Legislature(2009 - 2010)
04/18/2010 05:16 PM Senate FIN
| Audio | Topic |
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| HB280 |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
CS FOR HOUSE BILL NO. 190(FIN)
"An Act amending the Alaska children's trust and
relating to the trust; establishing a children's trust
grant account; relating to birth certificates and
certificates of marriage; relating to special request
Alaska children's trust license plates; and amending
the State Procurement Code to exempt the Alaska
children's trust and the Alaska Children's Trust
Board."
6:01:10 PM
Co-Chair Stedman addressed three zero fiscal notes from the
Department of Health and Social Services, the Department of
Revenue, and Department of Commerce, Community and Economic
Development.
Co-Chair Hoffman MOVED to report CS HB 190 out of Committee
with individual recommendations and the accompanying fiscal
notes. There being NO OBJECTION, it was so ordered.
CS HB 190 was REPORTED out of Committee with a "do pass"
recommendation and with three previously published fiscal
notes: FN 2 (CED), FN 3 (DHS), FN 4 (REV).
^RECENT PERS-TRS TIMELINE
KEVIN BROOKS, DEPUTY COMMISSIONER, DEPARTMENT OF
ADMINISTRATION began with a general discussion about the
recent Public Employees Retirement System (PERS) and
Teachers' Retirement System (TRS) timeline. He drew
attention to the issue of unfunded liability and the
significant impacts since 2002 when Mercer changed several
actuarial assumptions following an audit by a separate
firm, Milliman. The change resulted in a dramatic increase
in unfunded liability and decrease in funding ratio, which
continued in a general upward trend. The most recent
evaluation of June 30, 2008 showed the unfunded liability
equaled $7.5 billion dollars. Since then, significant
losses occurred in the market.
Mr. Brooks highlighted the passage of SB 141 which
constructed the hybrid Defined Contribution Retirement
(DCR) plan and passage of SB 125 which constructed the
shared cost, blended rate system among public employers. He
noted that SB 125 set the PERS contribution cap at 22
percent for employers and the TRS contribution cap at 12.56
percent for school districts. The state contributes the
amount greater than these percentages by direct
appropriation to the funds.
6:06:36 PM
JERRY BURNETT, DEPUTY COMMISSIONER, DIVISION OF TREASURY,
DEPARTMENT OF REVENUE, referred to Slide 20: "Long-term
return Relative to Target 7.33 percent versus 7.41 percent
over 18 and 1/4 years". He explained that PERS and TRS have
similar returns. He noted that the line in the graph's
center exhibits the actuarial expected return at 8 and 1/4
percent. The purple and blue lines represent the actual
returns. He pointed out the rise in returns in 2008 and the
subsequent fall in 2009. As of February 28, 2010 PERS had a
total cash asset value of $9,554,000,000 and TRS had an
asset value of 4,167,000,000. The 2009 calendar year earned
13.28 percent on PERS and TRS. Returns were 3.19 percent
over the past five years. Returns were 6.65 percent for the
past 7 years. The past 18 years showed returns of 7.33
percent.
Co-Chair Stedman asked about the liability spread for the
end of June. Mr. Brooks responded that a draft report from
the June 30, 2009 evaluation will be released to the Alaska
Retirement Management (ARM) board in the near future. He
stated that the draft exhibited an unfunded liability for
TRS at $3,370,000,000 and $6,330,000,000 for PERS. He
pointed out the rebound in the market during the last
calendar year.
6:10:07 PM AT EASE
6:11:17 PM RECONVENE
Mr. Brooks continued that scenarios were run by Buck
Consultants for the expected payroll assessment of PERS and
TRS. He explained that the charts included in the packet
exhibited "slow recovery". Some might argue that eight and
one quarter is not necessarily a slow return. He explained
that the charts reflect the cost to the state as a
percentage and in dollars. The first chart includes PERS
contribution rates with a thirty year horizon. The yellow
bars reflect those appropriations required in excess of 22
percent for PERS. The actuarial determined rates rise to
over 40 percent by 2016 and remain there until 2029.
6:13:17 PM
Mr. Brooks Slide 31: "PERS Contribution Amounts Slow
Recovery" He explained that with TRS, the employer rate is
set at 12.56 percent. The yellow bar represents the amount
above 12.56 that the state contributes on behalf of school
districts and other public employers employing members of
the TRS retirement system.
