Legislature(2021 - 2022)GRUENBERG 120
03/27/2021 01:00 PM House STATE AFFAIRS
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| Audio | Topic |
|---|---|
| Start | |
| HB5 | |
| HB55 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 5 | TELECONFERENCED | |
| += | HB 55 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
HB 55-PEACE OFFICER/FIREFIGHTER RETIRE BENEFITS
2:13:45 PM
CHAIR KREISS-TOMKINS announced that the final order of business
would be 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."
2:14:21 PM
REPRESENTATIVE ANDY JOSEPHSON, Alaska State Legislature, as
prime sponsor, briefly reviewed HB 55 for the committee. He
said the bill would restore a public safety Public Employee's
Retirement System (PERS) defined benefit plan for the first time
in 15 years to a segment of Alaska's workforce - a segment that,
due to a lack of pension opportunities in the state, are leaving
Alaska after "hundreds of thousands and millions of dollars" are
spent by the state to train them effectively. He added that in
the instances these workers stay in Alaska, they have inadequate
funds to enjoy retirement in a reasonable way. He went on to
discuss the main components of the bill, explaining that [public
safety] workers would contribute a base of 8 percent as employee
contribution to their own defined benefit, which could rise to
10 percent on command of the Alaska Retirement Management (ARM)
Board. The total contribution would be 22 percent from the
employer, which is identical to Tiers III and IV. He said the
vesting would be five years; however, the provisions include a
minimum retirement age of 55 with 20 years of service.
Furthermore, to increase the plan's affordability, there is a
"high five averaging to look back on their salary," as well as a
post-retirement pension adjustment, which could be removed if
the funding of the plan is less than 90 percent. He noted that
currently, the overall system is not at 90 percent. He
summarized the saving mechanisms, including the five-year
averaging, the 10 percent base rate increase, and the absence of
full medical coverage. For these reasons, he shared his belief
that the bill is urgent.
2:18:00 PM
CHAIR KREISS-TOMKINS announced the committee would hear invited
testimony on HB 55.
2:18:31 PM
PAUL MIRANDA, President, Alaska Professional Fire Fighters
Association (AKPFFA), introduced himself and informed the
committee that he is currently an engineer at the Anchorage Fire
Department. He introduced his associate, Tom Wescott.
2:19:00 PM
TOM WESCOTT, Alaska Professional Fire Fighters Association,
introduced himself as the former president of AKPFFA and said he
is available to answer questions from the committee.
2:19:27 PM
MR. MIRANDA introduced a PowerPoint presentation, titled "Costs
of Maintaining the Status Quo" [included in the committee
packet]. He said the purpose of the presentation is to
illustrate that Alaska is facing a public safety recruitment and
retention crisis. He directed attention to slide 2, explaining
that since Tier IV became effective in 2006, several unintended
consequences became apparent for Alaska's public safety
employees. He reported recruitment difficulties in Alaska's
public safety agencies, such as the Department of Public Safety
(DPS), the Department of Corrections (DOC), and municipal fire
and police departments across the state. He said Alaska can no
longer compete with the Lower 48 when attempting to recruit
public safety employees. Police officers and paramedics are in
high demand across the country and Alaska is at a clear
disadvantage compared to other states with regard to retirement
and benefits. He asserted that Tier IV is unlike any public
safety retirement plan in the country, and it is part of the
reason Alaska communities struggle to fill public safety
positions. He addressed impactful retention costs, which would
be illustrated in later slides, adding that crucial dollars are
being siphoned off while dealing with separations and a
recruitment process that is made more difficult by the benefit
package. He stated that once Alaska's agencies find an employee
and invest time and money into him/her, there is a need to get a
return on that investment. Additionally, he anticipated
increased workers compensation costs as agencies become staffed
with an older workforce that lacks the financial security to
retire.
2:22:02 PM
MR. MIRANDA turned to slides 3 and 4, which featured testimony
from police and fire chiefs that highlighted the difficulties
surrounding recruitment and retention. He added that the
state's own actuary would assume increased retention under HB
55. He addressed workers' compensation costs on slide 5, noting
that individuals under the Tier IV plan have not yet retired
after working a full 20/25-year career in public safety because
the plan is only 15 years old. He recalled a slide from the
bill sponsor's presentation on 3/13/21, which detailed three
independent reviews of Tier IV, all indicating that most of
Alaska's public safety employees would not have enough money to
retire, even after a 30-year career. Additionally, many public
safety employees do not participate in Social Security. He
reported that the average hiring age of a public safety worker
is 31; therefore, as agencies become staffed with an older
workforce that lacks the financial security to retire, workers'
compensation costs are likely to increase due to the physical
nature of the job and the likelihood that older public safety
employees get injured at much higher rates. According to a Rand
Corporation study on California firefighters, older firefighters
are particularly prone to musculoskeletal disorders (MSDs) with
an MSD injury rate that is more than double that of their
younger colleagues and ten times greater than that of private-
sector workers of the same age. In addition to the physical
demand, he pointed out that individuals who are no longer
mentally prepared to do the job should have the ability to leave
for their own sake and for the good of the community they serve.
