too great.                                                                                                   
     On a personal  note, I was born and raised  in Alaska. I                                                                   
     have  thought very  seriously about  leaving. I  realize                                                                   
     that  the unfortunate  reality of  what Tier 4  provides                                                                   
     will  not  be adequate  to  provide  for myself  and  my                                                                   
     family  in retirement.  What  has kept  me  here is  not                                                                   
     Tier  4  retirement.   Maybe  I'm  na?ve,   but  I'm  an                                                                   
     optimist.  What HAS  kept me  here is  my optimism  that                                                                   
     the  Legislature will  recognize this  problem and  will                                                                   
     do the right thing to fix it.                                                                                              
     Thank you for your time."                                                                                                  
2:59:56 PM                                                                                                                    
JEREMY   CONKLIN,   ANCHORAGE  POLICE   DEPARTMENT   EMPLOYEE                                                                   
ASSOCIATION,  ANCHORAGE, spoke  in favor of  HB 79.  He spoke                                                                   
to the  issue of recruitment  and retention. He  talked about                                                                   
opportunities  available in other  states. Consequently,  the                                                                   
state's lack of  defined benefits had left  many employees to                                                                   
take  advantage  of the  opportunities  in other  states.  He                                                                   
spoke of  an employee getting a  position in a small  town in                                                                   
Texas.  Although the  employee  accepted a  pay reduction  of                                                                   
$300 per month,  he received defined benefits in  a town with                                                                   
a much  lower cost of  living. He urged  members to  pass the                                                                   
3:02:58 PM                                                                                                                    
TYLER  GREENSFEDER,  ANCHORAGE   POLICE  DEPARTMENT  EMPLOYEE                                                                   
ASSOCIATION,  PALMER, spoke  in support  of HB  79. He  was a                                                                   
product of  Alaska and  a firefighter.  However, the  lack of                                                                   
defined benefits  was forcing  him out  of Alaska to  another                                                                   
job out of state.  He spoke to the proposed  defined benefits                                                                   
program and urged members to support the bill.                                                                                  
3:06:05 PM                                                                                                                    
NATHEN  ELLIS, ALASKA  PROFESSIONAL FIREFIGHTERS,  ANCHORAGE,                                                                   
spoke in support  of HB 79. He provided his  brief background                                                                   
as a  third generation  Alaskan living  in Girdwood  with two                                                                   
children and  his native  Alaskan wife  from Chenega.  He had                                                                   
been  in Anchorage  for  the past  12 years.  He  had been  a                                                                   
firefighter  in Nevada prior  to that and  gave up  a defined                                                                   
benefit job  due to his love of  family and Alaska.  He had a                                                                   
family  and had no  intention  of leaving the  state. He  was                                                                   
told  by an  orthopedic  surgeon  that he  would  need a  hip                                                                   
replacement due  to the rigors  of the  job and would  not be                                                                   
able to  handle another  training academy at  the age  of 46.                                                                   
He desired  to remain in his  current job. He  wanted defined                                                                   
benefits  and asked  the state  legislature to  take care  of                                                                   
its people  and to  provide a little  more support.  He urged                                                                   
support of the legislation.                                                                                                     
3:09:19 PM                                                                                                                    
JUSTIN   DOLL,  CHIEF   POLICE   ANCHORAGE,  ANCHORAGE   (via                                                                   
teleconference),    favored   the    legislation.   He    had                                                                   
operational  concerns. He  shared that  the Anchorage  Police                                                                   
Department  (APD) had successfully  recruited officers  until                                                                   
more  recently.  He  spoke to  the  difficulty  of  retaining                                                                   
officers  that Alaska had  trained. The  approximately  75 to                                                                   
80 Tier  4 officers  that were  vested were very  "portable,"                                                                   
but were experienced  and very valuable to APD,  who invested                                                                   
money  into their  initial and  continuing  training. He  was                                                                   
very  concerned  about  retaining  those  officers.  He  also                                                                   
spoke to the  number of people eligible to  retire. Anchorage                                                                   
was in very  good shape presently, but he was  concerned that                                                                   
many  officers  were  due  to retire  and  coupled  with  the                                                                   
recruitment  and  retention issues  warranted  attention.  He                                                                   
continued  to speak about  the difficulty  of recruiting  and                                                                   
retaining officers under the current tier system.                                                                               
3:14:00 PM                                                                                                                    
