Legislature(2017 - 2018)GRUENBERG 120

03/27/2018 03:15 PM STATE AFFAIRS

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03:41:42 PM Start
03:42:21 PM HB83
04:01:26 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Delayed to 3:30 pm --
+ Presentations: TELECONFERENCED
- AK Permanent Fund Governance by Angela Rodell,
Chief Executive Officer
- Fiscal Plans Overview by Leg. Finance Div.
- Overview of Permanent Fund Proposals in the
Legislature by Legislative Staff
+ Bills Previously Heard/Scheduled TELECONFERENCED
+= HB 83 TEACHERS & PUB EMPLOYEE RETIREMENT PLANS TELECONFERENCED
Heard & Held
        HB  83-TEACHERS & PUB EMPLOYEE RETIREMENT PLANS                                                                     
                                                                                                                              
3:42:21 PM                                                                                                                    
                                                                                                                                
CHAIR KREISS-TOMKINS  announced that  the only order  of business                                                               
would be CS  FOR HOUSE BILL NO. 83(L&C), "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."                                                                                                                
                                                                                                                                
3:42:35 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SAM  KITO,  Alaska State  Legislature,  as  prime                                                               
sponsor of  CSHB 83(L&C), relayed  that the  proposed legislation                                                               
would  provide  an  opportunity  for  people  coming  into  state                                                               
service as employees to select  a defined benefit (DB) retirement                                                               
plan or a defined contribution  (DC) retirement plan.  This would                                                               
give those who wish to have  a career in state service the option                                                               
to select  a DB retirement plan  and those who expect  to be with                                                               
the state for  a short period of  time the option to  select a DC                                                               
retirement plan.   He  stated that  the employee  healthcare plan                                                               
would not change.                                                                                                               
                                                                                                                                
REPRESENTATIVE  KITO  reported  that  much of  the  cost  of  the                                                               
pension system and  volatility in that cost is  due to healthcare                                                               
costs.  Over  the past 15 years, during which  the state has been                                                               
dealing  with  the  unfunded  liability  for  the  PERS  program,                                                               
actuarial science  has become much better,  and information about                                                               
life  expectancy  is  much  better;  therefore,  the  ability  to                                                               
predict the  success of  a DB retirement  program is  much better                                                               
now than when the investment market was less stable.                                                                            
                                                                                                                                
REPRESENTATIVE KITO  relayed that CSHB 83(L&C)  would reestablish                                                               
the DB  retirement program  so that new  members could  be added.                                                               
The Department of Administration  (DOA) currently is reviewing an                                                               
actuarial analysis based  on the provisions in CSHB  83 (L&C) and                                                               
its companion bill, SB 52.                                                                                                      
                                                                                                                                
3:45:33 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE BIRCH expressed his  concern with the $7-8 billion                                                               
unfunded liability for  the PERS DB retirement program.   He said                                                               
that  he is  hesitant  to  support a  program  with an  uncertain                                                               
future  liability.   He  mentioned  that  he  was informed  by  a                                                               
lobbyist that  an actuarial assessment would  cost $20,000, which                                                               
the lobbyist did  not have.  He reiterated that  he was concerned                                                               
that the  state could  incur a  significant future  liability and                                                               
pointed out  that the  national trend is  to avoid  DB retirement                                                               
plans.   He asked the  sponsor when  there might be  an actuarial                                                               
assessment for the proposed legislation.                                                                                        
                                                                                                                                
REPRESENTATIVE KITO stated that his  understanding is that DOA is                                                               
currently  ordering  the  actuarial   analysis  on  the  proposed                                                               
legislation.  He emphasized that  there are many more data points                                                               
that have been  collected between the late '90s  and the present.                                                               
He stated  that the existing  unfunded liability resulted  from a                                                               
perfect storm of different events.                                                                                              
                                                                                                                                
