Legislature(2017 - 2018)BARNES 124

03/25/2017 01:00 PM LABOR & COMMERCE

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01:02:32 PM Start
01:03:28 PM HB83
02:36:03 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Heard & Held
-- Public Testimony --
+ Bills Previously Heard/Scheduled TELECONFERENCED
         HB  83-TEACHERS & PUB EMPLOYEE RETIREMENT PLANS                                                                    
1:03:28 PM                                                                                                                    
CHAIR KITO  announced that  the only order  of business  would be                                                               
HOUSE BILL NO. 83, "An Act  relating to new defined benefit tiers                                                               
in  the public  employees'  retirement system  and the  teachers'                                                               
retirement system; providing certain  employees an opportunity to                                                               
choose  between  the  defined benefit  and  defined  contribution                                                               
plans  of  the  public  employees'   retirement  system  and  the                                                               
teachers'  retirement  system;  and providing  for  an  effective                                                               
1:04:04 PM                                                                                                                    
CHAIR KITO, prime sponsor of HB  83, noted it is a companion bill                                                               
to SB  52 sponsored  by Senator  Egan.  He  explained that  HB 83                                                               
would  establish  a  Tier  V   program  that  would  allow  state                                                               
employees and  teachers to choose  either a defined benefit  or a                                                               
defined  contribution  depending  on  the  employee's  plans  for                                                               
employment.   Somebody intending to  be employed and  retire from                                                               
the State  of Alaska  might choose  the defined  benefit program.                                                               
Somebody coming  into the system and  planning to be there  for a                                                               
short period  of time before  moving on might choose  the defined                                                               
contribution program.   He said the fiscal notes  are still being                                                               
prepared  so  none are  available  at  this  time.   However,  he                                                               
continued, past actuarial activity  indicates the proposal can be                                                               
accomplished with  a reasonable  savings to the  state and  in an                                                               
affordable manner  that will  increase recruitment  and retention                                                               
of state employees and teachers.                                                                                                
1:05:09 PM                                                                                                                    
BIANCA CARPENETI,  Staff, Representative  Sam Kito,  Alaska State                                                               
Legislature, presented  HB 83 on  behalf of  Representative Kito,                                                               
prime sponsor.  She said she  will discuss some of the advantages                                                               
of a  defined benefit (DB)  system, touch on key  safeguards that                                                               
HB 83 keeps  in place from the current  defined contribution (DC)                                                               
system, and touch  on some of the notable components  of the bill                                                               
itself.   She stated that the  fiscal notes would be  provided to                                                               
committee members once finalized.                                                                                               
MS. CARPENETI explained  that a defined benefit (DB)  system is a                                                               
defined pension  paid for  from a  pension trust.   This  type of                                                               
system provides  a secure and predictable  retirement income, she                                                               
said.    In  contrast,  a defined  contribution  (DC)  system  is                                                               
essentially an  individual's retirement  savings account.   These                                                               
accounts are often described as  participant directed in that the                                                               
individual  decides  how to  save,  how  to  invest, and  how  to                                                               
withdraw the funds upon retirement.                                                                                             
MS. CARPENETI  reviewed the strengths of  a DB system.   She said                                                               
the first  strength is that  DB systems  give more "bang  for the                                                               
buck" in that they are  more economically efficient.  The biggest                                                               
economic  efficiencies that  drive cost  advantages for  DB plans                                                               
are  longevity pooling,  portfolio diversification,  and enhanced                                                               
investment returns from reduced  expenses from economies of scale                                                               
and professional  management of assets.   A pension trust  has to                                                               
save for the  average lifespan, she noted,  whereas an individual                                                               
has to self-insure longevity risks  and save for the maximum life                                                               
expectancy.   Maintenance of  portfolio diversification  leads to                                                               
higher investment  returns and broad diversification  is a tenant                                                               
of modern-day portfolio  theory, she continued.   Open DB systems                                                               
are long  lived with a  perpetual investment horizon,  whereas in                                                               
DC plans an individual's sensitivity  to risk of financial market                                                               
shock  increases as  he or  she approaches  retirement.   Risk is                                                               
harder  to  bear for  DC  individuals  as  they age.    Regarding                                                               
enhanced investment  returns, Ms. Carpeneti  said it is  hard for                                                               
an  individual  in  a  DC  system to  match  the  performance  of                                                               
investments  under professional  management in  a pension  trust.                                                               
Another  economic benefit  of a  DB system,  she pointed  out, is                                                               
that it acts  as an economic shock absorber.   For instance, last                                                               
year  the  DB system  paid  out  roughly  $1 billion  to  Alaskan                                                               
residents, which in turn benefited the  state's economy.  It is a                                                               
predictable income stream for recipients and for Alaska.                                                                        
MS. CARPENETI  said the  second strength  of a  DB system  is the                                                               
issue of choice.  She  related that Alaska's public employees and                                                               
teachers  for  the most  part  don't  earn the  private  sector's                                                               
defined  benefit of  Social Security  and many  even lose  Social                                                               
Security  benefits  they earned  in  past  jobs.   So,  for  many                                                               
people, a  defined benefit pension  makes sense.   Alternatively,                                                               
though, a DC  system makes sense for those people  who prefer the                                                               
flexibility,  portability, and  control.   She noted  that HB  83                                                               
leaves in  place a  DC system for  the state,  thereby preserving                                                               
that choice for employees.                                                                                                      
MS. CARPENETI  stated that the third  strength of a DB  system is                                                               
the issue  of recruitment  and retention.   Turnover  of teachers                                                               
and  public employees  is an  issue in  Alaska, she  pointed out.                                                               
When turnover  happens, the  state bears  the cost  of recruiting                                                               
and  training qualified  staff.   Too often,  she added,  skilled                                                               
individuals are enticed to leave  Alaska for positions that offer                                                               
defined benefit plans.                                                                                                          
MS. CARPENETI addressed the key  safeguards that HB 83 would keep                                                               
in place  from the DC  plan that  was established by  Senate Bill                                                               
141, passed in 2005.  She  said the first safeguard that would be                                                               
kept is  the Alaska Experience  Studies.  The  system's actuarial                                                               
adjustments  would use  data from  Alaska rather  than data  from                                                               
national  analyses, keeping  the system  better aligned  with the                                                               
reality in the state of Alaska.   The second safeguard that would                                                               
be  kept, she  continued,  is to  maintain  the second  actuarial                                                               
analysis.  It is crucial to  have a second review on this system,                                                               
as was demonstrated  by the state's experience  of receiving poor                                                               
actuarial  advice from  Mercer  Inc.   The  third safeguard  that                                                               
would be  kept, she stated,  is the Alaska  Retirement Management                                                               
(ARM) Board, which has a  fiduciary responsibility for the assets                                                               
of the state's retirement systems.                                                                                              
MS. CARPENETI  reviewed the  sections of HB  83.   Sections 1-11,                                                               
she explained,  deal with the  Teachers Retirement  System (TRS),                                                               
notably establishing  the new defined  benefit plan, Tier  IV, in                                                               
Sections  1-8.   Sections 12-23  deal with  the Public  Employees                                                               
Retirement System  (PERS), likewise establishing the  new defined                                                               
benefit, Tier V, in Sections 12-20.                                                                                             
MS.  CARPENETI  pointed out  that  source  statute requires  some                                                               
technical differences in  the drafting, but that  overall both DB                                                               
systems include  five elements.   The first  is that  an employee                                                               
cannot participate  in both plans  at once.   The second  is that                                                               
the  employee contribution  is  set at  8  percent while  leaving                                                               
prior  tier employees   contributions  unchanged.   The third  is                                                               
that a person receiving disability  benefits under the DB tier is                                                               
required  to  seek work  and  to  receive an  occasional  medical                                                               
examination; this also  matches the DC plan.   The fourth element                                                               
is that  the eligibility standards  for retiree  medical benefits                                                               
are  established in  the DB  tier  in Section  8 for  TRS and  in                                                               
Section  18 for  PERS.   Notably, Ms.  Carpeneti said,  these two                                                               
sections set out  the premium share schedule for  retirees to pay                                                               
a  portion   of  their  health  insurance   premium  and  require                                                               
actuarial adjustment to  keep the pre-funding rate of  the new DB                                                               
tier no  higher than  the cost of  the DC plan.   Unlike  the old                                                               
system, this  premium share schedule ensures  that employees have                                                               
