Legislature(2015 - 2016)CAPITOL 106

03/24/2016 08:00 AM House STATE AFFAIRS

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Moved HB 280 Out of Committee
Moved CSHB 324(STA) Out of Committee
Scheduled but Not Heard
+ Bills Previously Heard/Scheduled TELECONFERENCED
        HB 280-TEACHERS & PUB EMPLOYEE RETIREMENT PLANS                                                                     
                [Contains discussion of SB 88.]                                                                                 
8:27:15 AM                                                                                                                    
CHAIR LYNN  announced that the  final order of business  would be                                                               
HOUSE  BILL NO.  280, "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."                                                                                                                
8:27:17 AM                                                                                                                    
REPRESENTATIVE SAM  KITO, Alaska State Legislature,  presented HB
280, as prime  sponsor.  He relayed that HB  280 would provide an                                                               
opportunity for  state employees currently covered  under Tier IV                                                               
or new  to state employment  to choose between a  defined benefit                                                               
(DB) plan  and a  defined contribution (DC)  plan.   He confirmed                                                               
that  the passage  of  Senate  Bill 141  in  2006  put every  new                                                               
employee under  a defined  contribution plan.   He said  that the                                                               
proposed  legislation  would  give current  defined  contribution                                                               
employees a limited time to  transition to a defined benefit plan                                                               
if  they  so desire.    He  added that  HB  280  would allow  new                                                               
employees interested in pursuing a  public career as a teacher or                                                               
public  employee to  elect a  defined  benefit plan  or, if  they                                                               
prefer, a defined contribution plan.                                                                                            
REPRESENTATIVE  KITO  explained that  when  the  State of  Alaska                                                               
originally  set  up the  defined  benefit  program, the  Internal                                                               
Revenue  Service (IRS)  allowed the  state to  opt out  of Social                                                               
Security, which it  did.  He went  on to say that  the state then                                                               
established  the Supplemental  Benefit  System  (SBS), a  defined                                                               
contribution component similar  to a 401(k).  He  opined that one                                                               
of the  problems the  state encounters in  being able  to recruit                                                               
and  retain  employees is  that  now  with  SBS and  the  defined                                                               
contribution  system,  employees have  two  401(k)  plans but  no                                                               
ability to participate  in Social Security or any  component of a                                                               
defined benefit plan.   He offered that  the proposed legislation                                                               
would  give   employees  wishing  to  be   career  employees  the                                                               
opportunity to  sign up  for a  defined benefit  plan.   He added                                                               
that  the vesting  requirement for  the proposed  retirement plan                                                               
would be  five years,  and the vesting  requirement for  the more                                                               
expensive medical plan would be ten years.                                                                                      
REPRESENTATIVE KITO  stated that  the fiscal  analysis of  HB 280                                                               
indicates    that    the     proposed    legislation,    properly                                                               
"actuarialized," could save the state  about $70 million over ten                                                               
8:31:20 AM                                                                                                                    
CHAIR LYNN asked if the actuarial projections are current.                                                                      
REPRESENATIVE  KITO  responded  that   he  is  working  with  the                                                               
Department  of   Administration  (DOA)   to  obtain   an  updated                                                               
actuarial analysis to produce the fiscal note on HB 280.                                                                        
CHAIR LYNN  opined that some  of the actuarial analyses  that the                                                               
state  relied  upon in  the  past  were faulty,  contributing  to                                                               
current   [liability]  problems   with  the   state's  retirement                                                               
systems, and he asked if there are now better analyses.                                                                         
REPRESENTATIVE  KITO responded  that two  factors contributed  to                                                               
the poor actuarial  projections:  one, between the  1960s and now                                                               
there has been a significant  increase in life expectancy so that                                                               
the  actuarial   assumptions  have   changed;  and   two,  market                                                               
performance  was   not  as   expected,  creating   a  significant                                                               
liability for the  state retirement system.  He  added that state                                                               
law now  requires the state  to do  an actuarial analysis  of its                                                               
retirement plan every  three to five years to ensure  the plan is                                                               
actuarially sound.                                                                                                              
REPRESENTATIVE KITO  emphasized that  due to the  increasing cost                                                               
of healthcare, the medical component  of a retirement plan is the                                                               
greater driver  of retirement costs compared  with the retirement                                                               
component.   He  said  that under  the  proposed legislation,  in                                                               
order to  receive healthcare benefits,  a retired  firefighter or                                                               
public safety officer must have 25  years of service or a minimum                                                               
of  ten  years and  be  eligible  for  Medicare.   For  a  public                                                               
employee, the requirement is a minimum  of 30 years of service or                                                               
a minimum  of ten  years, plus  Medicare eligibility.   Otherwise                                                               
the  retiree pays  a  percentage of  or the  full  amount of  the                                                               
healthcare premiums.                                                                                                            
8:34:07 AM                                                                                                                    
REPRESENTATIVE KELLER  referred to  the sponsor  statement, which                                                               
claims HB 280  would save money, and he asked  who would bear the                                                               
risk if medical costs do exceed the amounts projected.                                                                          
REPRESENTATIVE KITO responded that there  would be a shared risk.                                                               
He said  that under HB  280, a  fully vested retiree  on Medicare                                                               
would be eligible for state  healthcare benefits, but since those                                                               
benefits  become   secondary  to   Medicare,  the  cost   of  the                                                               
healthcare benefits  through the  state would  be the  smaller of                                                               
the  two.   He further  explained  that individuals  who are  not                                                               
Medicare  eligible  would  pay   the  full  healthcare  insurance                                                               
premium and  reiterated the considerable service  years necessary                                                               
to qualify for a graduated or full medical benefit.                                                                             
REPRESENTATIVE KELLER  noted that  even with  a shared  risk, the                                                               
benefit  amounts paid  would vary  depending on  the increase  in                                                               