2:27:58 PM
MR. MIRANDA continued to slide 6 and outlined unforeseen costs,
such as increased overtime due to inadequate staffing; increased
training costs; loss of operational capabilities; loss of
experience and future leadership; and rise in organizational
stress levels. He moved to slide 7, which emphasized that
recruitment and retention problems would likely increase. He
reported that current recruitment and retention difficulties
across Alaska are occurring with 40-50 percent of the workforce
still in a defined benefit system; Tier IV currently makes up
50-60 percent of the public safety workforce and the problem
would magnify as that population grows. He stated that a 100
percent portable public safety workforce is a frightening
thought for chief officers around the state.
MR. MIRANDA turned to slide 8 and reported that there are 3,400
public safety employees in Alaska to which HB 55 would apply.
He approximated $120,000 as the average training cost, although
some agencies, such as airport police and fire, report costs as
high as $240,000.
2:30:53 PM
CHAIR KREISS-TOMKINS inquired about the component costs of the
$120,000 figure.
MR. MIRANDA responded that that figure includes things like
recruitment, testing/hiring processes, and training academy.
CHAIR KREISS-TOMKINS noted his curiosity in a cost/component
breakdown. Nonetheless, he acknowledged that retention is a
problem.
2:32:45 PM
MR. MIRANDA offered to follow up with that information. He
resumed the presentation on slide 9, titled "What is the 'fiscal
note' for maintaining the status quo?" He relayed that both DPS
and DOC had testified to the legislature of non-retirement
separations greater than 6 percent. He reminded the committee
that this is occurring when Tier IV makes up less than 60
percent of the overall public safety workforce. He proceeded to
examine the $120,000 average training cost - not increased for
inflation - and the costs of losing 1, 2, and 3 percent of a
Tier IV workforce each year on slides 10-12. The cost of losing
1 percent of the workforce, or 34 employees, would be $4,080,000
over a one-year period; $20,400,000 over a five-year period; and
$81,600,000 over a 20-year period. The cost of losing 2
percent, or 68 employees, would be $8,160,000 over a one-year
period; $40,800,000 over a five-year period; and $160,200,000
over a 20-year period. Finally, the cost of losing 3 percent of
the workforce, or 102 employees, would be $12,240,000 over a
one-year period; $61,200,000 over a five-year period; and
$244,800,000 over a 20-year period.
2:35:50 PM
MR. MIRANDA turned to slides 13 and 14 and said these costs are
not fully representative of the problems that would result from
non-retirement separation of public safety employees. He
emphasized that current costs far outweigh the cost of HB 55,
adding that a 1 percent improvement in retention would more than
cover the cost of the bill. He further noted that other
jurisdictions across the country have restored defined benefit
systems after facing similar experiences. He moved to slide 15
and concluded by reiterating that both labor and management are
united in their support for this legislation. He pointed out
that everyone has a shared interest in ensuring that Alaska has
quality public safety employees. He said adopting an adequate
retirement plan with reasonable costs, fair benefits, and shared
risk would aid in this mission.
2:38:20 PM
CHAIR KREISS-TOMKINS recalled that the bill had been
painstakingly crafted to be cost-neutral. He asked for a
refresher on the cost, if any, of this legislation.
2:39:06 PM
ELISE SORUM-BIRK, Staff, Representative Andy Josephson, Alaska
State Legislature, on behalf of Representative Josephson, prime
sponsor of HB 55, said the Division of Retirement and Benefits
had an actuary report conducted on a previous iteration of the
legislation and estimated that the annual cost would be $3.5
million. She noted that the cost would be less money paid
toward the unfunded liability. She expounded that under HB 55,
a small amount more would be paid directly towards the
employee's plan compared to the current plan; therefore, less
would be paid to the unfunded liability. She added that the
division would conduct a new actuarial analysis for the current
version of the bill when it moves to the House Finance
Committee.