skin in the  game.  Additionally, this premium  share schedule is                                                               
a key part of the bill's cost  savings.  For most folks the state                                                               
wouldn't be paying  the pre-Medicare coverage, which  is the most                                                               
expensive   and   most   unpredictable  element   of   retirement                                                               
healthcare.    In effect,  Medicare  Supplement  is cheaper  than                                                               
major medical coverage.  The fifth  element, she said, is said is                                                               
that the bill defines the choice  of DB versus DC for newly hired                                                               
employees  as  a one-time,  irrevocable  choice.   So,  employees                                                               
cannot be switching back and forth between the two systems.                                                                     
MS. CARPENETI  continued her overview  of the  bill's provisions.                                                               
She said  Sections 25  and 26 outline  the conversion  option and                                                               
the  process.   The bill  itself,  she noted,  offers a  one-time                                                               
conversion  option for  employees  who are  currently  in the  DC                                                               
system  who want  to change  to  the DB  plan.   Section 26,  she                                                               
continued, outlines  the actuarial  process for  that conversion.                                                               
It is  notable that this  process is set up  so that it  does not                                                               
create new unfunded  liability.  She said  the remaining sections                                                               
of the bill detail the regulation and effective dates.                                                                          
1:13:04 PM                                                                                                                    
REPRESENTATIVE  BIRCH requested  a recap  of the  percentage that                                                               
would  be  set aside  for  medical,  retirement, and  the  social                                                               
security alternative for a new employee making $100,000 a year.                                                                 
MS. CARPENETI replied she doesn't  have the breakdown in front of                                                               
her for each  of those.  However, she said,  the pre-tax employee                                                               
contribution  for Tier  IV  in PERS  and  Tier III  in  TRS is  8                                                               
percent for all employees.                                                                                                      
REPRESENTATIVE BIRCH calculated that  an employee making $100,000                                                               
a year would  have $8,000 come out  of that and would  go to PERS                                                               
Tier I.                                                                                                                         
MS. CARPENETI  clarified that this  is for  Tier IV for  PERS and                                                               
Tier III for TRS.                                                                                                               
REPRESENTATIVE  BIRCH  asked  whether  there would  be  a  Social                                                               
Security equivalent [such as the] Supplemental Benefit System.                                                                  
MS. CARPENETI responded  that for the most  part public employees                                                               
and teachers  do not pay into  Social Security, but there  is the                                                               
state's Supplemental Benefit System  (SBS) component.  She noted,                                                               
though, that she doesn't have that information in front of her.                                                                 
CHAIR KITO suggested  this question be asked of  someone from the                                                               
Department of Administration.                                                                                                   
1:15:33 PM                                                                                                                    
REPRESENTATIVE BIRCH restated his  question regarding the benefit                                                               
contributions,  including  medical, retirement,  SBS,  individual                                                               
retirement accounts (IRAs), and deferred compensation.                                                                          
KATHY  LEA, Chief  Pension Officer,  Division  of Retirement  and                                                               
Benefits,  Department of  Administration,  answered the  question                                                               
for each  of the  state's three  groups of  employees -  State of                                                               
Alaska employees, political  subdivision employees, and teachers.                                                               
She explained  that for  State of Alaska  employees the  State of                                                               
Alaska does not  participate in Social Security  and instead uses                                                               
the Supplemental Benefit System (SBS)  as a replacement, to which                                                               
employees contribute  6.13 percent of  their base salary  and the                                                               
State of Alaska  as the employer matches that  contribution.  For                                                               
the PERS  Defined Contribution  Retirement (DCR)  Plan, employees                                                               
make  an 8  percent contribution  and as  the employer  the state                                                               
makes a  5 percent contribution.   As well,  the state has  a 457                                                               
Plan  to which  an employee  can contribute  a minimum  of $50  a                                                               
month in  a pre-tax  option or  a post-tax  Roth option,  but for                                                               
which there is no employer match.   Ms. Lea said the state has 20                                                               
political subdivisions that participate  in the SBS Annuity Plan,                                                               
with  employees  contributing  6.13   percent  and  the  employer                                                               
providing  a 6.13  percent match.    These employees  also pay  8                                                               
percent and the employer 5 percent  [to the PERS DCR Plan].  Each                                                               
employee would  be a  member of whatever  457, 403(b),  or 401(k)                                                               
plan that is offered by their  employer.  She noted that about 70                                                               
small  employers  in  the  state do  not  participate  in  Social                                                               
Security and use PERS as  their Social Security replacement.  Ms.                                                               
Lea said teachers  pay an 8 percent contribution to  the DCR Plan                                                               
and their employers  pay 7 percent.  Teachers  can participate in                                                               
the 403(b) plans offered by their school districts, as well.                                                                    
REPRESENTATIVE  BIRCH  inquired as  to  the  matches for  police,                                                               
fire, and other people in public  safety today and how they might                                                               
differ from Tier I.                                                                                                             
MS. LEA replied  that there is no difference  in the contribution                                                               
for police  and fire  versus all other  employees.   However, she                                                               
said, they can  retire and meet eligibility  for medical benefits                                                               
with 25 years of peace officer or fire fighter service.                                                                         
REPRESENTATIVE  BIRCH asked  whether  the  6.13/6.13 percent  SBS                                                               
contributions are put into an accumulating annuity account.                                                                     
MS. LEA responded  that 100 percent of the  contributions of both                                                               
the employee and  the employer go into  the employee's investment                                                               
account.   The  employee  can choose  which  investment among  25                                                               
investment options  to put their  money in,  and if they  make no                                                               
choice they're defaulted in an age-based target date fund.                                                                      
1:20:50 PM                                                                                                                    
REPRESENTATIVE KNOPP  requested a  description of  the components                                                               
of the  Defined Contribution Retirement  (DCR) Plan.   He further                                                               
asked whether  it is substantially  different than what  is being                                                               
proposed in HB 83.                                                                                                              
MS. LEA answered that  the DCR Plan is a hybrid  plan that has DC                                                               
annuity benefits,  along with defined  benefit components  in the                                                               
occupational  death and  disability benefits  and in  the medical                                                               
benefits.   In  the  DC  component, she  said,  the employee  can                                                               
invest his  or her contribution  and the  employer's contribution                                                               
in any  option the employee  chooses.  The plan  offers investing                                                               
advice  and  financial assistance  for  employees  who need  more                                                               
information or who  want help to manage their accounts,  or for a                                                               
fee of 0.45 percent employees  can choose professional management                                                               
of  their accounts.   On  the occupational  death and  disability                                                               
side, she  stated, a member suffering  an occupational disability                                                               
is provided  a monthly  benefit that is  the same  calculation as                                                               
the Tier III PERS DB Plan.   This benefit would be received until                                                               
the member  reaches Medicare  age.   While receiving  the benefit                                                               
the  member's  employer  must  pay   its  contributions  and  the                                                               
employee's contributions  to the  employee's annuity  account and                                                               
the employee  cannot withdraw  his or  her annuity  account until                                                               
reaching Medicare  age.  Ms.  Lea said the  same is true  for the                                                               
survivor  benefit  for  an  occupational  death.    The  survivor                                                               
receives  a monthly  benefit just  like the  Tier III  would have                                                               
been, and  in that case  in the disability and  survivor benefits                                                               
there is  a difference for  police and  fire.  All  other members                                                               
receive  40 percent  of their  salary while  the police  and fire                                                               
receive 50  percent.  The  survivor receives that  until eligible                                                               
for  Medicare  and  during  that  time  the  employer  is  making                                                               
contributions to  the annuity account  based on the  employee and                                                               
employer contributions.   Then, at  the time that  the disability                                                               
or  the survivor  benefit stops,  the member  has access  to that                                                               
REPRESENTATIVE  KNOPP asked  whether the  benefits would  stop at                                                               
the  Medicare  eligibility  age  of 65  and  the  employer  would                                                               
continue making contributions until the person reached age 65.                                                                  
MS. LEA  replied yes, the  employer would continue to  make those                                                               
contributions until the member or  survivor reaches Medicare age.                                                               
She noted  there are also  contributions that go into  the health                                                               
reimbursement arrangement  that employees have.   This helps them                                                               