healthcare costs.   He  alluded to  previous assurances  given to                                                               
the  legislature   that  the  retirement  system   was  in  sound                                                               
condition, and he  opined that these assurances  can sometimes be                                                               
wrong.   He cited that  other states  and Puerto Rico  are having                                                               
problems funding retirement systems.                                                                                            
REPRESENTATIVE KITO  answered yes, that  there would be  a shared                                                               
8:37:51 AM                                                                                                                    
CHAIR LYNN  cited the  potential conflict  of interest  in moving                                                               
the  proposed  legislation  in that  all  legislators  are  state                                                               
8:38:53 AM                                                                                                                    
JASON DUNCOMBE  testified that  he was a  police officer  for the                                                               
Anchorage Police  Department (APD).   He stated that with  a wife                                                               
and four children,  an option for retirement  benefits would help                                                               
his family in  many ways.  He expressed a  concern that he shares                                                               
with other officers - that  is, without retirement benefits there                                                               
isn't a future for them.   He offered that there are other police                                                               
departments that  do offer retirement  benefits, and  that having                                                               
that   option  available   elsewhere  would   undoubtedly  affect                                                               
retention  at  APD.   He  maintained  that  he loves  Alaska  and                                                               
considers it  his home.   He asserted that  he loves his  job and                                                               
APD  is  like  a  family  to  him.    He  lamented  that  without                                                               
retirement benefits, he doubts there  is a future for himself and                                                               
his family [in Alaska].                                                                                                         
8:41:26 AM                                                                                                                    
WILLIAM FORNIA, President, Pension  Trustee Advisers, Inc. (PTA),                                                               
relayed  that he  is a  consulting actuary  and has  been working                                                               
with  the  Alaska  Public Pension  Coalition  (APPC)  on  various                                                               
matters since  2011.   He stated  that he has  also worked  as an                                                               
advisory  actuary  for  the Alaska  Retirement  Management  (ARM)                                                               
Board in 2005  and 2006, and he performed an  audit of [Alaska's]                                                               
Public   Employees'  Retirement   System  (PERS)   and  Teachers'                                                               
Retirement System (TRS)  in 2008.   He cited  the wide variety of                                                               
clients  for  which he  has  worked  - government,  pension  fund                                                               
companies, labor  organizations, and third parties.   He reported                                                               
that up  until a year ago,  he was special advisor  to the Puerto                                                               
Rico Employees Retirement  System (ERS).  He  also mentioned that                                                               
he worked  for the banks  involved in the Detroit  bankruptcy and                                                               
testified in court on behalf of the  banks.  He noted that he has                                                               
also  testified   in  federal   district  courts  and   12  state                                                               
MR. FORNIA presented a PowerPoint  titled, "Alaska Pension Option                                                               
Legislation  SB  88/HB  280."    He referred  to  slide  3,  "Key                                                               
Features  of   SB  88/HB  280,"   and  said  that   the  proposed                                                               
legislation  would  give employees  a  choice  between a  defined                                                               
benefit and  a defined contribution  plan.  He offered  that some                                                               
employees  would prefer  a defined  contribution plan,  typically                                                               
those who  are younger or  those who  expect a shorter  length of                                                               
service,  and  defined  benefit plans  are  particularly  popular                                                               
among  career  workers.   He  went  on  to  say  that HB  280  is                                                               
structured to be  cost neutral or better, with the  goal being to                                                               
avoid unfunded liabilities  or additional cost to the  state.  He                                                               
said  the fiscal  note  from  a couple  years  ago  showed a  $10                                                               
million  saving the  first year,  and an  updated fiscal  note is                                                               
forthcoming.    He  claimed that  worker  contributions  for  the                                                               
defined benefit  plan would be the  same as for the  current Tier                                                               
IV plan.   He also  reported that the proposed  legislation would                                                               
generate short term  cost savings and shift much of  the risk for                                                               
increasing  healthcare benefit  costs  from the  employer to  the                                                               
workers through reduced benefits.                                                                                               
8:46:15 AM                                                                                                                    
MR.  FORNIA referred  to  slide 4,  "Findings,"  to explain  that                                                               
having an option  is more economical because more  benefit can be                                                               
provided  per  dollar  through a  defined  benefit  structure  as                                                               
opposed to a defined contribution  structure.  He reiterated that                                                               
the proposed plan was designed to be cost neutral.                                                                              
[CHAIR  LYNN passed  the  gavel to  Representative  Keller.   The                                                               
gavel was passed  back to Chair Lynn at an  unspecified time, but                                                               
before the hearing on HB 280 ended.]                                                                                            
8:47:23 AM                                                                                                                    
REPRESENTATIVE SPOHNHOLZ asked Mr.  Fornia to clarify the concept                                                               
of a defined  benefit structure being more  economical as opposed                                                               
to  a defined  contribution structure,  as her  understanding was                                                               
that  the  state  changed to  a  defined  contribution  structure                                                               
because it was more economical.                                                                                                 
MR. FORNIA responded that the  defined benefit plan is riskier to                                                               
the  employer but  [the defined  contribution plan]  is not  more                                                               
economical, because  the employers are better  positioned to take                                                               
the risk.   He explained  that if an  employee is forced  to take                                                               
the risk, he/she  will make decisions that are  not as economical                                                               
as would the  employer taking the risk.  He  promised more detail                                                               
later in the presentation.                                                                                                      
MR.  FORNIA referred  to slide  6, "Benefits  Available from  DCR                                                               
Program are Substantially Lower than  from Latest DB Tier," which                                                               
shows the level  of retirement benefits as percentage  of pay for                                                               
three   different    categories   of   employees    -   teachers,                                                               
firefighters,  and other  PERS employees  - and  demonstrates the                                                               
