Legislature(2017 - 2018)BARNES 124

02/16/2018 03:15 PM LABOR & COMMERCE

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
*+ HB 303 WORKERS' COMP; REHAB/REEMPLOYMENT TELECONFERENCED
Heard & Held
-- Public Testimony --
+= HB 110 MASSAGE THERAPY LICENSING; EXEMPTIONS TELECONFERENCED
Moved CSHB 110(L&C) Out of Committee
+= HB 83 TEACHERS & PUB EMPLOYEE RETIREMENT PLANS TELECONFERENCED
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
         HB 83-TEACHERS & PUB EMPLOYEE RETIREMENT PLANS                                                                     
                                                                                                                                
4:42:08 PM                                                                                                                    
                                                                                                                                
CHAIR KITO  announced that the  final 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                                                               
date."                                                                                                                          
                                                                                                                                
4:42:48 PM                                                                                                                    
                                                                                                                                
EDRIC  CARRILLO, Staff,  Representative  Sam  Kito, Alaska  State                                                               
Legislature,  presented the  bill.   He stated  that HB  83 would                                                               
allow  public employees  to choose  one of  two state  retirement                                                               
systems, the  defined contribution  (DC) or defined  benefit (DB)                                                               
pension.   Alaska's  teachers and  public employees  do not  earn                                                               
social  security benefits,  and many  lose their  social security                                                               
benefits earned under previous employment.   This bill would also                                                               
allow  newly-hired  public  servants  in  Alaska  to  choose  the                                                               
benefit plan  that best serves them,  he said.  For  most, the DB                                                               
pension  makes sense;  however,  other choose  the  DC plan  that                                                               
allows flexibility,  portability, and  control.  This  bill would                                                               
keep smart reforms to retirement  benefits made several years ago                                                               
and makes  Alaska's pensions stronger  than ever, he said.   This                                                               
bill  would create  a more  stable, predictable,  and DB  pension                                                               
tier.  Since  the DB pensions include sharing the  risk of rising                                                               
health costs, the employees would  never cost employers more than                                                               
the DC system,  saving money for schools, cities,  and the state.                                                               
He thanked members for their support.                                                                                           
                                                                                                                                
4:44:07 PM                                                                                                                    
                                                                                                                                
DIANE   OAKLEY,  Executive   Director,   National  Institute   on                                                               
Retirement  Security the  (NIRS), stated  the NIRS  is a  not for                                                               
profit, non-partisan,  research organization based  in Washington                                                               
D.C.   She directed  attention to a  Power Point  presentation in                                                               
members' packets.  She turned to  slide 2, titled "DB Pension are                                                               
Cost Efficient:   Still a Better  Bang for the Buck,"  which read                                                               
as follows [original punctuation provided]:                                                                                     
                                                                                                                                
     Cost Comparison                                                                                                          
                                                                                                                                
     NIRS looked at the cost to replace 53% of final income                                                                     
     under three retirement plan structures.                                                                                    
                                                                                                                                
     The  DB pension  cost  48% less  than using  Individual                                                                    
     Accounts  in a  DC  Savings Plan  to  provide the  same                                                                    
     amount of income.                                                                                                          
                                                                                                                                
MS. OAKLEY  explained that the  DB plan  cost 16 percent  of pay,                                                               
which is designed to provide the  same amount of income from a DC                                                               
plan;  alternatively, for  the same  cost  retirees will  receive                                                               
more income per the actuaries.                                                                                                  
                                                                                                                                
MS. OAKLEY  directed attention to  the next slide, titled  "3 Key                                                               
Reasons Why  Defined Benefit  Pension (DB)  Plans Cost  Less than                                                               
Defined  Contribution   (DC)  Plans,"   which  read   as  follows                                                               
[original punctuation provided]:                                                                                                
                                                                                                                                
     1. Pool the longevity risks.                                                                                               
     2.  Maintain  optimally balanced  investment  portfolio                                                                    
     compared to down-shifting to  a lower risk/return asset                                                                    
     allocation in DC plan.                                                                                                     
     3.  DB plan  have higher  investment returns  and lower                                                                    
     fees compared to individual investors in DC accounts.                                                                      
                                                                                                                                
4:47:19 PM                                                                                                                    
                                                                                                                                
The committee took a brief at-ease from 4:47 p.m. to 4:49 p.m.                                                                  
                                                                                                                                
4:49:23 PM                                                                                                                    
                                                                                                                                
JESSE   KIEHL,  Staff,   Senator   Dennis   Egan,  Alaska   State                                                               
Legislature, paraphrased the section-by-section analysis HB 83,                                                                 
Sections  1-8,  which  read   as  follows  [original  punctuation                                                               
provided]:                                                                                                                      
                                                                                                                                
     Sections 1  and 2 Clarify that  the Teachers Retirement                                                                    
     System (TRS)  defined benefit (DB) statutes  apply only                                                                    
     to employees  who participate  in the  DB plan  and did                                                                    
     not convert  to defined contribution (DC).  No employee                                                                    
     can participate  in both  the DB and  DC plans.  Sec. 1                                                                    
     also  puts all  TRS employers  on an  equal footing  by                                                                    
     requiring  them  to  offer  new  employees  the  choice                                                                    
     between DB and DC systems.                                                                                                 
                                                                                                                                