pay for  either their  premiums when they  reach Medicare  age or                                                               
for any other qualified medical expenses they may have.                                                                         
1:24:35 PM                                                                                                                    
CHAIR KITO inquired whether survivor  benefits and disability are                                                               
provided with or without having to opt-in for them on payroll.                                                                  
MS.  LEA responded  that they  are provided  automatically.   The                                                               
employer  contributes  to  those  accounts every  pay  period  on                                                               
behalf of  the employee,  she explained.   The employee  does not                                                               
have to opt-in to that coverage.                                                                                                
1:25:23 PM                                                                                                                    
REPRESENTATIVE BIRCH asked whether  the committee would be having                                                               
a discussion regarding the current liability of PERS/TRS.                                                                       
CHAIR  KITO replied  that such  a discussion  could be  had.   In                                                               
further  response to  Representative Birch,  he confirmed  that a                                                               
fiscal note for the bill has not yet been received.                                                                             
CHAIR KITO opened invited testimony.                                                                                            
1:26:12 PM                                                                                                                    
BAILEY  CHILDERS,  Executive  Director, National  Public  Pension                                                               
Coalition,  testified in  support  of  HB 83.    She stated  that                                                               
America  is in  the midst  of a  retirement security  crisis.   A                                                               
recent Pew Charitable  Trust study, she related,  found that only                                                               
60 percent  of workers in  the state of  Alaska have access  to a                                                               
retirement  savings vehicle  through work  and many  more workers                                                               
are financially unprepared for retirement.   For public employees                                                               
like teachers, fire fighters, and  nurses, a secure retirement in                                                               
Alaska has unique  challenge because a majority  of those workers                                                               
are not eligible to participate in  Social Security.  She said HB
83 is  an important  bill and would  re-open Alaska's  pension to                                                               
public  employees while  offering flexibility  for workers.   She                                                               
urged the committee to advance the bill.                                                                                        
MS. CHILDERS discussed  two reasons why it is  important to offer                                                               
a pension option to fire  fighters, nurses, and teachers.  First,                                                               
she said, in a state where  public employees are not eligible for                                                               
Social  Security a  pension provides  a  more secure  retirement.                                                               
Pensions are  pooled, professionally managed accounts  where risk                                                               
is  shared  between   the  employer  and  employees   so  no  one                                                               
individual  employee will  be left  to the  whims of  the market,                                                               
like many were  during the 2008 recession.  A  pension provides a                                                               
guaranteed  monthly benefit  upon  retirement,  much like  Social                                                               
Security, and this regular payment that  a worker can count on is                                                               
critical  to  security in  retirement.    Ms. Childers  said  the                                                               
second reason a pension option  is important is that pensions are                                                               
more cost effective for the  state, an important consideration at                                                               
a   time  when   Alaska   is  experiencing   multi-billion-dollar                                                               
deficits.   She  related that  in 1991  West Virginia  closed its                                                               
defined benefit pension plan for  teachers and put new hires into                                                               
a defined contribution  401(k) style system.  With  no new member                                                               
contributions,   the   unfunded   liability  in   the   teachers'                                                               
retirement system  grew and  by 2005  the plan  fell to  a funded                                                               
status  of 25  percent.   When West  Virginia began  studying the                                                               
option of re-opening the defined  benefit plan, she continued, it                                                               
found that  the normal  cost of  the teachers'  retirement system                                                               
was  half  the  required  employer contribution  to  the  defined                                                               
contribution  plan.   So, West  Virginia re-opened  the teachers'                                                               
retirement system  in 2008  and 78  percent of  teachers switched                                                               
back  to  the defined  benefit  plan.    By  July 2013  the  plan                                                               
achieved a  funding status of  58 percent  and is expected  to be                                                               
fully funded by 2034.                                                                                                           
MS. CHILDERS  recalled that Alaska  had unique problems  with its                                                               
pension system  in the early  2000s when errors made  and covered                                                               
up by  an actuary resulted  in a  large unfunded liability.   The                                                               
state should  have been  paying more each  year for  its annually                                                               
required  contribution,  she  explained,   but  the  actuary  had                                                               
miscalculated  that figure  for  years.   Alaska  won a  judgment                                                               
against  the firm  but still  had a  large unfunded  liability to                                                               
address.   However, she continued, closing  attention exacerbates                                                               
rather than solves underfunding.   West Virginia experienced this                                                               
as  well and  went  back to  offering a  defined  benefit to  its                                                               
teachers.   Correcting these errors  of the past, she  said, will                                                               
be  beneficial  for  the  state budget  and  the  fire  fighters,                                                               
teachers, and other public employees who serve the state.                                                                       
1:30:00 PM                                                                                                                    
REPRESENTATIVE  KNOPP shared  that he  has received  many e-mails                                                               
that reference  the lack of  employees being able to  make Social                                                               
Security  contributions.    He asked  how  Alaska's  Supplemental                                                               
Benefit System (SBS) is advantageous to the federal system.                                                                     
MS. CHILDERS  replied that  she would get  back to  the committee                                                               
with  an answer  that provides  various comparisons.   She  noted                                                               
that about 25 percent of public  employees across the U.S. do not                                                               
receive Social Security.                                                                                                        
1:31:37 PM                                                                                                                    
REPRESENTATIVE BIRCH  inquired whether  Ms. Childers has  a sense                                                               
of the  movement away  from or toward  a defined  benefit program                                                               
within the private sector such as Fortune 500 companies.                                                                        
MS. CHILDERS  responded she doesn't  have those numbers  but said                                                               
there has been  some movement away from defined  benefit plans in                                                               
the private  sector.   She opined  that that is  part of  what is                                                               
contributing  to the  overall retirement  security crisis  in the                                                               
U.S.  The 401(k)  by itself has proven not to  be a great vehicle                                                               
for  average  workers to  accumulate  the  savings they  need  in                                                               
retirement,  and  the  average   balance  of  those  accounts  is                                                               
inadequate for  retirement.  The  accounts in most states  took a                                                               
big hit  with the  recession, she  continued.   Pensions suffered                                                               
just as individual  accounts did, so states have  looked at their                                                               
defined benefits plans, and many  have made adjustments, but most                                                               
states  have decided  to  stick with  their  defined benefit  for                                                               
several reasons.  Some are  more applicable to the public sector,                                                               
she said,  but the  recruitment and retention  of employees  is a                                                               
big  driver  for   the  public  sector,  as  well   as  the  cost                                                               
efficiencies of  providing a  defined benefit.   When  looking to                                                               
provide  a  certain  level  of  retirement  security  for  public                                                               
employees, a pension  is the more cost-effective way  to do that.                                                               
She offered to provide more information if requested.                                                                           
REPRESENTATIVE  BIRCH  said  it  would be  helpful  to  have  the                                                               
information given  the state relies  on taxpayers to  support its                                                               
state and local  governments, and certainly at  a national level.                                                               
For  people who  don't work  in the  public sector,  he said,  it                                                               
would be helpful to  find out how that is trending  and how it is                                                               
working.   He  suggested that  looking at  Fortune 500  companies                                                               
would be a good place to start.                                                                                                 
MS. CHILDERS  agreed to  do so.   She stated  that a  great thing                                                               
about the  pension is  that it  is a  cost-effective way  for the                                                               
taxpayer to be able to provide employment to public employees.                                                                  
CHAIR KITO pointed out that  employees in the private sector that                                                               
have  a  401(k)  are  also  eligible  for  Social  Security,  and                                                               
therefore they  do have  a defined  benefit in a  sense.   So, he                                                               
continued, they  have Social Security regardless  of whether that                                                               
401(k) program is working.                                                                                                      
1:34:24 PM                                                                                                                    
CHAIR  KITO inquired  whether there  are  studies or  information                                                               
available about how well the  401(k) programs for retirement have                                                               
been preparing workers for retirement.                                                                                          
MS. CHILDERS answered  that there is a lot of  information and it                                                               
