Legislature(2025 - 2026)ADAMS 519
04/03/2025 01:30 PM House FINANCE
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| Audio | Topic |
|---|---|
| Adjourn | |
| Start | |
| HB78 | |
| Presentation: Alaska Municipal League | |
| Amendments |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 78 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | HB 53 | TELECONFERENCED | |
| += | HB 55 | TELECONFERENCED | |
HOUSE FINANCE COMMITTEE
April 3, 2025
1:35 p.m.
1:35:47 PM
CALL TO ORDER
Co-Chair Foster called the House Finance Committee meeting
to order at 1:35 p.m.
MEMBERS PRESENT
Representative Neal Foster, Co-Chair
Representative Andy Josephson, Co-Chair
Representative Calvin Schrage, Co-Chair
Representative Jamie Allard
Representative Jeremy Bynum
Representative Alyse Galvin
Representative Sara Hannan
Representative Nellie Unangiq Jimmie
Representative DeLena Johnson
Representative Will Stapp
Representative Frank Tomaszewski
MEMBERS ABSENT
None
ALSO PRESENT
Representative Chuck Kopp, Sponsor; Nils Andreassen,
Executive Director, Alaska Municipal League; Alexei
Painter, Director, Legislative Finance Division.
PRESENT VIA TELECONFERENCE
Gene Kalwarski, Chief Executive Officer, Principal
Consulting Actuary, Cheiron, Virginia.
SUMMARY
HB 53 APPROP: OPERATING BUDGET; CAP; SUPP
CSHB 53(FIN) was REPORTED out of committee with
one "do pass" recommendation, two "no
recommendation" recommendations, and eight
"amend" recommendations.
[Note: action on reporting the bill from
committee was rescinded on 4/10/25 at
approximately 6:30 p.m. The bill was then
reported out of committee with no additional
changes. See separate minutes dated 4/10/25 1:30
p.m. for detail.]
HB 55 APPROP: MENTAL HEALTH BUDGET
CSHB 55(FIN) was REPORTED out of committee with
six "do pass" recommendations, three "no
recommendation" recommendations, and two "amend"
recommendations.
HB 78 RETIREMENT SYSTEMS; DEFINED BENEFIT OPT.
HB 78 was HEARD and HELD in committee for further
consideration.
Co-Chair Foster reviewed the meeting agenda. The committee
would hear invited testimony on HB 78 and would then
continue with amendments to the operating and mental health
budgets.
HOUSE BILL NO. 78
"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."
1:36:58 PM
Co-Chair Foster invited Representative Chuck Kopp to make
any opening comments.
REPRESENTATIVE CHUCK KOPP, SPONSOR, introduced himself. He
expressed that he looked forward to hearing the actuarial
analysis on the bill.
GENE KALWARSKI, CHIEF EXECUTIVE OFFICER, PRINCIPAL
CONSULTING ACTUARY, CHEIRON, VIRGINIA (via teleconference),
introduced himself and a PowerPoint presentation titled
"Alaska House Finance Committee: Actuarial Analysis of
HB78," dated April 3, 2025 (copy on file). He began on
slide 2 and gave an overview of the topics he would be
discussing, including Cheiron's experience, defined benefit
(DB) vs defined contribution (DC) assumptions, scenarios
analyzed, retirement cost impact, and economic impact
considerations. He would discuss why different actuarial
assumptions were used for DB plans and for DC plans. He
explained that the approach was the same as the approach
used by the plan's actuary, Buck Consulting, to analyze SB
88 the prior year. He stated that the analysis resulted in
a request for four scenarios and he would present the
retirement cost impact for each scenario. He would conclude
with a discussion regarding the economic impact of HB 78.
Mr. Kalwarski moved to slide 3 and stated that he had been
a consulting actuary for over forty years and had worked
with or had experience in 30 states. He explained that the
locations shown in red on the slide had experienced plan
closures, including Alaska, West Virginia, Detroit, and San
Diego. He noted that both West Virginia and San Diego had
reopened their plans. He relayed that San Diego experienced
a financial crisis in 2002 that led to the plan's closure,
but since reopening, the plan had become one of the best
funded in the country.
1:40:24 PM
Representative Johnson asked whether a departmental
actuarial analysis had been ordered. She understood that an
actuarial analysis was required by statute.
Representative Kopp responded that the House Finance
Committee had ordered an actuarial analysis and it was
expected later in April. He thought that the analysis
provided by Mr. Kalwarski was sufficient for the bill
because it relied on the same numbers used by the state's
actuary, Gallagher. He added that Gallagher was preparing
an updated analysis that would align with the presentation.
Mr. Kalwarski added that the computations from the prior
year on SB 88 were similar to Gallagher's calculations.
1:41:53 PM
Mr. Kalwarski advanced to slide 4 and noted that the slide
addressed DB versus DC assumptions. The slide read as
follows:
• Retirement members behave differently in DB versus DC
plans in terms of turnover and retirement
• DC plan turnover rates are much higher than DB plans,
especially after 5 years of service
• DB plan members can afford to retire earlier than
those under DC plans
Mr. Kalwarski added that DB plans allowed employees to
retire earlier because the pension benefit was generally
larger than what a DC account could provide, particularly
in the absence of Social Security.
Mr. Kalwarski continued to slide 5 and explained that the
assumptions shown on the slide were used by Gallagher for
the Teachers' Retirement System (TRS) and were similar to
the assumptions for the Public Employees' Retirement System
(PERS). He noted that the DB turnover assumptions were
significantly lower than the DC turnover assumptions and
that all assumptions were based on actual experience
studies.
Representative Stapp asked why Alaska did not rely solely
on Alaska-specific metrics when comparing DB and DC plans.
He noted that teacher turnover rates in Alaska,
particularly in rural areas, had historically been higher
than the 4 percent data point shown on the slide.
Mr. Kalwarski responded by offering reassurance that the
data was specific to Alaska and came directly from
Gallagher's assumptions for Alaska.
Representative Stapp stated that the 4 percent turnover
rate did not align with historical Alaska data from Tier I
and Tier II DB plans. He understood that rural teacher
retention rates were always in the "double digits." He
asked why the assumptions did not track actual experience.
Mr. Kalwarski responded that Gallagher used select and
ultimate turnover assumptions. He explained that turnover
was higher during the first several years of service and
later reverted to lower ultimate turnover rates. He
clarified that the chart reflected ultimate turnover rates
for employees with at least five years of service.
