03/29/2016 01:00 PM Senate FINANCE

SENATE BILL NO. 207                                                                                                           
                                                                                                                                
     "An Act  relating to  increasing employer  contributions                                                                   
     to   the  defined   benefit   plan   in  the   teachers'                                                                   
     retirement system."                                                                                                        
                                                                                                                                
1:24:15 PM                                                                                                                    
                                                                                                                                
JAMES ARMSTRONG, STAFF, SENATOR PETE KELLY, introduced the                                                                      
legislation:                                                                                                                    
                                                                                                                                
     Senate   Bill  207   proposes   a  gradual,   multi-year                                                                   
     increase  in  the  employer contribution  rate  for  the                                                                   
     Teachers  Retirement  System   (TRS)  from  the  current                                                                   
     level of  12.56 percent  to 19 percent  for FY  2017, 20                                                                   
     percent in FY  2018, 21 percent in FY 2019,  and a final                                                                   
     increase to 22 percent in FY 2020.                                                                                         
                                                                                                                                
     The  TRS  was established  as  a  cost sharing  plan  in                                                                   
     which all  employers pay one  uniform rate and  share in                                                                   
     the liabilities  and the  assets of  the plan.  In 2008,                                                                   
     with the  passage of Senate  Bill 125, the  uniform rate                                                                   
     was  established at  12.56  percent, with  the State  of                                                                   
     Alaska  paying  the  difference  in  costs  between  the                                                                   
     uniform   rate  and  the   actuarial  cost,   which  was                                                                   
     determined  by the  Alaska  Retirement Management  Board                                                                   
     and  the actuary  consultants  to the  State of  Alaska.                                                                   
     This allowed  the state to  share in the payment  of the                                                                   
     unfunded liability of the system with the employers.                                                                       
                                                                                                                                
     The  establishment   of  the   12.56  percent   and  the                                                                   
     commitment of  the state to  assist in costs  over 12.56                                                                   
     percent was  made at a time  when oil value  was setting                                                                   
     not  only  record  price, but  generating  record  state                                                                   
     revenue.                                                                                                                   
                                                                                                                                
     From  FY2008 through FY2016,  TRS appropriations  ranged                                                                   
     from  $130  million  to $317  million  annually.  During                                                                   
     those nine  years, a cumulative total of  $1.824 billion                                                                   
     was  appropriated  to  the TRS  unfunded  liability.  In                                                                   
     addition to  the state assistance payments,  in FY 2015,                                                                   
     an  appropriation  was  made  to  the TRS  Fund  in  the                                                                   
     amount  of  $2,000,000,000   in  order  to  improve  the                                                                   
     health   of  the   system   and   reduce  the   unfunded                                                                   
     liability.  In total,  state  unrestricted general  fund                                                                   
     assistance has exceeded $3.8 billion over the past                                                                         
     nine years.                                                                                                                
                                                                                                                                
     SB  207 is  a  conservative  approach to  balancing  the                                                                   
     state's  current fiscal  reality and  its commitment  to                                                                   
     assisting TRS  employers with the cost and  the unfunded                                                                   
     liability of the system.                                                                                                   
                                                                                                                                
1:26:08 PM                                                                                                                    
                                                                                                                                
Co-Chair Kelly  shared that, in  2008, there was  an increase                                                                   
in  the Base  Student  Allocation  (BSA)  to cover  the  PERS                                                                   
obligations.  He stated that  the increase was  approximately                                                                   
$80  million per  year,  totaling $220  million  to date.  He                                                                   
shared  that the  legislature  appropriated  $2 billion  into                                                                   
the TRS  unfunded liability. He  queried the  current number.                                                                   
Mr. Armstrong replied that it was $228 million.                                                                                 
                                                                                                                                
Co-Chair Kelly shared  that the $228 million was  for TRS. Je                                                                   
remarked  that  the  money  was   the  district's  obligation                                                                   
carried  by the  state.  He pointed  out  that the  districts                                                                   
would be  obligated to  a much  healthier system,  because of                                                                   
the  recent deposits  into the  unfunded  liability. He  felt                                                                   
that the  state would mitigate  the impact on  the community,                                                                   
because  the  state  would  allocated   money  to  cover  the                                                                   
increased  cost. He shared  that there  was concern  from the                                                                   
districts,  because  they  wanted   time  to  adjust  to  the                                                                   
increases.  The bill gives  the districts  five years,  which                                                                   
was more  than the  request for three  years. He  shared that                                                                   
it was  anticipated that  the districts  would receive  $36.5                                                                   
million  to cover  the costs  of the  increases. He  wondered                                                                   
whether the state  would cover the 10 percent.  Mr. Armstrong                                                                   
replied that he could provide the estimates.                                                                                    
                                                                                                                                
Co-Chair  MacKinnon felt  that  the better  numbers would  be                                                                   
available  with  the Buck  Analysis.  She stressed  that  the                                                                   
state was working  with local communities. She  remarked that                                                                   
the state  had "carried"  an additional  responsibility  in a                                                                   
budget surplus  time. She felt  that the reiterated  that the                                                                   
state  needed to  "bridge"  the  costs to  the  cause of  the                                                                   
costs.                                                                                                                          
                                                                                                                                
Mr.  Armstrong  noted  that the  mitigating  funds  would  be                                                                   
appropriated  using the  adjusted  average daily  membership,                                                                   
which increased  local need, and allowed for  the communities                                                                   
to fund to the education cap.                                                                                                   
                                                                                                                                
                                                                                                                                
Co-Chair  MacKinnon noted  the  cash infusion  to  TRS of  $2                                                                   
billion,  as  an  effort  to   make  the  system  whole.  She                                                                   
remarked  that   there  was   an  additional  proposed   cash                                                                   
infusion to help communities shoulder the burden                                                                                
                                                                                                                                
Vice-Chair Micciche felt that there should be a discussion                                                                      
about assignment of responsibility.                                                                                             
                                                                                                                                
Co-Chair    MacKinnon   felt    that   the   Department    of                                                                   
Administration (DOA) could provide that information.                                                                            
                                                                                                                                
SB 207 was HEARD and HELD in committee for further                                                                              
consideration.