Legislature(2021 - 2022)ADAMS 519
03/08/2022 01:30 PM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| HB220 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | HB 220 | TELECONFERENCED | |
| + | TELECONFERENCED |
HOUSE FINANCE COMMITTEE
March 8, 2022
1:32 p.m.
1:32:33 PM
CALL TO ORDER
Co-Chair Merrick called the House Finance Committee meeting
to order at 1:32 p.m.
MEMBERS PRESENT
Representative Neal Foster, Co-Chair
Representative Kelly Merrick, Co-Chair
Representative Dan Ortiz, Vice-Chair
Representative Ben Carpenter via teleconference
Representative Bryce Edgmon
Representative DeLena Johnson
Representative Andy Josephson
Representative Bart LeBon
Representative Sara Rasmussen
Representative Steve Thompson
Representative Adam Wool
MEMBERS ABSENT
None
ALSO PRESENT
Representative Grier Hopkins, Sponsor.
PRESENT VIA TELECONFERENCE
Lisa Parady, Executive Director, Alaska Council of School
Administrators (ACSA); Dan Doonan, Executive Director,
National Institute on Retirement Security (NIRS).
SUMMARY
HB 220 RETIREMENT SYSTEMS; DEFINED BENEFIT OPT.
HB 220 was HEARD and HELD in committee for
further consideration.
Co-Chair Merrick reviewed the agenda for the meeting. The
committee would be hearing a presentation on House Bill
(HB) 220.
HOUSE BILL NO. 220
"An Act relating to the Public Employees' Retirement
System of Alaska and the teachers' retirement system;
providing certain employees an opportunity to choose
between the defined benefit and defined contribution
plans of the Public Employees' Retirement System of
Alaska and the teachers' retirement system; and
providing for an effective date."
1:33:12 PM
REPRESENTATIVE GRIER HOPKINS, SPONSOR, would providing a
PowerPoint presentation, House Bill 220 (copy on file).
He shared that HB 220 was generally formatted similar to HB
55, legislation that passed in the prior year. He continued
HB 220 did not create a new pension fund, but rather it
reopened the last active pension fund.
Representative Hopkins stated that the bill did not change
the current healthcare costs. He was working on having
multiple actuarial analyses that would be looking at some
of the larger questions including how much the plan would
cost the state.
1:39:11 PM
Representative Hopkins began his presentation with slide 2
asking why HB 220 was needed.
Representative Hopkins turned to slide 3:
Alaska is facing an unprecedented recruitment and
retention crisis
Representative Hopkins continued to slide 4. The Department
of Public Safety (DPS) stated that the department has
struggled to be an employer of choice due to internal and
external perceptions of the department being underfunded
and understaffed, combined with the lack of a competitive
pay and benefits package."
Representative Hopkins advanced to slide 5:
Turnover among Alaska educators is dismal and at
crisis levels
Most of Alaskas turnover was educators leaving Alaska
or the profession. Statewide turnover rates from
2012/13 to 2017/18 remained steady for teachers but
varied for principals and superintendents. Nearly 60
percent of teacher turnover involved leavers
individual who left Alaska or remained in the state
but were no longer educators. For example, in 2017/18,
13 percent of teachers left the profession or their
position, while 9 percent of teachers went to a new
district or school but remained in the Alaska public
school system.
Representative Hopkins moved to slide 6:
Turnover among Alaska educator's is dismal and at
crisis levels. It's even worse in rural Alaska.
Rural schools have much higher teacher and principal
turnover than urban or urban-fringe schools, with 64
percent of rural-remote teachers who turn over leaving
the state or the profession.
1:41:57 PM
Representative Hopkins continued to slide 7 regarding
teacher retention.
Co-Chair Merrick asked why teachers did not pay into Social
security.
Representative Hopkins responded that several years ago
teachers elected to opt out of paying into social security.
Representative Wool pointed to items 1, 2, and 5 related to
salary on slide 7.
Representative Hopkins responded that it was capped out and
limited. He suggested that if the cap was removed the
numbers would increase significantly.
1:45:27 PM
Representative LeBon referred to social security. He asked
how common was it for states to not pay into social
security.
