Legislature(2007 - 2008)BELTZ 211
03/18/2008 09:00 AM Senate STATE AFFAIRS
| Audio | Topic |
|---|---|
| Start | |
| SB183 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | SB 183 | TELECONFERENCED | |
| *+ | SB 259 | TELECONFERENCED | |
| *+ | SB 260 | TELECONFERENCED | |
| + | TELECONFERENCED |
SB 183-REPEAL DEFINED CONTRIB RETIREMENT PLANS
CHAIR MCGUIRE announced the consideration of SB 183.
9:04:39 AM
SENATOR KIM ELTON, Alaska State Legislature, said SB 183 would
hire new employees into the old tiers - Tier III for PRS and
Tier II for TRS - which will give employees more benefits for
almost the same cost as the new defined contribution plans
(DCP). The fiscal note highballs some of the costs, but
estimates about $5.00 per month per employee. Studies show that
401k plans earn an average of 1.0 percent less than pensions,
and the DCP has no COLA [Cost of Living Allowance] to encourage
retirees to stay in Alaska. Retirees are a $1.5 billion per year
industry in Alaska. Experts note that the retirement accounts
will often not last as long as a retiree. If the retiree has a
family as part of the plan, the health accounts can run out in a
matter of a few short years.
SENATOR ELTON said recruitment and retention is a big issue in
Alaska. In any other state in the nation a public employee will
end up with a defined benefit pension plan (DBP) and a social
security safety net that protects them in their retirement
years. The new DCP makes retention especially difficult.
Employees can come here, get training, and then leave the state
in a few years to go to other public jurisdictions across the
nation, taking with them the money they and the state put into
the retirement system. It encourages people to leave. They can
leave with a large nest egg and go somewhere that gives them
social security and a defined benefit. "They can buy a house
with the … money they took from [Alaska's] system." It is worth
knowing that the employer dollars do leave.
SENATOR ELTON said that has a cost to the system. One of the
advantages of the old system is that the forfeitures add to the
benefit for those who stay. The bill also has an option for
those who have been hired into the DCP to be able to switch, and
that has a slight cost to the state. The bill doesn't change the
mandate for a second actuary or the mandate for experience
studies. "Elected officials are still out," he said. The 2010
deadline for buying back time remains. The bill is fair and will
help attract and keep good employees. It adds back the COLA
incentive for retirees to stay in Alaska, so they can spend
their money in restaurants, grocery stores, and pharmacies,
which is a $1.5 billion economy.
9:08:54 AM
FRANCIS MCLAUGHLIN, Regional Planner, Municipality of Anchorage,
said he supports SB 183. He was born and raised in Fairbanks and
has worked as a professional planner outside of Alaska for five
years. He was hired as a regional planner by Anchorage last
year. He is well-qualified, and as a single person he can choose
to work anywhere. He is excited to be back in his home state. If
he were older or married he would not be able to be a civil
servant in Alaska because there are too many disincentives in
the retirement system for Tier IV employees. He has no defined
benefits and his wages are too low, as compared to the private
sector, to compensate him enough to invest his way to
retirement. If he works 35 years as a civil servant in Alaska,
he will not have guaranteed health insurance. He will have a
"health reimbursement account" to buy health insurance, "and I
would pray that that would not be exhausted before my future
wife and I die." Who knows how much health insurance will cost
in 2043? None of this is the case for Tier III employees - they
have a defined benefit and health insurance for retirement. This
is about being fair to public employees. The state should be
trying to recruit and retain the best employees. His friend in
New York is a planner and his retirement benefits are similar to
Alaska's Tier III. He will have a pension and health insurance
when he retires.
MR. MCLAUGHLIN said he has some incentive to work for the
municipality because he is still young; he can get experience
and then leave to work in the private sector or for another
state. There is no incentive to stay once the job offers start
to roll in. Older, more experienced people have no incentive to
be employed by the municipality - they will have to work until
they are 80 in order to afford to retire. His director hopes
that one day he will become a senior planner or director because
his current staff qualify for retirement today, and they are
chomping at the bit to retire. But there is no one with the
knowledge and experience to replace them. The only way he will
continue to work for the municipality will be if it is forced to
hire him as a contractor. SB 183 is good policy and the right
thing to do.
9:13:07 AM
SARAH GROSSHUESCH, Public Employee, Anchorage, said she was a
high school science teacher for four years and then pursued a
Master's degree in Public Health in Anchorage. She planned to
transition from a traditional teaching position to a combination
role of health and education. She has always wanted to remain in
public service. After the state changed its retirement system,
she took a job with the Municipality of Anchorage as a public
health educator. It was a perfect fit, except she lost her four
years of previous service in PERS/TRS. She knows of many other
people who pursued teaching certificates while working as
teachers' aides who will now be placed in a much less desirable
DCP. "Not only have I lost my defined benefit retirement, in
2010 all that money wisely invested by the PERS/TRS board will
have to be removed." What is the plan for the system then? How
much money that is propping up retirements now will be forced
out of the system? The changes in PERS/TRS don't just affect
future recruitment, it impacts current workers. When she began
as a public employee it was with the promise of secure
retirement. She can make more money in the private sector. She
made the choice to forgo the extra money up front. She finds
public service more rewarding. She and her husband started a
family and have been active members of her community, "but these
changes in the retirement system have caused us to think about
whether we can stay here or if we need to move to a state which
provides for its public employees and recognizes them for the
service that they provide."
