Legislature(2017 - 2018)GRUENBERG 120
03/27/2018 03:15 PM House STATE AFFAIRS
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| Audio | Topic |
|---|---|
| Start | |
| HB83 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| + | TELECONFERENCED | ||
| += | HB 83 | TELECONFERENCED | |
HB 83-TEACHERS & PUB EMPLOYEE RETIREMENT PLANS
3:42:21 PM
CHAIR KREISS-TOMKINS announced that the only order of business
would be CS FOR HOUSE BILL NO. 83(L&C), "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."
3:42:35 PM
REPRESENTATIVE SAM KITO, Alaska State Legislature, as prime
sponsor of CSHB 83(L&C), relayed that the proposed legislation
would provide an opportunity for people coming into state
service as employees to select a defined benefit (DB) retirement
plan or a defined contribution (DC) retirement plan. This would
give those who wish to have a career in state service the option
to select a DB retirement plan and those who expect to be with
the state for a short period of time the option to select a DC
retirement plan. He stated that the employee healthcare plan
would not change.
REPRESENTATIVE KITO reported that much of the cost of the
pension system and volatility in that cost is due to healthcare
costs. Over the past 15 years, during which the state has been
dealing with the unfunded liability for the PERS program,
actuarial science has become much better, and information about
life expectancy is much better; therefore, the ability to
predict the success of a DB retirement program is much better
now than when the investment market was less stable.
REPRESENTATIVE KITO relayed that CSHB 83(L&C) would reestablish
the DB retirement program so that new members could be added.
The Department of Administration (DOA) currently is reviewing an
actuarial analysis based on the provisions in CSHB 83 (L&C) and
its companion bill, SB 52.
3:45:33 PM
REPRESENTATIVE BIRCH expressed his concern with the $7-8 billion
unfunded liability for the PERS DB retirement program. He said
that he is hesitant to support a program with an uncertain
future liability. He mentioned that he was informed by a
lobbyist that an actuarial assessment would cost $20,000, which
the lobbyist did not have. He reiterated that he was concerned
that the state could incur a significant future liability and
pointed out that the national trend is to avoid DB retirement
plans. He asked the sponsor when there might be an actuarial
assessment for the proposed legislation.
REPRESENTATIVE KITO stated that his understanding is that DOA is
currently ordering the actuarial analysis on the proposed
legislation. He emphasized that there are many more data points
that have been collected between the late '90s and the present.
He stated that the existing unfunded liability resulted from a
perfect storm of different events.
REPRESENTATIVE KITO offered that he is concerned for individuals
who have 401(k) retirement plans. Nationwide those retirement
plans are funded to about 52 percent of what a retiree needs for
retirement; therefore, the DC retirement program may limit the
liability for the state but put many people at risk of not
meeting retirement goals and retiring with significantly less
money than anticipated. He maintained that to be a universal
consequence of DC retirement programs. He offered that a having
a choice [between DB and DC retirement plans] is one method of
fully funding retirement; and some states have adopted hybrid
retirement systems, which share the risk. He said that with a
DB retirement program, 100 percent of the risk is borne by the
employer; with a DC retirement program, 100 percent of the risk
is borne by the employee. He added that the employee must bank
more money under the DC retirement program to ensure covering
retirement, because the employee does not have the earning power
of many sources of funds. The employee only has the earning
power of his/her own 401(k); therefore, his/her retirement is
significantly underfunded.
REPRESENTATIVE KITO suggested that if CSHB 83(L&C) or SB 52 does
not pass this year, there may be interest in a true hybrid
retirement system that shares the risk between employer and
employee. He maintained that with the current DC retirement
program, many Alaskan retirees will need additional assistance
to cover their expenses, because they won't have adequate
resources; that, in turn, will strain the state's senior
services and benefits.
3:50:08 PM
EDRIC CARILLO, Staff, Representative Sam Kito, Alaska State
Legislature, on behalf of Representative Kito, prime sponsor of
CSHB 83(L&C), paraphrased from the sectional analysis, included
in the committee packet, which read as follows [original
punctuation provided]:
Sections 1 and 2 Clarify that the Teachers Retirement
System (TRS) defined benefit (DB) statutes apply only
to employees who participate in the DB plan and did
not convert to defined contribution (DC). No employee
can participate in both the DB and DC plans. Sec. 1
also puts all TRS employers on an equal footing by
requiring them to offer new employees the choice
between DB and DC systems.
Sections 3 and 4 Set employee contributions for the
new DB tier at eight percent of pay, while leaving
prior tier employees' contributions unchanged.
Sections 5 and 6 Require a person receiving disability
benefits under the DB tiers to seek work and receive a
medical examination. Sets limits on the frequency of
the exams.
Section 7 Closes the Tier II DB health plan to new
hires and those DC members who choose to convert to
the new TRS DB tier.
Section 8 Establishes the eligibility standard for
retiree medical benefits in the new TRS DB tier. In
the new DB tier, a member with 25 years of service may
receive medical benefits partially paid by the system
at any age. A member without 25 years must have at
least eight years of service and be eligible for
Medicare. Disabled members also get system-paid
medical benefits.
A TRS DB retiree who does not meet those
qualifications can buy health care coverage from the
system, but must pay the full cost of premiums.
Establishes a premium share schedule for retirees to
pay a portion of their health insurance and requires
actuarial adjustments to keep the pre-funding rate of
the new DB tier no higher than the cost of the DC
plan.
Sets vesting rules for the premium share percentages
so that the schedule can change during an employee's
working life, but is fixed at the date of retirement.
Section 9 Clarifies that the TRS DC statutes apply
only to employees who participate in the DC plan and
did not convert to DB. No employees can participate in
both the DB and DC plans.