Representative Hopkins responded that all 50 states had a
different system Alaska, however, was the only state that
did not have a specific pay into social security.
Representative LeBon asked if a social security benefit
could be offered or was it too late.
Representative Hopkins responded that it was not too late
to be able to opt back into Social security. It would be a
7 percent of their salary along with a 7 percent
contribution from the districts.
1:47:52 PM
Representative LeBon asked if the supporters of a defined
benefit plan would be satisfied with opting for social
security.
Representative Hopkins replied that looking at other
states, it was likely not enough.
Representative LeBon asked that if Alaska returned to a
defined benefit plan, we would still have to land in a
competitive plan, as there was compensation for talent.
Representative Hopkins indicated that Alaska had to bring
in about 1000 teachers into Alaska every year. Alaska used
to be one of the highest paying state for educators, so it
was a needed incentive for new teachers and retention.
1:50:50 PM
Representative Johnson thought the issue deserved proper
consideration. She had real concerns with not having the
financial analysis. She was very uncomfortable with the
bill hearing without the financial analysis.
Representative Hopkins indicated that they would be
available at the following hearing. He was not interested
in moving the bill without more information.
Co-Chair Merrick indicated Representative Johnson's point
was well taken and the committee would be hearing on the
financial analysis.
Representative Rasmussen asked about the expectations on
the timeline on the bill. She wondered when the fiscal note
would be released.
Representative Hopkins replied that he was working on
scheduling a meeting with the financial analysis. He
estimated that it would be some time April when the
analysis would come out.
1:55:10 PM
Representative Hopkins addressed teacher turnover costs on
slide 9:
Teacher Turnover Costs
? 7,812 teachers employed by Alaska on average between
2017 - 2021.
-According to Department of Education and Early
Development website
? 23 percent annual teacher turnover rate in Alaska
-Educator Retention and Turnover Under the Midnight
Sun. REL Northwest.
? 7,812 X 23 percent = 1,797 Alaska teachers a year
leave their position
? It costs $20,431 in recruitment and training to
replace departed teacher
-Center for Alaska Education Policy Research 2017
? $20,431 X 1,797 = $36,714,507 spent annually on
teacher turnover expenses
Representative Hopkins turned to slide 10, Public Safety
Turnover Costs:
? DPS and DOC reported to the Legislature that non-
retirement separations are
greater than 6 percent
? Conservative training costs for public safety is
$120,000, not increased for
inflation over 20-year period
? 3,400 X 0.03 = 102 Employees
? 102 X $120,000 = $12,240,000 cost per year to
replace departed employees
Representative Hopkins turned to the total cost on slide
11:
Total Estimated Annual Turnover Cost for Teachers and
Public Safety
$36,714,507 + $12,240,000 = $48,954,507
Representative Wool asked what the turnover costs.
Representative Hopkins indicated the actuaries would be
sharing demographic assumptions. He did not have an answer,
but stated that it would be a large number.
Representative Wool asked if Representative Hopkins had
data from previous decades.
Representative Hopkins agreed to provide that information.
Vice-Chair Ortiz did not think the turnover number
reflected the cost of the effects on lost learning and
other impacted areas.
Representative Hopkins looked at slide 13, HB 220
Establishes Employee Choice:
? At time of hire, new PERS and TRS employees make a
onetime choice between a Defined
Contribution and Defined Benefit retirement systems
? Upon passage of HB 220, existing PERS IV and TRS III
employees will have 90 days after
the effective date to choose between keeping their DC
plan or convert to new DB system
? Existing PERS 4 and TRS 3 employees can use their
401k accounts to buy years of service
credit in the new system, holding current employees
harmless
2:01:02 PM
Representative Johnson referred to slide 13, she wondered
how funding would be transferred.
Representative Hopkins replied that there were factors that
were impacted by the stock market, but the goal was about
moving one retirement account to a new retirement account.
Representative Josephson asked Representative Hopkins to
explain being held harmless.
Representative Hopkins provided an example.