CHAIR KREISS-TOMKINS, as a Tier IV employee, asked if any of his
compensation went to the unfunded liability. He sought further
clarification on how [the proposed plan] differentiates from the
status quo.
MS. SORUM-BIRK relayed that currently, employers pay the
employee a certain percentage, which contributes to retirement.
She cited an Alaska law under Senate Bill 125, adopted in 2008,
[during the Twenty-Fifth Alaska State Legislature], which sets
employer contribution rates for PERS/TRS and obligates the ARM
Board to calculate total annual contributions required to
maintain the plan's service liability each year. She said, for
example, that the rate for PERS in Alaska this fiscal year was
30.85 percent and under current law, the employer contributes 22
percent with the state making up the difference if it's not a
state employer.
CHAIR KREISS-TOMKINS interjected to verify that Ms. Sorum-Birk
was speaking in reference to Tier IV.
MS. SORUM-BIRK answered yes. She explained that a municipality
pays 22 percent, which is divided between a portion that's paid
to the employee and a portion that's paid into the retirement
system going towards the unfunded liability - partially
supplemented by the state.
2:42:25 PM
CHAIR KREISS-TOMKINS offered his understanding that every Tier
IV beneficiary has a "lock box retirement system" that both the
public sector and the employee contribute to, which is
completely removed from the defined benefit part of previous
tiers. He said he is surprised to hear that part of people's
benefits under Tier IV go towards paying the unfunded liability
for people in Tiers I-III.
MS. SORUM-BIRK noted that only what the employer pays goes
towards the unfunded liability.
CHAIR KREISS-TOMKINS asked if the contribution that goes towards
the unfunded liability, represented by Tiers I-III, is the $300
million or so odd dollars that the state pays every year.
MS. SORUM-BIRK answered, "In simple terms, yes." She added that
sometimes the state chooses to supplement that.
CHAIR KREISS-TOMKINS said he is still unclear as to how the
state is fulfilling the obligation of paying down unfunded
liability changes with the introduction of "Tier V."
MS. SORUM-BIRK replied the easiest way to think of it is that
currently, a smaller percentage of the employer's 22 percent
contribution is going towards the Tier IV employee than would go
to the Tier V employee. She said employees under Tier V would
receive 12 percent, with 10 percent going toward the unfunded
liability.
2:45:05 PM
REPRESENTATIVE STORY directed the committee to the state actuary
report narrative [included in the committee packet], which
provided a fiscal note analysis for a previous iteration of the
legislation. She asked if the pie graph on page 2 accurately
depicts the figures being discussed.
MS. SORUM-BIRK answered yes.
REPRESENTATIVE STORY asked for confirmation that Ms. Sorum-Birk
had stated that the proposed retirement plan is comparable to
packages offered by other states.
MS. SORUM-BIRK acknowledged that Washington is one of those
states. She deferred to Mr. Wescott for further information.
2:46:55 PM
MR. WESCOTT said compared to other states, the proposed plan is
a greatly reduced benefit from what Alaska had in the past;
additionally, it was modeled after the most well-functioning
plans in the country that are fully funded, such as Washington
and Wisconsin. He explained that aspects, such as the ability
to raise employee rates and the ability to withhold inflation
proofing, allow the plan to get back on track should it get
behind and make the risk shared opposed to the state holding all
the risk.
REPRESENTATIVE JOSEPHSON shared his understanding that
Washington's plan proved so solvent that the age of retirement
was reduced from 55 to 53. He asked if that is correct.
MR. WESTSCOTT confirmed [that the age of retirement was lowered
in Washington].
2:49:20 PM
REPRESENTATIVE STORY questioned whether the size of the employee
population in Washington impacted the ability to "drop" the
payments.
MR. WESCOTT said he is unsure whether the population size had
any significance. He acknowledged that the pool of public
safety employees in Washington's system is larger than Alaska's.
He recalled that historically, Anchorage's police and fire plan
was widely successful and ahead of its time with only 800
employees. He explained that good and bad plans are separated
by those that make consistent, steady contributions in the good
times, as well as the bad. Ultimately, he opined that the size
doesn't matter if sound practices are followed.
2:52:03 PM
CHAIR KREISS-TOMKINS inquired about Alaska engaging in that in
the past.
MR. WESCOTT explained that when looking at past contribution
rates into PERS, there was a time in the early 2000s when Alaska
thought it was better funded than it was, so employer
contributions fluctuated significantly lower than today's rates.
He said regardless of being fully funded or not, the proposed
plan would continue making minimum contributions of 8 percent
for the employee and 12 percent for the employer. He added that
those who implemented Tier IV in 2005 recognize its
shortcomings, especially in regard to public safety careers,
which are shorter and involve physical and mental stresses.
