Legislature(2021 - 2022)ADAMS 519
04/23/2021 09:00 AM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| HB81 | |
| SB19 | |
| HB55 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 69 | TELECONFERENCED | |
| += | HB 71 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | SB 19 | TELECONFERENCED | |
| += | HB 81 | TELECONFERENCED | |
| += | HB 55 | TELECONFERENCED | |
HOUSE BILL NO. 55
"An Act relating to participation of certain peace
officers and firefighters in the defined benefit and
defined contribution plans of the Public Employees'
Retirement System of Alaska; relating to eligibility
of peace officers and firefighters for medical,
disability, and death benefits; relating to liability
of the Public Employees' Retirement System of Alaska;
and providing for an effective date."
9:54:45 AM
Co-Chair Merrick reported that HB 55 was previously heard
in committee on April 21, 2021.
REPRESENTATIVE ANDY JOSEPHSON, SPONSOR, commented that
there was some discussion about contribution levels. He
reminded committee members that under Tier 4, employees had
a contribution level of about 8 percent and under HB 55
contributions would be 8 to 10 percent. He considered that
further skin in the game. He referred to the pie chart on
slide 10 of the PowerPoint [titled HB 55] (copy on file)
presented at the prior meeting and noted it was an
excellent graphic depiction of the contribution breakdown
of "where the contributions came from and where they went."
Co-Chair Merrick moved to invited testimony.
9:56:34 AM
PAUL MIRANDA, PRESIDENT, ALASKA PROFESSIONAL FIREFIGHTERS'
ASSOCIATION (via teleconference), began the PowerPoint
Presentation titled Costs of Maintaining The Status Quo"
(copy on file). He shared that the purpose of his
presentation was to illustrate that Alaska was facing a
public safety recruitment and retention crisis and to
demonstrate that there was a real cost to maintaining the
status quo.
9:57:59 AM
Mr. Miranda began with slide 2 titled Unintended
Consequences of Tier IV for Public Safety:"
? Recruitment Difficulties
? Retention Costs
? Workers Compensation Costs
? Unforeseen Costs
Mr. Miranda elucidated that Alaska can no longer compete
with the lower 48 when it comes to recruitment of public
safety officers. The state held a clear disadvantage
compared to what other states offered for retirement
benefits. He stressed that police officers and paramedics
were in high demand. He noted that no other state offered a
similar retirement plan as Alaskas.
9:59:27 AM
Mr. Miranda turned to slide 3 titled Recruitment
Difficulties
? "Alaska cannot compete with agencies offering
defined benefit plans. This has left us with vacancies
in multiple academies as applicants decide to pursue
careers elsewhere." APD Police Chief Justin Doll
? "The number of individuals wanting to work at the
Fairbanks Fire Department has declined drastically
over the last several years. FFD Fire Chief Jim
Styers
? Our firefighter alumni populate most Alaska career
fire departments. The 42 young men and women in
my program are far more aware of financial planning
and retirement concerns than I was at their age. It
is troubling that the majority of them are testing and
interviewing for jobs in other states."
- UFD Fire Chief Doug Schrage
10:00:04 AM
Mr. Miranda turned to slide 4 titled Retention:
? "? the inability to provide a defined benefit
retirement system have placed the department at
critically low staffing levels."
DPS Recruitment and Retention Plan Overview 2018-
2023
? "We are seeing our highly trained, qualified, and
experienced officers leave APD to work out of state
for other law enforcement agencies offering
competitive defined benefit retirement systems." APD
Police Chief Justin Doll
"The turnover of career staff appears to be higher?
compared with other clients. Turnover not only has a
financial effect on the department, but it also loses
valuable experience. " Fitch & Associates consultant
report Capital City Fire and Rescue
Mr. Miranda highlighted the retention issues. He pointed
out that the fiscal analysis by the state's actuary for HB
79 [HB 79-PEACE OFFICER/FIREFIGHTER RETIRE BENEFITS 2019-
2020] from the prior session, which was virtually
identical to HB 55, assumed increased retention.
10:00:53 AM
Mr. Miranda advanced to slide 5 titled Worker's
Compensation Costs:
? Firefighters particularly prone to musculoskeletal
disorders (MSDs).
? "FFs age 55 and older have an MSD injury rate that
is more than double that of youngest FFs, and more
than ten times greater than that of private-sector
workers of same age.
? "It is apparent that older firefighters are
associated with much higher rates of reported
workplace injuries than both younger firefighters and
private sector workers.
? "This is consistent with the notion that the
rigorous physical demands of firefighting subject them
to trauma throughout their working lives, making them
more subject to MSDs in later years.
*Rand Corporation study on California fire fighters'
workers compensation injuries.
Mr. Miranda discussed that Tier IV had been in place for 15
years and the state had yet to have a 20 to 25 year career
member retire. He relayed that three independent reviews
from the Department of Administration (DOA), Deven
Mitchell, Executive Director, Alaska Municipal Bond Bank
Authority, Department of Revenue, and William B. Fornia,
Fellow of the Society of Actuaries (FSA), President
found that most of Alaska's public safety employees would
lack money to retire after a 30 year career and most were
not covered by social security. The average hiring age was
31, as the workforce aged without enough financial security
to retire, the state would expect to see increased workers
compensation costs due to the physical nature of the job
and because older workers sustain more injuries.