SENATOR GREEN asked where she first worked.
MS. GROSSHUESCH said she worked from 2002 to 2006 as a teacher
for the Anchorage School District. In October - after the July
deadline -- she accepted a position with the municipality, and
that is a PRS position. It used to be that a person could
transfer the TRS years of service to PRS, but the DCP won't
allow it, so she has four years stuck in the TRS system that she
cannot add money to.
9:16:57 AM
SHANE POWERS, Firefighter/Paramedic, City of Fairbanks, said he
is representing himself. He started in June 2006 and may be one
of the last Tier III employees in the state. He considers
himself fortunate. The new DCP system is harmful to both
employees and government entities. Tier IV employees receive
less compensation than their coworkers and the private sector. A
Tier IV firefighter receives the same hourly wage as a Wal-Mart
employee, and both Wal-Mart and the city contribute to employee
retirement accounts, but state employees are shorted on social
security. The state has created a system where it is better to
wear a blue vest at Wal-Mart than to save lives as a paramedic.
Since he started, the Fairbanks Fire Department has hired two
people. One was previously enrolled in PERS, and the other has
spent his entire work with the department searching for other
jobs. His last day is April 9. The cost of training this person
will be lost to another state. The department has recently
initiated a hiring process, and on completion it expects to have
only half of the applicants it had when Mr. Powers participated
three years ago. He has several friends seeking employment in
the fire service, and several are from Alaska. When they learned
that Fairbanks was hiring they had no interest because of the
retirement system. Training is expensive, and local governments
cannot afford replacing people, so costs have shifted from the
state to the local level. Not only will turnover increase, but
with a reduced number of applicants, the quality of employees
will decrease. "Do you really want the bottom of the class
treating you in the back of an ambulance?" This is a chance to
fix a horribly broken system. SB 183 is very important.
9:19:33 AM
JIM DUNCAN, Business Manager, Alaska State Employees Association
(ASEA), Juneau, said he represents about 8,500 state and
municipal employees. He is also representing the Alaska Public
Pension Coalition. The APPC is a group of unions and other
organizations that have come together to help repeal the defined
contribution plan. They include the Anchorage Police Department
Employees Association, Alaska State Employees Association,
Alaska AFL-CIO, Alaska Professional Firefighters Association,
Public Safety Employees Association, National Education
Association of Alaska, Retired Public Employees of Alaska, AARP-
Alaska, and others.
MR. DUNCAN said there are four reasons this coalition opposes
the DCP. First, it does not provide a secure pension on
retirement; second, it provides inadequate medical coverage for
retirees; third, there is an inability to recruit and retain
public employees; and fourth, there is no overall cost saving
from the previous plans.
MR. DUNCAN said national studies by the Horton School of
Business show that more than two thirds of DCP participants cash
out their account when terminating employment, leaving them with
little or no funds for retirement. Another study by the Center
for Retirement Research in 2006 showed that the median 401k fund
balance for households headed by 55 to 64 year olds was $60,000.
That means they will have a $400 per month annuity income over
their lifetime, which is not sufficient.
9:22:50 AM
MR. DUNCAN said there is no post-retirement pension adjustment
to help keep up with inflation. The return on investment of the
DCP is less than it is with a DBP. TRS and PERS financial report
verifies this and shows the DCP return was 11.5 percent and the
return from the DBP was 18.9 percent. That occurs for a variety
of reasons, but clearly professionals can invest with more
people. He said it is important to note that teachers and most
public employees in the DCP, unlike private sector employees,
will not receive social security and will have no DBP at all.
The DCP provides inadequate medical coverage for retirees. They
will not have a good plan to cover medical expenses. They must
retire directly from state service to access the medical
benefit, and that often doesn't happen. They will have to have a
minimum of ten years of service to access medical coverage at
Medicare-eligible age, or if they work long enough, they could
access it at any time with 25 years of service if they are peace
officers and firefighters. But all other employees have to have
30 years of service. "So the access to the medical plan is
severely restricted." They have a health reimbursement account
under the DCP and may use that to pay premiums, but once that is
gone, the retiree must self-pay. The estimate is that the
account may last two to three years, and then retirees will have
to pay the premium.
9:25:17 AM
MR. DUNCAN said retirees must pay 100 percent of the premiums of
the plan until eligible for Medicare. Upon reaching Medicare
eligibility the retiree must pay ten to thirty percent of the
premiums depending on their years of service, but they must work
thirty years to pay just 10 percent. "This one is a real zinger
in my mind: the state may terminate a retiree medical plan at
any time - or change it." Retirees under the DCP will have no
decent medical benefit, if they have any at all.
9:26:05 AM
MR. DUNCAN said there is the increasing inability to recruit and
retain public employees. The DCP encourages public employees to
move on to other employers. Even the Division of Retirement and
Benefits encourages this, he said, with a website promotion of
the DCP. It says, "Get it to go, your savings move right along
with you as you blaze your career trail." "We have made the new
retirement plan just as modern and mobile as our most
adventurous Alaskan employees; when you're ready to move on,
just take your savings with you." "When you change employers,
move your savings and take your money with you." Those clearly
are statements that encourage people to come and then leave.