     Sections  3 and  4 Set  employee contributions  for the                                                                    
     new  DB tier  at eight  percent of  pay, while  leaving                                                                    
     prior tier employees' contributions unchanged.                                                                             
                                                                                                                                
     Sections 5 and 6  Require a person receiving disability                                                                    
     benefits under the DB tiers  to seek work and receive a                                                                    
     medical examination.  Sets limits  on the  frequency of                                                                    
     the exams.                                                                                                                 
                                                                                                                                
     Section  7 Closes  the Tier  II DB  health plan  to new                                                                    
     hires and  those DC  members who  choose to  convert to                                                                    
     the new TRS DB tier.                                                                                                       
                                                                                                                                
     Section  8  Establishes  the eligibility  standard  for                                                                    
     retiree medical  benefits in  the new  TRS DB  tier. In                                                                    
     the new DB tier, a member  with 25 years of service may                                                                    
     receive medical  benefits partially paid by  the system                                                                    
     at  any age.  A member  without 25  years must  have at                                                                    
     least  eight  years  of service  and  be  eligible  for                                                                    
     Medicare.   Disabled  members   also  get   system-paid                                                                    
     medical benefits.                                                                                                          
                                                                                                                                
     A   TRS   DB   retiree   who  does   not   meet   those                                                                    
     qualifications can  buy health  care coverage  from the                                                                    
     system, but must pay the full cost of premiums.                                                                            
                                                                                                                                
     Establishes a  premium share  schedule for  retirees to                                                                    
     pay a  portion of  their health insurance  and requires                                                                    
     actuarial adjustments  to keep the pre-funding  rate of                                                                    
     the  new DB  tier no  higher than  the cost  of the  DC                                                                    
     plan.                                                                                                                      
                                                                                                                                
     Sets vesting  rules for  the premium  share percentages                                                                    
     so that  the schedule  can change during  an employee's                                                                    
     working life, but is fixed at the date of retirement.                                                                      
                                                                                                                                
4:51:24 PM                                                                                                                    
                                                                                                                                
MR. KIEHL  elaborated that  Section 8 is  one of  the significant                                                               
cost savings provisions  in this bill compared  to previous tiers                                                               
since all  retirees will  pay a portion  of their  monthly health                                                               
premium based on their years of  service.  This provision sets up                                                               
that schedule.  One safety mechanism  in this bill to ensure that                                                               
the new  pension tier does not  cost the school districts  or the                                                               
state more  than the DC  tier is  a periodic five-year  review by                                                               
the actuaries.   During an  employee's working life  those shares                                                               
of the  premium at retirement  can vary.   Thus, it  sets vesting                                                               
rules for the premium share  percentages so that the schedule can                                                               
change during an employee's working life,  but it is fixed at the                                                               
date  of retirement.    He  reiterated that  this  refers to  the                                                               
percentage of  the health  premium, not  the dollar  amount since                                                               
health premiums may rise and this is a risk shared by all.                                                                      
                                                                                                                                
4:52:44 PM                                                                                                                    
                                                                                                                                
MR.  KIEHL continued  the section-by-section  analysis of  HB 83,                                                               
Sections  9-11,  which  read  as  follows  [original  punctuation                                                               
provided]:                                                                                                                      
                                                                                                                                
     Section  9 Clarifies  that the  TRS  DC statutes  apply                                                                    
     only to  employees who participate  in the DC  plan and                                                                    
     did not convert to DB.  No employees can participate in                                                                    
     both the DB and DC plans.                                                                                                  
                                                                                                                                
     Section 10 Puts  all TRS employers on  an equal footing                                                                    
     by  requiring them  to offer  new employees  the choice                                                                    
     between DB and DC.                                                                                                         
                                                                                                                                
     Section  11  Gives a  newly  hired  teacher the  choice                                                                    
     between  DB   and  DC  systems.  This   is  a  one-time                                                                    
     irrevocable choice.  Sets timeframes and rules  for the                                                                    
     process.                                                                                                                   
                                                                                                                                
MR.  KIEHL emphasized  that it  is noteworthy  to emphasize  that                                                               
this provides a  one-time irrevocable choice.  He  said that this                                                               
decision requires  an employee must receive  some education prior                                                               
to making the choice so that  no one makes the irrevocable choice                                                               
blind.                                                                                                                          
                                                                                                                                
4:53:36 PM                                                                                                                    
                                                                                                                                
MR.  KIEHL continued  the section-by-section  analysis of  HB 83,                                                               
Sections  12-13,  which  read as  follows  [original  punctuation                                                               
provided]:                                                                                                                      
                                                                                                                                
     Section   12  Clarifies   that   the  Public   Employee                                                                    
     Retirement  System (PERS)  DB  statutes  apply only  to                                                                    
     employees who  participate in the  DB plan and  did not                                                                    
     convert to DC. No employee  can participate in both the                                                                    
     DB  and  DC plans.  This  section  also puts  all  PERS                                                                    
     employers  on an  equal footing  by  requiring them  to                                                                    
     offer  new  employees  the choice  between  DB  and  DC                                                                    
     systems.                                                                                                                   
                                                                                                                                