reduced retirement  benefit under  the defined  contribution plan                                                               
compared with the defined benefit plan.                                                                                         
MR. FORNIA  moved on  to slide  7, "Illustration  of Hypothetical                                                               
Teacher  Benefits -  $50,000 Final  Average  Salary," to  further                                                               
demonstrate the  reduced retirement  benefit for a  teacher under                                                               
the Tier III defined contribution  plan compared with the Tier II                                                               
defined  benefit  plan and  with  Social  Security.   The  Social                                                               
Security benefit  is slightly  lower than  the Tier  III benefit.                                                               
He emphasized that the benefit  levels under Tier III for teacher                                                               
and Tier IV for PERS aren't adequate for retirement.                                                                            
8:50:44 AM                                                                                                                    
MR.  FORNIA referred  to slide  8, "Why  DB? -  More Economically                                                               
Efficient," and a  report cited on slide 8, "Still  A Better Bang                                                               
for The  Buck," which he  coauthored with the  National Institute                                                               
on  Retirement Security  in 2014.   He  referenced the  report to                                                               
answer   Representative   Spohnholz's    question   about   which                                                               
retirement  structure  is more  economical.    He said  that  the                                                               
defined benefit structure is  more economically efficient because                                                               
investment  decisions  are made  by  investment  experts and  are                                                               
based  on a  large pool  of  people and  not an  individual.   He                                                               
claimed that  the three variables  - life  expectancy, investment                                                               
risk, and  investment expertise  - can all  be managed  better by                                                               
experts working with a pooled group of employees.                                                                               
8:53:34 AM                                                                                                                    
VICE  CHAIR  KELLER  asked  for   clarification  that  the  study                                                               
described  by the  report  was  based on  the  same employer  and                                                               
employee contributions for both plans, DB and DC.                                                                               
MR. FORNIA confirmed  that the study is based on  the same amount                                                               
of money going  into each plan up front.   Conversely, he said, a                                                               
fixed benefit level requires varying amounts of input.                                                                          
MR.  FORNIA went  on to  say that  slide 9,  "1st Strength  of DB                                                               
Plans Longevity  Risk Pooling," summarizes the  information about                                                               
longevity risk  pooling, and slide  10, "Under  a DC Plan  24% of                                                               
Assets  Are Not  Used for  Retirement -  1,000 Sample  Teachers,"                                                               
graphically illustrates the  extra savings put into a  DC plan by                                                               
a sample of 1,000 teachers in  order to achieve a target level of                                                               
retirement  benefit.   He asserted  that  the chart  demonstrates                                                               
that under the DC plan,  individuals would save extra and receive                                                               
less in retirement benefits.                                                                                                    
8:57:44 AM                                                                                                                    
REPRESENTATIVE  KREISS-TOMKINS asked  for clarification  of slide                                                               
10  -  that  teachers  who  live longer  than  expected  need  to                                                               
supplement  their  retirement  benefit, while  teachers  who  die                                                               
earlier than  expected have an  unrealized retirement  benefit in                                                               
the  form of  a death  benefit.   He  added that  either way  the                                                               
outcome is less than ideal.                                                                                                     
MR.  FORNIA  responded  that Representative  Kreiss-Tompkins  was                                                               
exactly right.   He  added that  unfortunately, the  retiree does                                                               
not  know his/her  life  expectancy, whereas  PERS  and TRS  uses                                                               
average life expectancies,  thus, not as much money  is needed in                                                               
the DC system.                                                                                                                  
8:59:09 AM                                                                                                                    
REPRESENTATIVE VAZQUEZ referred  to slide 10 and  asked from what                                                               
geographic location  the sampling was taken  and what assumptions                                                               
were made.                                                                                                                      
MR. FORNIA responded  that the sampling was  performed about four                                                               
years ago  on a national  basis using standard  mortality tables.                                                               
He conceded  that Alaska's mortality  data may be  different, but                                                               
asserted that the  shape of the graph would be  the same, and the                                                               
general concept would fit any population.                                                                                       
REPRESENTATIVE  VAZQUEZ asked  for the  list of  assumptions made                                                               
for  slides 10  and 6  and stated  her belief  that the  ages and                                                               
lengths of  service may not reflect  Alaska.  She added  that she                                                               
would like to see charts with Alaska data.                                                                                      
MR. FORNIA  responded that  slide 6 does  consist of  Alaska data                                                               
from 2012.   Twenty-five years  of service for  teachers, police,                                                               
and  firefighters   was  chosen   based  on  what   the  proposed                                                               
legislation   requires  for   the   retiree  getting   healthcare                                                               
benefits, and  the PERS retirement  age of 60 was  chosen because                                                               
that is the typical retirement age  in Alaska.  He further stated                                                               
that  he would  provide  the bill  sponsor  with the  assumptions                                                               
underlying slide 6 and slides 10-14 by tomorrow.                                                                                
9:03:06 AM                                                                                                                    
VICE CHAIR  KELLER asked  for a  definition of  "over-savings" on                                                               
slide 10.                                                                                                                       
MR. FORNIA explained  that "over-savings" is the  amount of extra                                                               
money put  into the  retirement system due  to an  individual not                                                               
knowing his/her  life expectancy.   He  reiterated that  a pooled                                                               
pension fund  only pays in  the amount needed to  fund retirement                                                               
MR.  FORNIA referred  to slide  13, "3rd  Strength of  DB Pension                                                               
Plans  Pooled, Professionally-Managed  Assets,"  which cites  the                                                               
results of  several studies comparing average  returns of defined                                                               
benefit  plans with  those  of defined  contribution  plans.   He                                                               
added that the  studies show that the DB  plan returns outperform                                                               