Representative Stapp appreciated the clarification and
understood that the data was taken from after employees had
already invested in a plan.
Mr. Kalwarski responded that Representative Stapp's
understanding was correct.
Representative Bynum asked about the assumptions being used
to compare DB and DC plans. He stated that assumptions
affected outcomes and asked whether the analysis relied on
Tier I and Tier II data compared to Tier III, nationwide DB
data, or hypothetical assumptions based on HB 78. He stated
that he was trying to understand what assumptions were
being used to draw conclusions.
1:47:33 PM
Mr. Kalwarski responded that the chart was not intended to
draw conclusions. He explained that the chart extracted
assumptions used by Gallagher to value TRS. He stated that
the assumptions were based on historical experience
specific to Alaska and were not derived from national data
or hypothetical scenarios. He explained that the figures
were taken directly from actuarial reports and reflected
turnover assumptions used to determine planned costs each
year.
Representative Bynum stated that he understood the
discussion related to turnover rates but sought
clarification regarding the broader presentation. He asked
what DB plan was being used as the basis for comparison and
whether the analysis referenced the former TRS plan, the
current DC plan, or the proposal under HB 78. He stated
that he was attempting to understand the assumptions
underlying the comparison between DB and DC plans.
1:49:19 PM
Mr. Kalwarski responded that the assumptions shown were
those currently used by Buck to determine costs for DB plan
members and the assumptions Buck developed for the DC plan.
He explained that Buck derived the assumptions through
periodic experience studies that statistically measured
turnover rates. He stated that no independent assumptions
were being made and that the figures reflected Gallagher's
best estimates for teacher turnover in Alaska.
Representative Kopp added that several of the questions
that had been raised would be addressed in subsequent
slides. He explained that the presentation was structured
to build understanding sequentially. He reiterated that the
data presented was specific to Alaska and was used by the
state actuary.
Representative Johnson stated that she understood that the
vertical axis of the chart on slide 5 reflected teacher
turnover but asked for clarification on the horizontal
axis. She asked whether the figures represented age,
calendar year, or years of service. She did not think that
the information was clearly labeled.
Mr. Kalwarski responded that the horizontal axis on slide 5
represented ages.
Mr. Kalwarski continued to slide 6 and explained that the
horizontal axis again represented age at retirement. He
explained that the slide showed that DC plan members
delayed retirement longer than DB plan members. He stated
that the purpose of the slides was to explain why the state
actuary used two different sets of assumptions when
performing an actuarial analysis and that the slides were
not intended to evaluate HB 78.
Mr. Kalwarski advanced to slide 7 and stated that the next
three slides showed national statistics. He explained that
slide 7 reflected general employee turnover rates after
five years of service. He stated that the dotted lines
represented Alaska DC turnover rates for male and female
employees. He explained that the solid lines represented
neighboring states listed in the legend, including Montana
and Idaho. The lower, slightly darker dotted lines
represented Alaska DB turnover rates for male and female
employees. He noted that the slide showed higher turnover
under DC plans and that the pattern was consistent with
Alaska and with other systems.
Mr. Kalwarski advanced to slide 8, which showed teacher
turnover rates after five years. He stated that the upper
dotted lines represented DC turnover rates for male and
female teachers, while the lower dotted lines represented
DB turnover rates for male and female teachers. He stated
that the figures were shown alongside comparable data from
neighboring states.
1:54:11 PM
Mr. Kalwarski advanced to slide 9 and explained that it
showed PERS turnover rates. He stated that the format was
consistent with the prior slides, with ages shown on the
horizontal axis. He explained that the upper dotted lines
represented DC turnover rates and the lower dotted lines
represented DB turnover rates. He noted that one state,
North Dakota, showed higher turnover than the others but he
did not know the reason for the difference.
Mr. Kalwarski advanced to slide 10 and noted that the
committee had requested analysis of four scenarios labeled
1A, 1B, 2A, and 2B. He detailed the scenarios from the
slide as follows:
• Scenario 1A- 100% of current DC members and future
hires join the DB plan using DB assumptions
• Scenario 1B- 0% of current DC members and all future
hires join the DB plan using DB assumptions
• Scenario 2A- 100% of current DC members and future
hires join the DB plan using DC assumptions
• Scenario 2B- 0% of current DC members and all future
hires join the DB plan using DC assumptions
Representative Stapp stated that his understanding was that
Mr. Kalwarski was showing assumptions based on how many
existing employees opted into the new plan.
Mr. Kalwarski responded in the affirmative.
Representative Stapp asserted that the presentation was not
an actuarial analysis. He stated that it had not yet
addressed discount rates, assumed rates of return, employee
projections, or mortality assumptions, which he stated were
factors that affected actuarial outcomes.
Mr. Kalwarski responded that he was presenting the material
that had been requested by the committee and that the
slides did not represent a full actuarial analysis. Based
on experience in other locations such as San Diego, a large
share of DC members had transferred into DB plans. He noted
that scenarios 1B and 2B were less likely and that outcomes
would likely be closer to scenario 1A.
Mr. Kalwarski advanced to slide 11 and reiterated that the
scenarios were presented for the purpose of comparison. He
explained that the slide showed the present value of the
additional cost of HB 78 over a 14-year period and noted
that an asterisk appeared next to the present value label.
He stated that when the table was repasted onto the slide,
the footnote was obscured. He clarified that the analysis
used a 7.25 percent interest rate. He stated that the
interest rate was higher than the median public sector plan
rate, which he believed was closer to 6.75 percent or 6.5
percent. The figures could be recalculated using a
different discount rate, and the top number would be
approximately $610 million over the 14-year period if a 6.5
percent rate were used. He stated that all figures shown
were in the millions.
Representative Kopp clarified that the 1A scenario
reflected DB assumptions in which 100 percent of current
and future employees elected to join the DB plan. The DB
assumption was that the plan would bring about improved
retention and lower turnover. He explained that 2A
reflected DC assumptions, meaning that the current turnover
rates experienced under the DC plan would continue to
apply. He stated that the slide showed that if 100 percent
of plan participants opted into the DC plan but retention
did not improve, all things being equal, there would be a
savings to the state.