     Section  13 Sets  the same  minimum wage  threshold for                                                                    
     elected  officials  in the  new  DB  tier as  the  2004                                                                    
     reforms implemented for prior tiers.                                                                                       
                                                                                                                                
4:54:02 PM                                                                                                                    
                                                                                                                                
MR. KIEHL said  that Section 13 is unique to  PERS and it matches                                                               
the DC  system by  setting a minimum  wage threshold  for elected                                                               
officials in  the new  DB tier.   This is one  of the  safety net                                                               
features  that  Mr.  Carrillo   mentioned  earlier,  noting  that                                                               
elected officials  who only make  an honorarium now would  have a                                                               
minimum salary if they were to  be employed as full PERS members,                                                               
he said.  There would need  to be an adequate contribution to the                                                               
system  to  fund  that.    He turned  to  Section  14-18  of  the                                                               
Sectional  Analysis of  HB 83,  which read  as follows  [original                                                               
punctuation provided]:                                                                                                          
                                                                                                                                
     Sections 14  and 15 Set employee  contributions for the                                                                    
     new  PERS  DB  tier  at eight  percent  of  pay,  while                                                                    
     leaving prior tier employees' contributions unchanged.                                                                     
                                                                                                                                
     Sections  16   and  17   Require  a   person  receiving                                                                    
     disability  benefits under  the PERS  DB tiers  to seek                                                                    
     work and receive a medical  examination. Sets limits on                                                                    
     the frequency of the exams.                                                                                                
                                                                                                                                
     Section  18  Establishes  an eligibility  standard  for                                                                    
     retiree medical  benefits in the  new PERS DB  tier. In                                                                    
     the new  DB tier, a  peace officer or  firefighter with                                                                    
     25  years  of  service  may  receive  medical  benefits                                                                    
     partially  paid  by the  system  at  any age.  A  peace                                                                    
     officer or  firefighter who does  not have 25  years of                                                                    
     service  must  be eligible  for  Medicare  and have  at                                                                    
     least 10  years. Other PERS employees  require 30 years                                                                    
     of service  to get  medical benefits partially  paid by                                                                    
     the system unless they are  Medicare eligible, in which                                                                    
     case  they  require a  minimum  of  10 years.  Disabled                                                                    
     members also get system-paid medical benefits.                                                                             
                                                                                                                                
     A   PERS   DB  retiree   who   does   not  meet   those                                                                    
     qualifications can  buy health  care coverage  from the                                                                    
     system, but must pay the full cost of premiums.                                                                            
                                                                                                                                
     Establishes a  premium share  schedule for  retirees to                                                                    
     pay a  portion of  their health insurance  and requires                                                                    
     actuarial adjustments  to keep the pre-funding  rate of                                                                    
     the  new DB  tier no  higher than  the cost  of the  DC                                                                    
     plan.                                                                                                                      
                                                                                                                                
     Sets vesting  rules for  the premium  share percentages                                                                    
     so that  the schedule  can change during  an employee's                                                                    
     working life, but is fixed at the date of retirement.                                                                      
                                                                                                                                
MR.  KIEHL emphasized  that Section  18 sets  up the  eligibility                                                               
standards for  retiree medical benefits,  which is  comparable to                                                               
the TRS  and will provide a  significant cost savings in  the new                                                               
pension  system as  compared to  the old  system.   Every retiree                                                               
pays a share  of his/her monthly premium which  provides for risk                                                               
sharing for those retiree health insurance costs.                                                                               
                                                                                                                                
4:55:29 PM                                                                                                                    
                                                                                                                                
MR  KIEHL continued  the section-by-section  analysis  of HB  83,                                                               
Sections  19-24,  which  read as  follows  [original  punctuation                                                               
provided]:                                                                                                                      
                                                                                                                                
     Sections 19 and  20 Put all PERS employers  on an equal                                                                    
     footing  by  allowing  employers that  return  to  PERS                                                                    
     after terminating  participation to hire  employees the                                                                    
     same way other PERS  employers do, and allows employees                                                                    
     to earn  service credits in  the appropriate  tier when                                                                    
     working for those employers.                                                                                               
                                                                                                                                
     Section 21  Clarifies that the  PERS DC  statutes apply                                                                    
     only to  employees who participate  in the DC  plan and                                                                    
     did not convert to DB.  No employees can participate in                                                                    
     both the DB and DC plans.                                                                                                  
                                                                                                                                
     Section 22 Puts all PERS  employers on an equal footing                                                                    
     by  requiring them  to offer  new employees  the choice                                                                    
     between DB and DC systems.                                                                                                 
                                                                                                                                
     Section  23 Gives  a newly  hired  public employee  the                                                                    
     choice between  DB and DC  systems. This is  a one-time                                                                    
     irrevocable choice.  Sets timeframes and rules  for the                                                                    
     process.                                                                                                                   
                                                                                                                                