those of the DC plans by at  least 1 percent annually, and the DC                                                               
plan provides about half the  level of benefits compared with the                                                               
DB plan  for the  same amount  of money  put into  the plan.   He                                                               
stated that the  studies cited on slides  8-13 represent national                                                               
studies showing  similar results as  that seen in slide  6, which                                                               
reflects Alaska data.                                                                                                           
MR. FORNIA  briefly mentioned that  slide 14,  "Recent Research,"                                                               
lists the  four reports that  have been updated and  the findings                                                               
shown  on slides  15-23.   He  went on  to slide  15, "Update  on                                                               
Economically Efficiency  Research," to discuss  the misconception                                                               
that  defined  contribution  plans  inherently save  money.    He                                                               
contended that  a DC plan only  saves money if less  money is put                                                               
into the  plan; without less money  put into the plan,  there are                                                               
no savings and it yields lower  benefits.  Mr. Fornia stated that                                                               
the report, "Better Bang for  the Buck - Economic Efficiencies of                                                               
Defined Benefit Plans,"  has been updated in  response to changes                                                               
that occurred between 2008 and 2014.                                                                                            
9:07:24 AM                                                                                                                    
MR.  FORNIA said  that slide  16,  "NIRS Case  Studies on  States                                                               
which switched  from DB  to DC  - What NIRS  did," and  slide 17,                                                               
"NIRS  Case Studies  on States  which switched  from DB  to DC  -                                                               
Common  Trends,"  summarize  a  report in  the  committee  packet                                                               
titled,  "Public Pension  Resource Guide:  Case Studies  of State                                                               
Pension Plans that  Switched to Defined Contribution  Plans."  He                                                               
stated that the  report describes the experience  of three states                                                               
that   made  the   switch  from   defined  benefits   to  defined                                                               
contributions,  Alaska being  one  of  them.   He  said that  the                                                               
report  reviews various  issues  resulting from  the switch,  and                                                               
slide 17 summarizes the conclusions.   He offered that the report                                                               
concludes that  switching to  DC did  not solve  the underfunding                                                               
problem and, in  many cases, increased the cost of  the plan.  He                                                               
said that  the report  also shows  that workers  in the  new [DC]                                                               
plan had increased  levels of insecurity towards  retirement.  He                                                               
further claimed  that the  best way  to address  the underfunding                                                               
problem  is not  to make  the switch  but to  have a  responsible                                                               
funding policy.                                                                                                                 
9:09:20 AM                                                                                                                    
MR.  FORNIA  then  referred  to slide  18,  "Findings  from  Buck                                                               
Actuarial  Experience Investigation."    He said  that every  few                                                               
years Buck Consultants (Buck), a  human resource consulting firm,                                                               
compares  the  expected  actuarial  experience  with  the  actual                                                               
actuarial  experience for  the purpose  of  correcting for  wrong                                                               
assumptions and  changing faulty assumptions going  forward.  Mr.                                                               
Fornia  stated that  this was  last  done by  Buck in  September,                                                               
2014,  and  reported  in  November,  2014.    He  said  that  the                                                               
assumptions  include  mortality  age,  retirement  age,  employee                                                               
turnover,   employee    terminations,   withdrawals,   investment                                                               
returns, and salary growth.                                                                                                     
MR. FORNIA went on to say  that he was particularly interested in                                                               
employees  who resigned  in less  than five  years and  less than                                                               
eight  years,   as  evidence  that   the  new   plan  discouraged                                                               
employment longevity.   He referred  to slide 23,  "Findings from                                                               
Buck  Actuarial Experience  Investigation -  Data," to  point out                                                               
that teacher  turnover in  the first eight  years was  12 percent                                                               
higher than expected  and police and firefighter  turnover in the                                                               
first  five  years  was  4  percent higher  than  expected.    He                                                               
emphasized that the time period  for the study, 2009-2014, was at                                                               
a time during  which lower turnover would have  been expected due                                                               
to the recession.                                                                                                               
9:12:50 AM                                                                                                                    
MR. FORNIA  referred to slide  19, "Are Teachers Better  off with                                                               
Pension or  401(k)? -  Purpose of  Study," and  supporting slides                                                               
20-23, which  show the results  of a  study by the  University of                                                               
California to determine if teachers  in California are better off                                                               
with a 401(k)  or a pension.  He relayed  that the conclusion was                                                               
that the  vast majority  of teaching  was performed  by long-term                                                               
career  teachers;   consequently,  they  were  better   off  with                                                               
MR.   FORNIA  referred   to  slide   24,  "What   about  Unfunded                                                               
Liabilities?" and  opined that Senate  Bill 141, passed  in 2005,                                                               
wasn't  designed  to solve  the  unfunded  liability problem  and                                                               
hasn't  solved  the  problem.    He stated  that  the  DB  option                                                               
designed for  the proposed  legislation is  specifically designed                                                               
to  not increase  unfunded liability  and may  even decrease  the                                                               
liability.  He said that the  plans would be funded in advance to                                                               
avoid future  problems.  Mr.  Fornia referred to  the conclusions                                                               
in  slide  25, "Findings,"  which  state  that  a DB  plan  helps                                                               
provide  a  safety  net  for   employees,  encourages  long  term                                                               
service, and is designed to be cost neutral or favorable.                                                                       
9:15:56 AM                                                                                                                    
REPRESENTATIVE VAZQUEZ  asked what  the projected benefit  to the                                                               
existing retirement  benefits underfunding situation would  be if                                                               
the DB retirement structure was implemented.                                                                                    
MR. FORNIA responded that the  program is not designed to improve                                                               
the unfunded liability; however, if  the new fiscal note confirms                                                               
some  savings,  then that  could  be  used towards  the  unfunded                                                               