1:59:30 PM
Representative Bynum stated that he understood the phrase
"all things being equal" to mean only with reference to the
information that had been provided. He did not think the
evaluation accounted for the equal cost of each dollar that
was invested into either plan and the outcome that would be
expected from the investment. He explained that under the
current DC plan, the employer contributed 5 percent in
addition to some funds that were set aside for health
reimbursement arrangements (HRA). Under the proposed DB
plan, the employer and employee would contribute a larger
total amount. He understood that the analysis was not
normalized to compare outcomes per dollar invested but was
based on HB 78 and the current 5 percent DC structure. He
asked whether his understanding was accurate.
Mr. Kalwarski responded that he was not sure he fully
understood the question. He stated that the analysis
assumed that every dollar invested earned 7.25 percent.
Representative Bynum clarified that his question was
whether the analysis normalized investment amounts between
the DC and DB plans. He stated that the contribution levels
were not equal between the two plans and that higher total
investment would naturally lead to different outcomes. He
asked whether the information provided normalized the
investment amounts.
Mr. Kalwarski responded that the chart only examined the DB
plan under HB 78. He stated that scenarios 1A and 2A
assumed 100 percent participation in the DB plan and that
there was no DC component in the scenarios. He stated that
the chart showed the difference in state cost to the DB
plan if HB 78 were enacted compared to the cost if it were
not enacted.
2:02:17 PM
Mr. Kalwarski continued to slide 12 and drew attention to
the four numbers on the far right of the slide, including
583.7 and 467.3. The slide presented a table similar to one
presented the previous year during the discussion of SB 88.
He explained that the same figures appeared on the far
right of that table in black. He stated that Buck had
provided additional detail beyond present value, including
sums of costs over a 14-year period. However, he argued
that summing nominal dollars over time was not meaningful
because a dollar in a later year did not have the same
value as a dollar today. He stated that summing annual
amounts effectively assumed a 0 percent discount rate and
the analysis focused on present value. The discount rate
could be debated and different rates would change the
figures, which meant that the table was of limited
usefulness.
Mr. Kalwarski advanced to slide 13, which showed the state
costs as an employer under scenario 1A and the additional
costs paid by the state to non-state employers under the
law. He stated that the slide showed the annual increases
in costs by year and that the total appeared as the third
component of the chart. He explained that the slide
expanded on information presented earlier. He moved to
slide 14, which provided the same information for scenario
2A.
Representative Galvin relayed that she was attempting to
understand scenario 2A and that she would like more
information. She stated that her understanding was that if
the shared risk DB plan were adopted, 100 percent of
current employees transferred into the plan, and employee
turnover rates did not improve, the state would save nearly
$125 million dollars over the next 14 years.
Mr. Kalwarski responded that Representative Galvin's
interpretation was correct and that the result was
consistent with what Buck had calculated previously in
relation to SB 88.
Representative Galvin thought that the scenario suggested
the plan would be less costly if it failed to improve
recruitment and retention and that the state would save
money under those conditions.
Mr. Kalwarski responded in the affirmative.
Representative Galvin requested clarification that the plan
would be less costly under current employee separation
rates.
Mr. Kalwarski responded that continued high turnover would
result in savings to the state based on the assumptions
developed by Buck and Gallagher and the earlier comparisons
of DB and DC assumptions.
2:06:35 PM
Representative Stapp understood that the analysis relied on
a discount rate based on certain assumptions. He suggested
that a 6.5 percent discount rate might be more accurate. He
understood that the presentation showed that increased
employee retention would reduce turnover and lower
recruitment and training costs. The discount rate assumed
participation transfers from the DC plan to the DB plan. He
asked where the analysis showed the projected rate of
return on fund performance over the next 30 years and
whether the projection used a 7.25 percent or 6.5 percent
rate. He thought that if a 6.5 percent discount rate were
used, the assumed rate of return should be similar.
Mr. Kalwarski responded that the analysis used an expected
rate of return equal to the discount rate of 7.25 percent.
He stated that the numbers could be quickly adjusted to 6.5
percent if requested.
Representative Stapp understood that the beginning of the
presentation communicated that the analysis was sufficient.
He clarified that he was not questioning the discount rate
or the assumptions regarding participation in the plan. He
stated that the discount rate represented only one
component of a much larger analysis. Earlier in the
presentation, the committee had been told it would receive
multiple scenarios based on projected rates of return over
the life of the plan to evaluate the potential for unfunded
liability and the operation of risk levers. He stated that
he only saw an assumption of 7.25 percent applied to the
discount rate and asked whether additional analysis would
be provided. He asked if the committee should wait for Buck
and Gallagher to provide the analysis.
Mr. Kalwarski responded that he would address the concerns
on the final slide. He reiterated that Cheiron had
conducted similar work the previous year on SB 88, which
was extremely similar to HB 78. He stated that the prior
work included stress testing for higher or lower returns
and that he would discuss the topic on the final slide of
the presentation.
Mr. Kalwarski continued to slide 15 and stated that HB 78
contained several significant risk sharing elements. If
unfunded liabilities increased or investment returns were
poor, member contribution rates could be increased up to 12
percent and not below 8 percent, which represented a 4
percent range. He noted that cost of living adjustments
(COLA) could be reduced if there was a risk of unfunded
liability. He had served as the actuary to the Maine State
Retirement System for more than 30 years and he explained
that Maine had similar risk sharing elements, particularly
related to cost of living adjustments. He relayed that
Maine was approximately 90 percent funded and had been
approximately 20 percent funded 30 years earlier, but the
contribution rates had not changed by more than 1 percent
in any single year. He stated that risk sharing plans had
become more common in the public sector over the past
decade. Under traditional DB plans, the employer bore all
risk, which had contributed to prior problems in Alaska,
while members bore all risk under DC plans. He stated that
HB 78 reflected an effort to share risk between employers
and members. Although stress testing was not included in
the current analysis, additional work could be performed if
requested.
2:11:19 PM
Representative Stapp commented that he did not necessarily
disagree with the described risk sharing mechanisms. The
slide only contained a reference to HB 78 risk sharing
elements and did not include data showing stress testing.
He expected actuarial analyses to evaluate long term
impacts and include stress testing scenarios.
Mr. Kalwarski stated that Cheiron had been brought onto the
analysis one month prior and stress testing could not have
been completed in time for the meeting, even if it had been
requested.
