Legislature(2017 - 2018)BARNES 124

02/12/2018 03:15 PM LABOR & COMMERCE

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                  HB 306-PERS/TERS DISTRIBUTIONS                                                                            
3:57:36 PM                                                                                                                    
CHAIR KITO  announced that the  final order of business  would be                                                               
HOUSE  BILL NO.  306, "An  Act relating  to disbursement  options                                                               
under the Public  Employees' Retirement System of  Alaska and the                                                               
Teachers'  Retirement System  of Alaska  for participants  in the                                                               
defined contribution plan; and providing for an effective date."                                                                
3:57:50 PM                                                                                                                    
LESLIE RIDLE,  Commissioner, Department of  Administration (DOA),                                                               
introduced  HB 306  on behalf  of  the House  Rules Committee  by                                                               
request  of the  governor.   She specified  that the  request had                                                               
originally  come  from  the Alaska  Retirement  Management  Board                                                               
(ARMB),  which has  a committee  that helps  state employee  with                                                               
Tier IV retirement plans to prepare for retirement.                                                                             
3:59:23 PM                                                                                                                    
KATHY LEA, Deputy Director, Division  of Retirement and Benefits,                                                               
Department of  Administration (DOA),  presented HB 306  on behalf                                                               
of the  House Rules Committee  by request  of the governor.   She                                                               
presented  a PowerPoint  entitled, "HB  306 /  SB 159.   PERS/TRS                                                               
Disbursement Options," [in committee packet]:                                                                                   
MS. LEA spoke to slide 3, "The Issue":                                                                                          
       The PERS/TRS DCR (Tier  IV) plans use the statutes as                                                                    
     the plan document.                                                                                                         
     ?  Any changes  to  modernize options  or  to meet  new                                                                    
     Internal  Revenue  requirements   require  a  statutory                                                                    
     ?  Statutory  changes  can  take  several  sessions  to                                                                    
     accomplish, if at all.                                                                                                     
     ? Meanwhile, participants needs are being unmet.                                                                           
     ?  This  bill  would  give   the  DCR  plans  the  same                                                                    
     flexibility  as  the   SBS  and  Deferred  Compensation                                                                    
MS. LEA went on to address slide 4, "PERS/TRS DCR Needs":                                                                       
     ? The PERS/TRS DCR plans  have vested employees who are                                                                    
     retiring  and  need  help   facing  the  challenges  of                                                                    
     ?  The   ARMB  Defined  Contribution   Subcommittee  is                                                                    
     exploring options that will help participants:                                                                             
     o not outlive their retirement savings,                                                                                    
     o address purchasing power over time, and                                                                                  
     o protect against market uncertainty.                                                                                      
MS. LEA closed the presentation with slide 5, "Transparent                                                                      
Process for Change":                                                                                                            
     ? Discussions  regarding disbursement options  are done                                                                    
     in a public forum during the selection process.                                                                            
     ?  Participants  and groups  representing  participants                                                                    
     will have input during  subcommittee and ARMB committee                                                                    
     ?  The  process  remains public  and  transparent,  but                                                                    
     allows for faster adoption of needed change.                                                                               
     ? All  interested parties are  notified of  any changes                                                                    
     through the regulation process.                                                                                            
4:02:44 PM                                                                                                                    
REPRESENTATIVE  JOSEPHSON  asked  about  the  terms  of  Tier  IV                                                               
MS.  LEA answered  that in  the  Defined Contribution  Retirement                                                               
(DCR)  plan,   an  employee  is   eligible  to   full  retirement                                                               
disbursement  of   the  state  contribution  after   5  years  of                                                               
employment.   She explained that before  the 5th year there  is a                                                               
staggered table for disbursement so  that at 2 years the employee                                                               
receives 25  percent of the  state contributions; at 3  years the                                                               
employee receives  50 percent;  at 4  years receives  75 percent;                                                               
and at 5 years the employee  receives 100 percent.  She specified                                                               
that  in the  DCR  plans  there is  no  real  retirement, only  a                                                               
disbursement of funds.  She underlined  there is a tax penalty of                                                               
10 percent  for early withdrawal before  age 59 and a  half.  She                                                               
said currently  a lump sum  disbursement, a periodic  payment, or                                                               
various annuity options are the only options available.                                                                         
REPRESENTATIVE  JOSEPHSON   asked  what  the   Alaska  Retirement                                                               
Management Board (ARMB) might add.                                                                                              
MS.  LEA  answered  that  an ARMB  subcommittee  has  tasked  the                                                               
Treasury  Division and  the Division  of Retirement  and Benefits                                                               
with  exploring  options.   She  stated  the group  had  recently                                                               
reviewed eight  different providers  for efficacy  and retirement                                                               
security.  She said the  plan options fell into three categories:                                                               
a better  annuity, a guaranteed lifetime  withdrawal product, and                                                               
a qualified lifetime annuity that sets  aside up a portion of the                                                               
money to begin to pay out at age 80.                                                                                            
4:07:38 PM                                                                                                                    
REPRESENTATIVE KNOPP  asked what  the state  program can  do that                                                               
free markets cannot.                                                                                                            
MS. LEA  answered the plan is  not looking to make  money and can                                                               
offer  the plan  with lower  costs, so  can provide  members with                                                               
more money for retirement.                                                                                                      