REPRESENTATIVE KITO offered that  he is concerned for individuals                                                               
who have  401(k) retirement plans.   Nationwide  those retirement                                                               
plans are funded to about 52  percent of what a retiree needs for                                                               
retirement; therefore,  the DC retirement  program may  limit the                                                               
liability  for the  state  but put  many people  at  risk of  not                                                               
meeting  retirement goals  and retiring  with significantly  less                                                               
money than  anticipated.   He maintained that  to be  a universal                                                               
consequence of DC retirement programs.   He offered that a having                                                               
a choice  [between DB and DC  retirement plans] is one  method of                                                               
fully  funding retirement;  and some  states have  adopted hybrid                                                               
retirement systems,  which share the risk.   He said that  with a                                                               
DB retirement  program, 100 percent of  the risk is borne  by the                                                               
employer; with a  DC retirement program, 100 percent  of the risk                                                               
is borne by  the employee.  He added that  the employee must bank                                                               
more money  under the  DC retirement  program to  ensure covering                                                               
retirement, because the employee does  not have the earning power                                                               
of many  sources of  funds.   The employee  only has  the earning                                                               
power  of his/her  own 401(k);  therefore, his/her  retirement is                                                               
significantly underfunded.                                                                                                      
                                                                                                                                
REPRESENTATIVE KITO suggested that if  CSHB 83(L&C) or SB 52 does                                                               
not  pass this  year,  there may  be interest  in  a true  hybrid                                                               
retirement  system  that shares  the  risk  between employer  and                                                               
employee.   He  maintained that  with the  current DC  retirement                                                               
program, many  Alaskan retirees  will need  additional assistance                                                               
to  cover  their  expenses,  because  they  won't  have  adequate                                                               
resources;  that,  in  turn,  will   strain  the  state's  senior                                                               
services and benefits.                                                                                                          
                                                                                                                                
3:50:08 PM                                                                                                                    
                                                                                                                                
EDRIC  CARILLO,  Staff,  Representative Sam  Kito,  Alaska  State                                                               
Legislature, on  behalf of Representative Kito,  prime sponsor of                                                               
CSHB 83(L&C),  paraphrased from the sectional  analysis, included                                                               
in  the  committee  packet,  which   read  as  follows  [original                                                               
punctuation provided]:                                                                                                          
                                                                                                                                
     Sections 1  and 2 Clarify that  the Teachers Retirement                                                                
     System (TRS)  defined benefit (DB) statutes  apply only                                                                    
     to employees  who participate  in the  DB plan  and did                                                                    
     not convert  to defined contribution (DC).  No employee                                                                    
     can participate  in both  the DB and  DC plans.  Sec. 1                                                                    
     also  puts all  TRS employers  on an  equal footing  by                                                                    
     requiring  them  to  offer  new  employees  the  choice                                                                    
     between DB and DC systems.                                                                                                 
                                                                                                                                
     Sections  3 and  4 Set  employee contributions  for the                                                                
     new  DB tier  at eight  percent of  pay, while  leaving                                                                    
     prior tier employees' contributions unchanged.                                                                             
                                                                                                                                
     Sections 5 and 6  Require a person receiving disability                                                                
     benefits under the DB tiers  to seek work and receive a                                                                    
     medical examination.  Sets limits  on the  frequency of                                                                    
     the exams.                                                                                                                 
                                                                                                                                
     Section  7 Closes  the Tier  II DB  health plan  to new                                                                
     hires and  those DC  members who  choose to  convert to                                                                    
     the new TRS DB tier.                                                                                                       
                                                                                                                                
     Section  8  Establishes  the eligibility  standard  for                                                                
     retiree medical  benefits in  the new  TRS DB  tier. In                                                                    
     the new DB tier, a member  with 25 years of service may                                                                    
     receive medical  benefits partially paid by  the system                                                                    
     at  any age.  A member  without 25  years must  have at                                                                    
     least  eight  years  of service  and  be  eligible  for                                                                    
     Medicare.   Disabled  members   also  get   system-paid                                                                    
     medical benefits.                                                                                                          
                                                                                                                                
     A   TRS   DB   retiree   who  does   not   meet   those                                                                    
     qualifications can  buy health  care coverage  from the                                                                    
     system, but must pay the full cost of premiums.                                                                            
                                                                                                                                
     Establishes a  premium share  schedule for  retirees to                                                                    
     pay a  portion of  their health insurance  and requires                                                                    
     actuarial adjustments  to keep the pre-funding  rate of                                                                    
     the  new DB  tier no  higher than  the cost  of the  DC                                                                    
     plan.                                                                                                                      
                                                                                                                                