is not  a good picture  for most people.   She said  she believes                                                               
that  the average  401(k) balance  is  only about  $18,000.   The                                                               
National  Institute  for  Retirement  Security,  she  added,  has                                                               
looked at  preparedness for retirement, plus  she has information                                                               
as well.   It  has been  found that for  most American  workers a                                                               
401(k) is not  getting them where they need to  be in retirement.                                                               
The State of Michigan, she related,  put its state employees in a                                                               
401(k)  system in  1997 and  the median  account balance  for the                                                               
folks  who have  been  in  this system  for  20  years is  around                                                               
$36,000 and  the average  is around  $76,000; for  people nearing                                                               
retirement it is a  bit higher.  When looking at  a length of 10-                                                               
20  years of  retirement, those  balances are  not getting  where                                                               
they need to  be.  Even if  a person buys an annuity  with his or                                                               
her  401(k), the  amount of  money  that would  be received  each                                                               
month would not be enough to  cover basic expenses.  She said she                                                               
would provide the committee with the Michigan study.                                                                            
CHAIR KITO responded that he would  like to receive the study for                                                               
distribution to committee members.                                                                                              
CHAIR KITO opened public testimony on HB 83.                                                                                    
1:36:50 PM                                                                                                                    
JUSTIN HERNANDEZ, Officer,  Anchorage Police Department Employees                                                               
Association, testified that HB 83 is  a fantastic bill.  He noted                                                               
he is  a college-educated person, lifelong  Alaskan, and employee                                                               
in  law enforcement,  and  will  soon become  vested.   Lower  48                                                               
departments,   he  advised,   are  actively   recruiting  Alaskan                                                               
officers because  they understand  that law  enforcement training                                                               
in Alaska  is very good.   Recruits  to Lower 48  departments can                                                               
buy back their time in a  defined benefit package, he noted.  The                                                               
Lower 48  departments are basically  getting an officer  that has                                                               
been trained at  the financial burden of the State  of Alaska, so                                                               
Alaska is becoming  a training ground.  He said  he has seen this                                                               
firsthand with colleagues  who know that once they  get vested at                                                               
their five-year mark,  they can take all that money  with them to                                                               
another  department that  has a  defined  benefit program,  which                                                               
does not  help recruitment and retention  in Alaska.  He  said HB
83 would give  Alaska the ability to compete with  these Lower 48                                                               
departments.   As a lifelong  Alaskan, he added, he  doesn't want                                                               
to leave  but eventually he must  do what is good  for his family                                                               
and if other departments are recruiting that can be an issue.                                                                   
1:39:30 PM                                                                                                                    
AARON  PETTUS, Officer,  Anchorage  Police Department,  testified                                                               
that a  defined benefits program  is extremely important  to him.                                                               
He  said he  came from  a larger  law enforcement  agency in  Los                                                               
Angeles where he had a pension,  which was enormous if an officer                                                               
stayed 30 years  because the pension was light at  the end of the                                                               
tunnel.  Pensions allow for sense  of security, he explained.  An                                                               
officer  can leave  his or  her career  knowing there  will be  a                                                               
stable  and  predictable source  of  income  in retirement  after                                                               
sacrificing  countless hours  away from  his or  her own  family,                                                               
missing important  events, and everything  else that  comes along                                                               
with being  a public servant.   Pensions benefit the  employee as                                                               
well as the employer and they  act as a recruitment and retention                                                               
tool, he  advised.   Not only  do they  grow the  applicant pool,                                                               
they  allow for  employers to  compete with  other agencies  that                                                               
offer more  than just defined  contributions.  Even in  his short                                                               
year and a  half at the Anchorage Police Department  (APD) he has                                                               
seen  the  department invest  immense  amounts  of man  hours  on                                                               
recruiting  applicants and  training  recruits just  to see  them                                                               
take  their quality  training elsewhere  that offers  them better                                                               
benefits.  As crime, violence,  and terrorism increases, officers                                                               
are  being asked  to do  more.   The Anchorage  Police Department                                                               
wants to  be able  to compete and  even increase  its competitive                                                               
edge, Mr.  Pettus said, and  a defined  benefits plan would  be a                                                               
great start in helping retain quality employees.                                                                                
1:41:11 PM                                                                                                                    
DAVID    BRIGHTON,   President,    Kenai   Peninsula    Education                                                               
Association, testified  in support of  HB 83.  He  said committee                                                               
members probably  would not  hear from many  friends of  his that                                                               
are teachers  because many of them  have left the state.   With a                                                               
defined contribution,  teachers work in  Alaska for a  few years,                                                               
become vested in a short time,  and then leave the state.  Alaska                                                               
is losing many  of its best and brightest  teachers because after                                                               
a few years  they realize that they may never  be able to retire.                                                               
He shared  that he  has been  working as a  teacher for  about 10                                                               
years and  has a little  over $80,000 in his  retirement account.                                                               
He  calculated that  if  he  worked another  20  years, he  could                                                               
retire with about  five or six years before he  dies.  Of course,                                                               
he  continued, he  doesn't know  when he  is going  to die  so he                                                               
doesn't know when he will ever be  able to retire.  If he had the                                                               
option of  being a member  of Social  Security, it would  be much                                                               
easier because he would have two  sources of income, one of which                                                               
would  be a  defined benefit  that he  doesn't now  have.   It is                                                               
difficult being a  teacher in Alaska, he stated.   While he loves                                                               
Alaska  and his  students, and  loves working  with students  and                                                               
teachers,  he has  begun looking  for other  jobs even  though he                                                               
doesn't  want  to leave.    He  said  he  recently applied  to  a                                                               
different job  because he knows he  cannot stay in the  course he                                                               
is in and ever  plan on a retirement system.   This makes him sad                                                               
and  he knows  there are  many others  in the  same position,  he                                                               
continued.   Alaska is losing  teachers and other  public service                                                               
employees because they cannot rely  on a stable retirement income                                                               
source.  He strongly urged that HB 83 be passed.                                                                                
1:43:54 PM                                                                                                                    
JACOB BERA, Teacher,  testified in support of HB 83.   He offered                                                               
his  belief that  HB 83  would help  attract qualified  educators                                                               
that are  needed in Alaska,  as well  as address the  problems of                                                               
teacher turnover and  the high cost of education.   He noted that                                                               
he has  testified on previous  retirement bills and  talked about                                                               
the  data of  the  large number  of teachers  who  have left  the                                                               
profession in Alaska.  The numbers  that he has seen are that 65-                                                               
70 percent of teachers working in  Alaska come from out of state.                                                               
The state  is hoping that  those teachers are the  most qualified                                                               
and are  willing to  stay.   The state is  also hoping  that they                                                               
want to  work and live in  communities that need them  most.  But                                                               
that is  the problem,  he opined.   Alaska's retirement  plan for                                                               
public employees is having a direct impact.                                                                                     
MR. BERA  related that when  he and his  wife decided to  move to                                                               
Alaska in 2003, he had  just finished his teaching degree program                                                               
along with his service in the  U.S. Marine Corps Reserve.  He and                                                               
his  wife were  excited to  start  their new  adventure and  were                                                               
attracted to  the beauty of Alaska  and to start a  family.  They                                                               
did their research  and factors that were important  to them were                                                               
job security, pay benefits, and the  retirement plan.  In 2003 he                                                               
and  his  wife had  the  option  to  participate in  the  defined                                                               
benefit  plan, which  is important  to them.   In  weighing that,                                                               
they also noted  that health care costs in Alaska  were much more                                                               
expensive,  but they  were  still  willing to  take  the risk  of                                                               
moving to  Alaska to try  it out.  So  far, he continued,  he and                                                               
his wife  are blessed to  still call  Alaska home and  have three                                                               
MR. BERA  pointed out that the  case has been very  different for                                                               
too  many  of  his  colleagues.   One  teacher  who  worked  with                                                               
challenged students at Service High  School recently left because                                                               
of the lack  a secure retirement.  Another  couple, both teachers                                                               
