Legislature(2021 - 2022)ADAMS 519

04/23/2021 09:00 AM FINANCE

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Recessed to a Call of the Chair --
Scheduled but Not Heard
Scheduled but Not Heard
+ Bills Previously Heard/Scheduled TELECONFERENCED
Moved CSSB 19(FIN) Out of Committee
-- Public Testimony --
Heard & Held
Heard & Held
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                                                                    
     ?  "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                                                                    
     ? 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-                                                                    
     ?  "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                                                                    
     ?  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                                                                    
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                                                                    
     ?  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                                                                    
     We have a shared interest in ensuring quality public                                                                       
     servants fill the ranks of Alaska's public safety                                                                          
     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                                                                    
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