Legislature(2015 - 2016)CAPITOL 106
03/24/2016 08:00 AM House STATE AFFAIRS
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| Audio | Topic |
|---|---|
| Start | |
| HB324 | |
| HB280 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 280 | TELECONFERENCED | |
| *+ | HB 324 | TELECONFERENCED | |
| + | HJR 30 | TELECONFERENCED | |
| + | 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
years.
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
risk.
8:37:51 AM
CHAIR LYNN cited the potential conflict of interest in moving
the proposed legislation in that all legislators are state
employees.
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
legislatures.
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
benefits.
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
pensions.
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
government.
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
activity.
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
retirees.
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
years.
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
encouraging.
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
system.
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
TRS.
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.