with  kids,  moved  back  to  the Midwest  because  it  was  more                                                               
competitive, secure,  and closer  to home.   Young  colleagues at                                                               
his  school are  watching  this issue,  he  related, hoping  that                                                               
something will change, and weighing  their options.  Yesterday he                                                               
said in a  meeting with a special education teacher  of two years                                                               
who is already  one of the most inspiring  and effective teachers                                                               
he has ever  come across.  He stressed that  Alaska needs to keep                                                               
folks like this young teacher.                                                                                                  
MR. BERA said  he and his wife are still  weighing their options,                                                               
given that  the Midwest is a  very attractive place to  teach and                                                               
their kids would grow  up closer to family.  He  and his wife are                                                               
trading a  lot to build  financial security for their  family and                                                               
serve  Alaska's students.   But,  he emphasized,  if the  defined                                                               
contribution  plan was  the only  option, he  and his  wife would                                                               
already be  gone.  Too many  of his colleagues have  already made                                                               
that  choice, he  said, and  he believes  retirement plays  a big                                                               
role and HB 83 would go a long way to help address that.                                                                        
1:46:55 PM                                                                                                                    
LADAWN DRUCE, Teacher, testified in support  of HB 83.  She noted                                                               
that  she  is   currently  in  Barrow  serving   as  a  long-term                                                               
substitute school  counselor at an  elementary school.   She said                                                               
she  is in  favor of  HB  83 even  though it  doesn't affect  her                                                               
personally  because she  is a  retired  Tier II  teacher and  her                                                               
husband is  a retired  Tier I teacher.   However,  she continued,                                                               
having been in  Alaska since 1993, she knows  people in education                                                               
who have left the state because  of not having a defined benefit.                                                               
As with  the police,  Alaska is a  training ground  for teachers.                                                               
Teachers come  to Alaska,  have a  wonderful experience,  and get                                                               
wonderful  training, and  then -  when they  reach that  fifth or                                                               
sixth  year and  become  fully vested  in the  DC  system -  they                                                               
MS. DRUCE noted that prior to  Mr. Brighton, she was president of                                                               
the teachers'  association in the Kenai  Peninsula Borough School                                                               
District,  and  five years  ago  over  50  percent of  the  Kenai                                                               
Peninsula's teachers  were in  the Tier III  level.   She offered                                                               
her  understanding that  50 percent  in Tier  III is  the current                                                               
level  statewide.   She  pointed  out that  the  State of  Alaska                                                               
changed the regulation  that disallowed a retired  teacher with a                                                               
lifetime  certificate  from  being  able  to  substitute  for  20                                                               
consecutive days  up to 120 days  and said she surmises  this was                                                               
to  address  the shortage  of  teachers.   Teachers  are  leaving                                                               
Alaska because  they literally cannot  afford to stay in  a state                                                               
that doesn't offer  some type of defined benefit, she  said.  She                                                               
urged the passage of HB 83.                                                                                                     
1:49:29 PM                                                                                                                    
TOM  WESCOTT,   President,  Alaska  Professional   Fire  Fighters                                                               
Association,  testified in  support  of  HB 83  and  a return  to                                                               
defined  benefits.    He said  his  association  represents  fire                                                               
fighters around  the state.   Most fire  fighters in Tier  IV are                                                               
neither covered by Social Security  nor SBS, nor are they allowed                                                               
to join.   "Those  decisions," he pointed  out, "were  made prior                                                               
when  we were  in the  DB system  and cannot  be revisited."   He                                                               
noted that  a fire fighter in  Fairbanks places 8 percent  into a                                                               
401(a) and  the employer  matches with 5  percent, which  is less                                                               
than Social  Security.  He further  pointed out that there  is no                                                               
distinction between public safety and  any other career field, so                                                               
the shorter duration  with the physical demands  of public safety                                                               
are not considered.                                                                                                             
MR.  WESCOTT said  that  with the  advent of  Tier  IV the  state                                                               
created  a more  expensive vehicle  to save  for retirement  with                                                               
higher  fees.   It  put  in  less  money  and put  amateurs,  the                                                               
employees,  in  charge  of investment  decisions  and  gave  fire                                                               
fighters one short career window in  which to make what they need                                                               
to be self-sufficient  in retirement.  Pensions  aren't magic, he                                                               
continued.  Today  after the great recession,  the dotcom bubble,                                                               
and other  market hiccups,  a look around  the country  will find                                                               
fully funded, well managed plans  in Wisconsin and the Washington                                                               
state employees fire  plan.  It is about doing  the right thing -                                                               
reasonable  benefits.    Benefits  of a  defined  benefit  system                                                               
include pool  risk, professional  management, and lower  fees due                                                               
to economies of  scale.  Additionally, he noted,  over 60 percent                                                               
of  the  benefits   paid  out  come  from   market  returns,  not                                                               
contributions.   He  encouraged  returning to  a defined  benefit                                                               
system  because  the 10  years  of  experience with  the  current                                                               
systems is  not tracking to put  people on a path  to being self-                                                               
sufficient in retirement.                                                                                                       
1:52:15 PM                                                                                                                    
JIMAEL JOHNSON  testified in  support of  HB 83.   She  noted she                                                               
works for  the State  of Alaska Department  of Health  and Social                                                               
Services  [but is  speaking on  behalf of  herself].   Like other                                                               
witnesses,  she said,  she  is experiencing  the  effects of  the                                                               
defined  contribution system  versus  a  defined benefit  system.                                                               
Many  of her  colleagues have  chosen to  leave state  employment                                                               
after  five years  of service,  she  related, and  some left  the                                                               
state with  all the  money that  they had  earned.   The turnover                                                               
rate  of  caseworkers  for  the  most  vulnerable  population  is                                                               
extremely  high, causing  a  great deal  of  problems within  the                                                               
department as well as the community.   She stated that HB 83 is a                                                               
good alternative to what the state has right now.                                                                               
1:53:52 PM                                                                                                                    
NADINE   LEFEBVRE,   Southeast   Representative,   Alaska   State                                                               
Employees  Association (ASEA),  testified  in support  of HB  83.                                                               
She noted  that she is speaking  as a Tier III  employee.  Almost                                                               
half of  ASEA's 8,000 members  are in  Tier IV, she  pointed out,                                                               
and there  is a high  turnover of almost  30 percent per  year in                                                               
the workforce.   With that kind of turnover comes  the expense of                                                               
recruitment  and retention  -  it costs  nearly  one-third of  an                                                               
employee's  annual salary  to train  them  and bring  them up  to                                                               
speed,  so  they can  become  productive  and adhere  to  program                                                               
MS. LEFEBVRE  advised that  most Tier IV  folks are  young people                                                               
who are  looking to  establish themselves in  the future.   After                                                               
five years they can take that  money and invest in another state.                                                               
This is  not an opportunity  for them to  invest in Alaska.   She                                                               
further advised that  with these Tier IV  contributions the money                                                               
is not being  put back into the people who  are drawing from Tier                                                               
I, Tier II,  and Tier III.  This undermines  the state's own pre-                                                               
existing systems, which is true  folly.  She noted that employees                                                               
who are in  a defined benefit system and retire  in the state are                                                               
contributing  and  reinvesting in  Alaska's  economy.   They  pay                                                               
property tax,  sales tax, contribute  to the school  systems, and                                                               
do volunteer work  in every community.   Retirement pensions gave                                                               
$1.7 billion  to the  Alaska economy in  2010, she  reported, and                                                               
these retirees  still contribute to  the workforce in  the state.                                                               
She stated ASEA's support for HB 83.                                                                                            
1:56:06 PM                                                                                                                    
REPRESENTATIVE BIRCH  asked whether Ms.  Lefebvre has a  sense of                                                               
how  many of  her neighbors  were not  in the  public sector  and                                                               
receive a defined benefit plan from the private sector.                                                                         
MS. LEFEBVRE replied  that while there are retired  people in her                                                               
neighborhood, they  don't talk  about their  personal retirement.                                                               
She said there are so  many instruments of investment opportunity                                                               
in the marketplace today that people  must look at what their own                                                               
personal situation is to see  if an individual retirement account                                                               
(IRA), Roth  IRA, or a  supplemental 401(k) might work  for their                                                               