liability.   He added that  the proposed plan is  not anticipated                                                               
to  increase  the  unfunded  liability and  may  even  have  some                                                               
positive impact  on the unfunded  liability.  He  reiterated that                                                               
the intention of the proposed legislation  is not to pay down the                                                               
unfunded liability.                                                                                                             
MR.  FORNIA confirmed  Chair Lynn's  observation  that any  money                                                               
saved through  the proposed  retirement system  could be  used to                                                               
pay  down  the  unfunded  liability or  anything  else  in  state                                                               
9:17:55 AM                                                                                                                    
ROBERT  GROVE, Legislative  Information Director,  Retired Public                                                               
Employees  of Alaska  (RPEA), stated  that RPEA  has chapters  in                                                               
Fairbanks, Anchorage, and Juneau.   He revealed that he has lived                                                               
in Alaska  46 years and has  retired twice - the  first time from                                                               
the fire service in 2000 and  the second time from the University                                                               
of  Alaska Fairbanks  Geophysical Institute  in 2007.   He  added                                                               
that collectively  he and his wife  have over 52 years  of public                                                               
service in Alaska.   He said that like many  retirees, he and his                                                               
wife made the  decision to remain in Alaska after  retiring to be                                                               
near their  families, and they  wish to  spend the rest  of their                                                               
lives in Alaska.                                                                                                                
MR. GROVE  reported that according  to the [University  of Alaska                                                               
Anchorage] Institute of Social and  Economic Research (ICER), the                                                               
impact of Alaska seniors on the  economy in 2015 was more than $3                                                               
billion.   He went on to  say that ICER research  points out that                                                               
the income stream  from seniors does not depend on  oil, fish, or                                                               
gold, is  not influenced by  world markets, and is  not seasonal.                                                               
He  added  that  the  volunteer  work by  seniors  amounts  to  a                                                               
contribution to  the state of  about $52 million annually  and an                                                               
additional  $47   million  in  the  performance   of  care-giving                                                               
MR. GROVE testified  that RPEA supports HB 280  and its companion                                                               
bill  SB  88,   which  would  afford  new   state  employees  the                                                               
opportunity  to   choose  to   participate  in   today's  defined                                                               
contribution retirement  account, also  known as  Tier IV,  or to                                                               
participate in  a new defined  benefit pension plan.   He claimed                                                               
that  retiree expenditures,  along with  state and  local pension                                                               
plan  benefits, supported  16,054 jobs  in Alaska  in 2014.   Mr.                                                               
Grove said  that HB  280 would  create a  new, more  stable, more                                                               
predictable  defined  benefit  pension plan  for  teachers,  fire                                                               
fighters,  and  other  public  employees.     He  reiterated  Mr.                                                               
Fornia's testimony that  it is in the best interest  of the State                                                               
of Alaska and retirees to  have more retirees contributing to the                                                               
PERS and TRS pension trust,  which the proposed legislation would                                                               
make possible.   Mr.  Grove said  that on  behalf of  himself and                                                               
RPEA,  he urges  the House  State Affairs  Standing Committee  to                                                               
support the  proposed legislation and  move it out  of committee.                                                               
He  concluded by  saying  that  there were  39,679  PERS and  TRS                                                               
9:20:56 AM                                                                                                                    
NATHAN  COUTSOUBOS,  National  Education  Association  of  Alaska                                                               
(NEA-Alaska),  testified  that  he  was a  science,  speech,  and                                                               
debate teacher  for the Dillingham  City School District  and has                                                               
lived in  Dillingham for six years.   He stated that  he supports                                                               
the  proposed legislation,  which would  allow public  employees,                                                               
including teachers, to choose between  a defined contribution and                                                               
a defined benefit retirement plan.   He claimed that HB 280 would                                                               
create significant  advantages for Alaska by  keeping experienced                                                               
educators  in   Alaska,  making   it  easier  for   the  schools,                                                               
especially  in  the  Bush,  to  attract  new  talent,  and  using                                                               
Alaska's education dollars more efficiently.                                                                                    
MR. COUTSOUBOS  declared that  his testimony  would focus  on the                                                               
efficient  use of  education  dollars.   He  stated that  teacher                                                               
turnover is  an enormous  concern for  Alaska, especially  in the                                                               
Bush.  He said that in Dillingham  there is a great new cohort of                                                               
young early career teachers  - ten to 12 out of  a staff of about                                                               
40.    He claimed  that  the  school administration  and  veteran                                                               
teachers on staff have invested a  great deal of money, time, and                                                               
effort in  training the new teachers  and helping them to  have a                                                               
positive impact on  the students.  He lamented that  every one of                                                               
the new teachers plans to leave  Dillingham in the next couple of                                                               
9:23:37 AM                                                                                                                    
MR.  COUTSOUBOS  maintained  that  Dillingham is  somewhat  of  a                                                               
"teacher graduate  school" for  other states.   He  asserted that                                                               
the scenario he just described  portrays an extremely inefficient                                                               
use of education dollars.  He  further stated, "It takes a really                                                               
big  investment to  make  a  good teacher.    Teachers are  made.                                                               
They're not  born. You  have to  invest. You  have to  train them                                                               
up."   He went on  to say that as  new teachers leave  because of                                                               
the  current  retirement system,  the  school  districts and  the                                                               
state have to make that investment over and over again.                                                                         
MR. COUTSOUBOS  opined that  HB 280,  by providing  an attractive                                                               
retirement option, would  help keep teachers in  Alaska and would                                                               
help  avoid that  constant,  financially  inefficient pattern  of                                                               
teacher  turnover.   He contended  that the  proposed legislation                                                               
would  provide a  significant, meaningful,  and critical  step to                                                               
keeping  good  teachers in  Alaska  and  using education  dollars                                                               
