Legislature(2017 - 2018)BARNES 124

02/19/2018 03:15 PM LABOR & COMMERCE

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
<Bill Hearing Canceled>
-- Public Testimony --
Heard & Held
-- Public Testimony --
Moved HB 304 Out of Committee
-- Public Testimony --
Moved HB 83 Out of Committee
+ Bills Previously Heard/Scheduled TELECONFERENCED
        HB  83-TEACHERS & PUB EMPLOYEE RETIREMENT PLANS                                                                     
3:34:39 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                                                               
3:35:09 PM                                                                                                                    
EDRIC  CARILLO,  Staff,  Representative Sam  Kito,  Alaska  State                                                               
Legislature, introduced  HB 83 on behalf  of Representative Kito,                                                               
prime sponsor.   He paraphrased  the sponsor  statement [included                                                               
in   committee  packet],   which  reads   as  follows   [original                                                               
punctuation provided]:                                                                                                          
     House  Bill 83  lets  teachers, Troopers,  firefighters                                                                    
     and  other public  employees choose  one  of two  state                                                                    
     retirement   systems:   today's  defined   contribution                                                                    
     retirement account,  or earning  a new  defined benefit                                                                    
     pension. And it saves the state money in the                                                                               
     A  defined  benefit pension  takes  time  to earn,  but                                                                    
     rewards public  service by paying a  guaranteed monthly                                                                    
     benefit   and,   for    long-term   employees,   health                                                                    
     insurance. An  individual defined  contribution account                                                                    
     is portable from one employer  to another, and flexible                                                                    
     in how it can be used, but makes no guarantees.                                                                            
     HB  83  lets  newly  hired public  servants  in  Alaska                                                                    
     choose  the one  that fits  best. HB  83 creates  a new                                                                    
     more stable,  more predictable defined  benefit pension                                                                    
     tier  for teachers  and public  employees. A  few years                                                                    
     ago, Alaska  beefed up oversight of  the pension system                                                                    
     to head off any new  surprises. HB 83 keeps these smart                                                                    
     reforms, making Alaska pensions stronger than ever.                                                                        
     And  because  the  defined  benefit  pensions  for  new                                                                    
     employees  include sharing  the risk  of rising  health                                                                    
     costs,  they will  never cost  employers more  than the                                                                    
     defined contribution system,  saving money for schools,                                                                    
     cities, and the State  of Alaska. Fiscal notes prepared                                                                    
     for prior versions of this  bill show it save the state                                                                    
     roughly $70 million in the first 10 years.                                                                                 
     Alaska  teachers and  public employees  don't earn  the                                                                    
     private  sector's defined  benefit of  Social Security,                                                                    
     and  many  even  lose  Social  Security  benefits  they                                                                    
     earned in  past jobs.  So for  most, a  defined benefit                                                                    
     pension  makes  sense.   Other  employees  will  choose                                                                    
     individual defined  contribution accounts  because they                                                                    
     prefer  flexibility,   portability,  and   control,  or                                                                    
     because their  plans do  not include  long-term service                                                                    
     in  the  public  sector.  HB 83  lets  them  choose  an                                                                    
     individual account.                                                                                                        
     The teachers  who educate our children,  the police and                                                                    
     firefighters who  protect our families, and  the public                                                                    
     employees who serve  our state and cities  will be able                                                                    
     to choose the benefit that best fits their service.                                                                        
     Thank you for your support of House Bill 83.                                                                               
3:37:24 PM                                                                                                                    
REPRESENTATIVE  BIRCH stated  that  his biggest  concern was  the                                                               
unconstrained cost downstream  and asked about a  fiscal note for                                                               
the proposed bill.                                                                                                              
MR. CARILLO deferred to Senator Dennis Egan's staff.                                                                            
3:38:13 PM                                                                                                                    
JESSI   KIEHL,  Staff,   Senator   Dennis   Egan,  Alaska   State                                                               
Legislature,  answered questions  in the  hearing on  HB 83.   He                                                               
stated all bills  that impact the retirement system  of the state                                                               
are  required by  statute to  have an  actuarial analysis  before                                                               
they are  reported from  the Rules  Committee to  the floor.   He                                                               
said  the proposed  bill maintains  all the  safeguards that  had                                                               
been put in place 10 or 12 years previously.                                                                                    
REPRESENTATIVE BIRCH  asked about  the current  contribution rate                                                               
for PERS/TERS between employee match and employer match.                                                                        
MR. KIEHL  said it's  difficult to disaggregate  by tier,  but in                                                               
the fiscal year 2018 [FY 18]  budget all employers are charged 22                                                               
percent  employer  rate  after the  employee  contribution  rate,                                                               
which is  different for the  defined contribution tiers  than for                                                               
prior  defined benefit  tiers.   He  added the  state makes  "on-                                                               