2:04:18 PM
Representative Hopkins moved to slide 14, Variable
Employee Contribution Rate:
? Public Safety/Teachers - ARM Board will set the rate
between 8 percent
and 10 percent for employee contributions to the
Pension Fund to share risk when the market takes a
downturn
? All other PERS employees - 6 percent to 8 percent
set by the ARM Board based on actuarial analysis and
Representative Hopkins turned to slide 15, Vesting and
Retirement Age:
? Vesting for DB - 5 years of public service to vest
in pension option
? Years of service to retire and collect full DB
pension
? Public Safety/Teachers - Retire at 55 with 20
years of service or at 60 with 5 years
? All other PERS Employees - Retire with 30 years
of service at any age or at age 60 with 5 years
of service
? Average Salary - Five highest consecutive years of
average salary for calculation of pension benefit upon
retirement
Representative Wool wondered whether the teachers who were
on a defined benefit plan had a retirement of 55 years old
with 20 years employment.
Representative Hopkins indicated it was the same as the
Tier II system, where teachers could retire at 55 with 20
years of service.
2:09:44 PM
Representative Josephson thought it depended on which
system was referred to as previously.
Representative Hopkins reported that Tier 1 different
retirement age than Tier II.
Representative Hopkins moved to slide 16, HB 220
Features:
? COLA - 10 percent increase in pension amount if
recipient is eligible for PFD
? PRPA - When DB system is 90 percent funded, pension
amount to be adjusted by increase in CPI for Anchorage
? DB plan includes Death and Disability Coverage -
eliminates "Occupational" requirement, allowing widows
and depends to receive employee's accrued benefits
? Provides constitutional protection against
diminishment of retirement benefits
2:13:06 PM
Representative Hopkins turned to the final slide, HB 220
Does Not Change Current Health Plan:
? Health Plan under current system would remain in
place for employees
? 0 - 9 years of service - No employer provided
health insurance after retirement.
? 10 - 14 years of service - Employee pays 30
percent of insurance premium. Employer pays 70
percent of Insurance premium after 10 years of
service.
? 15 - 19 years of service - Employee pays 25
percent of insurance premium. Employer pays 75
percent of insurance premium after 15 years of
service.
? 20 - 24 years of service - Employee pays 20
percent of insurance premium. Employer pays 80
percent of insurance premium after 20 years of
service.
? 25 - 29 years of service - Employee pays 15
percent of insurance premium. Employer pays 85
percent of insurance premium after 25 years of
service.
? HB220 does remove requirement for employees to
retire directly from public service to receive health
plan upon individual's Medicare eligibility
Co-Chair Merrick indicated Representative Edgmon had joined
the meeting.
2:15:57 PM
Representative Josephson relayed that HB 55 required the
money be spent upon leaving the system, and the current
bill did not have a requirement to be spent at the time of
retirement. He queried the reason for the current system.
Representative Hopkins did not know the policy decision
that began Tier IV.
Representative LeBon returned to the subject of retirement
age. He wondered if 60 was the most common retirement age.
He wondered if the representative had considered an older
retirement age for teachers.
Representative Hopkins replied that there would be an
examination of the specific age in the upcoming weeks
through work with the actuaries.
Representative LeBon asked if the bill would allow for a
retirement age of 55.
Representative Hopkins replied in the affirmative, with a
higher contribution out of that employees paycheck.
Representative LeBon thought it would be interesting to see
a comparison with other states.
Representative Hopkins would come with some of that
information.
2:20:46 PM
Representative Josephson noted that another difference was
the PRPA.
Representative Hopkins indicated the ARMB would set that
amount.
Representative Josephson thought it looked roughly the
same.
Co-Chair Merrick indicated they would hear from invited
testimony.
2:22:13 PM
LISA PARADY, EXECUTIVE DIRECTOR, ALASKA COUNCIL OF SCHOOL
ADMINISTRATORS (ACSA) (via teleconference), introduced
herself and provided some background about her association.
She appreciated the seriousness of the consideration of the
bill. The issue was important to all of the members of her
association.
Ms. Parady pointed out that, currently, Alaska had the
worst administrator and teacher recruitment and retention
in the states history. The state had lost its competitive
advantage on teacher recruitment and retention. She would
walk through some of the data her association was seeing.