     Section  24   Repeals  sections  that   let  non-vested                                                                    
     employees convert from DB to  DC and required employers                                                                    
     to  match  the  funds transferred  dollar  for  dollar.                                                                    
     Repeals  sections  related  to  political  subdivisions                                                                    
     that  participate  only  in  the  DC  plan.  Repeals  a                                                                    
     requirement    that   DB    employees   who    refunded                                                                    
     contributions from the system  and return to work after                                                                    
     July 1,  2010 participate  only in  the DC  plan. (Such                                                                    
     employees will thus be treated as new hires.)                                                                              
                                                                                                                                
MR. KIEHL added that Section  24 would allow non-vested employees                                                               
convert from DB to DC and  take employer funds along, which is no                                                               
longer necessary because the window  is closed and under the bill                                                               
new hires have a choice.                                                                                                        
                                                                                                                                
4:56:42 PM                                                                                                                    
                                                                                                                                
MR  KIEHL continued  the section-by-section  analysis  of HB  83,                                                               
Sections  25,   which  read  as  follows   [original  punctuation                                                               
provided]:                                                                                                                      
                                                                                                                                
     Section 25 Gives employees hired  into the TRS and PERS                                                                    
     DC plans  who have  not refunded out  of those  plans a                                                                    
     90-day period  from the effective  date of the  bill to                                                                    
     irrevocably   convert    into   the   new    DB   tier.                                                                    
     Contributions  move from  the DC  plan to  the DB  plan                                                                    
     trust if they make the switch.                                                                                             
                                                                                                                                
MR.  KIEHL  clarified  that  Section  25  is  the  first  of  the                                                               
conversion options.   This would allow employees  who are working                                                               
in  the  DC   system  a  one-time  option   to  make  irrevocable                                                               
conversion  into the  new  DB  tier.   He  directed attention  to                                                               
Section  26,   which  read   as  follows   [original  punctuation                                                               
provided]:                                                                                                                      
                                                                                                                                
     Section  26  Sets  the  procedure  for  the  conversion                                                                    
     election  in Sec.  25 and  allows the  administrator to                                                                    
     adopt  regulations  related   to  the  conversion.  The                                                                    
     choice   to  convert   is   irrevocable,  and   certain                                                                    
     information  must  be  provided  to  the  employee.  An                                                                    
     employee  who transfers  receives  credited service  in                                                                    
     the  defined benefit  plan equal  to the  value of  the                                                                    
     employee's DC  account. If that amount  is insufficient                                                                    
     to  'buy'  the  employee's  actual  service  time,  the                                                                    
     employee  may create  an indebtedness  to purchase  the                                                                    
     difference.  If the  employee's individual  account has                                                                    
     an  excess,  the  difference is  transferred  into  the                                                                    
     Supplemental Benefits  System or a  comparable account,                                                                    
     in keeping with federal tax law.                                                                                           
                                                                                                                                
4:57:05 PM                                                                                                                    
                                                                                                                                
MR. KIEHL  explained that Section  26 lays  out the rules  of the                                                               
conversion.  He  highlighted that if an employee wants  to earn a                                                               
pension instead,  the value of the  employee's account, including                                                               
employer contributions,  is actuarily  calculated and buys  up to                                                               
the employee's  actual years  of service  time.   If insufficient                                                               
funds exist to  purchase the employee's actual  years of service,                                                               
the  employee   may  create  an  indebtedness   to  purchase  the                                                               
difference, but  the employee is not  entitled to it as  a matter                                                               
of right.   The state or  municipality would not "kick  in" extra                                                               
funds  to buy  the time.    He offered  his belief  that in  rare                                                               
instances  in  which  an  employee  had  more  money  in  his/her                                                               
account, the  federal government  would require  it to  be rolled                                                               
over  into  a  supplemental  benefits account  or  an  individual                                                               
retirement account.  It would not  be taken from the employee, he                                                               
said.                                                                                                                           
                                                                                                                                
MR  KIEHL continued  the section-by-section  analysis  of HB  83,                                                               
Sections  27-29,  which  read as  follows  [original  punctuation                                                               
provided]:                                                                                                                      
                                                                                                                                
      Section 27 Allows the Commissioner of Administration                                                                      
      to adopt regulations to implement and make specific                                                                       
     the bill's provisions.                                                                                                     
                                                                                                                                
     Section 28 Is an immediate effective date for sections                                                                     
     26 and 27 of the bill.                                                                                                     
                                                                                                                                
       Section 29 Makes the bill effective July 1, 2017,                                                                        
     except as provided in Sec. 28.                                                                                             
                                                                                                                                
4:58:26 PM                                                                                                                    
                                                                                                                                
MR. KIEHL  stated that  this provision  makes the  effective date                                                               
July 1, 2017, which needs to be adjusted going forward.                                                                         
                                                                                                                                
CHAIR KITO agreed that the date would be fixed.                                                                                 
                                                                                                                                
