Legislature(2005 - 2006)BELTZ 211
05/03/2006 03:30 PM Senate STATE AFFAIRS
| Audio | Topic |
|---|---|
| Start | |
| HB133 | |
| SB288 | |
| HJR25 | |
| HCR4 | |
| HB347 | |
| HB375 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 288 | TELECONFERENCED | |
| += | HB 347 | TELECONFERENCED | |
| += | HJR 25 | TELECONFERENCED | |
| + | HB 375 | TELECONFERENCED | |
| + | HCR 4 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| = | HB 133 | ||
CSHB 375(FIN) am -PAST SERVICE COST LIABILITY ACCOUNTS
4:22:54 PM
CHAIR THERRIAULT announced HB 375 to be up for consideration.
JACQUELINE TUPOU, Staff to Representative Bruce Weyhrauch,
advised that HB 375 relates to Alaska's $6.9 billion unfunded
liability. The Alaska Retirement Management (ARM) Board recently
submitted its findings and priority recommendations and the most
important are encapsulated in HB 375.
The bill would 1) establish past service retirement liability
accounts for PERS and for TRS within the Department of Revenue;
2) establish a formula for calculating how payments will be
made; and 3) provide incentives for employers to pay down the
debt.
Finally, she said, this works in much the same way as the school
debt reimbursement program.
4:25:28 PM
GARY BADER, Chief Investment Officer, ARM Board, recapped the
history of the board and that it is charged with developing a
strategy of addressing the unfunded liability of the PERS and
TRS systems. Clearly, he said, the liability will have to be
paid incrementally.
Referencing page 2 of a handout he advised that the liability
for TRS increased $376 million last year while the assets
increased $114 million. The reason is that there isn't enough
money in the fund for the earnings to be much better.
Addressing the concept of "normal cost" he explained that this
is what the actuaries are using to describe what it would cost
each year to pay for the people in the system if there was no
debt and all assumptions were met. In a defined benefit system
the idea is to put aside enough money during the working life of
the employee to pay for the liability during retirement years.
The chart on page 3 indicates what happened in 2003 when the TRS
system went from 95 percent funded to 68 percent funded. This is
the result of changes in actuarial assumptions, recognition of
the changes in the cost of health liability, and poor
performance in the financial markets.
MR. BADER noted that incremental changes in the contribution
rates from employers have addressed past funding shortfalls and
HB 375 creates a mechanism for the ARM Board to ask employers to
pay the full actuarial rate with state assistance.
The chart on page 4 demonstrates the same idea except that the
actuarial liability increased $1.4 billion between 2004 and
2005.
Page 5 shows the funding ratio history for PERS.
4:30:10 PM
CHAIR THERRIAULT asked what steps were taken back in 1979 to get
back to 100 percent funding.
MR. BADER replied his understanding is that the employer
required contribution rates were increased, which is what he
believes the ARM Board will suggest for 2008. In the past two
years the incremental increase has been 5 percent for PERS but
the contribution rate lost 4 percent last year due to unfunding.
This indicates that the contribution rate will have to be
increased to more than 5 percent increments in a year. He
stressed that delay costs money.
Continuing with the handout, he said that page 6 is the
actuary's conclusion, which states that for PERS the actuarially
computed contribution rate increased 4 percent between 2004 and
2005 while TRS increased slightly. The funded ratios declined
for each.
The chart on page 7 demonstrates outcomes if the contribution
rate is set at a particular percent with the assumption that
payoff would occur in a certain number of years. For example, if
the TRS contribution rate for the employer is set at 21 percent
and payoff is projected in 30 years the actuaries calculate that
the increased contribution would amount to $100 million per
year.
The chart on page 8 uses the same examples to demonstrate the
outcome for PERS.
4:32:54 PM
Page 9 shows calculations for determining the past service cost
rate. If there is a loss, it is amortized over 25 years and the
sum of all the gains and losses becomes the past service cost
which is then calculated as a percent of the payroll.
Page 10 explains the allocation for TRS employers all of which
are pooled and treated the same regardless of district. The
payments to those employees are based on 85 percent of the past
service cost rate for the three prior years.
This is similar to the school debt reimbursement plan in that it
provides money to communities to pay off 85 percent its debt for
school districts. Describing it as somewhat circular, he said
this provides money to school district and requires that it be
sent back to the state to fund the retirement system.
MS. TUPOU stressed the importance of this point because federal
dollars aren't lost under this system.
MR. BADER continued with page 11 saying it's the same general
concept, but it recognizes that each political subdivision in
the state has its own past service liability rate so the
employer rate is used rather than the system rate. The 85
percent reimbursement and three year look back works the same,
but it also provides an incentive fee for PERS employers that
either contribute more to the system than is required or an
employer that may have contributed more this year. He noted that
last year the Legislature provided some municipalities with a 5
percent payment and some used it to pay down their liability.
4:38:51 PM
SENATOR ELTON said he's heard that Anderson has just one public
employee and it had a $200,000 surplus. With that anomaly in
mind, he questioned the reliability of the data.
MR. BADER replied he's heard of the anomaly and he believes it's
under investigation. The data comes from the Division of
Retirement and Benefits and the legislation is working from the
best information that's available. Even so, he said, the
existence of an anomaly wouldn't affect how this works.
SENATOR ELTON recapped it's under review so those that shouldn't
be rewarded won't be rewarded.
MR. BADER replied that's fair, but he doesn't want to go quite
that far since he's only heard of the one case.
SENATOR ELTON conceded he'd heard of just the one case.
SENATOR WAGONER asked if different scenarios had been run for
faster pay down.
MR. BADER referenced page 8, which has amortization periods
ranging from 25 to 40 years and said the actuaries could
calculate different periods.
SENATOR WAGONER reiterated he'd like to look at scenarios for
paying down the principle faster. For instance, he'd like to see
the result of doubling the effort in a year.
MS. TUPOU chimed in that this isn't a panacea; it's a starting
point.
MR. BADER said he could have other timeframes calculated and
send the report to legislatures.
SENATOR WAGONER commented this is a heavy debt for the entire
state and it ought to be paid down as fast as possible.
MR. BADER reiterated there is an incentive for paying the debt
down faster and the ARM Board will probably be back next year
with additional suggestions.
SENATOR WAGONER said he didn't want to reward bad behavior.
MS. TUPOU mentioned the incentives and said the idea is that
some communities would take advantage of those.
CHAIR THERRIAULT said he and Senator Wagoner had to leave for
caucus so the committee could hold the bill or move it on to the
Finance Committee.
SENATOR WAGONER expressed the desire to move the bill.
SENATOR ELTON said he didn't object but he questioned why there
is need for an account for money that would be spent in the same
fiscal year. "If we're going to appropriate money to the account
to be distributed why can't we just appropriate money to be
distributed?" He asked Ms. Tupou to get back to him with an
answer.
SENATOR WAGONER moved CSHB 375(FIN) am and attached fiscal notes
from committee with individual recommendations. There being no
objection, it was so ordered.
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