2:55:11 PM
REPRESENTATIVE TARR recalled being a staff person during the
transition to Tier IV, explaining that the legislature and
leadership at that time implemented $250 million in budget cuts
over five years, which resulted in short funding the retirement
system.
CHAIR KREISS-TOMKINS posited that in effect, there was an
existing unfunded liability that needed to be paid down and the
state elected not to do so. Nonetheless, he pointed out that
the unfunded liability existed because Tiers I-III were not
actuarially sound in the first place.
REPRESENTATIVE TARR agreed that it was a combination of both
conjoined with economic downturns that exacerbated the problem,
which explains why, under Governor Sean Parnell, there was a
substantial deposit in an attempt to catch up.
2:56:57 PM
REPRESENTATIVE JOSEPHSON said the actuarial negligence can't be
understated or overstated. He reported that according to the
Legislative Finance Division, the settlement was $500 million on
that item alone. He opined that the proposed plan "[hits] the
sweet spot."
CHAIR KREISS-TOMKINS sought clarification on whether the
actuarial negligence of Tiers I-III can or cannot be overstated.
REPRESENTATIVE JOSEPHSON clarified that [the actuarial
negligence] was severe. He offered his understanding that there
was a lack of vigilance and advice was taken by an actuary who
failed [the state] as evidenced by the settlement.
CHAIR KREISS-TOMKINS said he feels reassured by what seems to be
extremely aggressive diligence. He stated that there was
unbelievable intergenerational injustice between Tiers I-III,
adding that the amount of money spent by his generation and
those younger to subsidize the negligence of Tiers I-III each
year could pay for pre-kindergarten and free college for every
Alaskan. He emphasized the importance of ensuring that the
proposed plan is fully actuarially sound for future generations
and reiterated his increasing confidence that it is [actuarially
sound].
2:59:18 PM
REPRESENTATIVE JOSEPHSON noted that the legislation mentioned by
Representative Tarr has been "re-amortized," as it was $700
million per year and is currently $350 million per year. He
reported that the unfunded liability decreased from $11 billion
to approximately $6.5 billion.
CHAIR KREISS-TOMKINS surmised that the actuarial negligence and
incompetence was in addition to wishful political thinking,
which hurt the state and future generations.
2:59:55 PM
REPRESENTATIVE STORY related that teachers under the new tier
are also lacking Social Security, which has similarly resulted
in retention difficulties across the state. She questioned
whether expanding the proposed plan to all public employees was
considered.
REPRESENTATIVE JOSEPHSON said he is aware and sympathetic to it,
adding that a new report from two months ago indicated that it
could be done with some degree of security. He pointed out that
there are unique circumstances associated with the [public
safety] cohort in addition to the huge training cost born by the
state. He offered his belief that the [public safety] cohort
would have more support and could lead the way, adding that if
solvency is proven over a short number of years, an opportunity
could present itself.
3:01:58 PM
CHAIR KREISS-TOMKINS, regarding the Tier V plan's health
reimbursement arrangement (HRA), asked for the analysis on how
sustainable 3 percent set aside for health is relative to
projections for cost of health care, especially accounting for
the rapidly escalating projections.
REPRESENTATIVE JOSEPHSON answered that it is a major "give" from
the stakeholders because they are aware of its cost and
unpredictability. He deferred to Ms. Sorum-Birk for further
explanation.
MS. SORUM-BIRK relayed that the HRA would act as a stopgap,
adding that the new tier would have the same HRA as Tier IV and
could be used to pay for medical expenses or to pay premiums.
She explained that it's based off a 3 percent average PERS
salary, which is significantly lower than the average public
safety PERS salary.
3:03:44 PM
MR. MIRANDA confirmed the comments from Ms. Sorum-Birk and
Representative Josephson. He pointed out that the explosion in
health care costs was a contributing factor to the unfunded
liability of the previous tiers. He calculated that based on
the current cost of pre-Medicare coverage, the HRA would cover
three to five years of medical premiums. There would still be a
gap for most individuals, but the bill recognizes the unwanted
possibility of creating an unfunded liability, which is why it
removes the pre-Medicare medical coverage that was in the
previous defined benefit tiers. He added that employees can
look for ways to bridge the gap between retirement age and
eligibility age - the HRA would help with that, but it wouldn't
be a total solution.
3:06:05 PM
CHAIR KREISS-TOMKINS announced that HB 55 was held over.