4:58:51 PM                                                                                                                    
                                                                                                                                
MS. OAKLEY  reiterated the three  "Key Reasons" as  the longevity                                                               
pool, maintaining an investment  portfolio, and since typically a                                                               
DB plan  will have  more assets than  an individual  account, the                                                               
fees  are lower.   Historically,  in reviewing  DB and  DC plans,                                                               
what economists  call behavioral drag exists,  in that individual                                                               
investors  invest on  their own,  she said.   She  clarified that                                                               
sometimes employees  do not make the  right investment decisions,                                                               
for example, buying or selling at the wrong time.                                                                               
                                                                                                                                
MS. OAKLEY referred  to slide 4, titled  "Colorado State Auditor:                                                               
DB Pension Higher  Income Replacement over DC."   She referred to                                                               
the graph  on the slide that  summarizes data from a  report that                                                               
is produced  by the Colorado  State Auditor.  She  explained that                                                               
Colorado does  give its employees  a choice between a  DB pension                                                               
and  a DC  plan.   The auditor's  analysis shows  the percent  of                                                               
income  being  replaced  by  PERA,  [Public  Employee  Retirement                                                               
Association],  the side-by-side  DB/DC  plan, and  a specific  DB                                                               
"Cash Balance" plan.  She  further clarified the DB "Cash Balance                                                               
plan is  one that works  like a  DB plan with  contributions, but                                                               
unlike  a regular  DB plan  in which  the individual  has control                                                               
over the investment,  this gives them a  fixed investment return.                                                               
She referred  to the bottom  line of  the chart, which  shows the                                                               
amount of  income that would  be replaced in a  self-directed DC.                                                               
Each column represents  an employee at a given  age, for example,                                                               
an  employee age  40  with  3 years  of  service  is compared  to                                                               
someone who retires  at 65 with 30 years of  service.  Over time,                                                               
the  DB plan  will ultimately  provide a  career employee  with a                                                               
higher income than  for a short-term employee.   It would provide                                                               
a higher  amount of  income than a  self-directed DC  plan would,                                                               
she said.                                                                                                                       
                                                                                                                                
5:02:26 PM                                                                                                                    
                                                                                                                                
MS.  OAKLEY refereed  to slide  5, titled  "Different Workforces:                                                               
Public Sector Has Job Tenure Twice  that of Private Sector."  She                                                               
explained that  this slide gives  an indication of the  tenure of                                                               
employees derived  from data by  the United States  Department of                                                               
Labor.  Referring  to a graph on slide 5,  she indicated the gold                                                               
line  reflects the  public  sector and  the  green line  reflects                                                               
private  employees.   She  explained  that  the public  employees                                                               
typically  have   a  longer  tenure   than  the   private  sector                                                               
employees,  about  twice  that  of  the  private  sector.    This                                                               
provides  one  reason why  the  DB  plan  is attractive  to  many                                                               
employees  in  the public  sector.    In  addition, the  DB  plan                                                               
encourages  them to  stay longer  and  maintain their  employment                                                               
relationship with the state or local agency.                                                                                    
                                                                                                                                
5:03:44 PM                                                                                                                    
                                                                                                                                
MS. OAKLEY  referred to slide  6, titled  "DB Plan's Role  in the                                                               
Public  Sector:  Workforce  Management," which  read  as  follows                                                               
[original punctuation provided]:                                                                                                
                                                                                                                                
        • DBs improve public sector productivity:                                                                               
          Employees are more likely to value their work and                                                                     
          tend to invest more in their skills.                                                                                  
        • Pensions help recruit and retain quality workers.                                                                     
          Moving to a DC design could affect recruitment,                                                                       
          retention, and productivity.                                                                                          
        • Teacher effectiveness increases with experience.                                                                      
          Greater teacher retention means higher overall                                                                        
          teacher productivity. When a mid-career teacher                                                                       
          is replaced by an inexperienced teacher, the                                                                          
         school as a whole sees a drop in productivity.                                                                         
                                                                                                                                
MS. OAKLEY  said this slide represents  a summary of some  of the                                                               
research that has been done to  examine how the DB plans help the                                                               
public sector manage  its workforce.  She  paraphrased the bullet                                                               
points, commenting  that firemen,  police officers,  and teachers                                                               
are  all  valued members  of  the  community.   Further,  greater                                                               
teacher retention means  higher overall educational productivity.                                                               
When  a  mid-career  teacher  is  replaced  by  an  inexperienced                                                               
teacher, the  overall productivity  in the  school tend  to drop,                                                               
she stated.                                                                                                                     
                                                                                                                                
5:05:41 PM                                                                                                                    
                                                                                                                                
MS.  OAKLEY directed  attention to  slide 7,  titled "Palm  Beach                                                               
Case Study:  Costs Due to  Employee Turnover  Wasn't Considered,"                                                               
which read, in part, as follows [original punctuation provided]:                                                                
                                                                                                                                
     In 2012, Palm Beach closed  its DB pension and opened a                                                                    
     Combined DB/DC plan,  greatly reducing benefits. During                                                                    
     the next four years (2012-2015),  a total of 109 police                                                                    
     officers  and  firefighters   left  the  forces  before                                                                    
     retirement, including 53 vested officers.                                                                                  
                                                                                                                                