Mr. Brooks Slide: 37 "TRS" Contribution Rates Slow
Recovery" exemplifies the dollar amounts connected to the
prior slide's information. A requirement exists for
significant appropriations to the PERS and TRS fund to pay
down the liability.
Co-Chair Stedman requested an explanation of the acronyms
listed on the bottom of the page. Mr. Brooks answered that
DCR stands for Defined Contribution Retirement System and
ER is Employer Contribution. He noted that DB ER
contributions stand for Defined Benefit Employer
Contributions.
Co-Chair Stedman asked if the coming report will be
released in a few weeks. Mr. Brooks responded that the
reports presented were generated last fall.
Co-Chair Stedman asked when the next actuarial check was
scheduled.
6:16:01 PM
PAT SHIER, DIRECTOR, DIVISION OF RETIREMENT AND BENEFITS
stated that the consulting firm conducted a thorough
replication of the actuarial evaluation last year. He did
not expect another evaluation for three years. Mr. Burnett
added that a second actuary review is performed annually by
Buck Consultants.
Mr. Brooks continued with an analysis for the deferred
contribution plan.
Mr. Shrier pointed out that the comparison is made more
useful by calculating the percentages in the column. He
explained that 40 percent of individuals hired in FY03 for
the DB plan continue to be active.
6:18:35 PM
Senator Ellis assumed that separation interviews were
conducted to provide information regarding reasons for
leaving state employment.
Mr. Burnett responded that anecdotal information suggests
people are leaving because of the retirement system or
because the pay is substandard. He opined that a
comprehensive compensation package must be presented to
remain competitive with wages and provide a well rounded
benefit package. He stated that the numbers of retention
have not changed much since the passage of the defined
contribution plan. The plan is portable; allowing an
employee to leave once vested and carry the plan with them.
He explained that separation interviews are not conducted
in standardized ways.
Co-Chair Stedman commented that the information could be
presented with charts including data from 2010, which would
allow the legislature to track the data.
Senator Thomas asked about the current balance of the PERS
and TRS fund. Mr. Burnett responded that PERS was
$9,554,496 and TRS was $4,167,254 as of February 28, 2010.
He stressed that the numbers are not exactly the same as
those seen later because real estate evaluations and other
liquid assets lead to a delay in the evaluations.
Co-Chair Stedman asked for a liability estimate for PERS
and TRS as of January 2010. Mr. Burnett replied that the
draft evaluation is $9.7 billion in unfunded liability. He
estimated that the current estimation for the actuarial
value represents a higher value than the actual value at
the end of the last fiscal year. Co-Chair Stedman clarified
that the deficit is $9.7 billion. Mr. Burnett concurred.
Co-Chair Stedman agreed that the gap must close.
6:23:37 PM
Senator Ellis that a brief online exit survey would prove
helpful. Mr. Brooks concurred and offered to meet with the
division of personnel to determine the outreach occurring
with the hiring of managers and staff turnover.
Senator Ellis asked the status in the lawsuit against
Mercer, the people responsible for the poor advice given.
Mr. Burnett stated that the lawsuit is scheduled for a
court date in Juneau later this year. He admitted attending
confidential briefings. Co-Chair Stedman added that the
trial will receive much attention.
Senator Thomas understood that employees hired in 2003 were
studied through 2009 compiling the data for Defined Benefit
Plan. He understood that the Defined Contribution Plan
employees beginning in 2007 and ending in 2009 were also
studied. Mr. Brooks agreed that all PERS and TRS employers
were listed.
6:27:14 PM
Senator Thomas noted that in 2002, Mercer changed several
actuarial assumptions after Milliman's audit. Buck
Consultants replaced Mercer as the state's actuary in 2005.
He asked to know the reason the actuarial assumptions were
altered. Mr. Brooks responded that the audit in 2002 was
not unusual. The changes made were significant. He
understood the concern with Mercer and the contract.
Ultimately the contract was not honored and a new actuary
was hired.
Senator Thomas asked if a different arrangement with the
current consultants includes a shorter time frame with
"several actuarial assumptions." Mr. Brooks responded that
the passage of SB 141 led to many of the current checks and
balances. He noted that pension reform included an annual
review resulting in the implementation of safeguard to
ensure timely reaction.
6:30:33 PM
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