Co-Chair Josephson explained that he was following up on a
question from Representative Galvin regarding the DB
assumption scenario. He understood that the cost to the
state spanned approximately 15 years. When he reviewed the
cost breakdown on slide 13, the numbers appeared manageable
given the perceived benefits. He referenced an Anchorage
Daily News (ADN) article published earlier that day stating
that Alaska had received a federal warning and was at risk
of losing funding due to food stamp backlogs. He stated
that earlier on the House floor, the legislature had
"arguably passed" $12 million to cover a fine resulting
from insufficient eligibility technicians in the
Supplemental Nutrition Assistance Program (SNAP). The
article described the administration investing $60 million
in recent years to address the issue and noted that the
reported vacancy rate among the staff positions was 30
percent in March of 2025.
Co-Chair Josephson relayed that the state had a chronic
problem retaining employees. The additional state cost
totaled approximately $24 million in FY 26 under scenario
1A using DB assumptions and assuming success in attracting
skilled Alaskans to the workforce. He stated that although
the budget was challenged, the state would receive maximum
potential benefit by addressing workforce retention issues
illustrated by the article. He asked whether Cheiron was
presenting the same argument as the ADN article.
2:14:48 PM
Mr. Kalwarski responded that he concluded the presentation
with the slide titled "Economic Impact Considerations" in
order to discuss the economic benefit. He stated that the
economic impacts would exceed any increase in pension
costs, which was the outcome that had occurred in West
Virginia and Nebraska, in addition to reduced recruitment
and training costs. He explained that the state currently
needed to exceed standard pay scales to attract employees,
but improved benefits would reduce the need. He argued that
the retention rates of experienced employees would
increase, which was particularly important in public safety
and teaching professions. There would be a positive impact
on Alaska's economy because individuals with higher
pensions would spend money in the state and remain in
Alaska. He explained that DB plans achieved superior
investment returns because funds were pooled and
professionally managed. He noted that there was an error on
the slide and he clarified that it should reference lower
DC investment expenses. During consideration of SB 88, he
had recommended that the state should retain an economist
to quantify the impacts, and he would recommend the same
approach for HB 78. He concluded the presentation and
stated that he was available to answer additional
questions.
Representative Tomaszewski noted that Mr. Kalwarski had
referenced San Diego earlier in the presentation. He asked
for an explanation of how San Diego's plan operated and how
it was similar to or different from HB 78.
Mr. Kalwarski responded that San Diego's DB plan
multipliers were somewhat similar to the bill. He stated
that San Diego's plan did not include the risk sharing
elements contained the bill and that member contribution
rates in San Diego did not vary based on plan experience.
If benefits increased, there was risk sharing in that San
Diego members were required to pay half of the cost. He
stated that another difference was that the California
Supreme Court had mandated the reopening of San Diego's
plan and that approximately 90 percent of participants in
the DC plan transferred into the DB plan retroactive to
2012. He stated that the situation was different than the
proposal under consideration. He did not believe HB 78
retroactively placed DC members back into the DB plan, but
he asked for confirmation.
Representative Kopp responded that HB 78 allowed current DC
plan members to opt into the DB plan and required future
members to enter the DB plan.
Mr. Kalwarski asked whether DC account balances would be
transferred into the DB plan and whether past service would
count.
Representative Kopp responded in the affirmative.
Mr. Kalwarski shared his understanding that DC account
balances would be rolled into DB plans in order to ensure
that past service was counted.
Representative Kopp responded that DC balances would be
rolled into DB service credit. He stated that the actuary
would provide a tool allowing employees to input their DC
years of service and account balances to determine
comparative buy-in values or credited years of service
under the new plan.
2:19:22 PM
Representative Tomaszewski understood that San Diego
transitioned to a DC plan in 2012 and that its funding
improved each year. He stated that a judge later ordered
San Diego back into a DB plan and that pension costs now
exceeded $500 million annually. He did not understand how
the example demonstrated success. He asked Mr. Kalwarski to
explain the impact of a lower discount rate based on the
stress testing performed for SB 88.
Mr. Kalwarski responded that the $500 million figure was
misleading because it ignored the elimination of DC costs.
The figure represented DB costs alone and did not reflect
the net change. Costs would appear higher under a DB plan
because DC contributions were no longer being made. He
stated that during stress testing for SB 88, scenarios
mirrored market conditions similar to the Great Recession.
He relayed that the scenarios demonstrated how member
contribution rates could increase to 12 percent and how
COLA could be affected. He offered reassurance that similar
stress testing could be performed for House Bill 78.
Representative Tomaszewski asked whether the increase in DB
costs resulted from the elimination of DC plans.
Mr. Kalwarski responded that if a DB plan cost $400 million
and a DC plan cost $100 million and the system merged into
a single DB plan with a cost of $500 million, the DC cost
would be reduced to zero. He stated that the net cost would
remain the same.
2:21:52 PM
Representative Galvin relayed that her question concerned
slide 15, which appeared to present economic considerations
related to improvements in recruitment and retention. She
asked whether additional considerations had been evaluated,
such as litigation costs. She referenced a previously
discussed $11 million fine incurred by the state due to
delays in SNAP benefit processing and stated that the
Division of Public Assistance (DPA) lacked sufficient
staff. She stated that the Department of Law (DOL) was
managing multiple lawsuits. She referenced a case known as
"A Better Child" and stated that the cost to the state was
approximately $4 million, which was a cost that she thought
was included in the supplemental budget. She did not think
that the slide considered potential litigation related to
the constitutional obligation to provide an education
system. She noted that many classrooms in the state lacked
certified teachers. She asserted that the litigation risk
should be considered.
Representative Galvin noted that there were economic
impacts related to out-migration. She stated that she had
heard from families who shared that they did not feel safe
due to shortages in public safety officers. She relayed
that the positions existed but the positions could not be
filled because the state could not compete with retirement
opportunities offered in other states. Out-migration had
significant multiplier effects on the economy. She added
that another problem was slow licensing and permitting
processes, and that there were several projects on the
North Slope that had been delayed due to staffing
shortages. The delays occurred because public service
employees were insufficiently resourced. She asked whether
these factors should be included as additional economic
considerations.
2:25:10 PM
Mr. Kalwarski responded that the considerations were
relevant and that other additional factors could also be
identified. He stated that the situation illustrated the
reasoning behind his recommendation to retain an
experienced economist, which he understood had occurred
under SB 88.
Representative Bynum noted that there had been discussion
regarding DC members buying into the DB plan and
assumptions related to discount rates and scenarios. He
asked whether the analysis examined scenarios for a typical
employee with 10 years of service, including the cost of
buying into the plan, and whether such an employee would
retain any remaining DC account balance. He asked whether
such evaluations had been performed.