MS.  RIDLE  added  there  would   be  a  private  sector  element                                                               
involving contracts, but the state can get better rates.                                                                        
REPRESENTATIVE  KNOPP said  he wondered  about  the true  savings                                                               
4:11:59 PM                                                                                                                    
REPRESENTATIVE BIRCH asked whether the  state is empowered to set                                                               
up a Roth IRA.                                                                                                                  
MS.  RIDLE  answered  that for  government  defined  contribution                                                               
plans  currently only  deferred compensation  plans are  eligible                                                               
and the state has a Roth option in its plan.                                                                                    
REPRESENTATIVE  SULLIVAN-LEONARD asked  about a  fiscal note  for                                                               
changes in the program.                                                                                                         
MS. LEA  answered there is a  fiscal note and there  is no fiscal                                                               
impact for  HB 306.   She  explained the option  are left  to the                                                               
participant to choose and therefore pay additional fees.                                                                        
REPRESENTATIVE SULLIVAN-LEONARD  asked for confirmation  that the                                                               
costs are paid by individual who sign up for the options.                                                                       
4:14:26 PM                                                                                                                    
MS. LEA answered in the affirmative.                                                                                            
CHAIR KITO asked  about the motivation behind  putting options in                                                               
MS. LEA  said she  could not  speak to  legislative intent.   She                                                               
added she did  work in the division at the  time and the division                                                               
recommendation was not to put them in statute.                                                                                  
4:15:52 PM                                                                                                                    
REPRESENTATIVE   JOSEPHSON  asked   for  confirmation   that  the                                                               
descriptive  language that  would be  deleted in  HB 306  was not                                                               
recommended  by   the  department   but  had   been  put   in  by                                                               
MS.  LEA  answered  in  the  affirmative.    She  added  that  in                                                               
discussions  during  the  drafting  process, the  desire  was  to                                                               
pattern the  plan after the  SBS disbursement options.   She said                                                               
the  difference  was  that  statute  for SBS  and  for  DCR  only                                                               
authorized the backbone  of plan, while all  other provisions are                                                               
in the plan  document, which is required by IRS.   She stated the                                                               
difference with  the DCR plans  is that  they use statute  as the                                                               
plan document.   She explained that while other  plans are nimble                                                               
if changes are needed, DCR plans are not.                                                                                       
4:17:48 PM                                                                                                                    
ROB JOHNSON,  Chair, Alaska  Retirement Management  Board (ARMB),                                                               
testified in  support of HB  306.  He  stated the ARMB  had heard                                                               
that  greater  flexibility  was   preferred  for  retirees.    He                                                               
confirmed  that  the  legislature  had  indeed  looked  to  other                                                               
sources for  language and utilized SBS  and deferred compensation                                                               
language.   He added that in  time, it became clear  that greater                                                               
options were  available at no additional  cost to the state.   He                                                               
said ARMB agreed with the adoption of the proposed bill.                                                                        
4:20:27 PM                                                                                                                    
REPRESENTATIVE SULLIVAN-LEONARD  asked Mr.  Johnson to  expand on                                                               
the  portability of  retirement  plans and  whether  there was  a                                                               
trend of employees not staying in  the state system for more than                                                               
five years.                                                                                                                     
MR. JOHNSON  said he has  not looked at  the studies, but  he had                                                               
heard  that  the change  to  the  defined contribution  plan  had                                                               
implications for public employee and teacher retention.                                                                         
4:22:07 PM                                                                                                                    
NORM  WEST,  Alaska  Retirement Management  Board,  testified  in                                                               
support of HB 306.  He stated  he had over 30 years of experience                                                               
as a  trustee and  administrator of employee  benefit plans.   He                                                               
added he  had seen  overseen the  management of  portfolios worth                                                               
over  $100  million.    He  said he  had  seen  many  changes  in                                                               
retirement  plans   over  the  years.     He  spoke   to  defined                                                               
contribution plans  which do not  offer a particular  benefit and                                                               
pass the  risk of the  investment to  the participants.   He said                                                               
this was the major change from  defined benefit plans.  He stated                                                               
his support for the proposed bill.   He underlined the changes in                                                               
HB 306 were only about methods of disbursement.                                                                                 
MR. WEST  explained that the products  are essentially structured                                                               
investment  products  which  allow  for  periodic  payment.    He                                                               
underlined there was  no risk to the state  and that participants                                                               
would need to move their payments  into a different plan to avoid                                                               
taxation  of  the lump  sum.    He  surmised that  the  statutory                                                               
limitations had been an oversight.                                                                                              
4:29:29 PM                                                                                                                    
CHAIR KITO opened public testimony  on HB 306.  Upon ascertaining                                                               
that no  one was  available to  testify, he  said he  would leave                                                               
public testimony open for HB 306.                                                                                               
CHAIR KITO held over HB 306.                                                                                                    

Document Name Date/Time Subjects
HB304 Fiscal Note-INV 1.30.18.pdf HL&C 2/12/2018 3:15:00 PM
HB 304
HB304 Transmittal Letter 1.30.18.pdf HL&C 2/12/2018 3:15:00 PM
HB 304
HB306 Fiscal Note DOA RNB 1.16.18.pdf HL&C 2/12/2018 3:15:00 PM
HB 306
HB304 ver A 1.30.18.PDF HL&C 2/12/2018 3:15:00 PM
HB 304
HB304 Sectional Analysis ver A 1.30.18.pdf HL&C 2/12/2018 3:15:00 PM
HB 304
HB304 Fiscal Note DCCED DED 1.22.18.pdf HL&C 2/12/2018 3:15:00 PM
HB 304
HB306 Version A.pdf HL&C 2/12/2018 3:15:00 PM
HB 306
HB306 Governor Transmittal Letter PERS & TRS 1.29.18.PDF HL&C 2/12/2018 3:15:00 PM
HB 306
HB306 Sectional Analysis 1.29.18.pdf HL&C 2/12/2018 3:15:00 PM
HB 306
HB306 Presentation (H)L&C 2.14.18.pdf HL&C 2/12/2018 3:15:00 PM
HB 306