Legislature(2009 - 2010)BELTZ 211
02/19/2009 01:30 PM Senate LABOR & COMMERCE
| Audio | Topic |
|---|---|
| Start | |
| SB23 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 23 | TELECONFERENCED | |
| + | TELECONFERENCED |
SB 23-REPEAL DEFINED CONTRIB RETIREMENT PLANS
1:31:42 PM
CHAIR PASKVAN announced SB 23 to be up for consideration.
MICHAEL LAMB, CFO, Fairbanks North Star Borough, said that his
comments expressed today are his own and that the Borough had
not yet taken a position on this issue. He summarized his
previously stated position that he thinks both the defined
benefit (DB) and the defined contribution (DC) plans should be
continued since they are both set up and working; and the
unfunded liability issue is not relative to the argument either
way. He asked for questions.
1:34:55 PM
SENATOR BUNDE asked if adding more people to Tier II TRS and
Tier III PERS would expand the liability.
MR. LAMB answered no; if a new person entered the Tier III
system, he would have no prior obligation attached to him and
for any of the benefits he would be earning in the next fiscal
year, the normal cost rate should be applied to his salary. If
the rate is correct, that person should not have one impact on
the unfunded obligation.
SENATOR BUNDE asked if he had calculated the impacts that would
have on the employer.
MR. LAMB answered that as a CFO, he does care about money, but
in addition to that, he needs to be able to attract the
personnel to fulfill his professional obligations. When he
compares the cost of the DC plan to the DB Tier III plan, the
dollars are about the same. In fact, in fiscal year (FY) 2010,
the DC plan is slightly more than the DB plan at $9.46. A Buck
Consultant letter to Mr. Shier, dated February 12, showed the DB
rate going up slightly more in 2011 than the DC rate. One of the
questions he had about that analysis is that the rates were not
based on total payroll and the current rates are.
He continued saying that all in all, when he sees the DB and DC
figures being very materially close, he then worries about the
cost to train and retain people who leave and those are hard
figures to quantify when you're just talking about rates.
Whether or not an employee takes a position or stays in a
position based upon whether they are getting a DB or a DC plan
also has an impact. The short answer to his question is that the
numbers do matter, but only presuming a Tier III rate for the
employee with no past service cost component versus a DC
component.
SENATOR BUNDE said his ongoing challenge is that a dollar
available for benefits isn't necessarily a dollar available for
salary.
1:39:52 PM
CHAIR PASKVAN asked Mr. Lamb to expand on an employee's ability
to manage his own money.
MR. LAMB responded:
I simply believe that the reality is that most
individuals are not capable or qualified or diligent
in setting aside the money that they should properly
diversifying that money, then through up and down
cycles not to be an emotional investor that buys and
sells based on emotion rather than long term.
Put another way, he said if an employer puts a dollar into a DB
system managed by professionals or a DC system that is managed
by the employee, in 20 or 40 years, he believed that the pile of
money that would be available to cover retirement and pension
costs would be larger in the DB pile than it would be in the DC
pile. There is no way that average citizens who have enough
struggles and other things taxing their time are going to be
capable of getting the same returns as a group of professionals
who have a larger portfolio that can allow for greater
diversification.
MR. LAMB said the DB plan is better because it's more
strategically managed and the money is eventually made available
on a monthly basis for that retiree in a methodical way - versus
a DC plan where that retiree can get to the money whenever
circumstances in his life dictate he thinks he needs it. He
would not be as disciplined in limiting the drawdown of those
funds.
1:43:53 PM
SENATOR BUNDE said Mr. Lamb just insulted about 75 percent of
the people in Alaska and less than 30 percent of the people work
for the state. People in private enterprise make these decisions
every day. If they follow his logic, the state should cover
everyone's retirement in the state because they aren't capable
of making good decisions.
MR. LAMB responded that he did not intend to insult anyone. He
clarified that he was trying to say "the Department of Revenue
wins hands down in terms of being the better investor" in
comparing a system where individuals make their selections for
their investments versus having them professionally managed.