family  depending  on  their  income now  and  proximity  to  the                                                               
retirement of the primary wage earner.   So, she added, while she                                                               
cannot speak to that as a program  issue, it is good to know that                                                               
people in her neighborhood are keeping their homes.                                                                             
1:57:26 PM                                                                                                                    
ALICIA HUGHES-SKANDJIS testified  in support of HB 83.   She said                                                               
she  is  a  State  of  Alaska Department  of  Health  and  Social                                                               
Services  employee but  is speaking  on behalf  of herself.   She                                                               
said  she feels  like she  is the  poster child  of somebody  who                                                               
might benefit  from this legislation.   She has been  employed by                                                               
the state for almost four years,  is well trained, and has a good                                                               
skill set  thanks to the state's  training and expense.   But she                                                               
is at a crossroads of deciding,  she continued.  She loves Alaska                                                               
and has been in the state for 13  years.  It is not about whether                                                               
she stays in Alaska, but whether  she stays in state service.  In                                                               
some ways,  she said, she  thinks it  might seem like  a volatile                                                               
time, it almost seems like an  ask from a public employee, but in                                                               
her  opinion this  is  actually  the perfect  time  to switch  to                                                               
something like  HB 83 because  there are lots of  dedicated state                                                               
employees and public employees of all  kinds who want to keep the                                                               
jobs they have and want to think of them as a career.                                                                           
MS. HUGHES-SKANDJIS said she knows  several people in the private                                                               
sector who  lost a lot of  money as they were  nearing retirement                                                               
age due to  recent economic events.  A sharing  between the state                                                               
and the  individual of that  volatility and risk,  she continued,                                                               
would be enough  of a guarantee for her to  be able to contribute                                                               
to the  economy by buying  a house or a  better house.   The bill                                                               
would benefit her  personally as well as benefit the  state.  She                                                               
is  a union  steward,  she noted,  and her  moment  of trying  to                                                               
decide is  quite common.   She related  that she works  with some                                                               
Tier I  employees in her  office, but that  the rest are  Tier IV                                                               
and many  of them are staying  until about three years  when they                                                               
have a better-looking resume.                                                                                                   
REPRESENTATIVE KNOPP  stated Ms.  Hughes-Skandjis is  the perfect                                                               
candidate for this  discussion because she is in  that age group.                                                               
He said  he remembers  when in the  private corporate  world, the                                                               
switch was made  from pensions to defined contributions.   One of                                                               
the arguments  was that  the new generations  didn't stay  in the                                                               
same position long  and at that time there was  a lot of advocacy                                                               
for defined  contributions because  employees could just  pick up                                                               
and  go whenever  they  were  ready, which  happens  a lot  today                                                               
unlike  in his  early years.    But, he  continued, if  employees                                                               
didn't have the option to just  pick up the money and leave, they                                                               
might be more inclined  to stay and see it through  to the end if                                                               
they  had a  long-term  pension that  they  couldn't touch  until                                                               
retirement  age.   While he  doesn't doubt  that people  close to                                                               
retirement age  lost a lot of  money recently in the  markets, he                                                               
said that that  is somewhat the same issue that  got the state in                                                               
trouble with its current PERS/TRS situation.                                                                                    
REPRESENTATIVE KNOPP  stated that  there are  pros and  cons with                                                               
both types  of systems and that  many people say the  SBS is much                                                               
superior to Social Security.  He  posed a scenario of an employee                                                               
making $60,000 a  year with a contribution rate  of 6.13/6.13 for                                                               
a total of 12.26 percent over  30 years.  He calculated that with                                                               
no  compounded interest  and no  investment  returns, the  actual                                                               
contributions  would  total about  $225,000  in  30 years,  which                                                               
could  end up  at $500,000  with  interest and  returns after  30                                                               
years.   He further  calculated that  if at  age 65  the employee                                                               
began  withdrawing $4,000  a  month, [the  money]  would last  10                                                               
years.  He  said he is looking forward to  the fiscal analysis to                                                               
see whether  it is really  a better system  and added that  he is                                                               
not convinced that  Social Security is a better  system than what                                                               
the state  has.   He inquired  as to  what state  employees think                                                               
about the SBS versus [Social Security].                                                                                         
MS.  HUGHES-SKANDJIS answered  she  doesn't have  any numbers  in                                                               
front of her,  but that she thinks Alaska's current  package is a                                                               
cut above  what exists  in the  Lower 48  and she  further thinks                                                               
that people  who have the  SBS are aware of  that.  She  said she                                                               
would think  that Alaska would want  to hold to that  standard of                                                               
being a cut above.                                                                                                              
2:04:16 PM                                                                                                                    
REPRESENTATIVE BIRCH opined that at  times the mobility aspect is                                                               
good.   He related that  20 years ago friends  of his in  the oil                                                               
industry  called their  defined benefits  the "golden  handcuffs"                                                               
because they  didn't give  the latitude.   The benefits  would be                                                               
substantially reduced if  a person retired even one  day prior to                                                               
reaching  retirement age  or timeline.   He  said people  he knew                                                               
were happy when  it went to a  linear line where if  they left at                                                               
any point along their career, they  could take the money that had                                                               
accumulated.    He allowed  that  this  does  put more  onus  and                                                               
responsibility on the individual.   He inquired whether the state                                                               
provides   counseling  and   guidance   to  employees   regarding                                                               
retirement and benefits.                                                                                                        
MS. HUGHES-SKANDJIS replied that  in her experience the [Division                                                               
of  Retirement  and  Benefits]  does a  great  job  of  informing                                                               
employees.   She said  it is almost  a "you can  lead a  horse to                                                               
water" situation  in that  she doesn't think  a large  segment of                                                               
the average  Tier IV  state worker is  taking advantage  of that.                                                               
She  noted  that she  has  attended  training sessions  and  made                                                               
appointments  to   talk  to  the  division.     Regarding  golden                                                               
handcuffs, she  said she doesn't  think she would be  speaking in                                                               
support of  this if it were  not a choice because  it isn't right                                                               
for everybody.   She knows  people who are  happy with how  it is                                                               
and have their  life charted out, she continued,  and providing a                                                               
choice is valuing the employee.                                                                                                 
2:08:03 PM                                                                                                                    
PATRICK ROACH, Teacher,  testified in support of HB 83.   He said                                                               
he  is currently  an  English teacher  at  Thunder Mountain  High                                                               
School in Juneau.   He has been teaching for  ten years, eight of                                                               
them  within Alaska,  and he  has received  three Teacher  of the                                                               
Year awards during  that time, he noted.  He  has lived in Alaska                                                               
for 20 years and received  his undergraduate at the University of                                                               
Alaska  Fairbanks (UAF)  and  his masters  at  the University  of                                                               
Alaska Southeast (UAS).   He loves Alaska and  he loves teaching,                                                               
he continued, but is seeing  many alarming trends in education in                                                               
Alaska.   The pupil to  teacher ratio  is rising as  teachers are                                                               
cut,  electives  are  dying,  and  more  and  more  students  are                                                               
receiving  instruction from  digital sources  and taking  classes                                                               
where they never  interact with a certified  teacher, he related.                                                               
Local teacher unions  all over the state  are accepting contracts                                                               
that  don't even  keep up  with inflation,  much less  the rising                                                               
cost of health  insurance premiums.  None of this  bodes well for                                                               
MR. ROACH  stated that because  he loves teaching, he  could deal                                                               
with  the aforementioned  if he  knew his  future was  secure and                                                               
that after  putting in  20 or  30 years,  he was  guaranteed some                                                               
sort of  retirement.  However, he  continued, he is Tier  III and                                                               
therefore that is  not the case.  With such  an uncertain future,                                                               
he related, it is  hard to hear from a friend  who is a principal                                                               
in New York  City that with his  resume she could find  him a job                                                               
making $81,000  per year with a  guaranteed pension.  That  is an                                                               
instant pay raise and a defined  benefit, he said, and he'd never                                                               
have to fear losing 40 percent  of his retirement overnight as so                                                               