Mr. Kalwarski responded that the figures represented an
evaluation of all members. He stated that the analysis was
not limited to employees with a specific number of years of
service and included all members in the DB and DC plans.
Representative Bynum commented that averages were difficult
to interpret without case by case evaluations and clearly
defined parameters, and he did not find the information
particularly useful for that reason. He explained that his
second question related to slide 15. He agreed with several
of the listed impact considerations, including lower
recruitment costs and lower training costs. He added that
improved retention would reduce training expenses and
reduce the costs associated with attracting new employees.
He acknowledged the importance of a robust package of
benefits, including pay, retirement, health care,
childcare, vehicles, and housing, and noted that such
factors contributed to increased recruitment and retention.
He understood that the presentation noted that there were
positive impacts of DB retirement plans on Alaska's economy
and that retaining employees in the state and compensating
the employees adequately produced positive economic
affects. He suggested that the presentation's language
might be better framed as an effective retirement plan
rather than a DB plan.
Representative Bynum noted that the final two bullet points
on slide 15 referenced superior DB investment returns and
investment expenses. He stated that he did not understand
what the bullet points meant. He explained that he had
reviewed data on current plan performance and overall
market performance, and the results did not clearly favor
the DB plan in terms of investment returns or investment
costs. He clarified that he was not asserting that DB plans
were problematic, but he thought the bullet points were
unclear.
Mr. Kalwarski responded that data reflected a person by
person valuation rather than group averages. He explained
that numerous studies showed professionally managed
commingled funds provided greater access to market
opportunities than individually directed investments. He
stated that the pattern was well documented nationwide in
the public sector. The investment industry strongly
supported DC plans because the plans generated
significantly higher fees, often close to 100 basis points.
In contrast, retirement boards negotiated aggressively with
investment consultants about DB plans, resulting in fees
closer to 25 to 30 basis points. He stated that the
difference in fees explained why the investment industry
favored DC plans.
Representative Bynum stated that he looked forward to a
more extensive discussion of the topic in the future.
2:30:36 PM
Representative Tomaszewski asked Mr. Kalwarski whether he
had served as the actuary for the San Diego retirement
plan.
Mr. Kalwarski responded that he had served as the actuary
since 2005, after the issues with the plan had occurred,
and clarified that he had not been the actuary at the time
of the scandal.
Representative Tomaszewski commented that he understood the
City of San Diego had a pension payment of approximately
$533 million due on July 1, 2025, and asked whether that
was correct.
Mr. Kalwarski responded that he did not have the specific
number memorized.
Representative Tomaszewski stated that he was referencing
publicly available information and noted that there were
challenges associated with the plan following a court order
returning the city to a DB system.
Representative Stapp stated that he appreciated the
presentation, though he had expressed earlier concerns
about its completeness. He referenced Mr. Kalwarski's
comments regarding extensive data on superior DB investment
returns. He noted that the state treasury had achieved
higher rates of return on DC plans than on DB plans. He
asked what a superior DB investment return looked like in
practical terms and whether it corresponded with the
assumed discount rate of 7.25 percent.
Mr. Kalwarski responded that returns varied by year. He
noted that the DB system had recently earned approximately
9.1 percent and he doubted that DC accounts achieved the
same result. He emphasized that investment performance
fluctuated annually.
Representative Stapp stated that he understood annual
variation. He explained that long-term assumptions relied
on a fixed rate of return and that the assumed rate would
be expected to align with actual performance over time. He
asked whether the 7.25 percent discount rate represented
Mr. Kalwarski's expectation of long-term returns. He asked
if 7.25 percent was considered a superior DB investment
return.
Mr. Kalwarski responded that the 7.25 percent figure was an
assumption and was not based on an expectation of a
superior return relative to DC. The figure was simply the
assumption used by the bill. He indicated that he did not
fully understand the question.
Representative Stapp shared that one of the economist
studies referenced by the presentation, titled "A Better
Bang for Your Buck 3.0: Post-Retirement Experience (copy on
file)," showed that pension plans generally performed
better than DC plans in the market. He stated that the
study identified an ideal average rate of return for
pension plans of approximately 6.8 percent, which was lower
than the assumed rate of return being used in the
presentation. He asked how changing the discount rate and
long-term rate of return assumption to align with the
economist study would impact the long-term performance and
liquidity of the fund.
Mr. Kalwarski responded that he would not characterize the
difference between 6.8 percent and 7.25 percent as
substantially lower. He stated that the numbers shown on
slide 11 reflected that using a 6.75 percent rate would
increase the figure from $583 million to $610 million.
Representative Stapp asserted that while 45 basis points
was not significant in a single year, it would become
substantial when amortized over 30 years. He relayed that
employees did not retire in their first five years and that
a long-term difference of approximately 40 basis points
over the life of the plan would have a greater effect than
the discount rate alone. He asked whether his understanding
was correct.
Mr. Kalwarski responded that the $610 million versus $583
million figure represented the long-term difference between
what the state was paying under current law and what it
would pay under HB 78. He explained that the figure
quantified the impact.
Representative Stapp asked for more information about the
discount rate.
Mr. Kalwarski replied that if the discount rate changed
from 7.25 percent to 6.75 percent, it would produce a
higher present value.
Representative Stapp stated that he understood the impact
on buy-in costs for employees entering the DB plan. He
clarified that his question related to the long-term
funding ratio of the plan if the long-term performance
assumptions were set even 40 basis points lower than 7.25
percent. He asked how the change would affect the long-term
funded status of the plan.
2:35:08 PM
Mr. Kalwarski responded that the $610 million versus $583
million figure was a long-term comparison. He stated that
he could not answer the specific impact on the funded ratio
without reviewing the reports. He stated that he did not
believe the impact would be as large as suggested.
Representative Kopp thanked the committee and stated that
he appreciated the questions. He referenced previously
provided testimony by a pension economist indicating
savings to the state of $76 million per year. He stated
that the per year cost of the plan was eclipsed by the per
year savings resulting from reduced employee turnover. He
stated that the administration had introduced a teacher
recruitment and retention bill that would have cost the
state between $50 million and $60 million per year to
improve recruitment and retention for a single job class.
He explained that the proposal did not advance because of
its cost. Under HB 78, the additional state cost began at
$6.8 million in the first year and increased to $24.1
million, which he characterized as manageable amounts
comparable to annual appropriations for wildland fire
response.