There is an annual report by the personnel division, and it
said: there have been noticeable changes in employee movements
since the 2005 report; the turnover rate has increased and
continues to be higher than the hire rate by three percent. He
said the turnover rate in 2005 was 24 percent, exceeding the
hire rate of 22 percent. The DCP came into place on July 1,
2006, and the turnover rate increased by 5 percent. The
corollary seems clear. The department with the highest turnover
rate is public safety at 40 percent. He did a separate analysis
of just the general government unit union, and it shows that in
2007 the turnover rate for employees with less than 2 years of
service is 30 percent. After that it drops to 23 percent, but
when people first come, they leave very quickly.
9:28:51 AM
SENATOR GREEN asked if the executive branch turnover rate is
unusual since it was an election year.
MR. DUNCAN said there is some turnover with the change in an
administration, but not more than 5 percent. The turnover rate
for his members, who aren't political appointees, was 30
percent. There have not been exit interviews, but he sees the
jump in turnover rate due to the DCP.
SENATOR GREEN said the highest turnover rate is the public
safety staff, and that seems to be an ongoing problem. In the
last three to five years there is the "aging out of public
safety members." The turnover rate is high but it would be nice
to see a chart on the trends and if it's attributable to the DCP
or "if it's just the 20 or 25 and out."
9:30:54 AM
MR. DUNCAN said his unit had a 20 percent turnover rate and now
there is a 30 percent turnover rate.
CHAIR MCGUIRE asked about a survey for departing employees.
MR. DUNCAN said he has recommended that to the Department of
Administration to determine why employees are leaving.
9:31:57 AM
CHAIR MCGUIRE said there has been some reduction in the number
of state employees since she has been here. Alaska is not
decreasing the number of public employees, but it's more
inefficient because of the constant cycle of retraining
individuals. A lot of time is spent training people only to have
them pick up and leave. It is a morale and inefficiency issue.
MR. DUNCAN said there is no overall cost savings in moving from
the defined benefit plan to DCP. Buck Consultants did an
analysis in February 2008 that shows that the TRS Tier II plan
cost 3 percent less than the Tier III DCP. The PERS Tier III
defined benefit plan cost slightly more: 0.75 percent more than
the Tier IV plan, but there is no overall cost savings. The DCP
did not reduce overall costs.
9:33:44 AM
SENATOR BUNDE said he has heard that, but it is a snapshot that
is not indicative of the long-term impacts of the DBPs. "We can
all find statistics - 100 percent of people that ate pickles in
1880 are now dead, but I don't know that pickles cause death."
CHAIR MCGUIRE said that is the point of the hearing -- to figure
out if the actions taken in 2006 were the right ones. The
statistics should show the impacts, financially and with regard
to retention and recruitment. There are some indicators, and the
goal is to get to the bottom of it. If there are consultants or
individuals that can add to the dialogue, she would be happy to
hear their testimony.
MR. DUNCAN said he has presented the analysis by Buck
Consultants to the Division of Retirement and Benefits, and he
can only assume that it is factual. The DCP is not working for
the state or its employees. It does not provide a secure pension
at retirement. It has inadequate medical coverage for retirees.
The figures show an increase in the inability to recruit and
retain public employees. There is no overall cost savings. On
the other hand, a define benefit plan works best. It provides a
stable pension that will enable retirees to stay in Alaska. It
has a medical plan that will enable retirees to meet their
medical needs. It encourages public employees to make public
service in Alaska a career - ant that's what we should be all
about. A DBP does all this at a lower cost. He said SB 183 is
the right approach.
9:36:54 AM
SENATOR FRENCH said he is impressed at the people coming forward
on this, because they won't benefit personally. Mr. Duncan's
retirement won't change.
SENATOR GREEN said, "We should all be so lucky."
SENATOR FRENCH said there are people here today who passionately
believe that the DCP is bad policy, and whose retirements are
set by the constitution and won't benefit by the bill. It is
well-meaning people who are on the ground and see the effects of
this policy and are very, very concerned of having a substandard
workforce executing important government functions.
9:37:53 AM
SENATOR BUNDE said he is sure Senator French didn't mean that
anyone hired recently is substandard. There are different points
of view on personal benefits. Unions thrive on numbers, and if
they can recruit more numbers, it strengthens the union. It
isn't just a matter of their own personal retirement; it's their
political influence in the state.
MR. DUNCAN said the union's prime goal is to ensure that people
who work in the public sector have a good wage and good
benefits, and when they retire, they can stay in Alaska with a
stable pension so they can continue to contribute to the state.
Many of his members were hired before July 1, 2006, but the goal
is to be sure that those individuals that are coming along now
will have a pension and medical plan. The other goal is to
provide a service to the citizens of Alaska through the public
employees. That is done by hiring people who want to make public
employment a career, and they will need to see that they can
retire, support themselves and their spouse, take care of their
medical needs, and remain in Alaska as active citizens.
