Legislature(2017 - 2018)ADAMS ROOM 519
04/09/2018 01:30 PM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| HB129 | |
| HB233 | |
| HB399 | |
| SB165 | |
| HB306 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 233 | TELECONFERENCED | |
| + | SB 165 | TELECONFERENCED | |
| + | HB 306 | TELECONFERENCED | |
| += | HB 399 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | HB 129 | TELECONFERENCED | |
HOUSE BILL NO. 306
"An Act relating to disbursement options under the
Public Employees' Retirement System of Alaska and the
Teachers' Retirement System of Alaska for participants
in the defined contribution plan; and providing for an
effective date."
4:12:15 PM
Representative Wilson asked if there was a legal opinion
about why there was not an actuarial on the bill. She could
not find one in the back-up documents.
SYLVAN ROBB, DEPUTY DIRECTOR, DEPARTMENT OF ADMINISTRATION,
introduced herself. She indicated Commissioner Ridle was
not available.
KATHY MS. LEA, CHIEF PENSION OFFICER, DIVISION OF
RETIREMENT AND BENEFITS, DEPARTMENT OF ADMINISTRATION,
answered that there was only a requirement for an actuarial
analysis if there was an impact to the funds. HB 306 had no
financial impact to the funds.
Representative Wilson remarked that she did not understand
the bill. Ms. Robb relayed that currently the disbursement
options for PERS Tier IV and TRS Tier III were contained in
statute. She reported that the bill moved the disbursement
from statute to regulation. Currently, any changes the
department would like to make in order to modernize the
disbursement options or to meet new Internal Revenue
Service (IRS) regulations required a statutory change. The
bill would allow the division to be nimbler and to offer
better services to state retirees. She added that there
were vested employees in the two tiers that were impacted
that were starting to retire. Moving the disbursement
options from statute to regulation would offer the same
flexibility the state currently had for the SBS and the
deferred compensation plans. It still provided significant
transparency for the public. The discussion of new
disbursement options would be covered at ARM Board meetings
that were done in a public forum and again once the
recommendations were done by the ARM Board before going to
regulation. There was a public comment period at regulation
as well. The ARM Board had unanimous approval for the
change proposed in the bill.
Co-Chair Seaton understood that under Tier III and Tier IV
TRS they were separate accounts that were accounted for.
The bill only had to do with the disbursement of an
individual's money. It would not impact the fund because
the money was held for particular individuals. He wondered
if he was correct. Ms. Lea confirmed Co-Chair Seaton was
correct. She elaborated that she was talking about the
disbursement of an employee's contribution account
comprised of their contributions, the employer's
contributions made during employment, and any gains or
losses on the fund.
4:16:12 PM
Representative Wilson was trying to figure out the problem
with disbursement. Ms. Lea answered that currently the
state offered a lump sum disbursement, a periodic payment
of twice per year, and different annuity options (lifetime,
joint survivor, and various period-certain annuities). The
ARM Board was considering some newer products that were on
the market that mimicked a guaranteed income. One of them
was called a qualified longevity annuity contract, which
allowed an employee to postpose any disbursements from a
portion of an employee's account until they reached 80 or
82 years of age. The option was designed to do two things:
It removed that portion of an employee's account from the
required minimum distribution that currently occurred when
an employee reached 72 years of age. It also protected
against longevity risk. If a person was running out of
money, they would have a pot of money to draw on later.
Ms. Lea continued that another disbursement option, a
guaranteed lifetime withdrawal, which provided an insurance
wrapper around the amount in an employee's account. A
person would typically enroll in the option anytime 10
years before retirement or up to retirement. They would not
enroll before that time. During the time a person was
enrolled in the program they would pay an insurance
premium. The employee's monthly benefit would be based on
whatever the highest balance was at the end of the term
(when a person was past retirement and even when the state
was paying out benefits). It protected the individual from
the downside of investments but allowed them to have the
upside.
Representative Guttenberg had been reading more about his
investments. He suggested that there was a plethora of
different payout options. He liked the idea of having
additional options. He thought that having the options in
statute made it difficult for the ARM Board to offer other
options.