behalf"  payments for  the legacy  unfunded  liability which  was                                                               
roughly 3 percent  of payroll in the previous year.   He remarked                                                               
the Tier  I system is much  more expensive.  He  highlighted that                                                               
under HB  83 with employee  choice, all employees in  the defined                                                               
contribution plan or the new  defined benefit system would pay in                                                               
at 8 percent of payroll.                                                                                                        
REPRESENTATIVE  BIRCH asked  for confirmation  that the  employee                                                               
pays 8 percent and the employer matches that.                                                                                   
MR. KIEHL  answered the  employer rate  would remain  22 percent,                                                               
but  the prefunding  cost is  different.   He added  the unfunded                                                               
legacy issue is still being dealt with.                                                                                         
REPRESENTATIVE  BIRCH  surmised if  an  employee  makes $1,000  a                                                               
month, 8  percent goes into an  account with their own  name, and                                                               
the employer matches 22 percent.                                                                                                
MR. KIEHL answered in the  defined contribution plan it goes into                                                               
an account with the employee's name on it.                                                                                      
REPRESENTATIVE  BIRCH  suggested  30 percent  of  the  employee's                                                               
salary goes into the account.                                                                                                   
CHAIR KITO said he thought the  question was whether the state of                                                               
Alaska's current plan is different from other 401K plans.                                                                       
3:42:55 PM                                                                                                                    
MR.  KIEHL  answered the  current  defined  contribution plan  is                                                               
similar  to some  major employers'  plans in  which the  employee                                                               
contributes  to a  personalized account  and the  employer has  a                                                               
partial match equivalent  to a 401K.  He added  that the employer                                                               
also  puts  money into  the  health  benefits trust,  the  health                                                               
reimbursement account, and the  occupational death and disability                                                               
account.  He added  that the new tier created in  HB 83 would not                                                               
cost  more  for   the  employer  to  prefund   than  the  defined                                                               
contribution tier.   He  said with  the risk-sharing  of employee                                                               
health the new  pension tier [in HB 83] would  not cost employers                                                               
more to prefund than the defined contribution tier.                                                                             
CHAIR KITO said  there is a percentage that an  employee pays and                                                               
a percentage the employer pays.   He asked what those percentages                                                               
MR. KIEHL  answered that  in the  defined contribution  plan, the                                                               
employee pays 8 percent into  an individual account, the employer                                                               
matches  5  percent into  that  individual  account, roughly  1.2                                                               
percent goes  into the  health trust, 3  percent of  payroll goes                                                               
into a health  reimbursement account with the  employee's name on                                                               
it,  and the  occupational death  and disability  is roughly  1.4                                                               
percent for police and fire  employees, and about .75 percent for                                                               
all other PERS.                                                                                                                 
3:45:14 PM                                                                                                                    
REPRESENTATIVE BIRCH asked whether  the Supplemental Annuity Plan                                                               
(SBS) comes into the equation.                                                                                                  
MR. KIEHL answered  that it would for those  state employees that                                                               
get SBS.   He specified most teachers and  municipal employees do                                                               
not get SBS.                                                                                                                    
REPRESENTATIVE BIRCH asked what that amounts to.                                                                                
MR. KIEHL answered  the employees contribute roughly  the same as                                                               
social security, so just under 7 percent each.                                                                                  
3:46:02 PM                                                                                                                    
REPRESENTATIVE SULLIVAN-LEONARD  said it was not  clear where the                                                               
$70 million in savings comes from.                                                                                              
MR. KIEHL  answered that  those numbers come  from two  groups of                                                               
actuaries who did a series  of long-term actuarial projections on                                                               
the impacts of the proposed bill.                                                                                               
REPRESENTATIVE  SULLIVAN-LEONARD suggested  it was  Conduit Group                                                               
from the Alaska Retirement Management Board (ARMB).                                                                             
MR.  KIEHL said  it was  the Department  of Administration  (DOA)                                                               
Division of Retirement and Benefits who hired the actuaries.                                                                    
REPRESENTATIVE  SULLIVAN-LEONARD  shared her  understanding  that                                                               
Conduit Group and Buck had done a study.                                                                                        
MR.  KIEHL answered  the numbers  were generated  by Buck  and an                                                               
actuary called  Flick Fornia in 2013  and it was not  an analysis                                                               
of a  new proposal.   He added updated  numbers would need  to be                                                               
REPRESENTATIVE SULLIVAN-LEONARD asked for a copy of the study.                                                                  
MR. KIEHL said he would comply.                                                                                                 
3:48:58 PM                                                                                                                    
REPRESENTATIVE BIRCH  said he thought many  current employees are                                                               