MS.  OAKLEY explained  that slide  7 summarizes  the result  of a                                                               
case study.  She  said that the City of Palm  Beach closed its DB                                                               
pension and opened  a combined DB/DC plan,  which greatly reduced                                                               
benefits  in  the   DB  plan.    She  noted   that  the  matching                                                               
contribution was  100 percent for the  employees' contribution of                                                               
four  percent, which  went into  the DC  plan.   In 2011,  a year                                                               
prior  to the  plan  change, the  city had  about  60 police  and                                                               
firefighter employees.   In the  next four years,  the department                                                               
lost  109  employees,  who  left before  they  were  eligible  to                                                               
retire.   In  addition, 20  percent of  the workforce  retired as                                                               
soon  as the  new  DB/DC  plan was  adopted.    Thus, police  and                                                               
firefighter employees left in droves, she  said.  In fact, in the                                                               
four years  prior to the  change only two vested  employees left.                                                               
In  the  four years  after  the  combined  plan was  adopted,  53                                                               
experienced police and  firefighters left.  She  compared that to                                                               
the trend for new police and  firefighter employees.  In the four                                                               
years prior to  the change, only four new employees  left, yet in                                                               
2015,  31  firefighters  left.   She  explained  that  the  young                                                               
officers came to Palm Beach,  went through the academy and rookie                                                               
training, but  left as  soon as  an opportunity  arose to  join a                                                               
force  with a  DB  plan.   Ultimately,  the  lost training  funds                                                               
exceeded $20  million, she said.   She implied that the  city was                                                               
short-sighted,  thinking it  was saving  money in  pension funds,                                                               
but losing not only training  costs, but overtime costs, as well,                                                               
due to short staffing.                                                                                                          
                                                                                                                                
5:09:20 PM                                                                                                                    
                                                                                                                                
MS. OAKLEY  turned to slide  8, titled "92% of  Americans: Public                                                               
Pensions a Good Way to Recruit  and Retain Employees," and to the                                                               
illustration on the  slide that captured the  public sentiment in                                                               
a survey.  She reiterated  that plans are valuable for recruiting                                                               
and retaining employees.  In a  survey, when the public was asked                                                               
whether the person  agreed or disagreed that pensions  are a good                                                               
way to  recruit and retain  qualified teachers,  police officers,                                                               
and  firefighters,  92 percent  agreed,  of  which  6 out  of  10                                                               
strongly agreed.   She concluded  that demonstrates the  level of                                                               
support  that many  public pensions  have in  the broader  public                                                               
arena.                                                                                                                          
                                                                                                                                
5:10:05 PM                                                                                                                    
                                                                                                                                
MS. OAKLEY turned  to slide 9, titled "Economic  Impact of Alaska                                                               
Public  Retirees  Spending,"  which  read, in  part,  as  follows                                                               
[original punctuation provided]:                                                                                                
                                                                                                                                
     Expenditures by state retirees provide steady economic                                                                     
         stream to Alaska. In 2016, these expenditures                                                                          
     supported in Alaska:                                                                                                       
                                                                                                                                
      • Over 7,600 jobs that paid $400 million in wages.                                                                        
        • $1.2 billion in total economic output. Each                                                                           
          dollar in DB benefits supported $1.12 in total                                                                        
          economic activity.                                                                                                    
        • $168 million in federal, state, and local tax                                                                         
          revenues.                                                                                                             
        • Each taxpayer   dollar   "invested"   in   plans                                                                      
          supported $4.39 in total economic activity in the                                                                     
          state.                                                                                                                
                                                                                                                                
MS. OAKLEY paraphrased statistics  on expenditures by retirees in                                                               
Alaska.   She recapped that  the pension enables the  retirees to                                                               
spend, knowing they  have an income stream.  If  retirees in a DC                                                               
plan were worried about running out  of money, they would be less                                                               
likely to take more money out of their pensions and spend it.                                                                   
                                                                                                                                
5:12:40 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE CHENAULT,  referring to  slide 7, asked  about the                                                               
Palm  Beach  employee turnover.    He  suggested that  the  chart                                                               
seemed  a bit  deceiving.    He asked  for  clarification on  the                                                               
actual numbers of employees between 2011 and 2015.                                                                              
                                                                                                                                
MS.  OAKLEY answered  that  in  each case  the  [year listed]  is                                                               
capturing the prior  four years, from 2012 to 2015.   She further                                                               
explained that 2011 is capturing from  2008 to 2011.  She offered                                                               
to  provide  information  that  details  the  difference  in  the                                                               
composition of  the staff  at that  time.   She recalled  that by                                                               
2015 half of  the firefighters and police officers  had less than                                                               
five years of service.                                                                                                          
                                                                                                                                
5:14:50 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SULLIVAN-LEONARD  asked whether she  had discussed                                                               
with the  Department of Administration  (DOA) what it  would take                                                               
to  change to  the proposed  system and  any actuarial  valuation                                                               
that  would need  to  be done  prior to  a  change in  retirement                                                               
systems.                                                                                                                        
                                                                                                                                