Several years ago the social security system, a DB system, was
also discussed nationally and the question was asked whether
some of the money should be set aside for individuals to manage
themselves, and the conclusion was the same. He wasn't being
disrespectful, but the reality is that the general population
does not have, nor should they be expected to have, all of the
training necessary to understand investment markets and the
discipline.
Also, he pointed out that others who don't work for the state
will have the benefits of a social security benefit plan as one
of their legs on their retirement stool. His concern, long term,
is that another large segment of our population becomes not
quite as prepared at retirement because they are not in a DB
system; and at some point, governments generally end up stepping
in to help.
CHAIR PASKVAN said he didn't perceive disrespect in Mr. Lamb's
comments. He asked why he thought it appropriate to retain both
systems and who would be best suited to a DC system.
1:47:20 PM
MR. LAMB answered that great regard needs to be given to
creation of the DC plan and the work that was done on SB 141.
Time has shown they are two great plans. There remains a place
for both plans as demographics continue to shift, boomers retire
and the population gets smaller. The difficult task would be
having the legislature carve out under what circumstances a
potential employee would invest in the DB versus the DC plan.
He said some people have retired out of the DB system and there
could be a very legitimate need to get them back for one or two
years; a DC plan would be perfect for them. They shouldn't be
allowed to go back into the DB plan because all the
circumstances regarding the benefits have to be addressed. He
said the state has 70,000 retired military, about 10 percent of
the population; and the military basically has a DB program. He
remarked that it would be great to have the option to have those
people who have been trained, who have a good work ethic, and
all the things that go with retired military enter into a system
for a short-term period and offer them a DC plan where they are
going to be slightly better off than in a DB plan.
1:50:52 PM
CHAIR PASKVAN asked him if the DB plan has met its expectations
in terms of rate of return.
MR. LAMB replied that he has great accolades for the Department
of Revenue (DOR) that according to Callan & Associates, over the
last 14.75 years, has achieved at total annualized rates of
return of 8.89 percent and 8.96 percent for PERS and TRS
respectively. The rate of return the systems have to achieve to
serve the normal and past service costs is 8.25 percent. So in
the long haul, the average rate of return is over the 8.25
percent point and any return over that goes to help reduce the
unfunded obligation.
He recalled that 60 or 70 percent of the money that is actually
used to pay pension benefits comes from investment earnings over
the life of those monies and not from the actual withholdings
from employees' pay. Historically, and before Callan's 2006
report, the rate of return was slightly over 9 percent.
1:54:15 PM
CHAIR PASKVAN asked him to comment on the unfunded liability
related to the Mercer litigation.
MR. LAMB said that the legislature had heard a lot of testimony
on this since 2005 and in the end, state documents indicated
there were errors in the actuarial calculation, especially for
the medical calculation. The normal cost rate was seriously
understated; but what's worse is that Mercer actually advised
the legislature in early 2000 to expand health care medical
benefits five more years as a way to get the funding down to 102
percent. However, Senator Elton said in his sponsor statement
that a lot had been done to correct that problem.
MR. LAMB summarized again that investments are an animal onto
themselves, and they are critical for peoples' retirements. He
concluded that most of the general public is not qualified to
invest like professionals and he didn't mean that to be an
insult.
SENATOR BUNDE waved a letter from Buck Consultants [February 12,
2009] to Mr. Shier saying he wanted Mr. Shier's version of it.
1:59:09 PM
SENATOR JOE THOMAS joined the committee.
PAT SHIER, Director, Division of Retirement and Investments,
Department of Administration (DOA), said the letter shows the
differences in ongoing plan costs for all the tiers. A normal
cost rate of 10.95 percent for PERS Tier III DB plan and 9.23
percent for Tier IV; under TRS tier II the DB plan was at 8.96
percent compared to 11.4 percent for the DC plan. Those are the
normal costs based on the draft actuarial evaluation reports,
which haven't been presented to the ARM board yet.
CHAIR PASKVAN asked what that means for a true Tier III analysis
as opposed to a blended cost analysis of Tier I plus Tier II
plus Tier III.