     Sets vesting  rules for  the premium  share percentages                                                                    
     so that  the schedule  can change during  an employee's                                                                    
     working life, but is fixed at the date of retirement.                                                                      
                                                                                                                                
     Section  9 Clarifies  that the  TRS  DC statutes  apply                                                                
     only to  employees who participate  in the DC  plan and                                                                    
     did not convert to DB.  No employees can participate in                                                                    
     both the DB and DC plans.                                                                                                  
                                                                                                                                
     Section 10 Puts  all TRS employers on  an equal footing                                                                
     by  requiring them  to offer  new employees  the choice                                                                    
     between DB and DC.                                                                                                         
                                                                                                                                
     Section  11  Gives a  newly  hired  teacher the  choice                                                                
     between  DB   and  DC  systems.  This   is  a  one-time                                                                    
     irrevocable choice.  Sets timeframes and rules  for the                                                                    
     process.                                                                                                                   
                                                                                                                                
     Section   12  Clarifies   that   the  Public   Employee                                                                
     Retirement  System (PERS)  DB  statutes  apply only  to                                                                    
     employees who  participate in the  DB plan and  did not                                                                    
     convert to DC. No employee  can participate in both the                                                                    
     DB  and  DC plans.  This  section  also puts  all  PERS                                                                    
     employers  on an  equal footing  by  requiring them  to                                                                    
     offer  new  employees  the choice  between  DB  and  DC                                                                    
     systems.                                                                                                                   
                                                                                                                                
     Section  13 Sets  the same  minimum wage  threshold for                                                                
     elected  officials  in the  new  DB  tier as  the  2004                                                                    
     reforms implemented for prior tiers.                                                                                       
                                                                                                                                
     Sections 14  and 15 Set employee  contributions for the                                                                
     new  PERS  DB  tier  at eight  percent  of  pay,  while                                                                    
     leaving prior tier employees' contributions unchanged.                                                                     
                                                                                                                                
     Sections  16   and  17   Require  a   person  receiving                                                                
     disability  benefits under  the PERS  DB tiers  to seek                                                                    
     work and receive a medical  examination. Sets limits on                                                                    
     the frequency of the exams.                                                                                                
                                                                                                                                
     Section  18  Establishes  an eligibility  standard  for                                                                
     retiree medical  benefits in the  new PERS DB  tier. In                                                                    
     the new  DB tier, a  peace officer or  firefighter with                                                                    
     25  years  of  service  may  receive  medical  benefits                                                                    
     partially  paid  by the  system  at  any age.  A  peace                                                                    
     officer or  firefighter who does  not have 25  years of                                                                    
     service  must  be eligible  for  Medicare  and have  at                                                                    
     least 10  years. Other PERS employees  require 30 years                                                                    
     of service  to get  medical benefits partially  paid by                                                                    
     the system unless they are  Medicare eligible, in which                                                                    
     case  they  require a  minimum  of  10 years.  Disabled                                                                    
     members also get system-paid medical benefits.                                                                             
                                                                                                                                
     A   PERS   DB  retiree   who   does   not  meet   those                                                                    
     qualifications can  buy health  care coverage  from the                                                                    
     system, but must pay the full cost of premiums.                                                                            
                                                                                                                                
     Establishes a  premium share  schedule for  retirees to                                                                    
     pay a  portion of  their health insurance  and requires                                                                    
     actuarial adjustments  to keep the pre-funding  rate of                                                                    
     the  new DB  tier no  higher than  the cost  of the  DC                                                                    
     plan.                                                                                                                      
                                                                                                                                
     Sets vesting  rules for  the premium  share percentages                                                                    
     so that  the schedule  can change during  an employee's                                                                    
     working life, but is fixed at the date of retirement.                                                                      
                                                                                                                                
3:55:18 PM                                                                                                                    
                                                                                                                                
     Sections 19 and  20 Put all PERS employers  on an equal                                                                
     footing  by  allowing  employers that  return  to  PERS                                                                    
     after terminating  participation to hire  employees the                                                                    
     same way other PERS  employers do, and allows employees                                                                    
     to earn  service credits in  the appropriate  tier when                                                                    
     working for those employers.                                                                                               
                                                                                                                                