largely  in  support.     He  brought  up  a   concern  from  law                                                               
enforcement  employees who  don't  have health  insurance for  20                                                               
years because they retire at age 45.                                                                                            
MR.  KIEHL  asked  whether  he   was  asking  about  the  defined                                                               
contribution plan or the new tier in HB 83.                                                                                     
REPRESENTATIVE  BIRCH  asked  if   there  is  a  medical  benefit                                                               
afforded  to  law  enforcement employees  who  have  a  different                                                               
retirement age from other retirees.                                                                                             
MR.  KIEHL stated  that under  the current  defined contribution-                                                               
only tier,  a peace  officer or firefighter  who retires  with 25                                                               
years of service  will get access to medical coverage  as long as                                                               
they retire directly from the system.   Under HB 83, that same 25                                                               
years of  service applies  for vesting  in the  retirement health                                                               
benefit, unless  the employee is over  65 years of age.   He said                                                               
they also  will pay a percentage  of the premium that  may change                                                               
over the  course of one's  career until retirement age,  then the                                                               
percentage  locks.   He  added  the  premiums  do not  lock,  the                                                               
percentage paid would lock.                                                                                                     
3:51:57 PM                                                                                                                    
CHAIR  KITO  said  public  testimony  was  still  open  from  the                                                               
previous hearing.   Upon ascertaining  that no one  was available                                                               
to testify, he closed public testimony on HB 83.                                                                                
3:52:22 PM                                                                                                                    
CHAIR  KITO said  the effective  date  had not  been updated  and                                                               
would be addressed in Amendment 1.                                                                                              
3:52:43 PM                                                                                                                    
CHAIR KITO moved to adopt Amendment 1, which read as follows:                                                                   
     Page 18, line 7:                                                                                                           
          Delete "July 1, 2017"                                                                                                 
          Insert "January 1, 2019"                                                                                              
3:53:02 PM                                                                                                                    
There being no objection, Amendment number 1 was adopted.                                                                       
CHAIR  KITO   advised  that  a  committee   substitute  would  be                                                               
REPRESENTATIVE  STUTES   expressed  her  full  support   for  the                                                               
proposed bill.                                                                                                                  
REPRESENTATIVE  JOSEPHSON said  he  supports HB  83  and said  he                                                               
thinks it will assist with employee retention problems.                                                                         
3:54:08 PM                                                                                                                    
REPRESENTATIVE  BIRCH said  he was  a  "no" vote  because he  had                                                               
concerns regarding  the mounting  liability to  the state  and he                                                               
did not know how the proposed bill would impact the budget.                                                                     
REPRESENTATIVE  SULLIVAN-LEONARD said  she echoed  Representative                                                               
Birch's comments.   She  added she did  not understand  where the                                                               
$70 million savings would come from  and that she felt that until                                                               
the final  actuarial report  was issued, "it  was pretty  hard to                                                               
say yes on this."                                                                                                               
3:55:40 PM                                                                                                                    
REPRESENTATIVE  WOOL  said  he thinks  public  employers  are  in                                                               
support of  this bill.  He  gave the example of  firefighters who                                                               
are trained in the state and leave the state after five years.                                                                  
CHAIR KITO said he thought it  was a good idea to have additional                                                               
tools for  employers to recruit and  retain employees, especially                                                               
as the  generation of baby  boomers enters retirement.   He added                                                               
that  one  of  the  biggest  liabilities for  the  state  is  the                                                               
liability of health care costs which no one can predict.                                                                        
3:57:49 PM                                                                                                                    
REPRESENTATIVE  WOOL moved  to report  HB  83 as  amended out  of                                                               
committee  with individual  recommendations and  the accompanying                                                               
fiscal notes.                                                                                                                   
3:58:03 PM                                                                                                                    
REPRESENTATIVE SULLIVAN-LEONARD objected.                                                                                       
3:58:05 PM                                                                                                                    
A roll call  vote was taken.   Representatives Stutes, Josephson,                                                               
Kito, and  Wool voted in favor  of HB 83.   Representatives Birch                                                               
and  Sullivan-Leonard voted  against it.   Therefore,  HB 83  was                                                               
reported out of  the House Labor and  Commerce Standing Committee                                                               
by a vote of 4-2.                                                                                                               

Document Name Date/Time Subjects
HB346 Letters of Support 2.17.18.pdf HL&C 2/19/2018 3:15:00 PM
HB 346
HB346 Supporting Document - Dentist specialty numbers.pdf HL&C 2/19/2018 3:15:00 PM
HB 346
HB346 Version A.PDF HL&C 2/19/2018 3:15:00 PM
HB 346
HB346 Fiscal Note DCCED CBPL 2.16.18.pdf HL&C 2/19/2018 3:15:00 PM
HB 346
HB083 Opposition Letter 2.16.18.pdf HL&C 2/19/2018 3:15:00 PM
HB 83
HB083 Letters of Support 2.17.18.pdf HL&C 2/19/2018 3:15:00 PM
HB 83
HB346 Sponsor Statement.pdf HL&C 2/19/2018 3:15:00 PM
HB 346