Representative Kopp stated that discussion had focused
heavily on discount rates, but he wanted to emphasize the
actual investment experience. The system used five-year
smoothing and in 2023, the assumed discount rate was 7.25
percent and the system earned 7.6 percent, and in 2024 the
system earned 9 percent. He stated that the five-year
smoothed averages were 7.4 percent and 8.0 percent,
respectively. He shared that the 40-year average return of
the DB plans was 8 percent. While past performance did not
guarantee future results, five year smoothing reduced year
to year market volatility. The broader question was whether
the current plan made the state a competitive employer and
whether the benefits offered were reasonable. He stated
that public workforce stability was key to private sector
economic growth and to attracting businesses and families
to Alaska.
Co-Chair Foster noted that the next presentation was from
the Alaska Municipal League.
^PRESENTATION: ALASKA MUNICIPAL LEAGUE
2:39:56 PM
NILS ANDREASSEN, EXECUTIVE DIRECTOR, ALASKA MUNICIPAL
LEAGUE, introduced the PowerPoint presentation "Employer
Considerations of State-Sponsored Pensions," dated April 2,
2025 (copy on file). He continued to slide 2. He stated
that he had been scheduled to testify on behalf of the
Alaska Municipal League (AML) the previous day following
the presentation from the Division of Retirement and
Benefits (DRB). He stated that the prior presentation had
provided context beyond the question of DB versus DC by
outlining the current status of net pension liability and
unfunded obligations and their impacts on the state,
employees, and employers.
Mr. Andreassen commented that he had heard both numerical
analysis and acknowledgment that additional information
could still be developed for HB 78. He stated that the
presentation suggested potential to address workforce
recruitment and retention issues. Before beginning his
presentation, he wanted to reflect on information presented
by the state the previous day, particularly regarding
normal costs.
Mr. Andreassen stated that he conducted calculations based
on the DRB presentation. He clarified that he was not an
economist or actuary, but he had checked the math. He
explained that he had reviewed normal costs for PERS, TRS,
and police and firefighter retirement costs. The normal
cost for a PERS Tier I employee was 28.12 percent and the
normal cost for a police and firefighter employee was 34.31
percent . He relayed that adding the past service cost of
19.29 percent to the PERS normal cost resulted in a total
rate of 47.41 percent. Combining the normal cost of 28.12
percent to the past service cost of 19.29 percent totaled a
rate of 47.41 percent.
Mr. Andreassen reported that the difference for every Tier
I employee who was employed by a public employer in Alaska
was negative 19.08 percent. For every Tier I police and
fire employee, the gap was negative 25.27 percent. He
explained that for Tier II employees, the difference was
negative 7.53 percent, and for Tier II police and fire
employees, it was negative 13.99 percent. He noted that for
Tier III employees, the difference was negative 5.57
percent, and for Tier III police and fire employees, the
difference was negative 13.29 percent. He added that a
similar analysis for TRS showed slightly better results.
For Tier I employees, the difference between normal cost
plus past service cost and the actual rate was negative
4.35 percent and negative 4.91 percent. For Tier III
employees, it was negative 0.88 percent.
Mr. Andreassen emphasized that he wanted the committee to
note the figures, as the information may not have been
fully conveyed in the prior day's presentation. He
explained that under the current system, any shortfall
between the actuarially determined rate and the rate
actually paid had to be offset through increased returns or
other mechanisms. He relayed that the underlying issues
would persist under a new bill. He clarified that Tier I,
Tier II, and Tier III DB employees would remain in the
system, and any new system would still need to address past
funding gaps.
2:44:21 PM
Mr. Andreassen emphasized the importance of making complete
information available to employers and employees. He noted
that he was not presenting a position on whether DB or DC
plans were better, nor was he offering a critique of HB 78
or other pension legislation. He viewed the discussion as
evaluating the structural foundation of the system. He
thought that legislators considering a revised DB system
through HB 78 needed to understand what the system should
achieve for employees, employers, and the retirement system
overall. He noted that Cheiron's presentation on HB 78
indicated that the bill would benefit recruitment and
retention, but he did not think it would necessarily
resolve all system challenges.
Mr. Andreassen relayed that the AML presentation included
the statutes governing the Alaska Retirement Management
Board (ARMB). He observed that when preparing his remarks,
he initially expected to place greater responsibility on
the board for current conditions than he ultimately
concluded was warranted. He emphasized that responsibility
was shared. The presentation would include institutional
knowledge passed down among municipal and AML employers and
would detail how the state ended up in the situation it was
in.
Mr. Andreassen continued to slide 3 and relayed that when
PERS was initiated in 1960, employers maintained separate
accounting that allowed for clear tracking of
contributions. He noted that in 1971, the state created the
Retirement Reserve Account (RRA), which resulted in blended
accounting about which employers were not fully informed.
He noted that the blended accounting limited the state's
ability to attribute contributions, expenses, and
liabilities by individual employer.
Mr. Andreassen continued to slide 4 and noted that the
problems continued for decades. Until almost 2006, blended
accounting was compounded by a large number of factors and
municipalities and other employers simply followed the
instructions provided by the state. The employers paid into
PERS as required, and everyone was surprised when actuarial
errors were discovered, revealing a significant net pension
liability in the early 2000s.
Mr. Andreassen observed that the state had a net pension
liability of approximately $5 billion in 2015. He
emphasized that understanding why the liability existed in
the first place required reviewing early history. He
explained that actuaries had initially put the state in a
poor position, which the state subsequently worked to
correct, but it still had to manage the resulting net
pension liability.
Mr. Andreassen noted that the numbers he had seen from 2006
could be considered an "original sin" for the net pension
liability: PERS had nearly $2 billion, and TRS had
approximately $1.5 billion. He highlighted that the numbers
represented a substantial financial challenge to address.
2:49:42 PM
Representative Stapp stated that he found the slide
informative, and he thought that the historical context was
predictive of future actions. He asked whether Mr.
Andreassen knew why the state had stopped transferring
employer contributions to the RRA in the early 1990s.
Mr. Andreassen responded that he did not know the reason.
Representative Stapp suggested that the reason could be
that budgets were lean during the 1990s. He noted that when
funding was tight, decisions were often made that favored
short-term considerations. He asked if Mr. Andreassen could
comment on the long-term impact of not paying the full
actuarial valuation of the plan during that time.
Mr. Andreassen replied that he did not have a definitive
answer but explained that when action was not taken to
address liabilities promptly, the costs were compounded and
added to future obligations. He emphasized that the unpaid
costs were effectively amortized into the future and that
when the state had historically lacked sufficient funds, it
made decisions in favor of its own short-term position.