many did  in 2008.   When he got into  teaching 10 years  ago, he                                                               
was  told  that to  teach  in  Anchorage, Fairbanks,  or  Juneau,                                                               
Alaska, a  teacher would first have  to do their time  in a rural                                                               
area,  but this  is no  longer the  case.   And just  as Alaska's                                                               
rural areas were  once the proving ground for  its urban centers,                                                               
Alaska will become  the proving ground for Lower  48 teachers, he                                                               
advised, and he  has already seen it happen.   Just last year one                                                               
of  Juneau's best  young teachers  left to  work in  [Washington,                                                               
D.C.] because he couldn't count on  his job in Alaska and because                                                               
D.C. offered a  pension.  To attract and  retain quality teachers                                                               
for the  children of Alaska, he  said, they need to  be offered a                                                               
2:10:07 PM                                                                                                                    
REPRESENTATIVE BIRCH  asked whether  there is  a number  per hour                                                               
per  year or  rate  that could  be used  to  offset an  employer-                                                               
provided pension; for  example, if earnings were twice  as much a                                                               
year.   He  asked whether  it  is too  much for  the employer  to                                                               
expect that employees would have  the initiative to set aside for                                                               
themselves for their future; in other  words, that the onus be on                                                               
the employer.                                                                                                                   
MR. ROACH replied that fear of  a market crash happening again is                                                               
always  present.    Regarding the  earlier  mention  of  compound                                                               
interest, he pointed out that a  financial advisor at the rate of                                                               
0.5 percent adds  up to a lot.   The state has  economy of scale,                                                               
he  said, and  because as  a teacher  he does  not have  SBS, the                                                               
uncertainty of  his 403(b)  is what  scares him.   He  intends to                                                               
stay in  Alaska, he  continued, but he  has already  informed his                                                               
principal that next year is his  last year of teaching in Alaska.                                                               
A lack of pension was definitely a part of his reasoning.                                                                       
REPRESENTATIVE  KNOPP allowed  Mr. Roach  made some  good points.                                                               
He related  that when he was  employed in the private  sector, he                                                               
made 401(k) contributions.  But  the financial world has changed,                                                               
he noted.  It  used to be that good stock  and mutual funds could                                                               
be purchased a good rate of return and could be counted on.                                                                     
Regarding the  talk about  uncertainty for Mr.  Roach as  well as                                                               
for  anybody  planning  for  retirement,   he  allowed  there  is                                                               
uncertainty in the overall financial  markets today, unlike years                                                               
ago.   He said that years  ago he quit using  financial investors                                                               
and fund managers and started  doing it himself because they were                                                               
making more  money every year  than he was.   He said  he doesn't                                                               
think the  state's contribution rates  under the SBS  and defined                                                               
contributions are  bad.   But, he continued,  not everybody  is a                                                               
financial genius and it takes a  lot of work to understand how to                                                               
invest  money and  he  has always  thought that  was  one of  the                                                               
downfalls of the current 401(k)  system.  He inquired whether Mr.                                                               
Roach  thinks  the financial  world  as  it  is  today is  a  big                                                               
contributing  factor to  people's  unrest versus  what the  state                                                               
actually contributes to the plans.                                                                                              
MR. ROACH replied  that he would say  so.  He said  the union and                                                               
the state do a good job  of offering choices and services as best                                                               
they can,  but still there  is that overall uncertainty  with the                                                               
market.  Regarding being asked for  his working life to put in 30                                                               
or 40 years,  he countered with the question: "Is  it too much of                                                               
me to ask the state to  assume the liability of my retirement, to                                                               
take that burden if I'm going  to take on the burden of educating                                                               
its children?"                                                                                                                  
CHAIR KITO stated that risk sharing  is one issue, but pooling is                                                               
a big  issue.   As a person  putting money away  in a  401(k), he                                                               
said, he  doesn't know  how long he  is going to  live, so  he is                                                               
trying  to plan  for an  outcome  of living  to 90.   Right  now,                                                               
however, he  is planning on living  to 80 because that  is as far                                                               
as his money gets him and  family-wise that's the age many of his                                                               
relatives  have lived  to  be.   When  saving  individually in  a                                                               
401(k), he opined,  everyone is being asked to  estimate how long                                                               
he or  she is  going to live,  and the tendency  is to  put money                                                               
into it at  an accelerated rate to ensure  getting the retirement                                                               
that is being asked  for.  A benefit of a  pooled plan, he noted,                                                               
is that  actuarial age difference  is spread across  many people,                                                               
providing the ability to invest  differently to bring a return to                                                               
cover that inevitability.                                                                                                       
2:16:04 PM                                                                                                                    
AMBER BARNEY testified in  support of HB 83.  She  noted she is a                                                               
Tier IV employee  with the State of Alaska  Department of Revenue                                                               
[and is speaking  on behalf of herself].  She  further noted that                                                               
her  brother is  a  law enforcement  officer  with the  Anchorage                                                               
Police Department.   She  said she  has been  with the  state for                                                               
about  three years  and  her brother  with  the Anchorage  Police                                                               
Department for  just over two  years.   She loves Alaska  and her                                                               
job,  she continued,  but  in less  than two  years  she will  be                                                               
vested  with the  state and  at that  time she  has intention  of                                                               
going  elsewhere because  there is  no  incentive for  her as  an                                                               
employee to stay with the State of Alaska.                                                                                      
MS. BARNEY recognized  that some people like to pick  up and move                                                               
and that others  like being able to have a  defined benefit plan.                                                               
However, she said, the issue is  that right now there is only one                                                               
option,  which is  a defined  contribution plan  and there  is no                                                               
incentive.   Currently [the state] is  in a fiscal crisis  and is                                                               
spending approximately  one-third of an employee's  annual salary                                                               
for recruitment and training costs.   For public safety employees                                                               
the  state   spends  about  $150,000  to   train  each  employee.                                                               
However, she continued,  her brother has no  intention of staying                                                               
long  term as  a  police officer.   The  state  spent six  months                                                               
giving him a set  of skills that he can take to  the Lower 48 and                                                               
know that  after he has  dedicated his life  and put his  life on                                                               
the line that he will be  guaranteed a set amount every month and                                                               
not have  to figure out  if he retires at  a certain age  he will                                                               
have $3,000 a month for 20 years  to live on; and if he goes past                                                               
that age, he  has nothing.  There is just  no incentive for state                                                               
employees  or  public  employees  to continue  to  be  here,  she                                                               
reiterated.   Plus,  those people  taking their  training to  the                                                               
Lower 48  are also more  likely to retire in  the Lower 48.   So,                                                               
Alaska is  losing revenue as  well by  forcing people out  of the                                                               
state by not giving them a reason  to stay and work in the state.                                                               
Therefore, she said, she fully supports HB 83.                                                                                  
2:19:20 PM                                                                                                                    
BOB MURPHEY  testified in  support of  HB 83.   He  said he  is a                                                               
long-term state employee, is TIER II  under PERS, and is a member                                                               
of the  Alaska Public  Employees Association.   He has  seen many                                                               
changes  during his  long time  with the  state, he  related, the                                                               
most  significant  being  the change  from  the  defined  benefit                                                               
retirement  plan to  a defined  contribution retirement  account.                                                               
He said  he can  say with certainty  that having  state employees                                                               
and teachers work  in the same position or field  for a long time                                                               
is  a direct  benefit  to  the people  of  the  state versus  the                                                               
alternative  of   turnover  every   several  years   because  the                                                               
incentive to  keep working for the  state is just not  there.  He                                                               
stated  that  HB  83  would  help  in  recruiting  and  retaining                                                               
employees and,  as well,  would attract the  best for  long term.                                                               
He urged the committee to support HB 83.                                                                                        
2:20:30 PM                                                                                                                    
JAN CONITZ testified in support of HB  83.  She said she has been                                                               
in public  service during  most of  her career  and has  lived in                                                               
Alaska for most of  her adult life.  She has  worked as a teacher                                                               
and as an  employee of the University of Alaska  in fisheries and                                                               