Section 10 Puts all TRS employers on an equal footing
by requiring them to offer new employees the choice
between DB and DC.
Section 11 Gives a newly hired teacher the choice
between DB and DC systems. This is a one-time
irrevocable choice. Sets timeframes and rules for the
process.
Section 12 Clarifies that the Public Employee
Retirement System (PERS) DB statutes apply only to
employees who participate in the DB plan and did not
convert to DC. No employee can participate in both the
DB and DC plans. This section also puts all PERS
employers on an equal footing by requiring them to
offer new employees the choice between DB and DC
systems.
Section 13 Sets the same minimum wage threshold for
elected officials in the new DB tier as the 2004
reforms implemented for prior tiers.
Sections 14 and 15 Set employee contributions for the
new PERS DB tier at eight percent of pay, while
leaving prior tier employees' contributions unchanged.
Sections 16 and 17 Require a person receiving
disability benefits under the PERS DB tiers to seek
work and receive a medical examination. Sets limits on
the frequency of the exams.
Section 18 Establishes an eligibility standard for
retiree medical benefits in the new PERS DB tier. In
the new DB tier, a peace officer or firefighter with
25 years of service may receive medical benefits
partially paid by the system at any age. A peace
officer or firefighter who does not have 25 years of
service must be eligible for Medicare and have at
least 10 years. Other PERS employees require 30 years
of service to get medical benefits partially paid by
the system unless they are Medicare eligible, in which
case they require a minimum of 10 years. Disabled
members also get system-paid medical benefits.
A PERS DB retiree who does not meet those
qualifications can buy health care coverage from the
system, but must pay the full cost of premiums.
Establishes a premium share schedule for retirees to
pay a portion of their health insurance and requires
actuarial adjustments to keep the pre-funding rate of
the new DB tier no higher than the cost of the DC
plan.
Sets vesting rules for the premium share percentages
so that the schedule can change during an employee's
working life, but is fixed at the date of retirement.
3:55:18 PM
Sections 19 and 20 Put all PERS employers on an equal
footing by allowing employers that return to PERS
after terminating participation to hire employees the
same way other PERS employers do, and allows employees
to earn service credits in the appropriate tier when
working for those employers.
Section 21 Clarifies that the PERS DC statutes apply
only to employees who participate in the DC plan and
did not convert to DB. No employees can participate in
both the DB and DC plans.
Section 22 Puts all PERS employers on an equal footing
by requiring them to offer new employees the choice
between DB and DC systems.
Section 23 Gives a newly hired public employee the
choice between DB and DC systems. This is a one-time
irrevocable choice. Sets timeframes and rules for the
process.
Section 24 Repeals sections that let non-vested
employees convert from DB to DC and required employers
to match the funds transferred dollar for dollar.
Repeals sections related to political subdivisions
that participate only in the DC plan. Repeals a
requirement that DB employees who refunded
contributions from the system and return to work after
July 1, 2010 participate only in the DC plan. (Such
employees will thus be treated as new hires.)
Section 25 Gives employees hired into the TRS and PERS
DC plans who have not refunded out of those plans a
90-day period from the effective date of the bill to
irrevocably convert into the new DB tier.
Contributions move from the DC plan to the DB plan
trust if they make the switch.
Section 26 Sets the procedure for the conversion
election in Sec. 25 and allows the administrator to
adopt regulations related to the conversion. The
choice to convert is irrevocable, and certain
information must be provided to the employee. An
employee who transfers receives credited service in
the defined benefit plan equal to the value of the
employee's DC account. If that amount is insufficient
to 'buy' the employee's actual service time, the
employee may create an indebtedness to purchase the
difference. If the employee's individual account has
an excess, the difference is transferred into the
Supplemental Benefits System or a comparable account,
in keeping with federal tax law.
Section 27 Allows the Commissioner of Administration
to adopt regulations to implement and make specific
the bill's provisions.
Section 28 Is an immediate effective date for sections
26 and 27 of the bill.
Section 29 Makes the bill effective January 1, 2019,
except as provided in Sec. 28.
3:58:23 PM
REPRESENTATIVE WOOL asked whether having people pay into a [DB]
retirement system would help fund the unfunded liability.
REPRESENTATIVE KITO replied that he is in active discussion with
DOA on that issue. He stated that there would be two options
for moving forward: One option would be to link the new DB
retirement program to the existing one, which would add money to
the existing DB retirement fund; result in more dynamic
management of the fund; and yield a different actuarial
calculation, since the fund would no longer be a closed fund.
The second option would be to establish a new DB retirement fund
resulting in the management of two separate funds. The unfunded
liability would still exist, and the fund for the new employees
would be managed. He offered that the net result of the two
options would be the same; under the second option, one fund may
generate more interest, yet most likely the funds would be
separate for accounting purposes but managed co-mingled.
4:01:07 PM
CHAIR KREISS-TOMKINS announced that CSHB 83(L&C) would be held
over.
| Document Name | Date/Time | Subjects |
|---|---|---|
| APFC- Alaska Permanent Fund Governance Presentation 3.21.18.pdf |
HSTA 3/27/2018 3:15:00 PM |
|
| APFC-Resolution Rules Based System for Fund Transfers 3.21.18.pdf |
HSTA 3/27/2018 3:15:00 PM |
|
| APFC-Inflation Proofing 3.21.18.pdf |
HSTA 3/27/2018 3:15:00 PM |
|
| APFC-Brief from The Pew Charitable Trusts_October 2016 3.21.18.pdf |
HSTA 3/27/2018 3:15:00 PM |