10:04:06 AM
Mr. Miranda moved to slide 6 titled Unforeseen Costs:
? Increase overtime costs due to inadequate staffing
? Increased training costs
? Loss of operational capabilities
? Loss of experience and future leadership
? Rise in organizational stress levels
Mr. Miranda returned to slide 5 and added that the mental
tolls of the job build over time and employees should be
able to leave the job when necessary. He discussed slide 6.
10:04:54 AM
Mr. Miranda continued to slide 7: "Recruitment and
Retention Problems Will Only Increase:"
? Current recruitment & retention difficulties
highlighted by DPS, DOC, and chief Officers from
across the state are occurring with 40-50% of
workforce in DB system
? Tier 4 currently makes up 50-60% of public safety
workforce
? The problems will be magnified as the Tier 4
workforce population grows
? A 100% portable public safety workforce is a
frightening thought for chief Officers around the
state
Mr. Miranda relayed that both labor and management were
united in finding a solution to issues resulting from Tier
IV. The intensifying problems troubled police chiefs
throughout the state.
10:06:12 AM
Mr. Miranda reviewed the costs of remaining at the status
quo level on slide 8 [untitled]:
3,400 = Number of public safety employees in Alaska
$120,000 = Average training cost for public safety
employees
? Some agencies report costs as high as $240,000
(Airport Police & Fire)
10:07:22 AM
Mr. Miranda advanced to slide 9 titled What is the fiscal
note for maintaining the status quo:
? DPS & DOC have testified to the Legislature of non-
retirement separations greater than 6%
? This is at a time when Tier 4 makes up less than 60%
of overall public safety workforce
? Here we will examine costs of Alaska losing 1%, 2%
and 3% of a Tier 4 public safety workforce each year
? We will use a conservative training cost of $120,000
, not increased for inflation over a 20-year period
Mr. Miranda moved to slide 10 titled "1 Percent of
Workforce Leaving:" The slide reflected the costs of
training and recruitment and the costs of one percent of
public safety officers leaving the state.
? 3,400 x 0.01 = 34 employees
? 34 x $120,000 = $4,080,000 cost per year
? 5 x $4,080,000 = $20,400,000 5-year cost
? 20 x $4,080,000 = $81,600,000 20-year cost
10:09:35 AM
Mr. Miranda continued to slide 11 titled "2 Percent of
Workforce Leaving:"
3,400 x 0.02 = 68 employees
? 68 x $120,000 = $8,160,000 cost per year
? 5 x $8,160,000 = $40,800,000 5-year cost
? 20 x $8,160,000 = $160,200,000 20-year cost
10:09:48 AM
Mr. Miranda looked at Slide 12 titled 3 Percent of
Workforce Leaving:
? 3,400 x 0.03 = 102 employees
? 102 x $120,000 = $12,240,000 cost per year
? 5 x $12,240,000 = $61,200,000 5-year cost
20 x $12,240,000 = $244,800,000 20-year cost
10:10:19 AM
Mr. Miranda reiterated that some agencies estimated
significantly higher pre-retirement separations. He
highlighted slide 13 titled Conclusions:
? These costs do not fully represent the problems that
will result from non-retirement separation of public
safety employees, it is only one aspect.
These costs far outweigh the cost of HB 55.
? Other jurisdictions across the country have restored
DB systems after experience such as this.
Mr. Miranda indicated that even a 1 percent improvement
from adoption of the bill more than paid for its cost and
the costs of officers leaving the state was much greater.
He related that there were several other states that had
returned to a defined benefit system after experiencing a
similar situation as Alaska.
10:11:36 AM
Mr. Miranda explained that HB 55 proposed a shared risk
hybrid retirement system for public safety employees. He
highlighted a few of the provisions in the bill. He pointed
out that the bill dramatically decreased the benefit from
the legacy DB tiers. The plan did not provide retiree
medical coverage that accounted for 36 percent of the
liability of the defined benefit tiers. The bill
established a minimum retirement age of 55 that did not
exist in previous tiers. He elaborated that a provision
utilized a high 5-year average for benefit calculations
rather than a high 3-year. The provisions resulted in
significant benefit reductions. Additionally, a portion of
the retirees Post Retirement Pension Adjustments (PRPA)
inflation proofing benefit could be withheld if the plans
funding level decreased. It was an incredibly powerful
lever that was employed in Wisconsin during the economic
downturn in 2008; currently the Wisconsin plan is fully
funded. The bill allowed for employees to contribute more
and retirees to receive less if the funding level dropped
below 90 percent. He reported that 80 percent was
considered a healthy standard for retirement plans. He
concluded that the risk was shared among employees,
retirees, and employers together so that no one group was
left holding all the risk.