9:39:44 AM
CHAIR MCGUIRE said she will not be affected by the DCP, and she
can see both sides. At her age, she wants to look to the
teachers, firefighters, and employees managing Alaska's vast
natural resources, and "we have already decided that these are
state functions and that we're going to have state employees
doing those jobs, and we want the best people to do them." Minds
can differ in opinion, but we are looking at the impacts. She
would hate to see Alaska get so far down the line that the state
is not attracting and retaining qualified people in areas that
are important. If not, maybe someone else should do those jobs.
9:41:19 AM
BOB CLAUS, Trooper, Klawock AK, said SB 183 is an important
bill. He has worked proudly as a trooper all over the state for
22 years. He has been in Klawock for the past 14 years and plans
to retire in May under the defined benefits system. He is
training a new 22-year-old recruit, who was hired under the DCP.
Defined benefits were an essential part of the state's ability
to recruit and retain it valuable workforce. It takes hundreds
of thousands of dollars and several years to train a new trooper
in rural Alaska. Why would a person want to take a trooper job?
They face the harshest working conditions of any law enforcement
job in America. It is physically dangerous, and constant
transfers make it economically risky for trooper families. When
deciding to become a trooper, he was a Marine Corps veteran and
recent college graduate from an elite university, and his father
had just retired after 20 years as a firefighter/paramedic. For
perhaps the first time in his life he followed his father's
advice to seek public employment with a solid pension plan. The
DBP was a huge factor in his decision to apply. His brother
chose not to take that advice. He is working in private
industry; he changes jobs every few years and takes his money
with him. He makes $300,000 per year. "I really don't think the
state wants to get in that kind of bidding war."
MR. CLAUS asked why someone would stay in a trooper job, where a
person has more than their fair share of bad days. There are a
number of agencies willing to hire well-trained officers. As a
22-year trooper, he has had frustrations over the years and
considered leaving, but with a DBP, it never made sense to
leave. He is training a 22-year old from Michigan; he has
family, a girlfriend, his friends, and some property in
Michigan. He was attracted to the troopers for the adventure of
Alaska and the fun of being a cop. But when the romance of the
work wears thin and the work gets hard, this DCP will allow him
to take his money, training, and skills and go back to Michigan.
The Michigan police have a similar pay package, and there is
nothing holding him here. This personal story is more typical
than not. He asked the committee to support SB 183.
9:45:46 AM
SENATOR BUNDE said this is one of the problems he sees. "You're
frustrated, you're unhappy with your job, but you're sticking
around for the retirement." There is a downside to that as well
as an encouragement to keep people in state employment. He
taught for a long time, and he knows teachers that teach for
four reasons: June, July, August, and early retirement. That is
unfortunate that we have people who hang around just for the
retirement. He said he understands the other point of view, "but
there is an opposite to that as well."
CHAIR MCGUIRE asked if there was discussion in the past about
people who collect retirement and voluntarily put it back into
the system to help offset financial concerns. "When the overall
look was made at eliminating the DB plan, was there any
consideration for those of the different generation who are
already collecting their retirement checks, sort of voluntarily
giving those defined benefits up?"
SENATOR BUNDE said that will be after people volunteer to pay
income tax.
9:47:40 AM
CHAIR MCGUIRE said it is interesting where the responsibility
shifted. Many people are secure and collecting retirement, and
there was a concern that the system was broken and "therefore
we're going to shift that responsibility to the next
generation."
SENATOR BUNDE said, "I think your comments are aimed at me." Oil
development began shortly after he began teaching, and the state
could not afford to match those oil wages. "I could have easily
left teaching and at least tripled, if not quadrupled, my wages
on the pipeline." He didn't because he preferred teaching and
didn't like what the pipeline was doing to Alaska. The state
offered substantial benefits, but it was a saddler's mattress
ranch -- buy now and no payments until 2006. The payments are
due. The state was using its best judgment, but it was creating
an unfunded mandate. "That was then, this is now, and we have to
make some changes."
9:49:22 AM
CHAIR MCGUIRE asked if [the benefits] had an impact on staying
in teaching.
SENATOR BUNDE recollected that wages were far more important
than retirement.
CHAIR MCGUIRE said maybe it was the time and place, but she
finds that young teachers in her district want secure
retirement. They love teaching and would love to stay, but the
low wages and benefits is such a great sacrifice.
SENATOR BUNDE said conditions change. His salary started at
$12,000 per year. If wages were $30,000, like they are now, he
may have looked at it differently. Every dollar that went into
retirement was a dollar that didn't go into his wages, and he
was far more concerned with wages.
SENATOR GREEN said it is quizzical that TRS would be the
responsibility of the district that employs them, and "if I were
doing labor contracts for school districts … I would probably
hold back on the request for higher wages and request a plan
that the district participates in." The state is not going to
step in and take over the teacher's district's responsibility
for offering that employment package. "I haven't noticed anyone
doing that yet." The state is not going to pay that plan; it is
up to the district, and that may be where some of the shortfall
comes in. "When we were doing the research and comparing states,
counties, boroughs, municipalities, school districts and all
units of government, the Alaska plan for - in most areas -- was
probably within the top 90-95 percent of plans." In "admin's"
comparison of the features of the tiers, the more significant
changes came in Tier II to Tier III, not Tier III to Tier IV.