wisely.  He requested the committee members support HB 280.                                                                     
9:25:00 AM                                                                                                                    
CHAIR LYNN  alluded to  his own retirement  from teaching  in the                                                               
California  system.   He claimed  that teaching  has frustrations                                                               
and he  might not  have continued  teaching had  it not  been for                                                               
California's defined  benefit retirement  plan for teachers.   He                                                               
added that the same was true for his military career.                                                                           
REPRESENTATIVE  KREISS-TOMKINS  asked  for clarification  of  Mr.                                                               
Coutsoubos'  testimony  that  often young  teachers  start  their                                                               
teaching career in  rural Alaska and, after  achieving some level                                                               
of  proficiency and  experience, start  looking at  the long-term                                                               
considerations of family and retirement and decide to move on.                                                                  
MR.  COUTSOUBOS  confirmed  that  is correct.    He  relayed  the                                                               
necessity for  Alaska to  import 70 percent  of its  teachers and                                                               
opined that strong  incentives are needed to retain  them as they                                                               
get  professionally  proficient.   He  contended  that for  these                                                               
young  teachers, the  rational choice  is to  move out  of state,                                                               
closer to family, to a  better retirement system offered by every                                                               
other state.                                                                                                                    
REPRESENTATIVE KREISS-TOMKINS  asked why the new,  young teachers                                                               
come to Alaska in the first place.                                                                                              
MR. COUTSOUBOS claimed that many  teachers come to Alaska for the                                                               
adventure and because it is easier  for a professional to start a                                                               
career in Alaska than elsewhere.                                                                                                
REPRESENTATIVE KREISS-TOMKINS  asked if anyone has  retired under                                                               
Alaska's Tier  III and Tier  IV retirement plans and  what health                                                               
benefits those retirees have.                                                                                                   
MR. COUTSOUBOS  responded that he  didn't know of anyone,  as the                                                               
system has been in place just ten  years.  He offered that he has                                                               
assessed  his  benefits  at retirement  and  concluded  that  the                                                               
"numbers" are not encouraging.                                                                                                  
REPRESENTATIVE  KREISS-TOMKINS asked  Mr. Coutsoubos  to identify                                                               
what,  in regard  to healthcare  benefits at  retirement, is  not                                                               
MR.  COUTSOUBOS  replied  that  healthcare  in  general  is  very                                                               
expensive, and  that the risk  of that  expense will be  borne by                                                               
himself and his family.                                                                                                         
9:28:28 AM                                                                                                                    
REPRESENTATIVE  STUTES  asked  Mr.  Coutsoubos  if  his  six-year                                                               
tenure  as a  teacher is  one of  the longest  at the  Dillingham                                                               
School District.                                                                                                                
MR.  COUTSOUBOS  responded that  he  is  a veteran  teacher  even                                                               
though he  is only in his  sixth year.  He  maintained that there                                                               
is still  a strong  cohort of  Tier I and  Tier II  teachers, but                                                               
they are approaching retirement.   He relayed that among the Tier                                                               
III  teachers, there  is a  constant  turnover, and  he has  been                                                               
there the longest.  He added that  he is one of only two Tier III                                                               
teachers who have bought a house in Dillingham since 2007.                                                                      
CHAIR  LYNN asked  if  Mr. Coutsoubos  had  taught anywhere  else                                                               
before Alaska.                                                                                                                  
MR. COUTSOUBOS  responded no.   He said  that he was  a biologist                                                               
for many years,  with about six of those years  in Alaska, before                                                               
switching to education.                                                                                                         
9:30:05 AM                                                                                                                    
REPRESENTATIVE   VAZQUEZ   cited   the  attrition   of   teachers                                                               
historically   and  the   difficulty  recruiting   and  retaining                                                               
teachers  in the  Bush.   She  expressed her  desire  to see  the                                                               
attrition rates before  and after Tier II, Tier III,  and Tier IV                                                               
were implemented.                                                                                                               
9:31:04 AM                                                                                                                    
CHRIS   BENSHOOF   testified   that   he   teaches   Mathematics,                                                               
Statistics,  Computer  Science,   Engineering,  and  Robotics  at                                                               
Lathrop High  School in  Fairbanks.   He declared  that he  is in                                                               
support of HB  280 because it would provide  educators and public                                                               
employees  the  option of  either  a  defined contribution  or  a                                                               
defined benefit retirement system.   He claimed that in his eight                                                               
years  of teaching,  he has  been  recognized as  the 2013  state                                                               
teacher of the year and  the 2014 national teacher of excellence,                                                               
and he  is now  a finalist  for the  2015 presidential  award for                                                               
excellence in  mathematics and science  teaching.   He maintained                                                               
that   during   those   years,  Alaska's   defined   contribution                                                               
retirement  system  has  harmed  its  recruitment  and  retention                                                               
efforts to acquire the excellent teachers it needs.                                                                             
MR.  BENSHOOF went  on to  say that  he was  hired as  a fulltime                                                               
Mathematics teacher in 2008 and was  told at the time that he was                                                               
one of  65 applicants  for the position.   He  considered himself                                                               
very fortunate  to have  been hired  from such a  deep pool.   He                                                               
maintained  that as  understanding  of  the defined  contribution                                                               
retirement system  has grown, interest  in teaching  in Fairbanks                                                               
has fallen  drastically.   He offered that  last fall  his school                                                               
needed to  hire another fulltime  Mathematics teacher  and, after                                                               
more than a month, there were  only three applicants.  He claimed                                                               
that in addition to harming  recruitment efforts, the other major                                                               
impact of the defined contribution  retirement system has been in                                                               
retention of teachers.  He stated  that in the eight years he has                                                               
been teaching,  many of  his peers have  left the  profession for                                                               