marine  science research  and  is currently  an  employee of  the                                                               
Alaska Department of Fish and Game.   She said she is benefitting                                                               
from the  defined benefits  program and has  seen from  her older                                                               
friends, neighbors,  and family that it  promotes the development                                                               
of a stable,  long-term workforce.  It encourages  people to stay                                                               
and complete a career with the  State of Alaska or another public                                                               
employer, she  continued, and it  gives them the sense  that they                                                               
are getting something from the state  and they will stay and give                                                               
back.   Retirees staying in  the state contribute  financially as                                                               
well as  volunteer or go to  work for non-profits or  other areas                                                               
where they can still contribute.                                                                                                
MS.  CONITZ related  that  she was  opposed  to implementing  the                                                               
switch to  Tier IV and thinks  it extremely unfair to  see people                                                               
working next to her and not  getting any of the security that she                                                               
and  her other  colleagues have.    She said  it encourages  high                                                               
turnover, lowers  morale, and gives  people the feeling  that the                                                               
employer has no commitment to  the employee, which undermines the                                                               
success of public  programs.  Most public  programs are long-term                                                               
efforts and many of the  positions are knowledge-based positions.                                                               
This  knowledge is  developed  over  a long  career  and a  price                                                               
cannot  be put  on that  long-term knowledge,  she advised.   The                                                               
importance of people  that commit to the state and  to staying in                                                               
the state cannot be overstated.  She urged the passage of HB 83.                                                                
2:24:26 PM                                                                                                                    
JESSE   KIEHL,  Staff,   Senator   Dennis   Egan,  Alaska   State                                                               
Legislature, testified  on behalf of Senator  Egan, prime sponsor                                                               
of SB 52,  the companion bill to  HB 83.  Regarding  the issue of                                                               
volatility in  investment returns, he noted  that the substantial                                                               
body  of research  over  many years  shows  that pension  systems                                                               
bring a number  of benefits that help reduce  volatility and help                                                               
improve  returns  because of  the  economic  efficiency of  these                                                               
pension  systems.   Depending  on  the  research being  read,  he                                                               
advised, professional investors tend to  average on the very long                                                               
term anywhere  from 80 to  120 basis points better  returns, thus                                                               
0.8 to 1.2  percent year over year.  That  allows defined benefit                                                               
pension systems  to provide a  great deal more of  their benefits                                                               
from  investment  earnings  than   from  individual  or  employer                                                               
contributions, which is important for  the legislature to keep in                                                               
mind when  looking at the  broad strokes of Alaska's  economy and                                                               
public employers.                                                                                                               
2:26:09 PM                                                                                                                    
REPRESENTATIVE  JOSEPHSON remarked  that the  idea that  a public                                                               
employee would need  to be anchored to Alaska doesn't  seem to be                                                               
accurate.    Someone  who  is  vested,  he  said,  would  at  the                                                               
appropriate retirement age suffer a  10 percent penalty but would                                                               
enjoy a  reduced albeit regular  and dependable  monthly pension.                                                               
So, he concluded, it is portable in that sense.                                                                                 
MR.  KIEHL replied  that different  pension plans  have different                                                               
designs.   This one provides  significant incentives to  stay but                                                               
tends not  to function  as golden handcuffs  where a  person must                                                               
stay for 30 years and be of a  certain age or else suffer a much-                                                               
reduced benefit.   The structure of the chairman's  bill would be                                                               
that a public employee vests in  the pension check when they have                                                               
10 years  of service, he advised.   They must be  the minimum age                                                               
before they begin to collect  those pension checks, but the value                                                               
is  not lost  when  that eligible  age is  reached.   He  further                                                               
advised  that  the  healthcare  benefit grows  in  value  to  the                                                               
employee  over the  course  of  his or  her  time  working for  a                                                               
public-sector  entity in  Alaska,  but there  isn't that  instant                                                               
cliff  designed into  this  plan.   Built into  this  plan is  an                                                               
incentive to retire  in Alaska   the pension check  is 10 percent                                                               
higher  if the  retiree is  an Alaska  resident when  drawing the                                                               
check.   That,  among other  things, has  been very  effective in                                                               
benefitting Alaska's economy with  retirees staying in the state.                                                               
He offered his belief that 80-90  percent of PERS and TRS pension                                                               
checks are paid  to Alaskans.  It has been  an effective tool, he                                                               
added, and this proposal maintains that.                                                                                        
2:29:15 PM                                                                                                                    
REPRESENTATIVE  BIRCH   returned  to  the   earlier  hypothetical                                                               
scenario  of a  state employee  earning  $100,000 a  year with  a                                                               
total set aside  of 25 percent (6.13/6.13  percent SBS, 8.00/5.00                                                               
percent PERS).   He calculated  that with interest the  set aside                                                               
would grow  to a  couple million  dollars, which  when put  in an                                                               
annuity at  the end  would produce generous  checks.   He related                                                               
that  legislators   have  recently  been  discussing   using  the                                                               
permanent fund, earnings from the  permanent fund, and what is an                                                               
appropriate  percent  of  market   value  (POMV)  draw  from  the                                                               
earnings of the  permanent fund.  He asked what  the potential is                                                               
for  an employee  to, if  not invest  in the  permanent fund,  at                                                               
least  invest  in  a  state   managed  account  that  tracks  the                                                               
permanent  fund.   He  allowed  he  doesn't  know  if that  is  a                                                               
possibility, but  said the state  is spending  a lot of  money to                                                               
hire good  people to manage  the permanent fund and  perhaps this                                                               
expertise could be taken advantage of.   He asked who manages the                                                               
retirement  savings  for  the individual  public  employee  given                                                               
there has  been testimony that  some employees may not  pay close                                                               
attention to that.                                                                                                              
MR. KIEHL responded that the  Division of Investments, Department                                                               
of Revenue, manages  the PERS and TRS trusts  under the direction                                                               
of the  Alaska Retirement Management  (ARM) Board.  He  said this                                                               
has  been  great management  over  the  management that  occurred                                                               
before Senate Bill  141.  The Division  of Investments implements                                                               
that  policy with  some state  employee  investment officers  and                                                               
some  outside managers.   The  permanent fund,  he continued,  is                                                               
always in the  process of trying to improve what  it is doing and                                                               
finding the  most economically  efficient way to  do that  with a                                                               
mix of in-house  and outside help.  He  deferred further response                                                               
to   the   Permanent   Fund  Corporation,   noting   that   prior                                                               
legislatures  have  discussed  an Alaska  permanent  fund  mutual                                                               
fund.   He  offered  his  belief that  the  corporation has  been                                                               
somewhat cool to  the notion in terms of the  costs that would be                                                               
incurred given it  would involve having to keep track  of tens of                                                               
thousands of clients  as opposed to just the State  of Alaska and                                                               
the Alaska Mental Health Trust.   The choice element in HB 83, he                                                               
added,   would  help   maintain   the   state's  robust   defined                                                               
contribution  system, which  has been  well managed  and has  low                                                               
management fees - it is a best of both worlds approach.                                                                         
2:34:09 PM                                                                                                                    
CHAIR  KITO, regarding  the  current  defined contribution  plan,                                                               
noted  that  someone departing  state  service  prior to  vesting                                                               
takes the money that they have put  in.  He asked what happens to                                                               
the funds that the state has set aside for that account.                                                                        
MR. KIEHL answered  that after two years of  service employees in                                                               
the defined  contribution plan can  take with them 25  percent of                                                               
the employer's  contributions net of investment  earnings.  After                                                               
three years  the employee can  take 50 percent, after  four years                                                               
75 percent, and after five years  the employee is fully vested in                                                               
the employer's contributions as well as their own.                                                                              
2:35:35 PM                                                                                                                    
CHAIR KITO  announced public  testimony would be  held open.   He                                                               
held over HB 83.                                                                                                                

Document Name Date/Time Subjects
HB083 Sponsor Statement 2.28.17.pdf HL&C 3/25/2017 1:00:00 PM
HB 83
HB83 Sectional Analysis 2.28.17.pdf HL&C 3/25/2017 1:00:00 PM
HB 83