"As the bill was being written, we were trying to find offsets
in supplemental." She was concerned with retirees paying for
medical coverage, but in Tier III, employees with less then 10
years and their survivors must pay the full premiums as long as
they wish to continue medical coverage. That is the same as Tier
II, but employees must accrue a minimum of 10 years of service
to have system-paid coverage at age 60. Then there is an
infusion of the health reimbursement arrangement and a
percentage based on years of employment. She can't imagine that
anyone thinks that "if you'd only been with the state a few
years that there should be a fully-paid health plan at the end
of those few years." That is where a balance was sought - an
employer-paid reimbursement account. It was not punitive; it was
trying to "balance out how we get things paid for." The irony is
that at 65, a person is in the Medicare track anyway.
9:54:21 AM
CHAIR MCGUIRE said Senator Bunde is one of the few people in the
building that have good retirement, and it is humane to come to
the end of your life and have a secure retirement. It is a
quality-of-life issue. People are proud of teaching and serving
the state, and that reflects the quality of people that Alaska
has been able to attract. The only reason for this dialogue is
that she wants there to be open minds. It may be that the change
didn't need to be as drastic as a DCP, but rather just to
continue to ratchet down on health costs and years of service.
SENATOR BUNDE said the day after he retired he started another
job. Because of his personal experience, he thinks wages are
more important for recruiting young people than a distant
retirement plan. He hoped that money saved would be placed in
salaries. If the state is not saving money, that is a challenge.
"We may not save money but your … children may save money."
9:56:55 AM
CHAIR MCGUIRE said it is a good point and asked about salaries.
That was the trade off - the portability and attraction of a
higher wage, but she doesn't know if that is occurring.
SENATOR GREEN said in Alaska there is no ability to look back
and change the system, unless an offset is done that is equal or
better. The unfunded liability was the "genesis of trying to
find a solution, and that solution had to do with the sharing in
the future." The state was no longer able to keep up with the
unfunded liability created by the DBP. "That would be the
difference as you/we had earlier, that the defined benefits plan
costs less than the defined contribution plan, but I would also
like to see what's happening to the indebtedness for the future,
and if we've made any kind of headway into changing that
scenario." It has been the legislature's desire to invest in
that plan to make sure it is well funded. Alaska, by prefunding
the health benefits, which often skewed the statistics, was
ahead of the curve because now all entities are required to do
that. The federal government has come out with a new
requirement, so "we're a little ahead of the curve - perhaps
unknowingly." "I think those things entered into it because we
had tried for several years to get -- when Senator Bunde and I
were on finance, we asked questions about the condition.
Information was not particularly forthcoming." She said she
asked for suggestions, and "after no response, we said we have
to do something or the unfunded liability is just going to get
out of hand."
9:59:36 AM
SENATOR FRENCH said, "We are not of a uniform view on this
topic." He said the unfunded liability did prompt this, but it
wasn't the fault of the plan. It wasn't giving some people a
defined benefit plan that created an unfunded liability. It was
the financial decisions over the years. It wasn't the workers or
the promise they were given. It was the way that the people
above them handled that obligation. It is unfair to ascribe that
to the misplaced promise made to a trooper or a teacher. There
were bad stock market performances and bad projections on health
care costs. Those were exacerbated by certain financial
decisions made inside this building about contribution rates and
how well to fund that program over the years.
CHAIR MCGUIRE said it was easier to contribute less.
SENATOR FRENCH said the testimony from Trooper Claus really
illustrates something to the contrary of Senator Bunde. What
prompted that trooper to take that job was his father's advice
to pursue a secure retirement. "There are plenty of fathers
across the country that tell their young sons to give up a
little bit on income but get a secure retirement, because you
don't know what's going to happen in the future." Many state
workers may tell themselves that their job doesn't pay the best,
but there is a pot of gold at the end of the rainbow - "and
that's me not living in peonage somewhere without any medical
care." State workers hired today do not get social security. "I
can't say that often enough." The only thing they have is what
they accumulate in their 401ks, and 401ks don't perform as well
as DBPs on a case by case basis. It is important to keep in mind
that there are strong reasons for going back to the previous
state plan. There are reasons why other states have gone back.
10:02:23 AM
CHAIR MCGUIRE said Alaska is the only state in the nation with
the plan. The premise is that people will be experts in
investing, and their 401ks will perform as well as a DBP.
SENATOR BUNDE said he has another meeting. He added that he
ignored his father's advice to stay in the military to retire in
20 years. "But vegetating for 20 years was not worth the price."
CHAIR MCGUIRE said it is in Alaska's best interest for an
individual to stay in a job. In teaching and other professions,
the longer someone stays the more institutional knowledge is
gainedm and Alaska benefits from that -- instead of using Alaska
as a training ground and then packing up their money and
leaving.