other  careers or  for other  states offering  defined retirement                                                               
benefits.  He  relayed that more and more  the conversations with                                                               
his   fellow  teachers,   also   under  the   Tier  III   defined                                                               
contribution  retirement  system,  are not  about  the  long-term                                                               
success of  the school but  about short-term job options  and the                                                               
question, "How long are you staying?"                                                                                           
MR.  BENSHOOF  said  that  in  two years,  having  paid  off  his                                                               
students loans  and having completed  his Ph.D. program,  he will                                                               
be  faced with  the serious  decision of  whether to  continue to                                                               
remain an  educator in Alaska  or to  move on to  something else.                                                               
He declared  that his first  master's degree is in  education and                                                               
that teaching  is his  preference and  where his  community needs                                                               
him.   He went on  to say that his  second master's degree  is in                                                               
economics,  and he  is  torn knowing  that  the smarter  economic                                                               
decision  is to  teach  in  a different  state  or  to move  into                                                               
private  industry.   He maintained  that in  making his  decision                                                               
about whether to  remain a teacher in Alaska, his  top concern is                                                               
the  retirement  system.    He urged  the  committee  members  to                                                               
support  HB 280  so  that  Alaska can  return  to attracting  and                                                               
retaining  the  quality  educators  that  the  students  and  the                                                               
communities need.                                                                                                               
9:33:51 AM                                                                                                                    
JACOB BERA  testified that he  is an  art teacher at  Eagle River                                                               
High School.   He said that he  and his wife came  to Alaska from                                                               
Wisconsin in  2003, attracted by  the scenery and  the adventure.                                                               
He  offered that  both he  and  his wife  came from  economically                                                               
challenged families and  looked to Alaska for  the opportunity of                                                               
financial security  through hard work.   He said that he  and his                                                               
wife  found  out about  teaching  in  Alaska  at  a job  fair  in                                                               
Minneapolis and,  after researching Alaska's TRS,  found that the                                                               
Tier II  system was attractive  enough to encourage them  to move                                                               
3,500 miles  away from their loved  ones.  Mr. Bera  claimed that                                                               
since  then he  and his  wife have  done well:   they  have three                                                               
children,  own a  house, and  volunteer in  their community.   He                                                               
maintained that he loves his job,  his students, and has become a                                                               
national board  certified teacher.   He went  on to say  that his                                                               
colleagues who were hired after  2006 are very nervous about what                                                               
their financial situation will be in 10-15 years.                                                                               
MR.  BERA  expressed  his  empathy  for  the  challenges  of  the                                                               
legislators  and stated  that  he, too,  wants  a healthy  fiscal                                                               
future  for the  state.    He referred  to  his grandfather,  who                                                               
"saved a  little bit more, he  bought a little bit  nicer things,                                                               
and he  made them last a  long time," and claimed  that the state                                                               
needs to  take the same  view for  investing in its  teachers and                                                               
other public employees.  He opined  that HB 280 represents a very                                                               
good  effort  to accomplish  that  and  to avoid  recruiting  and                                                               
training people  who will leave in  five years.  He  concluded by                                                               
saying  that Alaska  is unique  among  the states  in offering  a                                                               
defined contribution only  plan for public employees  and, at the                                                               
same time, precluding participation in Social Security.                                                                         
9:37:50 AM                                                                                                                    
BRINNA  WOJTALEWICZ testified  that  she is  a special  education                                                               
teacher  at Central  Middle  School in  Anchorage,  Alaska.   She                                                               
relayed that  she is  originally from Minnesota,  took a  trip to                                                               
Alaska with her  father when she was young, and  moved up in 2007                                                               
intending to stay one  year.  She said that she  now owns a house                                                               
and has  no plans to leave.   Ms. Wojtalewicz mentioned  that she                                                               
sees her colleagues leaving, and  she maintained that the lack of                                                               
a secure  retirement through a defined  benefit retirement system                                                               
definitely is  a factor.   She alluded to  the loss last  year of                                                               
two amazing teachers,  both of whom wanted to raise  a family but                                                               
did not  foresee a secure  future in  Alaska.  She  expressed her                                                               
concern for  the students and  claimed that the loss  of teachers                                                               
has a direct effect on students.   She claimed that currently the                                                               
quality of  education in Alaska  is excellent, but  she contended                                                               
that  without   the  recruitment   and  retention   of  excellent                                                               
teachers,  Alaska could  lose that  excellence.   Ms. Wojtalewicz                                                               
stressed the importance of the  proposed legislation, which would                                                               
allow Alaska  to attract  and retain the  teachers needed  by the                                                               
state  and by  the students  to maintain  an excellent  education                                                               
9:41:11 AM                                                                                                                    
SAM  TRIVETTE  testified that  he  is  a volunteer  with  Retired                                                               
Public  Employees of  Alaska (RPEA)  and  the vice  chair of  the                                                               
Alaska  Retirement Management  (ARM)  Board.   He  said that  the                                                               
defined  contribution system  has  been in  place  for about  ten                                                               
years, and  the defined contribution  committee of the  ARM Board                                                               
has  been gathering  data  on the  system.   He  stated that  his                                                               
testimony  would give  the  conclusions of  that  analysis.   Mr.                                                               
Trivette  relayed that  he is  a PERS  retiree with  33 years  of                                                               
service  with  the  Department   of  Corrections  (DOC)  and  the                                                               
Department of  Transportation &  Public Facilities  (DOT&PF), has                                                               
been retired  for 18  years, and  has been  a resident  of Alaska                                                               
since 1954.                                                                                                                     
MR. TRIVETTE related  that in answering the question  of how well                                                               