MR. SHIER replied these are simply normal costs; they don't
contemplate the past service cost. SB 123 and SB 125 spread the
DB past service cost assessment across the entire payroll. The
DC contributions area calculated only on the DC payroll. Because
the DC payroll is used to help collect money from employers to
pay off the unfunded liability, they wanted to make that
distinction. Once the liability is paid off, the DC plan is
fully funded; there is no further obligation to the state or
other TRS or PERS employers in the future. But, the DB plan
might accrue additional liabilities in the future depending on
fluctuations in health care costs, mortality tables and
investments.
CHAIR PASKVAN asked if he would anticipate any unfunded
liability going forward, assuming a normal cost rate were to be
adequately set over the long term.
MR. SHIER replied no.
2:03:40 PM
SENATOR BUNDE said they had that assumption before getting into
trouble before. He asked why there was a difference in past
service adjustment (PSA) and the numbers that Buck Consultants
came up with and if those figures included the ongoing medical
costs and potential medical costs for retirees.
MR. SHIER replied the employer contribution to the DC PERS plan
is 5 percent plus disability and the medical health
reimbursement arrangement (HRA); it's 7 percent in the TRS
system. Those rates don't include any contemplation of past
service costs for medical, but they do include a levy of about
.85 percent for future medical costs. He said it's often
misunderstood that the health plan going forward into the new
tiers is actually a DB health plan with a health reimbursement
arrangement attached. In other words, the .85 percent is the
normal cost rate going forward that the actuary says is enough
to fund the employer-provided health plan, which has a feature
of cost sharing in it that even retirees have to pay a portion
of the premium going forward.
2:05:47 PM
CHAIR PASKVAN said he understands litigation has commenced
against Mercer relating to some actuarial computations and he
asked if the unfunded liability is a cause of miscalculations by
Mercer as compared to a fault in the concept of the plan.
MR. SHIER replied that he hadn't read the allegations in the
case so he couldn't comment.
SENATOR BUNDE asked why there is a significant difference
between the medical normal cost rates under both plans, because
it appears to be the most expensive part of the package.
MR. SHIER answered that is an accurate observation. The most
recent DB plan requires a relatively short term of service in
the system in exchange for coverage of health care from age 60
on; five of those years are prior to the advent of Medicare
becoming primary - a very significant issue. An individual can
work in the state for 10 years and leave, but under the new tier
the state is not on the hook for their health plan. They have to
stay longer and retire out of that system in order to gain
access to that health care plan. Part of that is reflected in
the much lower normal cost rate for health care going forward.
2:08:13 PM
Part of it also is that the old tier plan has a low deductible
and that won't be adjusted going forward. The new tier, on the
other hand, has the flexibility to introduce some elements of
cost sharing; those are very powerful drivers in terms of cost.
SENATOR BUNDE wanted him to clarify why the cost of health care
couldn't be changed.
KEVIN BROOKS, Deputy Commissioner, Department of Administration,
explained that the reason the state has multiple tiers is
because the Alaska Constitution doesn't allow a "diminishment"
of that retirement benefit. That is why the new tiers are
prospective for new employees going forward.
2:10:25 PM
CHAIR PASKVAN asked him if the unfunded aspect is related to an
actuarial miscalculation.
MR. BROOKS said actuarial evaluations are based on 25 separate
variables ranging from earnings and health care assumptions to
mortality tables. Since this is active litigation, he couldn't
address it publicly. The Department of Law (DOL) has hired
contract attorneys to address the Mercer case.
SENATOR BUNDE asked if this bill passes, would we simply go back
to the existing tier.
MR. BROOKS said that is his understanding.
2:13:01 PM
JOHN CYR, Executive Director, Public Safety Employees
Association, supported SB 23 and returning to a DB program.
Anecdotally, he said they have been collecting information from
members who are in Tier IV who are absolutely considering
leaving public service when they get their five years in and
taking what they have and going outside where they can insure
their families.
MR. CYR asked if they had considered the sheer cost of training
and the expertise they lose when someone leaves, especially
police officers. It takes somewhere around $150,000 to put a new
recruit through the academy, doing field training and keeping
him on the force for just a year - so he is off probation and
minimally competent.