MS. OAKLEY answered  no; that she has not had  the opportunity to                                                               
have that discussion  with the department.   Currently, the state                                                               
operates a DB plan for employees  hired prior to 2006.  The skill                                                               
sets to invest  those dollars exists within  the departments that                                                               
administer the  retirement system.   She offered her  belief that                                                               
the state has been operating the  two systems, so it would not be                                                               
difficult to take it back to  one system.  She offered that these                                                               
choices  are ones  occurring throughout  the country,  that state                                                               
employees  in approximately  12  states currently  have a  choice                                                               
between a DB and DC plan.                                                                                                       
                                                                                                                                
5:16:28 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   SULLIVAN-LEONARD    recalled   prior   committee                                                               
discussions that indicated an actuarial  study and analysis would                                                               
need to be performed so  the legislature could decide whether the                                                               
state could afford to move forward with this type of system.                                                                    
                                                                                                                                
CHAIR KITO  answered that  his office  had held  discussions with                                                               
DOA.  He reported that the  department has advised that it is not                                                               
prepared to  perform such an  intensive actuarial  analysis until                                                               
the bill  is before the House  Finance Committee.  The  DOA would                                                               
like the committee to provide  any recommended policy changes and                                                               
the actuarial would only perform the analysis once.                                                                             
                                                                                                                                
5:17:43 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  JOSEPHSON asked  for clarification  on subsequent                                                               
hearings.  He offered his support for the bill.                                                                                 
                                                                                                                                
CHAIR KITO  was unsure of the  time commitment.  He  expressed an                                                               
interest  in having  the actuarial  review done  at the  time the                                                               
bill is before the House Finance Committee.                                                                                     
                                                                                                                                
5:18:44 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  WOOL  asked  whether   the  existing  Palm  Beach                                                               
employees were forced into the new plan.                                                                                        
                                                                                                                                
MS.  OAKLEY answered  that the  city  council voted  to move  the                                                               
employees into  the new  plan, thus,  employees were  forced into                                                               
the new plan.   She indicated that many of  the employees did not                                                               
feel  there were  any  benefits to  stay in  Palm  Beach.   Their                                                               
benefits  were  frozen based  on  their  salaries and  would  not                                                               
increase,   she  explained.     She   pointed  out   that  nearby                                                               
communities were offering retirement  plans like their old plans.                                                               
The "churning part" by the new  employees in the Palm Beach study                                                               
is something that the state would likely want to consider.                                                                      
                                                                                                                                
5:20:32 PM                                                                                                                    
                                                                                                                                
JACOB   BERA,  Public   School  Teacher,   shared  his   personal                                                               
background,  offering  his  support  for  HB  83,  based  on  his                                                               
experience as  a public-school teacher  for the past 15  years in                                                               
Eagle River.   His goal is  to help the committee  understand how                                                               
the  current retirement  plan affects  student  learning and  the                                                               
effective use  of the limited  budget and core education.   After                                                               
he finished his  time in the United States  Marine Corps Reserve,                                                               
he and his  wife, who is also a teacher,  moved from Wisconsin to                                                               
Alaska to  start their careers in  education.  The beauty  of the                                                               
state attracted them  since they both like to run  and spend time                                                               
in the mountains;  however, they also want to start  a family and                                                               
put down roots.  He emphasized  that the retirement plan has made                                                               
a  big difference  for his  decision to  stay in  Alaska.   Since                                                               
their teacher service  started in 2003, they fall  under the Tier                                                               
II DB  plan, which allows  them to  contribute to a  pension plan                                                               
after  they  retire.   When  the  plan  changed in  2006,  public                                                               
employees could  no longer contribute  to the  DB plan.   If they                                                               
had been  considering moving  to Alaska  after 2006,  they simply                                                               
would not have done so as  it would not have made economic sense.                                                               
He  said  they  learned  that all  new  public  employees  cannot                                                               
participate  in  the  Social Security  [Old-Age,  Survivors,  and                                                               
Disability Insurance  (OASDI) program administered by  the Social                                                               
Security Administration  (SSA)].  In fact,  employees lose Social                                                               
Security  benefits  in Alaska  by  becoming  public employees  in                                                               
Alaska.   They could contribute  to both plans in  Wisconsin, but                                                               
they opted to  stay to supplement their losses by  opening a Roth                                                               
IRA [individual retirement account].                                                                                            
                                                                                                                                
5:22:11 PM                                                                                                                    
                                                                                                                                
MR.  BERA  said  that  when he  explains  the  public  employee's                                                               
choices to  other Alaskans,  especially those  not in  the public                                                               
sector, they  better understand the  risks that  public employees                                                               
take.   He acknowledged  that he  and his wife  feel lucky  to be                                                               
under the Tier II plan, even  absent the ability to contribute to                                                               
the OASDI [Social  Security], that they are still  trying to make                                                               
their retirement  system work for  them.  Other  colleagues moved                                                               
to  Alaska for  a few  years for  the adventure,  but have  taken                                                               
their savings and left, in part  due to budget cuts and increased                                                               
demands.  For  those reasons, Alaska is  becoming less attractive                                                               
for teachers to  stay, he said.  The state  has continued to lose                                                               
the  money  it  invested  in attracting  and  training  teachers.                                                               
Teacher turnover  is rising in  Alaska and schools  and educators                                                               
suffer.                                                                                                                         
                                                                                                                                