10:13:35 AM
Mr. Miranda finished his presentation on slide 15 titled
Conclusion:
We have a shared interest in ensuring quality public
servants fill the ranks of Alaska's public safety
agencies.
Adopting an adequate retirement plan with reasonable
costs, fair benefits, and shared risk will help us in
this mission.
10:14:11 AM
Representative LeBon thanked Mr. Miranda for his
presentation. He wondered how portable the plan would be
for an employee to move to another state. Mr. Miranda
responded that the allowance for portability was the
problem the state was currently experiencing. In the
current system, vested employees could move away after 5
years and carry their account balances with them. Some out-
of-state agencies allowed the employee to buy time in its
system. He voiced that the possibility did not exist in HB
55. The qualifications for retirement in HB 55 was 55 years
old or 20 years of service or 60 years of age if vested
with less than 20 years of service. Someone could leave
once they were vested but could not receive any benefit
from the plan until age 60. There was a high incentive for
employees to stay and invest in the system. He indicated
that Chief Schrage, Fire Chief, University of Alaska,
Fairbanks, testified that under the defined benefit plan,
it was rare for an individual to quit before working a full
career and presently, it was a common occurrence under Tier
IV.
10:16:48 AM
Representative LeBon supposed that someone hired under a DB
plan wanted to reach vestment. He deduced that if a 25 year
old was hired, worked for 5 years then moved, they would
not have access to their money for 30 years. He wondered
whether his statement was correct. Mr. Miranda responded in
the affirmative. He added that at age 60, the individual
would only receive 10 percent of their average salary.
Representative LeBon asked whether there would be a buy in
factor if a person were to change over from Tier IV. Mr.
Miranda replied in the affirmative. He indicated that there
was a buy-in and the buy-in amount would be calculated by
an actuary. Current employees could choose to remain in
Tier IV or buy-in to the new tier.
10:19:33 AM
Representative LeBon suggested that Mr. Miranda would find
out how many employees would want to switch from Tier IV to
the new plan. He wondered if it was a concern that some
would take their accrued benefits under Tier IV after
vestment and leave and not join the new defined benefit
(DB) plan. Mr. Miranda speculated that most individuals in
Tier IV in the public safety group would exercise the
option to join the new tier. There were many advantages to
a DB plan.
Representative Josephson interjected that Section 5 of the
legislation provided for a 90 day period for current
employees to make the election. The bill was identical to
what the prior bill offered on the same subject. The
defined contribution employee would likely find that their
accrued contribution would fully qualify them for the new
plan. Representative LeBon was surprised that the average
age of public safety professionals was 31. He suggested
that the University of Alaska campus had a very highly
rated fire management program. He wondered whether students
graduating from the program who chose to work for an
Alaskan fire department would automatically be entered into
the new DB plan if adopted. He asked if the Tier IV system
would be voided. Representative Josephson responded in the
affirmative. He explained that a new employee would fall
under the new Tier V. Representative LeBon reasoned that
only those already in Tier IV could remain in Tier IV.
Representative Josephson replied in the affirmative.
Vice-Chair Ortiz understood that HB 55 continued the Tier
IV medical plan and relied on the Health Reimbursement
Arrangement (HRA) to cover premiums from retirement until
the retiree was Medicaid eligible. He asked if the health
insurance portion of the plan was similar to and as equally
competitive as other states who returned to a DB plan.
Representative Josephson deferred to Mr. Miranda.
10:26:05 AM
Mr. Miranda responded in the affirmative. He relayed that
many of the plans across the nation were similar to the
medical portion of the HB 55 plan. He was certain that the
Washington state plans retiree health plan was similar.
Vice-Chair Ortiz understood that the person under Tier V
would be responsible for 100 percent of the medical
insurance premium upon retirement and 20 percent
thereafter. He inquired whether he was correct. Mr. Miranda
answered that it was correct that the TIER V plan had the
same medical plan as the Tier IV medical plan. He explained
that the plans utilized a health reimbursement arrangement,
which was an account in which 3 percent of the average Tier
IV employees' salaries were deposited. The employees, at
retirement, would have access to the lump sum of money to
purchase coverage until Medicare age. Once on Medicare,
there was cost sharing based on years of service.
10:28:48 AM
Representative Thompson asked about an actuarial analysis.
He wondered when it would be available.
10:29:04 AM
ELISE SORUM-BIRK, STAFF, REPRESENTATIVE JOSEPHSON, answered
that the Division of Retirement and Benefits was in the
process of updating the actuarial analysis. She had
included the previous actuarial analysis in the members
files [A letter from Buck Consulting dated February 29,2020
(copy on file)]. She did not think the updated actuarial
analysis would be much different.
10:29:50 AM
Co-Chair Merrick indicated the committee was waiting on the
committee substitutes for the operating budget bills. She
recessed the meeting to the call of the chair. [The meeting
never reconvened.]
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 55 Status Quo Costs H FIN Miranda 4.23.21.pdf |
HFIN 4/23/2021 9:00:00 AM |
HB 55 |