Representative Pruitt asked if there was not a risk to the
state. He wondered if there were risks for the
participants. He asked about the disbursement of funds if
an employee died. He asked for clarification.
Ms. Lea responded that the change was simple. The division
was not looking to change any of the options for
disbursement currently available. The ARM Board was looking
at adding options that would benefit participants. The
state was required by the IRS to fully disclose all fees
and conditions on any of the disbursement products. In
terms of his question regarding survivors, the options
under review were those that would provide full survivor
benefits to participants should they die before they
exhausted their funds.
4:21:58 PM
Co-Chair Foster OPENED and CLOSED public testimony for
HB 306.
Co-Chair Foster asked to review the fiscal notes.
Representative Wilson wanted to wait until the following
meeting before moving the bill, as she needed a better
understanding of the bill.
Co-Chair Foster wanted to make sure members were
comfortable with the bill.
Representative Guttenberg provided a hypothetical scenario.
If his pension annuity paid out $1000 per month until he
was 92, but he lived to be 125, and he bought the lifetime
guarantee which paid him $750 per month, he wondered if the
state would take the other $250 to purchase insurance. In
other words, he would be losing money by receiving less
money per month, but in doing so the state was covering the
liability.
Ms. Lea answered that she would hesitate to claim a
specific number because different products had different
ways of funding a benefit. The division had eight different
products presented to them. The Treasury Division was also
developing a few custom products. Usually, it was a
combination of the insurance premium paid by the employee
while employed that guaranteed the payment. Some companies
would also have a reduction to the paid benefit. Much of it
depended on how long an individual had been in the program.
Representative Guttenberg thought the payout money had to
come from some place. He suggested it would come from the
employee's benefit. He wondered if he was accurate. Ms. Lea
responded that he was absolutely correct. She elaborated
that the fees that were paid through the insurance premium
or reductions taken from the benefit amount was particular
to the participant. The participant sustained the cost and
there was no cost to the plan.
4:25:57 PM
Representative Pruitt suggested that the deletions in the
bill helped to simplify the products. He wondered why the
legislature chose to put specific products in statute
rather than leaving it open.
Ms. Lea recalled that at the time there was no specific
reason for certain products to be in statute. In drafting
the bill, the bill sponsor used a combination of a bill
structure that came from the National Council of
Legislators and different provisions lifted from the
state's supplemental annuity plan. The disbursement options
that could currently be seen in the PERS and TRS
distribution plan were the ones that were in the SBS plan
at the time of the bill's passage. The difference was that
the SBS structure was codified in statute. However, it was
operated by a plan document. The division had an easier way
to make changes for SBS or the Alaska Deferred Compensation
plan. In order to add any new options or provisions to the
plan they went through the ARM Board process and a
regulation process. The legislature was notified every time
regulations were promulgated. The public was invited and
those groups that represented the public were invited to
the ARM Board meetings. She emphasized that when the
division made a change to SBS and deferred compensation the
process was much faster. Unfortunately for the PERS and TRS
DCR plans, the disbursement information was placed in
statute requiring a bill to make changes. The division was
not nimble.
4:28:32 PM
Co-Chair Seaton added that he had been involved in the
process of changing from a defined benefit to a defined
contribution system. There were several details everyone
wanted to lock down. The newer products were not available
at the time. The disbursement options were ones the state
was already using and were incorporated in statute.
Everyone knew there was a full plan and how it would be
used. He favored making the plan work better for
individuals.
Co-Chair Foster suggested that for those who wanted to
offer amendments, they should submit them to his office by
5:00 PM on Wednesday, April 11, 2018. He would bring the
bill up at the afternoon meeting on the following day.
HB 306 was HEARD and HELD in committee for further
consideration.
Co-Chair Foster reviewed the agenda for the following day.
4:30:32 PM
AT EASE
4:31:23 PM
RECONVENED
Representative Wilson asked if there were documents
available for tomorrow's meeting at 5:00 P.M. Co-Chair
Foster responded in the affirmative.