SENATOR THOMAS asked if he had collected statistics on these
folks that have moved out.
MR. CYR answered that he didn't have the exact numbers.
SENATOR BUNDE asked if he would agree with Mr. Lamb's theory
that state employees need government to monitor their
investments.
MR. CYR remarked that it's clear in looking at his 401K that he
can't monitor his own investments.
2:16:53 PM
LYDIA GARCIA, Executive Director, National Education Association
Alaska (NEA), said less than one month ago, the annual assembly
for NEA convened and over 450 educators and school employees
from across the country came together to establish their
priorities and returning the state to a DB system is their
number one priority for many of the reasons they heard earlier.
The Association held a number of forums across the state
attended by over a thousand Alaskans and over a dozen lawmakers.
During those opportunities, many state and municipal workers
related what it will take for them to consider staying in the
state, and it will take having a future they can rely on.
2:19:34 PM
She said that Alaskan school districts still hire 70 percent of
their teachers from the Lower 48 and that number has remained
constant over a decade. It costs roughly about $12,000 to train
a new educator, she said, and Alaskan districts are spending
over $8 million a year to train teachers from outside the state.
So, they should be looking at every way possible to retain these
educators here and have them here for longer than just an
"Alaskan experience."
She said turnover has definitely accelerated even though it has
always been high. Yesterday she heard the University of Alaska
speak powerfully about teacher retention and recruitment. They
talked about the fact that they graduate only about 30 percent
of the teachers here and that they want to do everything they
can to keep Alaska's teachers in the state.
2:21:16 PM
JERRY PATERSON, representing himself, said he and his wife are
retired teachers, and how his wife worked post-election as a
substitute for another person. When she got her check, it had a
mandatory deduction of $24 for the retirement system. They were
told it was mandatory because the state doesn't use federal
social security. To get her money out, she eventually had to
fill out eight pages of paperwork and have both their signatures
notarized. She ended up having $35 in expenses deducted from her
final check and paying a $7.77 separation from service fee. Had
she been under the old DB plan, she could have applied and
gotten her $24 contribution back. He observed that the only
happy people are those who are collecting the fees and urged the
committee to pass SB 23.
2:25:04 PM
DOUG MOLLINEAU, representing himself, said he is a fisheries
biologist in the Alaska Department of Fish and Game (ADF&G). He
is also a member of the supervisory unit of the Alaska Public
Employees Association. Since 1989 his work has focused on the
Kuskokwim area salmon fisheries, an area that accounts for half
the statewide annual subsistence harvest of King salmon. It also
supports commercial salmon fisheries, which are poised to expand
with the development of a new fish processing plant. Salmon are
also by-catch in the lucrative Bering Sea pollock fishery, and
concern over that by-catch threatens costly restrictions on the
pollock fishery. A quality salmon monitoring program has been
developed that allows them to emerge from a cautionary
management style to better optimize commercial harvest and to
avoid unnecessary restrictions. Their ability to implement and
maintain that program is at risk now, because they are having
difficulty in recruiting, training and retaining staff to build
and maintain the institutional knowledge needed for long-term
effectiveness. There are multiple reasons for the recruitment
and retention problem, but one of the big ones is the Tier IV
PERS, which fails to provide a guaranteed pension to new
employees. The recent plummeting of investment values under Tier
IV makes the shortfall all the more poignant.
A common scenario for them is to hire someone, increasingly a
non-resident, provide him or her with training, and then after a
few years, lose him to a more lucrative position in the federal
or private sector. Recruitment is also a problem; in the past
few months key positions such as the regional supervisor, Yukon
area research biologist, multiple bio-nutrition and fishery
scientist positions all have had recruitment periods spanning
months with multiple extensions and nation-wide advertisement -
and still they get an insufficient hiring pool. He has observed
the problem getting worse since the inception of Tier IV. "New
and perspective employees are just not satisfied with what the
state of Alaska is offering. Tier IV is not the only problem,
but it's a big part of the problem."
SENATOR BUNDE asked if state salaries are competitive.