     Section 21  Clarifies that the  PERS DC  statutes apply                                                                
     only to  employees who participate  in the DC  plan and                                                                    
     did not convert to DB.  No employees can participate in                                                                    
     both the DB and DC plans.                                                                                                  
                                                                                                                                
     Section 22 Puts all PERS  employers on an equal footing                                                                
     by  requiring them  to offer  new employees  the choice                                                                    
     between DB and DC systems.                                                                                                 
                                                                                                                                
     Section  23 Gives  a newly  hired  public employee  the                                                                
     choice between  DB and DC  systems. This is  a one-time                                                                    
     irrevocable choice.  Sets timeframes and rules  for the                                                                    
     process.                                                                                                                   
                                                                                                                                
     Section  24   Repeals  sections  that   let  non-vested                                                                
     employees convert from DB to  DC and required employers                                                                    
     to  match  the  funds transferred  dollar  for  dollar.                                                                    
     Repeals  sections  related  to  political  subdivisions                                                                    
     that  participate  only  in  the  DC  plan.  Repeals  a                                                                    
     requirement    that   DB    employees   who    refunded                                                                    
     contributions from the system  and return to work after                                                                    
     July 1,  2010 participate  only in  the DC  plan. (Such                                                                    
     employees will thus be treated as new hires.)                                                                              
                                                                                                                                
     Section 25 Gives employees hired  into the TRS and PERS                                                                
     DC plans  who have  not refunded out  of those  plans a                                                                    
     90-day period  from the effective  date of the  bill to                                                                    
     irrevocably   convert    into   the   new    DB   tier.                                                                    
     Contributions  move from  the DC  plan to  the DB  plan                                                                    
     trust if they make the switch.                                                                                             
                                                                                                                                
     Section  26  Sets  the  procedure  for  the  conversion                                                                
     election  in Sec.  25 and  allows the  administrator to                                                                    
     adopt  regulations  related   to  the  conversion.  The                                                                    
     choice   to  convert   is   irrevocable,  and   certain                                                                    
     information  must  be  provided  to  the  employee.  An                                                                    
     employee  who transfers  receives  credited service  in                                                                    
     the  defined benefit  plan equal  to the  value of  the                                                                    
     employee's DC  account. If that amount  is insufficient                                                                    
     to  'buy'  the  employee's  actual  service  time,  the                                                                    
     employee  may create  an indebtedness  to purchase  the                                                                    
     difference.  If the  employee's individual  account has                                                                    
     an  excess,  the  difference is  transferred  into  the                                                                    
     Supplemental Benefits  System or a  comparable account,                                                                    
     in keeping with federal tax law.                                                                                           
                                                                                                                                
     Section  27 Allows  the Commissioner  of Administration                                                                
     to  adopt regulations  to implement  and make  specific                                                                    
     the bill's provisions.                                                                                                     
                                                                                                                                
     Section 28 Is an  immediate effective date for sections                                                                
     26 and 27 of the bill.                                                                                                     
                                                                                                                                
     Section 29  Makes the bill  effective January  1, 2019,                                                                
     except as provided in Sec. 28.                                                                                             
                                                                                                                                
3:58:23 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE WOOL asked  whether having people pay  into a [DB]                                                               
retirement system would help fund the unfunded liability.                                                                       
                                                                                                                                
REPRESENTATIVE KITO replied that he  is in active discussion with                                                               
DOA on  that issue.   He stated that  there would be  two options                                                               
for  moving forward:   One  option would  be to  link the  new DB                                                               
retirement program to the existing  one, which would add money to                                                               
the  existing   DB  retirement  fund;  result   in  more  dynamic                                                               
management  of   the  fund;  and  yield   a  different  actuarial                                                               
calculation, since  the fund  would no longer  be a  closed fund.                                                               
The second option would be to  establish a new DB retirement fund                                                               
resulting in the management of  two separate funds.  The unfunded                                                               
liability would still  exist, and the fund for  the new employees                                                               
would be  managed.   He offered  that the net  result of  the two                                                               
options would be the same; under  the second option, one fund may                                                               
generate  more  interest, yet  most  likely  the funds  would  be                                                               
separate for accounting purposes but managed co-mingled.                                                                        
                                                                                                                                
4:01:07 PM                                                                                                                    
                                                                                                                                
CHAIR KREISS-TOMKINS announced that CSHB 83(L&C) would be held                                                                  
over.