2:51:46 PM
Mr. Andreassen advanced to slide 5 and explained that
during the "middle history" period, the system transitioned
from Tier I to Tiers II and III and new structures were
implemented to address issues identified by actuaries who
had not performed to standard. He added that the state
recognized responsibility for unfunded liabilities and
reforms such as the 22 percent cap on employer
contributions for PERS and the 12.56 percent cap for TRS
became standard. At the time, the state could not separate
the contributions by individual employer, which contributed
to ongoing challenges. He added that because the state
could not unpack individual contributions and the assets
and liabilities of every employer, the caps were
implemented not only to address the net pension liability
but also to avoid potential litigation. He emphasized that
it was important to understand the origin of the 22 percent
cap number and he offered reassurance that discussions
would continue on potentially lowering it.
Mr. Andreassen explained that any contributions above 22
percent for PERS or 12.56 percent for TRS had been
considered to be either "on-behalf" payments or additional
state contributions. He noted that during the middle
history period, the state established a fixed 25-year
amortization period which had been initially projected to
end in 2031. He stated that the net pension liability would
have been eliminated within six years if historical
assumptions had been accurate. However, the state had made
the decision to extend the amortization period to 2039.
Mr. Andreassen relayed that in 2014, the legislature had
invested $1 billion into PERS and $2 billion into TRS. He
reflected that the figures had not been entirely additive.
For example, $2 billion for TRS included $1.5 billion for
TRS and approximately $800 million to $850 million for
PERS, reflecting amounts already owed rather than new
contributions. He emphasized that the extension of the
amortization period from 2031 to 2039 had cost non-state
employers $2.5 billion.
2:55:11 PM
Mr. Andreassen moved to slide 6 and relayed that during his
seven years of experience, questions had often arisen about
on-behalf payments and why non-state employers had not paid
more. He clarified that the contributions were calculated
over a long period of time and that historical context had
not always been widely recognized. He cited data from 2013
under the ARMB funding policy that illustrated that in
2027, the state would have been paying $342 million as the
additional state contribution for TRS, compared to a
projected $480 billion under prior assumptions. He noted
that the state had made choices to reduce those amounts.
Mr. Andreassen pointed out that at the time, the state had
not been considered an employer, which meant that
approximately half of the additional state contributions
reflected the state's portion up to the full actuarial
rate. He emphasized that the entirety of on-behalf payments
had not been designated solely for non-state employers and
that the state had been included in the calculations. He
added that by 2018, the 2027 projected payment had been
reduced to $276 million, and most recently, it was
projected to be $70 million. He noted that the significant
reduction between 2018 and 2025 reflected the state
becoming an employer and taking on its full costs, rather
than a change in methodology. He explained that the
decisions demonstrated how the state had been able to push
a substantial portion of the liability into future years.
Representative Stapp suggested that it would be helpful to
simplify what was intended to happen. He understood that
employees and employers were supposed to make
contributions, ideally preventing a net pension liability.
He understood that due to historic assumptions, the
liability had effectively been deferred. He noted that the
numbers on slide 6 extended far into the future and
remarked that the state had left its DB plan. He asked if
the majority of PERS contributions were actually for the
unfunded portion or for existing employees.
Mr. Andreassen replied that if the assumptions and rates
had been correctly established, the system would have met
the total need each year and avoided a net pension
liability. He explained that to prevent the scenario,
assumptions should have been conservative or aggressive
where necessary, and contributions set to meet total
actuarial requirements. When a net pension liability
occurred, a plan sponsor would have been responsible for
addressing the gap.
2:58:57 PM
Mr. Andreassen turned to slide 7, which discussed the
employer perspective and included local governments and all
non-state employers. He noted that the state accounted for
roughly 50 percent of the overall payroll, down from
approximately 64 percent seven years prior. He emphasized
that small employers had minimal impact, such as the City
of Upper Kalskag at 0.0007 percent. The State of Alaska was
the largest employer and had the greatest influence on the
system. He highlighted that the Municipality of Anchorage,
the next largest employer within PERS after the state,
represented 8.74 percent of the system.
Mr. Andreassen stated that the employer base included
school districts, municipal hospitals, housing authorities,
the Inter-Island Ferry Authority, the North Pacific
Fisheries Management Council, medical centers, the
Anchorage Parking Authority, and I?isagvik College. He
stressed the importance of engaging employers in
discussions regarding their needs and system structures
that would protect them. He observed that when the state
shed nearly 3,000 jobs over a four-year period, it caused
significant ripple effects on the overall system and
contributed to the net pension liability.
3:01:20 PM
Mr. Andreassen advanced to slide 8, which provided specific
FY 24 data to illustrate employer impacts. He reported that
school districts paid approximately $30 million toward the
PERS net pension liability beyond normal costs. Local
governments contributed $62 million, housing authorities
contributed $3 million, and hospitals contributed $7.5
million. He noted that the amounts reflected taxpayer-
funded resources and that school district payments were
largely covered through the state's Base Student Allocation
(BSA). He equated local government contributions to
increased local taxes, housing authority contributions to
fewer houses, and hospital contributions to higher health
care costs. Many employees without current DB coverage were
affected in the same way, as the liability applied broadly
across the system.
Representative Bynum asked whether the numbers covered all
PERS and TRS employees.
Mr. Andreassen responded that he had not extracted TRS
numbers for the presentation but could provide the
information as a follow-up.
Representative Hannan asked for more information about PERS
DB employees. She noted that most individuals who were
employed prior to 2006 had left their positions.
Mr. Andreassen replied that the data reflected employers
who currently had no DB employees, meaning the normal cost
and past service cost applied to the entire payroll and not
to current DB participants.
Mr. Andreassen continued to slide 9 and explained that the
salary floor for participating employers was another factor
impacting contributions. As part of current statute, the
salary floor maintained payroll levels at or above the 2008
amount. He noted that the COVID-19 pandemic impacted many
communities and some employers had to lay off or defer
staff in FY 21. However, employers still paid $6 million
dollars into the system because the salary floor prevented
reductions.
Mr. Andreassen continued that in FY 24, the numbers had
decreased, but certain communities remained affected by the
2008 salary floor. He stated that for school districts and
local governments, the floor required an additional
$285,000 contribution beyond what their current employee
base accrued in benefits. He emphasized that attempts to
consolidate, reduce, or right-size government payrolls
would not reduce contributions toward the PERS liability.