MR. BERA said he hopes  the committee will understand the quality                                                               
of the educators who remain, noting  he is one of four nationally                                                               
board-certified teachers  in his  school, and one  of 200  in the                                                               
state.   His college friend  who teaches  in his school  just won                                                               
the  Milken Educator  Award.   He described  a recent  experience                                                               
that  illustrated   teacher  dedication.     Despite   his  son's                                                               
teacher's  facing family  medical  issues that  day, the  teacher                                                               
immediately  focused  on  the school  conference  and  his  son's                                                               
progress in  school.  He  emphasized the importance  of retaining                                                               
teachers, noting he  often hears students express  an interest in                                                               
teaching.   He  said  the  state is  not  competitive with  other                                                               
states in  terms of salary  and benefits.  Teacher  positions are                                                               
being cut and  relatively new teachers must make  choices to stay                                                               
in  Alaska or  to leave,  invest  and build  up their  retirement                                                               
plans, including  building their social security  benefits.  Even                                                               
he and his  wife must consider their options due  to job security                                                               
issues.                                                                                                                         
                                                                                                                                
MR.  BERA  offered  his  belief  that  HB  83  could  provide  an                                                               
incentive for  public employees  to stay  in Alaska  by providing                                                               
the ability  for them  to earn a  better retirement  security for                                                               
their future.   Attracting and  keeping the best  educators makes                                                               
the most economic  sense for Alaska, especially  for the children                                                               
who attend public schools.                                                                                                      
                                                                                                                                
5:25:24 PM                                                                                                                    
                                                                                                                                
[HB 83 was held over.]                                                                                                          

Document Name Date/Time Subjects
HB110 Version U.pdf HL&C 2/16/2018 3:15:00 PM
HB 110
HB083 Supporting Document - Alaska Comparable Plans 4.18.17.pdf HL&C 2/16/2018 3:15:00 PM
HB 83
HB083 ver A 3.2.17.PDF HL&C 2/16/2018 3:15:00 PM
HB 83
HB083 Supporting Document - Compare DB to DC access 4.18.17.pdf HL&C 2/16/2018 3:15:00 PM
HB 83
HB083 Fiscal Note DOA-COM 2.9.18.pdf HL&C 2/16/2018 3:15:00 PM
HB 83
HB83 Oakley Presentation.pdf HL&C 2/16/2018 3:15:00 PM
HB 83
HB83 Sectional Analysis 2.28.17.pdf HL&C 2/16/2018 3:15:00 PM
HB 83
HB083 Fiscal Note DOA-DRB 2.9.18.pdf HL&C 2/16/2018 3:15:00 PM
HB 83
HB083 Supporting Document - 401k retirement readiness 4.18.17.pdf HL&C 2/16/2018 3:15:00 PM
HB 83
HB110 Fiscal Note DCCED-DCBPL 2.09.18.pdf HL&C 2/16/2018 3:15:00 PM
HB 110
HB110 Supporting Documents - Support Letters 2.15.18.pdf HL&C 2/16/2018 3:15:00 PM
HB 110
HB110 Supporting Documents - Opposition Letters 2.12.18.pdf HL&C 2/16/2018 3:15:00 PM
HB 110
HB303 Sectional Analysis 2.6.18.pdf HL&C 2/16/2018 3:15:00 PM
HB 303
HB303 Supporting Document-Workers' Compensation Board Resolution No. 17-01 2.6.18.pdf HL&C 2/16/2018 3:15:00 PM
HB 303
HB303 Transmittal Letter 2.6.18.pdf HL&C 2/16/2018 3:15:00 PM
HB 303
HB303 Fiscal Note DOA DRM 1.24.18.pdf HL&C 2/16/2018 3:15:00 PM
HB 303
HB303 ver A 2.6.18.PDF HL&C 2/16/2018 3:15:00 PM
HB 303
HB303 Fiscal Note DOA-DRM 2.6.18.pdf HL&C 2/16/2018 3:15:00 PM
HB 303
HB303 HLAC DOLWD presentation 2.16.18.pdf HL&C 2/16/2018 3:15:00 PM
HB 303
HB303 Opposition Letter 2.15.18.pdf HL&C 2/16/2018 3:15:00 PM
HB 303
HB110 Support Letters 2.15.18.pdf HL&C 2/16/2018 3:15:00 PM
HB 110
HB110 Sponsor Statement 2.15.18.pdf HL&C 2/16/2018 3:15:00 PM
HB 110
HB110 Sectional Analysis 2.15.18.pdf HL&C 2/16/2018 3:15:00 PM
HB 110
HB083 Letters of Support 2.15.18.pdf HL&C 2/16/2018 3:15:00 PM
HB 83
HB083 Letters of Support 2.16.18 packet 2.pdf HL&C 2/16/2018 3:15:00 PM
HB 83