ANGIE   FRAIZE,   ANCHORAGE   POLICE   DEPARTMENT   EMPLOYEES                                                                   
ASSOCIATION,  CHUGIAK, spoke in  support of the  legislation.                                                                   
She and her  husband were both police officers  having joined                                                                   
the  force together  after they  had  returned from  college.                                                                   
She emphasized the  benefits of being a Tier  3 employee. She                                                                   
was involved in  recruitment and received feedback  about the                                                                   
state  not having  "an end game"  with Tier  4 benefits.  She                                                                   
urged  members  to consider  HB  79.  She believed  the  bill                                                                   
provided a long-term solution.                                                                                                  
3:17:01 PM                                                                                                                    
KEVIN JOHNSON,  ALASKA PROFESSIONAL FIREFIGHTERS,  FAIRBANKS,                                                                   
spoke in favor  of HB 79. He was a sixth  generation Alaskan.                                                                   
His  grandfather was  a member  of the  Butrovich family.  He                                                                   
was currently an  employee of the Fairbanks  Fire Department.                                                                   
He was looking  at leaving the  state because of the  lack of                                                                   
attractive  benefits.  He  talked   about  the  challenge  of                                                                   
recruiting firefighters  under the  current tier  system. The                                                                   
department hired  8 recruits in  the prior year.  He reported                                                                   
that 6 of  the 8 employees  were starting to look  outside of                                                                   
the state for employment. He urged support of the bill.                                                                         
3:19:52 PM                                                                                                                    
JUSTIN   MACK,   ANCHORAGE   FIREFIGHTER,    ANCHORAGE   (via                                                                   
teleconference),  spoke to the  importance of passing  HB 79.                                                                   
He cited prior  testimony by the Division of  Retirements and                                                                   
Benefits  that reported  the defined  benefit  plans lead  to                                                                   
unfunded  liabilities that  rested  solely on  the state.  He                                                                   
did not  believe that  was the experience  in other  parts of                                                                   
the  country   with  well-run   defined  benefit   plans.  He                                                                   
addressed  the pension  fix  attributes  that kept  the  plan                                                                   
stable  and  noted  that  the  state  would  not  offer  pre-                                                                   
Medicare  medical  benefits.  However,  he thought  that  the                                                                   
plan  still   provided  an   opportunity  for  a   "dignified                                                                   
retirement".  He felt  that the  gap in  health benefits  was                                                                   
not  ideal  and  characterized   the  plan  as  "modest"  but                                                                   
emphasized  that the  risk was  shared  between the  employer                                                                   
and public safety employees.                                                                                                    
3:21:50 PM                                                                                                                    
DOUG  SCHRAGE,  ALASKA  FIRE  CHIEFS  ASSOCIATION,  FAIRBANKS                                                                   
(via  teleconference),   spoke  in  support  of   HB  79.  He                                                                   
described the issue  as a "very real management  problem." He                                                                   
communicated  that  municipal  fire  departments  had  become                                                                   
"revolving   doors"   and   "training    grounds   for   fire                                                                   
departments  in other  states,  particularly  in the  Pacific                                                                   
Northwest." He  explained that firefighters were  training in                                                                   
Alaska,   serving  their   probationary   periods  and   were                                                                   
subsequently  recruited  by fire  departments  in  Washington                                                                   
state  that allowed  "lateral hires."  Lateral hires  skipped                                                                   
the  usual training  and were  offered the  post-probationary                                                                   
pay rate,  which saved  the fire  department training  costs.                                                                   
Consequently,  Alaskan  fire departments  were  "perpetually"                                                                   
recruiting  and training  which  left the  state with  mostly                                                                   
newer inexperienced  firefighters. He  observed that  the out                                                                   
migration  of firefighters significantly  increased  with the                                                                   
implementation  of Tier  4 benefits and  fewer Alaskans  were                                                                   
applying for  firefighting jobs in  the state. He  noted that                                                                   
prior to that,  it was virtually unheard of  for firefighters                                                                   
to  leave their  jobs  for employment  in  other states.  Mr.                                                                   
Schrage urged support of the bill.                                                                                              
3:23:52 PM                                                                                                                    
CASEY   LUECKER,   KENAI   FIRE    DEPARTMENT,   KENAI   (via                                                                   
teleconference),  supported the  bill. He  indicated that  he                                                                   
was  a  firefighter  and  medic  for 9  years.  He  had  seen                                                                   
several firefighters  leave the state  due to the  ability to                                                                   