She stressed that a nationally competitive salary and
benefit package was essential in attracting quality
teachers.
2:31:30 PM
Representative Edgmon thanked Ms. Parady for her testimony.
He saw what was being discussed. He saw teachers coming and
going from his district. He thought the cost to children
was real and could not be dismissed.
Vice-Chair Ortiz asked about reading scores.
Ms. Parady relayed that the information came from a study
done by Institute of Social and Economic Research (ISER).
The schools with the highest turnover had the lowest
assessment scores.
Co-Chair Merrick invited Mr. Doonan to begin his
presentation.
2:33:42 PM
DAN DOONAN, EXECUTIVE DIRECTOR, NATIONAL INSTITUTE ON
RETIREMENT SECURITY (NIRS) (via teleconference), discussed
a presentation, Testimony to the Alaska House Finance
Committee (copy on file). He began with slide 1 which
showed a diagram of a variety of plan designs in the public
sector. The chart showed a defined contribution plan versus
a defined benefits. He continued to slide 2 to share a
couple of resources.
2:39:43 PM
Mr. Doonan turned to slide 3, Better Bang for the Buck
3.0:
3 Reasons Why DB Plans Save Money
1. Pooling the longevity risks of large numbers of
individuals, providing each the security of a lifetime
pension without the risk of outliving their savings.
2. Are "ageless" and therefore can perpetually
maintain an optimally balanced investment portfolio
rather than the typical individual strategy of down-
shifting over time to a lower risk/return asset
allocation.
3. Achieve higher investment returns as compared to
individual investors because of professional asset
management and lower fees.
Mr. Doonan continued to slide 4 which showed a visual of
life expectancy for 1000 teachers.
Mr. Doonan advanced to slide 5 that showed under the
defined contribution plan, 15 percent of assets were never
used for retirement.
Mr. Doonan turned to slide 6 which showed the expected
returns.
2:45:24 PM
Representative Josephson referred to slide 5 and unused
defined contribution assets. He wondered how it differed.
He thought there was nothing wrong with leaving resources
behind.
Mr. Doonan responded that much of the money would not be
used in retirement because it was impossible to predict
mortality.
Mr. Doonan addressed the inefficiency, by stated that much
of the time at 30 years old it was easy to take a certain
position about retirement. However, post retirement was a
time when defined contribution plan inefficiencies show
themselves.
Representative Wool asked for the definition of
inefficiency as it related to retirement.
Mr. Doonan explained that it was related to cost.
Representative Wool suggested that a person in a defined
contribution plan who wanted to have the same experience as
a person in a defined benefit plan would pay 40 percent
more post retirement for the same monthly amount.
Mr. Doonan responded in the affirmative.
2:50:07 PM
Mr. Doonan turned to slide 10 showing a chart of the number
of people enrolled in a traditional teacher program.
Mr. Doonan turned to the chart on slide 12 that showed the
annual turnover rates for teachers hired at age 25. Once a
teacher had taught for 5 years there was less turnover. He
thought pensions were an easy way for teachers to retire,
but stressed that it was also a retention tool.
Representative Wool referenced the bottom of the graph,
which outlined other states retirement programs.
Mr. Doonan indicated there were not a lot of states without
a pension program.
2:54:02 PM
Representative Wool asked for the number of states that had
pension plans for teachers.
Mr. Doonan thought most states had a plan, but agreed to
provide more information.
Mr. Doonan moved to the states listed on slide 13 He
continued to slide 14 and explained that Michigan SERS
offered a warning.
3:00:21 PM
Representative LeBon returned to slide 13 with a question
about Texas.
Mr. Doonan replied that there were new tiers that required
a few more years of work.
Representative LeBon asked about the age requirement of 60
in Connecticut.
Mr. Doonan would get back to the committee with the
retirement provisions in Texas, and agreed to provide more
information about Connecticut.
Co-Chair Merrick reviewed the agenda for the following
meeting.
ADJOURNMENT
3:04:04 PM
The meeting was adjourned at 3:04 p.m.