the defined  contribution retirement  plan is working,  he looked                                                               
at  three areas:   the  health savings  account balances,  the DC                                                               
account  balances, and  the  disbursement  behavior of  employees                                                               
leaving  state employment.    He stated  there  are about  35,700                                                               
active  public employees:   17,000-plus  under the  DB retirement                                                               
system and 18,000-plus  under the DC retirement system.   He went                                                               
on  to say  that there  are 5,609  active teachers  under the  DB                                                               
retirement system and  4,965 under the DC retirement  system.  He                                                               
also  mentioned   that  there   are  over  32,700   retirees  and                                                               
beneficiaries in  PERS and 12,429  retirees and  beneficiaries in                                                               
9:44:57 AM                                                                                                                    
MR. TRIVETTE reported that one result  of Senate Bill 141 was the                                                               
shift from  "system-paid" health  care to a  health reimbursement                                                               
arrangement  (HRA) for  retirees.   He explained  that under  HRA                                                               
each  employee has  an account,  and someone  who worked  all ten                                                               
years would  have about $17,500  in their  HRA upon leaving.   He                                                               
expressed that without system-paid  healthcare, $17,500 would not                                                               
last long when paying for healthcare premiums.                                                                                  
MR. TRIVETTE went  on to say that the average  DC account balance                                                               
is $73,957,  which would be  what an employee has  for retirement                                                               
upon  leaving  employment.   He  specified  the  average  account                                                               
balances  for  two age  groups:    $119,450  for ages  59-62  and                                                               
$39,659 for ages 41-48.                                                                                                         
9:47:05 AM                                                                                                                    
MR. TRIVETTE  went on  to talk  about the  reimbursement behavior                                                               
among employees  upon separation  from employment and  listed the                                                               
three options for the  DC account:  cash it out,  roll it over to                                                               
an individual  retirement account (IRA),  or retire with it.   He                                                               
reported that 76 percent of  the people who terminated employment                                                               
and took  their money  out or  rolled it  over did  not go  to an                                                               
advisement seminar before  making those decisions.   He said that                                                               
in FY 2011, PERS employees cashed  out about $7.1 million, and by                                                               
FY 15,  that amount  was up  to $21  million, which  accounts for                                                               
over 76 percent of all of  the money dispersed in the five years.                                                               
He claimed that  if former employees are not  rolling their money                                                               
over to an IRA  but are using it for expenses,  then when they do                                                               
retire they won't have much  money. Mr. Trivette cited a National                                                               
Institute of  Retirement Securities (NIRS) study  that shows that                                                               
older  Americans who  don't  have a  defined  benefit income  are                                                               
about  39  percent more  likely  to  be  on means  tested  public                                                               
assistance,  which is  state  funded, and  across  the U.S.  that                                                               
amounted to  over $7.3 billion in  2006 dollars.  He  opined that                                                               
not  having  a defined  benefit  system  will cause  problems  in                                                               
Alaska  years from  now.    He stated  that  he personally  knows                                                               
Alaskans who have been in the  state for many years and who, even                                                               
though they  had low wages, were  able to stay in  Alaska because                                                               
they  had a  defined  benefit.   He restated  the  fact that  the                                                               
state, which  opted out of  Social Security for its  employees in                                                               
1980, has put  its employees in a very bad  situation, which will                                                               
in turn put the state in a bad  situation.    Mr. Trivette stated                                                               
that he  strongly supports HB 280,  and he urged the  House State                                                               
Affairs Standing Committee to move it from committee.                                                                           
REPRESENTATIVE VAZQUEZ  clarified that  public assistance  is not                                                               
only state money but is 50 percent federally funded.                                                                            
9:51:30 AM                                                                                                                    
GREG  COLLEN   testified  that  he   works  in   the  information                                                               
technology  (IT)  department of  the  City  & Borough  of  Juneau                                                               
School District and  supports HB 280.   He thanked Representative                                                               
Kito for introducing  the legislation.  He mentioned  that he has                                                               
been  in  the Tier  IV  retirement  system  for seven  years  and                                                               
claimed  that his  issue with  the system  is the  uncertainty it                                                               
presents   due   to   the  unknowns:      longevity,   investment                                                               
performance, and  length of  service.   Mr. Collen  declared that                                                               
having a  defined benefit system  under the  proposed legislation                                                               
would offer security to employees.                                                                                              
CHAIR LYNN closed public testimony on HB 280.                                                                                   
9:54:03 AM                                                                                                                    
REPRESENTATIVE STUTES  moved to  report HB  280 out  of committee                                                               
with  individual  recommendations  and  the  accompanying  fiscal                                                               
notes.  There being no objection,  HB 280 was reported out of the                                                               
House State Affairs Standing Committee.                                                                                         

Document Name Date/Time Subjects
01 HB 280 ver A.PDF HSTA 3/24/2016 8:00:00 AM
HB 280
02 HB 280 Sponsor Statement.pdf HSTA 3/24/2016 8:00:00 AM
HB 280
03 HB 280 Sectional Analysis.pdf HSTA 3/24/2016 8:00:00 AM
HB 280
04 HB 280 Fiscal Note - DOLWD - 3-15-2016.pdf HSTA 3/24/2016 8:00:00 AM
HB 280
05 HB 280 Letter Support APOA.pdf HSTA 3/24/2016 8:00:00 AM
HB 280
06 HB 280 Support Letters Hueffer, Gregg, Netardus.pdf HSTA 3/24/2016 8:00:00 AM
HB 280
01 HB 324 ver A.PDF HSTA 3/24/2016 8:00:00 AM
HB 324
02 HB 324 Sponsor Statement.pdf HSTA 3/24/2016 8:00:00 AM
HB 324
03 HB 324 Supporting Documents-Letter Violent Crimes Compensation Board 3-3-2016.pdf HSTA 3/24/2016 8:00:00 AM
HB 324
04 HB 324 Fiscal Note - DOA - 3-18-2016.pdf HSTA 3/24/2016 8:00:00 AM
HB 324
01 HJR 30 v.N (MLV).pdf HSTA 3/24/2016 8:00:00 AM
HJR 30
01b HJR 30 v.W.PDF HSTA 3/24/2016 8:00:00 AM
HJR 30
02 HJR 30 - Sponsor Statement - Version N.pdf HSTA 3/24/2016 8:00:00 AM
HJR 30
03 HJR 30 - Summary of Changes Vers W to N.pdf HSTA 3/24/2016 8:00:00 AM
HJR 30
04 HJR 30 - Fiscal Note - MVA-OVA-03-12-16.pdf HSTA 3/24/2016 8:00:00 AM
HJR 30
05 HJR 30 - Fiscal Note- LEG-SESS-03-14-16.pdf HSTA 3/24/2016 8:00:00 AM
HJR 30
06 HJR 30 - Supporting Documents - Supporting Argument (Dr Ochberg).pdf HSTA 3/24/2016 8:00:00 AM
HJR 30
07 HJR 30 - Opposing Documents - Opposition Argument (Dr Friedman).pdf HSTA 3/24/2016 8:00:00 AM
HJR 30
08 HJR 30 - Letter of Support - DMVA.pdf HSTA 3/24/2016 8:00:00 AM
HJR 30
09 HJR 30 - Letter of Support - Honor For All.pdf HSTA 3/24/2016 8:00:00 AM
HJR 30
07 HB 280 PowerPoint Presentation wFornia.pptx HSTA 3/24/2016 8:00:00 AM
HB 280
08 HB 280 Public Pensions Resource Guide.pdf HSTA 3/24/2016 8:00:00 AM
HB 280
05 HB 324 Amendment A.1 (Spohnholz).pdf HSTA 3/24/2016 8:00:00 AM
HB 324