obtain defined  benefits in other  locations. He spoke  of an                                                                   
experience  gap due to  the Tier  4 firefighters leaving  the                                                                   
state  and  the  lower  Tier firefighters  on  the  verge  of                                                                   
retirement.  He  was  a  fifth  generation  Alaskan  and  was                                                                   
considering a  lateral transfer  to Washington state.  He was                                                                   
a recent father  and the experience was driving  his decision                                                                   
to seek  defined benefits.  He asked  members to support  the                                                                   
3:26:28 PM                                                                                                                    
CODY   CARVER,   BELLINGHM   FIRE   DEPARTMENT,   BELLINGHAM,                                                                   
WASHINGTON    (via   teleconference),    was   currently    a                                                                   
firefighter  in Bellingham,  Washington.  He  shared that  he                                                                   
grew  up in  Alaska  and  worked  in Fairbanks,  Juneau,  and                                                                   
Anchorage  as a firefighter  and medic.  He wanted  to remain                                                                   
and  retire  in Anchorage.  However,  he  had to  consider  a                                                                   
career which  supplied defined  benefits due  to the  lack of                                                                   
disability  benefits  in  Alaska.  He  was  forced  to  leave                                                                   
Alaska.  He  took  a lateral  hire  job  in  Bellingham  that                                                                   
included good  benefits. He would  have never left  the state                                                                   
had it  had defined  benefits for  firefighters and  provided                                                                   
disability  benefits for  those injured  doing their  job. He                                                                   
urged support of the bill.                                                                                                      
3:28:57 PM                                                                                                                    
STEVE  NELSON,  Executive  Director, LEOFF  PLAN  2,  OLYMPIA                                                                   
WASHINGTON (via  teleconference), He  offered a few  comments                                                                   
regarding  the state's  proposed plan  that he  was asked  to                                                                   
review.  He indicated  that  the  LEOFF plan  he  represented                                                                   
began in  1977 and covered  all the law enforcement  officers                                                                   
and  firefighters  in  the  state  with  18  thousand  active                                                                   
member and  over 4 thousand retirees.  The plan had  over $11                                                                   
billion in  assets and  was funded at  109 percent.  He noted                                                                   
that the  plan had been funded  at 100 percent or  more since                                                                   
its  inception. He  listed the  5 provisions  of the  pension                                                                   
fix  plan   that  he   supported  and   believed  were   best                                                                   
     The cost sharing mechanism that allowed contributions                                                                   
      to rise.                                                                                                                  
     The five year final average salary period also in the                                                                   
      LEOFF plan that prevented salary spiking.                                                                                 
     The retirement age provision of 55 with a twenty year                                                                   
     Conservative actuarial assumptions.                                                                                     
     Medical benefits separated from the pension plan.                                                                       
3:31:33 PM                                                                                                                    
PAUL   SEATON,   SELF   (FORMER   LEGISLATOR),   HOMER   (via                                                                   
teleconference),  was involved  in recreating the  retirement                                                                   
system  in  2005.   He  urged  caution.  He   indicated  that                                                                   
actuaries across  the country had a terrible  track record of                                                                   
making  correct assumptions  over  time. In  2003, the  state                                                                   
had $15.6 billion  in unfunded scheduled payments.  He stated                                                                   
that  "the   actuarial  assumption  had  eaten   the  state's                                                                   
lunch."  He believed  that treating  police and  firefighters                                                                   
separately  from other  state  employees was  discriminatory.                                                                   
He reiterated his plea for caution.                                                                                             
3:34:23 PM                                                                                                                    
JACOB  WILSON,  ALASKA  CORRECTIONAL   OFFICERS  ASSOCIATION,                                                                   
ANCHORAGE (via  teleconference), spoke  in support of  HB 79.                                                                   
He  thought  Alaska   was  in  the  middle   of  the  largest                                                                   
retention and recruitment  crisis in the state's  history due                                                                   
to  the loss  of defined  benefits.  He cited  a report  from                                                                   
2016 by Alaska's  Department of Corrections (DOC)  that found                                                                   
several    facilities    operating   at    staffing    levels                                                                   
insufficient    to    meet   basic    security    operational                                                                   
requirements.  The  state  lost   540  correctional  officers                                                                   
since  2014,  which  equated   to  over  60  percent  of  its                                                                   
workforce  and  cost  the  state  $15  million  annually.  He                                                                   