MR. MOLLINEAU said combined with the poor retirement plan, it is
one of the big three issues.
2:28:31 PM
SENATOR THOMAS asked who hires in his department. Is it done
internally?
MR. MOLLINEAU replied yes; the department uses its own process.
They advertise a variety of ways through professional
organizations, the American Fisheries Society, biometrics
publications and organizations, but they have found they need
more of those. In-house hiring through Workplace Alaska has not
been adequate.
SENATOR THOMAS asked if the department is alarmed at those
statistics along with the much longer timeframes for hiring.
MR. MOLLINEAU answered that he personally doesn't keep
statistics, but he assumed the Department of Administration
would. His experience, and it's a common discussion point among
his colleagues in the supervisory unit, is that this has been an
ongoing problem and seems to be getting worse.
2:30:47 PM
PENNY VAVLA, representing herself, Soldotna, said she is on the
school board there and supported SB 23. It's really important
that the state be able to attract and retain quality teachers to
continue promoting a quality education for all students in
Alaska. The cost of training and retraining teachers is very
expensive and she firmly believed that the state is losing some
of these quality teachers because of the DC system in Tier IV.
2:33:03 PM
JOHN BROWN, representing himself, Fairbanks, supported SB 23.
The cost/benefit ratio of retention is just undisputable, he
said. Just the fees for the DC plan are 6-7 percent more than
the DB plan. He urged them to try to find anyone who has retired
on a DC plan that they earned from their employer, because "it
doesn't happen." Providing a DB plan is also the right thing to
do for people who have dedicated their whole lives to the
service of the state.
2:34:47 PM
PAUL ORTNER, representing himself, said he is the Quality
Improvement Coordinator for the Alaska Psychiatric Institute
(API). He said he had worked there for 12 years because he
believes in its mission and commitment to provide the most
progressive acute psychiatric care available. Recently, US News
and World Report ranked API 26th nationally on its list of best
psychiatric hospitals - an astounding accomplishment for any
state hospital. However, he said, "The ability to maintain that
level of care is being severely challenged by the defined
contribution retirement plan that the state now offers new
employees."
He said resources that could otherwise be used to provide high
quality psychiatric care are being shifting toward recruitment
and retention costs. Instead of finding qualified applicants,
the hospital is being forced to find lower quality employees
with little or no experience who need training to do their job
adequately, an additional burden to the hospital. But, he said,
"Unfortunately that just provides them the experience to leave
state employment when they realize they have no retirement
future."
Another point he made is that the hospital's education
department has a limited ability to maintain or increase staff
competency as their resources become overwhelmed with constant
new-hire orientation. Nursing positions are constantly turning
over. Some real examples of how unattractive state employment
has become can be seen in several areas: nursing vacancies were
at 16 percent in the last quarter, four newly hired nurses are
straight out of college and it isn't likely the hospital will
retain them once they become experienced. After months of a
vacancy, the hospital was finally able to hire a health
information manager by lowering the position's qualifications.
That person is now trained and certified, but she probably won't
stay beyond three years because opportunities are better
elsewhere.
MR. ORNTER stated that the safety officer's role in the hospital
is critical and that position remains vacant; it used to be
filled internally as people moved up in the organization. "No
one is moving up, because no one is sticking around." Only two
of the hospital's six licensed independent practitioner
positions are filled; this forces the hospital to contract with
temporary licensed independent practitioners at a much higher
cost, and orienting this rotating group eats up valuable staff
time. API will soon be on its third human resource manager, a
job that is becoming increasing difficult to fill without a
secure retirement program. All these challenges impact the
hospital's ability to provide quality patient care.
2:39:37 PM
SENATOR BUNDE said API has been struggling to keep staff as long
as he has been here.
MR. ORTNER responded that he had been with API for 12 years and
he has seen considerable change in the hospital's ability to
retain staff in that time. Just today he talked to someone about
two new, young, social workers who are doing great work, but who
won't stick around without a defined retirement system. He
agreed that while nursing has had a consistent rollover of
staff, it hasn't been as high as it is now and this leaves the
hospital open to liability, especially without a safety officer.