10:04:03 AM
JEFF BRIGGS, Senior Fire Captain, Anchorage, said he is a
lifelong Alaskan. Firefighting is dangerous, and when responding
to an emergency he must weigh the risks. One of his biggest
fears is having a new recruit, who was hired under the DCP, get
a permanent occupational disability. That firefighter will
receive 40 percent of his or her salary. "I can't imagine having
to raise a family and save for retirement on 40 percent of my
wage." An article said that one in four 401ks has less than
$7,000 in it. In 2002, Moody v. Delta Western Inc., the Alaska
Supreme Court ruled that firefighters and police are not allowed
to sue third parties to recover damages that stem from negligent
acts. The rule states that police and fire fighters are
compensated with salaries and enhanced benefits. "I can't name
any enhancements that these new firefighters have." Since they
have no enhanced benefits, passage of this bill is a step in the
right direction. The Anchorage fire department has trouble
recruiting and retaining paramedic firefighters, and he expects
that to get worse. He also expects that by the fourth year, new
hires will be searching for new jobs with defined benefits. They
will take their nest egg with them, and Alaska will be a
training ground for fire departments across the nation.
Mr. BRIGGS said he did the same thing. The company he worked for
had a 401k with matching contributions, and he decided to take a
chance at being a firefighter, which had a more realistic
retirement plan than what he had. He cashed out his 401k, paid
the penalty, and enrolled in a firefighter academy. He feels
fortunate to be in Tier II. "I certainly would not have quit my
higher-paying private-sector job to become a firefighter in
Alaska today." Anchorage has a fire academy with 32 recruits. A
few of them are working on their second careers, and they were
shocked to find out that they would be losing most of their
social security benefits when they retire. "As you can probably
guess, none are happy with the current retirement plan that they
have." Traditional retirement adds 30 percent to the value of
one's salary, so they are working for 30 percent less
compensation than others in the same job. The DCP plan is
perfect for short-term employees. It allows them to take their
money when they leave to start their careers. It has been proven
over and over how employees are not able to save enough to
survive on if it is left to them. Most aren't even able to
afford health insurance for more than a couple of years. Alaska
is the only state in the nation that mandates that firefighters
be in a DCP. The other states that offer DCPs also offer a
choice of a DBP, and they also allow the firefighters to be
eligible to receive social security benefits. Alaskans are
dismayed when they learn this. He believes most residents would
agree with him that public safety employees who put their lives
on the line for the welfare of others deserve to have security
in their retirement.
10:08:27 AM
JEFF THIEDE, Teacher, Palmer, said he is the athletic director
at Palmer High School and a former Marine. He recently moved to
Alaska with his wife, who is a fifth-generation Alaskan. He left
Nevada in 2006 for a $12,000 increase in salary. He arrived 15
days too late for Tier II, so his income is really only $300
more, which is drastically different than what he expected.
Nevada has a DBP and he can move back within five years and
regain his eligibility. "I left three years of retirement
there." His wife has seven years. One major problem is the lack
of ability of people with children and mortgages to contribute
to another retirement plan. It's almost paycheck to paycheck
with no benefits in sight. His long-range plan was to retire in
Alaska, but at this point moving back to Nevada almost sounds
more lucrative than staying. The cost of living is cheaper, and
he and his wife will be in a retirement system that has the gold
at the end of the rainbow. Teachers will leave. He has heard
from other teachers telling him that. Other states offer better
plans.
10:12:24 AM
KURT FREDRIKKSON, Retiree, (Former DEC Commissioner), said he is
here on behalf of the Retired Public Employees of Alaska (RPA)
in support of SB 183. RPA is a voluntary organization and is
made up 2,300 retirees. He volunteers his time on the executive
board. RPA believes Alaska should support Alaska families who
have built careers. Leaders should encourage Alaskans to stay
active members of their communities after retiring. Retirees
should not have to go to a state with a lower cost of living. SB
183 will restore the incentives to stay. There are few if any
incentives for employees under the DCP to stay and contribute to
Alaska after they retire. There are 18,000 retired public
employees living in Alaska, and 23 percent of retired Alaskans
are public employee retirees. They all brought in $1.46 billion
into the state, and that is equal to what Alaska fishers were
paid for their catch or the value of zinc, gold, and other
metals mined in Alaska in 2004. Alaska's retired public
employees make a significant contribution to Alaska's economy.
In addition to the financial benefit, they volunteer
significantly. He said he receives the Alaska cost of living
allowance that was established in 1966 to assist retirees who
elect to stay in Alaska. That is 10 percent of the base
retirement benefit or a minimum of $50 per month. This is not
provided under the DCP. As a retiree, he also gets a post
retirement pension adjustment based on increases in the annual
consumer price index for Anchorage. That is not provided by the
DCP. He also receives health care coverage until he is 65, and
then the state's coverage becomes secondary to Medicare.
"Unfortunately public employees covered under the defined
contribution program run a much greater risk of finding
themselves with far less coverage for health insurance when they
retire."
10:16:31 AM
MR. FREDRIKKSON said Alaskans reaching 65 often have to prepare
financially for a long retirement. He said 29 percent of women
and 18 percent of men who are 65 will also reach the age of 90.
With the very limited medical benefits under the DCP, RPA fears
the exodus of retirees from Alaska will increase and seriously
affect Alaska's economy and jobs. When he began his career 30
years ago, he was promised health care coverage and a retirement
pension based on a fair percentage of his working salary that
includes reasonable cost of living adjustments while living in
Alaska, which is denied to new employees.