provided  some additional  statistics. He  reported that  the                                                                   
current number  of 110 Tier 4  officers with 4 to 5  years of                                                                   
service would  drop by more than  half to 45 officers  with 5                                                                   
to 6 years of  service decreasing to 35 officers  in the 6 to                                                                   
7 years of range.  Many move on to other states  with defined                                                                   
retirement  and  benefit  systems. New  officers  lacked  the                                                                   
experience that  the more  experienced officers provided.  He                                                                   
urged support of the bill.                                                                                                      
3:36:58 PM                                                                                                                    
MICHEAL  ODEN,   SELF,  KENAI  (via  teleconference),   urged                                                                   
support of the  bill. He had been a firefighter  in Kenai for                                                                   
the past 4 years.  He came from a long line  of firefighters.                                                                   
He  had  received  training  at  UAF  (University  of  Alaska                                                                   
Fairbanks).  Many  of  his  classmates  had  left  the  state                                                                   
seeking positions  that provided  defined benefits.  He spoke                                                                   
of  the dedication  of Alaskas   public  safety officers  and                                                                   
felt  that they  needed  to be  taken care  of  by a  defined                                                                   
benefit  program. He talked  about the  increase of  Worker's                                                                   
Compensation claims.  He mentioned having to load  and unload                                                                   
patients  over 300  pounds in  his  capacity as  a medic.  He                                                                   
urged  members to  support HB  79  in order  to keep  trained                                                                   
public  safety officers  in  the  state rather  than  letting                                                                   
them  leave  Alaska.  He  noted   the  ease  of  transferring                                                                   
training  to other  states. He  stressed that  a pension  was                                                                   
necessary to retain officers and keep people in the state.                                                                      
3:41:37 PM                                                                                                                    
Co-Chair Wilson CLOSED Public Testimony.                                                                                        
Representative  Josephson asked  Mr. Greensfeder  to hang  in                                                                   
there  for another  year.  He did  not want  to  lose him  to                                                                   
another  state   and  felt  that  the   administration  would                                                                   
support  the bill.  He wondered  how  the disability  benefit                                                                   
worked apart  from Workers Compensation.  Representative Kopp                                                                   
replied  that  a  disability benefit  was  available  to  the                                                                   
employee immediately  versus a  worker's compensation  claim.                                                                   
He deferred to Mr. Wescott for the answer.                                                                                      
3:43:35 PM                                                                                                                    
Mr.  Wescott  replied  that  the bill  did  not  solve  every                                                                   
problem   and   thought   the  medical   coverage   gap   was                                                                   
problematic. He  relayed that in  his experience he  had seen                                                                   
many  work past  the age  of 55.  However, he  had also  seen                                                                   
other medical  issues impair  public safety  officers  to the                                                                   
extent that  they could not make  it to 55 to  retirement. He                                                                   
offered that the  pension fix plan did not  provide enough to                                                                   
live  on   considering  the   healthcare  gap  and   required                                                                   
personal  responsibility  to  plan for  the  eventuality.  In                                                                   
contrast,  everything  was  individualized  and  market-based                                                                   
under Tier 4.  He summarized that the plan  fix required that                                                                   
the  individual  plan and  save  for retirement  while  still                                                                   
providing a more stable benefit.                                                                                                
3:45:15 PM                                                                                                                    
Representative  Josephson  stated   that  the  diminution  of                                                                   
benefits  was  illegal  under the  state's  constitution.  He                                                                   
asked whether  the sponsors had  legal concerns.  Mr. Wescott                                                                   
responded that due  to the fact the plan clearly  stated that                                                                   
full benefits  were predicated  on the  plan's funding  level                                                                   
staying   above  90  percent,   it  was   not  considered   a                                                                   
KEN  TRUITT,  STAFF,  REPRESENTATIVE  CHUCK  KOPP,  indicated                                                                   
that Mr. Wescott's  answer was sufficient. He  added that the                                                                   
language  built into the  bill would  avoid a  constitutional                                                                   
Co-Chair Wilson relayed that the bill would be set aside.                                                                       
Co-Chair  Wilson  reviewed  the   agenda  for  the  following                                                                   
meeting on Monday, April 22, 2019.                                                                                              
HB  79   was  HEARD  and   HELD  in  committee   for  further