2:41:22 PM
CARL ROSE, Executive Director, Association of Alaska School
Boards, supported SB 23. The members think being able to attract
and recruit quality teachers is important, and a previous
teacher-tenure conversation with the legislature identified four
important areas to consider in this respect: quality,
performance, accountability and fairness. The issue of fairness
is the one that is paramount here. They already have some good
employees, but the districts need to attract more. "So, I would
ask you to consider as you look at this piece of legislation.
It's the value that it brings; it's the incentive that it will
cause. It's the quality they we're trying to attract." Who would
see the value in a DB plan if it included the unfunded
liability? People look at the whole package.
2:43:53 PM
SENATOR BUNDE said he understands that teacher recruitment is
difficult throughout the entire United States.
MR. ROSE replied yes, it is.
CHAIR PASKVAN asked if he believed that recruitment is more
difficult with the DC plan.
MR. ROSE replied that after November 2008 it became more
difficult. Sometimes young folks didn't care much about
retirement plans, but that is not a good reason to offer an
insufficient one. In one way, we take advantage of youth in
offering them employment here, he said, because 5 or 10 years
hence they figure it out and the incentive really is there to
take their money and move. He didn't think anyone thought about
it when the DC plan was created, but that is the case now.
SENATOR THOMAS asked if the Association of School Boards keeps
statistics.
MR. ROSE replied that the Association doesn't have those kinds
of statistics, because this is a fairly new event for them. The
real impact has come as a result of the downturn in the economy.
They have always had some difficulty recruiting into Alaska
based on the salaries, but the total package is becoming an
increasing disincentive.
2:47:06 PM
SENATOR BUNDE asked if he heard what Mr. Lamb said that a
majority of the funding really comes from investment returns
rather than contributions; so the down market would certainly
affect the money that is available for defined benefits. And the
state is required constitutionally to make that up and with a
finite amount of dollars, he asked if it is reasonable to assume
that those dollars would come from some other area of state
service.
MR. ROSE answered by saying one of the issues here is market
performance, but a DC program also has a larger contribution, as
well. "So, I don't think they are mutually exclusive. But
absolutely the performance of the market is going to affect
almost everything we do and it will affect the defined benefit
program, but it also has that depressing effect on the defined
contribution program, as well."
2:48:29 PM
PAT LUBY, Advocacy Director, AARP, supported SB 23. He said
lifetime financial security is a cornerstone of the American
dream. AARP's major concern is that most of it public employees
and retirees don't participate in the social security system. In
the past it didn't matter so much that our public employees did
not participate in the social security system; they had a
defined benefit plan that would last as long as they lived. "But
now they have no defined benefit and they have no social
security. The American dream of a secure financial retirement no
longer exists for Alaska's newly hired public employees."
MR. LUBY said, "It is possible for defined contribution to work
for you as long as you don't live too long." Most people will
live into their mid-80s or 90s. With a DC plan you have to know
your life expectancy and if married, how long your spouse will
live, if you will be healthy right up until you stop breathing
or if you will need long-term care, home care or a nursing home.
Medicare doesn't pay for that; you have to pay for that
yourself.
He asked if anyone knew what inflation would be for the next 20
years. Defined benefits and social security provide annual cost
of living increases; the new DC plan doesn't. Health care costs
will also have inflation over the next 20 years.
2:50:26 PM
He said it's true that many private companies have switched from
DB to DC plans over the past few years, but all of those who
work in the private sector also participate in social security.
They are guaranteed a check as long as they live. Alaska's
public employees used to have the same financial security before
SB 141. AARP members rely on public servants; they teach, put
out fires and police respond. They deserve more than outliving
their retirement.
In response to Senator Bunde, Mr. Luby said, it isn't about Big
Brother. It's about using expertise. Every private pension plan
has professional managers and the professionals managing the DB
plan are making about 10 percent more than members in the DC
plan even over the economic downturn. "So, professional
management is really critical if we're going to maximize our
investments."
SENATOR BUNDE said he didn't disagree, and that professional
management is available to anyone who wants to purchase it. He
asked Mr. Luby if he really thought social security was a
defined benefit; it might be around for our lifetime, but maybe
not for out great grandchildren.