10:18:02 AM
PAUL ORTNER, Psychiatric Nurse, Alaska Psychiatric Institute,
Anchorage, said he has a defined contribution retirement plan,
and he is approaching 20 years of service. "As someone who
already has a defined benefit, you may ask what horse I have in
this race." It is the ongoing viability of the hospital he works
at. Wages have never been what draw people to jobs like his. The
promise of a secure retirement has allowed him to grow in his
career and develop an attachment with the facility he works in.
Despite perceptions that public service is overpaid, it is not
true. The facility is losing long-term employees in roles that
are best served by experienced people. Direct care to acutely
ill patients is very difficult, and the facility is mainly
attracting new graduates to fill direct-care vacancies, and
after a couple of years of developing the experience needed to
serve this population, they will likely move out of state to the
greener pastures of the private sector. It is increasingly
difficult to move employees into roles of increasing
responsibility internally because new employees see no advantage
of ongoing state employment.
MR. ORTNER said quality applicants from outside the hospital are
few or not there. When qualified persons are found, it requires
advanced-step hiring to get them, and holding them is unlikely.
"The defined contribution retirement plan provides positive
incentives for employees to stay with API and grow their
careers." API provides comprehensive, sophisticated care that
requires a distinct set of skills that develops with experience.
It becomes challenging to provide safe and capable care without
a stable population of experienced employees. Positions, like
his, are best served by people with experience, who have risen
up through the ranks of the hospital and have institutional
knowledge. The possibility of that has been removed by making
the state workforce a transient workforce. This is not a
phenomenon exclusive to API nurses. A medical records manager
left after 25 years, and it was a blow for the hospital because
having a well-run records department is crucial to patient care
and helps protect the hospital from litigation. Her job had to
be downgraded to find someone. The hospital was lucky to have
found a bright, young, and capable person, but once she has
experience, her opportunities outside of the API will be
considerable, and it is unlikely she will stay for more than a
few years. This is occurring in each department, he said. The
negative impact on the level of service API can provide is real.
"We are constantly trying to orientate a workforce to this very
specialized care only to see them leave." API has shown
improvement and has been very responsive to the needs of the
entire state. It provides innovative care, but it will have to
shift resources to training and recruitment, which will decrease
API's ability to meet its mission, and it exposes the hospital
to increased risk and liability.
10:22:48 AM
RICK FOSTER, Teacher, Homer, said he is a first-year teacher in
a village at the head of Kachemak Bay. He teaches history and
biology, after he worked many years for resource agencies. He
has a PhD in resource ecology and has worked in the private
sector in Alaska and has taught in California and Nevada. He
also taught at the University of Alaska. Recently he worked for
the Alaska Department of Fish and Game as a habitat biologist.
He is vested in PERS III and just 32 months short of the ten
years needed to get his medical coverage. That is the part that
frightens him. "As I understand it … state employees will have
no certainty when we retire from the defined contribution plan,
and the whole social security." He paid into social security but
he is not sure how that works. He thought he could link his
seven years with PERS to his current retirement system. But he
can't do it with the DCP. It is important to have experienced
teachers with numerous skills. Alaska will not be able to
attract teachers from outside with the DCP. He feels it is
desirable for teachers to come from the other jobs, public or
private, before teaching. Alaska will not be able to attract
topnotch resource scientists - not with the salaries the state
pays unless there are defined benefits. He loves teaching so he
will have to leave the state or he could go back to the PERS
system. Friends from Homer work for the legislature to get their
additional three years. He could also get a non-certified job in
his school. "I could actually clean up the classroom and get my
PERS time." SB 183 is positive for Alaskans and its children.
10:27:24 AM
SENATOR STEVENS said a person used to be able to go between TRS
and PERS. He is surprised to learn that it is not possible now.
How did that come about, and where does it say it?
MR. FOSTER said a specialist told him he couldn't link the two
systems. "My choice was to either leave the state because I was
not going to be able to collect those additional three years, or
… go back into the PERS system through another job."
SENATOR STEVENS said, "As I recall from prior retirement systems
in the state, you can take PERS service into TRS together, and
use them together for one single retirement." It sounds like
that can't be done now.
10:28:47 AM
KATHY LEA, Retirement Manager, Division of Retirement and
Benefits, said that is correct. There is no connection between
the defined contribution plans. "In the defined benefit plans,
there are two different ways -- if you have service in both PERS
and TRS -- that you can obtain a benefit. If you're vested in
one system and you have at least two years in the other, you can
have what's called a conditional service benefit. So you can get
a benefit from both plans. If you are not vested in either, but
you have at least three years in PERS, you can transfer your TRS
service to PERS. And if you have at least five years, you can
qualify for a public service benefit." So there are two ways in
the DBPs to use the years you have in both systems, but in the
DCP, there are no connections. "So if you do start in one and
move to the other, the service does not combine."
SENATOR FRENCH said those changes came from SB 141.
MS. LEA said yes.
SENATOR STEVENS asked the cost of combining the two. "It's a
good system to allow people to take years from PERS and take
years from TRS and combine them together, but I assume it's a
matter of cost." He asked about changing "that one little
section."
