Legislature(2015 - 2016)SENATE FINANCE 532
03/29/2016 01:00 PM FINANCE
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SENATE BILL NO. 209 "An Act relating to increasing employer contributions to the defined benefit plan in the Public Employees' Retirement System of Alaska." 1:48:51 PM LAURA CRAMER, STAFF, SENATOR ANNA MACKINNON, introduced SB 209: Senate Bill 209 proposes a gradual, multi-year increase in the employer contribution rate for the Public Employees Retirement System (PERS) from the current level of 22 percent to 24.5 percent for FY 2017, 25.5 percent in FY 2018, and 26.5 percent in FY 2019. In 2008, with the passage of Senate Bill 125, the uniform rate was established at 22 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 made the PERS a cost sharing plan in which all employers pay one uniform rate and share in the liabilities and the assets of the plan. This allowed the state to share in the payment of the unfunded liability of the system with the employers. The establishment of the 22 percent and the commitment of the state to assist in costs over 22 percent was made at a time when oil value was setting not only record price, but generating record state revenue. From FY2008 through FY2016, PERS appropriations ranged from $108 million to $312 million annually. During those nine years, a cumulative total of $1.708 billion was appropriated to the PERS unfunded liability. In addition to the state assistance payments, in FY 2015, an appropriation was made to the PERS Fund in the amount of $1,000,000,000 in order to improve the health of the system and reduce the unfunded liability. In total, state unrestricted general fund assistance has exceeded $2.7 billion over the past nine years. Senate Bill 209 is a conservative approach to balancing the state's current fiscal reality and its commitment to assisting PERS employers with the cost and the unfunded liability of the system. This legislation provides a level of stability that will assist the State of Alaska and PERS employers in fulfilling the obligation to a healthy retirement system for its members. Co-Chair MacKinnon felt the sectional analysis was covered in the bill introduction. 1:49:37 PM Co-Chair Kelly recalled that the initiation of the 22 percent was at a period of time when the unfunded liability obligation was approximately $4 billion. He remarked that the stock market fell in 2008, which changed it to a $15 billion unfunded liability. Co-Chair MacKinnon queried the desired information to evaluate the bill. Vice-Chair Micciche requested the history of the state's contributions to municipalities He also wanted to understand the true rate. Co-Chair MacKinnon explained that the state covered above the 22 percent, so municipalities covered the 22 percent. Vice-Chair Micciche wondered what happened to the defined contribution plan piece. He wondered if the new contribution would be higher than 24.5 percent. Co-Chair MacKinnon hoped to hear from Buck on the actuary analysis. Ms. Cramer stated that the system allowed for every employee to be covered. She remarked that there was no differentiation between the two plans. She stated that there would be a more thorough discussion. Co-Chair MacKinnon explained that if an average employee made $100,000 under tier 1 with a cash call of 36 percent, the state would contribute $36,000. A new employee under the defined contribution, the state may contribute $12,000, creating a disadvantage. The system looked at the employees as a whole, so all employees were treated equitably when applying for a job. She remarked that it would be unfair for a new employee to outpace an older employee. Vice-Chair Micciche wanted to clarify the burden to municipalities and the state. Senator Hoffman queried the annual costs over the course of the five-year increment. Senator Dunleavy wanted to examine the time of inception. 1:56:12 PM Co-Chair MacKinnon shared that there was a new general accounting rule, so the municipalities were working on keeping up with the debt. Co-Chair Kelly felt that there was not a connection between the APS and the bill. He felt that the money would be used as a "shock absorber" to the communities in SB 207 and SB 208. Co-Chair MacKinnon stated that SB 207 and SB 208 were linked in an effort to use a one-time funding source to TRS. Vice-Chair Micciche stressed that he wanted to best research the municipalities who were in the most need of relief. Co-Chair MacKinnon stressed that SB 209 and SB 210 were interrelated in order to share the financial responsibility. SB 209 was HEARD and HELD in committee for further consideration.