MR. LUBY responded that social security is fully funded until
2042. Changes are needed, but people have to make sure that the
promise of social security is there. "Social security is a
family protection plan, not just a retirement plan," he said. A
third of those checks in Alaska go to children, disabled folks
and spouses of folks who have died or become disabled
themselves.
2:53:31 PM
JIM DUNCAN, Business Manager, Alaska State Employees Association
Local 52 (ASEA), supported SB 23. He stated that Senator Bunde
wasn't in this Body when the retirement system was moved from
Tier I, to Tier II to Tier III, but he was. Contrary to what
some folks may think, it is okay to continue to evaluate the
programs that are in place to see if changes need to be made to
allow them to work more efficiently and more effectively for
those who they serve.
MR. DUNCAN said he was the sponsor of the Tier II legislation.
They held to four important principles in changing the defined
benefits plan and he asked them to consider whether or not the
DC plan meets those four principles. One is does it provide a
secure pension upon retirement; the answer is no. Secondly, does
it provide adequate medical coverage for retires; and the answer
is no. In fact, the answer to Senator Bunde's question about why
the cost of the DB plan for PERS and TRS is so much higher than
for Tier IV that the DB plans do contain medical coverage. The
DC plan has minimal medical coverage. In fact, when the bill was
passed two years ago, it was estimated that those folks who did
access their medical care at 60 years of age would deplete that
within two years, and the next three years before they reached
Medicare age they would not have medical coverage.
He said the third principle they always considered is answer
what it does to the state's ability to recruit and retain
employees, and it's clear in his mind that they tried to
maintain this principle in Tier I, Tier II and Tier III. It is
clear that the DC system does not do that.
People have asked for figures showing that to be the case, but
he has listened to the problems teachers and troopers are having
with recruitment; he knows that two years ago the turnover rate
in his unit of 8,500 people was 20 percent/yr., and now it's
over 30 percent/yr. He also knows that recruitment of positions
in his general government unit is becoming more and more
difficult. One of his retiree members talked to him recently and
indicated that the job he retired from is still not filled.
Before he retired, they used to have more applicants than they
could ever get through for those types of positions. Less people
are applying, they are harder to recruit and the turnover rate
has increased.
The fourth principle they always looked at is what the cost of
providing the first three principles would be. If the DC plan
would cost a whole less, then maybe they could say they gave up
some of those principles to save some money, but the Buck
Consultants' report in 2008 and the letter they were presented
today indicates the cost between Tier III PERS, Tier II TRS and
the DC plan is about a wash. He urged them to keep these
principles in mind as they move forward.
2:59:20 PM
SENATOR BUNDE asked why the state moved from the Elected Public
Officers Retirement System (EPORS) in the tier directions.
MR. DUNCAN answered that Tier I was the first retirement system;
EPORS was a short-time retirement system that certain people
participated in, but it no longer exists for new members. When
they first evaluated Tier I, he represented Juneau and a major
part of his constituents were state employees. He became very
knowledgeable about it and was very protective, but it became
clear that as they moved through the years, Tier I was becoming
more expensive; and changes were made to maintain that adequate
retirement system and medical coverage. Legislators made sure
they maintained those four principals, but at the same time
tried to address the increasing cost. For instance, Tier II
increased the amount of time to be in service before accessing
medical coverage.
3:01:23 PM
CHAIR PASKVAN said as a matter of both social and economic
policy he favors returning to a DB system and he ended the
public testimony.
SENATOR DAVIS said she supported the bill, and asked what
direction it was going to take since she hadn't heard of any
suggestions.
CHAIR PASKVAN answered that he thought the bill would move next
week if the committee chose. [SB 23 was held in committee.]
| Document Name | Date/Time | Subjects |
|---|---|---|
| SB23 - Restore Defined Benefit - Bill Packet.pdf |
SL&C 2/12/2009 1:30:00 PM SL&C 2/19/2009 1:30:00 PM SL&C 2/26/2009 1:30:00 PM |
SB 23 |