10:31:54 AM
PAT SHIER, Director, Division of Retirement and Benefits, asked
if he means combining the service credit for qualifying for
vesting.
SENATOR STEVENS said maybe not just for vesting. "Prior to this,
you could retire, say, in TRS, and if you had some PERS service,
that would combine for one retirement package - isn't that true
- say ten years ago?"
MS. LEA said not quite; it is one check, but it is two separate
benefits with separate health eligibilities. People with a PERS
benefit and a conditional TRS benefit would have two health
plans that would coordinate together. Under the DCPs, a person
would have to determine how she or he wanted to combine the two
plans. There is also a requirement under the DCP that a person
terminate from active employment in order to access the medical.
SENATOR STEVENS said he is not prepared to ask this question.
10:33:25 AM
CHAIR MCGUIRE said Senator Stevens is probably asking about the
vesting. She noted that his constituent, Mr. Foster, was a
biologist with excellent training who now wants to teach in
Homer. He brings his experience to teaching. And prior to SB
141, he could have combined his time in the teaching system
toward his overall vesting term of service. SB 141 eliminated
that, and she thinks Senator Stevens wants to know the costs of
fixing that part of what happened in SB 141.
SENATOR STEVENS said that is what he would have asked.
10:34:25 AM
BEN WALKER, Teacher, Anchorage, said he works in Romig Middle
School and grew up in Ketchikan and Anchorage. He taught English
in South America. His mom was a teacher, and he found it to be a
good profession. While in the master's program at UAA in 2005,
the benefits package changed. Romig hired him before July 1, but
due to the processing, he didn't sign a contract until after
that, so he is under the new plan. He was given a questionnaire
when he became part of the plan, which put him in a particular
level of money management. For the last quarter of 2007, he lost
$154.00 and had to pay $12.00 to do that. In the private sector,
it was similar, but the employer picked up the management fees.
"So if I did lose money I didn't have to pay to do it." Since
being in the plan, he has put in $8,400 and now has $8,500. For
almost two years he has earned 0.9 percent. If he could put it
in a savings account, that would be nice. "It's actually not
going to be a very decent retirement." He is engaged to another
teacher, and they will have to face a choice of one of them
stopping teaching or moving to another state.
10:37:38 AM
CHAIR MCGUIRE said he is a teacher, not a financial manager. On
top of sacrificing on salary, "we're trying to become financial
experts as well."
10:38:28 AM
JAKE TODD, Teacher, Anchorage, said he is not a financial
planner and doesn't care to be. He teaches at the same high
school he graduated from, and it is the same school where his
parents taught. "I am a fourth generation educator and a second
generation Alaskan." His parents taught Senator Bunde's and
Senator Green's kids. He left Alaska to go to college and came
home. He wants to spend his life here. It was at great expense
to return to Alaska. He didn't have to move a family, but it was
still difficult, and it is an expensive place to live. "And now
I'm leaving. I'm quitting my job because I cannot make it here."
What police officers, teachers, and firefighters need is to be
able to retire with dignity and security. The DCP doesn't
provide either. The other 49 states do, and they are looking
nice now. It cost the Anchorage school district $12,000 to train
him this year, and now he is walking away. He knows of three
other first-year teachers who are also quitting. He said the
previous retirement system wasn't broken, "you guys just got
some bad advice." "Way to throw the baby out with the bath
water, because you threw out my retirement plan with it and my
dreams of coming back to being an Alaskan for the rest of my
life." He is not eligible for social security - "all my eggs are
in the basket of the market, which is facing the largest
recession in recent memory." It doesn't help him sleep at night
to see the Fed lowering interest rates again. "Anybody who truly
believes this retirement plan is worth it, put it up. Trade me."
He noted that the people he really wanted to address today left
the meeting. "I don't think that I deserve any less than Con
Bunde for doing the same service to the state of Alaska -- just
in different time periods." So during this lapse in common
sense, he has volunteered to serve his county in the Middle East
for the next two years. When he comes back, he wants this
problem solved, or else Alaska will lose a homegrown teacher. "I
want to teach school; I don't want anything else, and right now
I'm unable to do that."
10:42:56 AM
SCOTT MCDONALD, Teacher, Anchorage, said his testimony is on
behalf on many people who couldn't be here. He has chosen public
service and teaches at an elementary school. He was born and
educated in Alaska. He has a tough class with English language
learners and homeless students, but he has the education to deal
with it. "I work hard." He is 35 years old and cannot see
himself retiring until at least 65. His father told him to do
what he was passionate about but to make sure he can make a
living. He is passionate about teaching, and he doesn't want to
be a financial planner. "I don't know about the correlation
between pickles and death in 1880 as Mr. Bunde pointed out." He
will be vested in three years and hopes he can retire in Alaska,
but he is shopping around. Other states are looking good. There
are other states with mountains and ski slopes, but it is a
foreign land to him, but he might have to join it.
10:45:32 AM
CHAIR MCGUIRE said she will make sure this the testimony will be
distributed to the members in the committee who missed it.
10:45:46 AM
CHAIR MCGUIRE recessed the meeting to the call of the chair. [SB
183 was heard again the following day when the meeting
continued.]
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