3:05:47 PM
Mr. Andreassen moved to slide 10 and addressed the
challenge of delinquent employers, which was an issue that
surfaced periodically. He highlighted that missing payrolls
created a structural problem, leaving employers "prisoners
of PERS." For example, the City of Noorvik owed $2 million,
and the City of Saint George owed $1.7 million,
representing roughly 400 missing payrolls or 24 years of
community assistance payments to clear the debt. He
asserted that as the committee considered structural
changes, whether returning to DB or other reforms, it
needed to account for employer experiences and find better
solutions for recruitment, retention, and participation in
the system.
Representative Stapp noted that some municipalities on
slide 10, such as Selawik and Noorvik, were significantly
behind on contributions. He asked for more information on
the total liability and requested an explanation of the
late fees from accrued interest.
Mr. Andreassen responded that each missed payroll was
assessed at 1.5 times the standard rate, which was the
accrued interest applied to delinquent contributions.
Representative Stapp understood that the situation could be
considered insolvency for some smaller municipalities,
noting that 588 missed payrolls plus accrued interest
represented a substantial liability. He noted that
Selawik's estimated $700,000 PERS bill was a potentially
significant burden. He asked what strategies the state
could implement to help municipalities return to
compliance.
Mr. Andreassen replied that removing the 1.5 times penalty
could be one strategy. He added that implementing an
earlier trigger for off-ramps from PERS to alternative
systems could help. He noted that the majority of local
governments did not participate in PERS, with 64 of 165
local governments outside the system. He explained that the
smallest 65 municipal employers made up only 1 percent of
the total system, but there was concern that if the
smallest employers opted out of PERS, it could destabilize
the system. He added that if the state intervened earlier,
it could cover the estimated contributions as they came in
to prevent compounding of interest and better manage the
debt. He noted that the state had previously maintained a
"stressed communities" list to actively address the issues,
which no longer existed.
Representative Stapp asked whether removing the delinquent
employers would truly destabilize the system, given their
history of nonpayment since 2003.
Mr. Andreassen responded that he did not have a definitive
answer to the question.
3:11:08 PM
Mr. Andreassen suggested that the bill presented an
opportunity to address longstanding challenges. He
explained that the funded status of the program was
evaluated every four years and the slide included data for
the 2015, 2018, and 2023 valuations. He advanced to slide
11 and relayed that the system was projected to reach only
92 percent funded by 2039. He reminded the committee that
the original target had been 100 hundred percent funded. He
noted that both PERS and TRS showed little improvement
since 2015.
Mr. Andreassen explained that the flat funded ratios for
both PERS and TRS had identifiable causes since 2015. He
identified the most significant factor as the transition
from level-dollar funding to level-percent-of-pay funding.
He explained that during a period of fiscal challenges,
revenue shortfalls, and budget pressure, the change reduced
near-term contributions and deferred substantial costs to
later years, which explained why the funded ratios remained
flat for an extended period and why progress toward full
funding had been limited.
Mr. Andreassen added that the shift in 2014 from level-
dollar funding to level-percent-of-pay funding lowered
near-term employer contributions but deferred significant
liabilities into future years. He referenced the ARMB
Resolution 2025-04 and noted that it clearly documented the
consequences of the policy decision. He explained that
total costs over a 25-year period were approximately 10
percent higher under a level-percent-of-pay approach due to
deferred payments. He emphasized that the change did not
merely delay costs, but it increased the overall cost of
the system.
Representative Stapp expressed appreciation for the prior
slide. He thought that repeated reassessments of assumed
rates of return consistently resulted in downward
revisions. He explained that each reassessment reset
expectations lower, resulting in new funding projections
that ultimately left the system in roughly the same
position as when the process began. He observed that
changes such as shifting payroll methods and layered
amortization could make projections appear more favorable
by extending repayment timelines, but ultimately shifted
greater costs into the future. He asked whether Mr.
Andreasen's presentation was intended to encourage the
state to address the problem sooner rather than later.
Mr. Andreassen responded that addressing the problem sooner
rather than later would benefit all parties. He
acknowledged that earlier action would cost more in the
near term but would reduce total costs over time and
shorten the duration of payments.
Mr. Andreassen added that a review of court case documents
from the early 2000s showed that Milliman consultants had
reviewed the Mercer decision [State of Alaska v. Mercer]
and concluded that actuarial projections at the time were
conducted too infrequently. He explained that Milliman had
recommended annual evaluations rather than five-year
intervals. He noted that insufficient review frequency
contributed to earlier problems and that assumptions were
not reassessed often enough when conditions deteriorated.
3:16:31 PM
Mr. Andreassen continued to slide 12 and explained that the
system had not consistently made progress with respect to
pension "fundedness." He noted that when examining past
service cost amortization schedules, most years reflected
losses rather than gains, which failed to reduce the net
pension liability. He noted that the issue had already been
discussed during the prior day's presentation from DRB.
Mr. Andreassen noted that ARMB had recently taken steps to
adjust actuarial methodology. He referenced Resolution
2025-04 and explained that the change in methodology
addressed a prior structure in which the state paid its
full obligation up front while other employers paid over
time. He explained that the prior approach reduced
opportunities for higher investment returns. He reiterated
that the updated methodology added half a year of interest
to the normal cost, which altered funding outcomes and
addressed part of the imbalance. He explained that the
change helped explain why the system reached only 92
percent funded by 2039 and why remaining costs extended
beyond that date. Without the change, the net pension
liability would have extended into FY 83 for PERS and into
FY 52 for TRS. He explained that layered amortization and
amortization beyond fixed amounts had resulted in higher
costs for all employers over time. The change moved the
projected payoff date to FY 51, which was 12 years later
than the original 2039 target.
3:18:39 PM
Mr. Andreassen continued to slide 13, which illustrated how
amortization had evolved over time. He noted that the pink
bars on the charts represented state assistance. He
explained that by FY 40, the combined normal cost and past
service cost declined to just under 15 percent, which had
been the stated goal. He clarified that the continued
elevated cost in FY 40 resulted from layered amortization.
He stated that ARMB found that layered amortization shifted
approximately $2 billion in costs beyond 2039 and the
impact in FY 40 alone totaled $162.5 million for all
employers. At that point, employers paid the rate evenly,
meaning that amortization directly affected non-state
employers who otherwise would have experienced a normal
cost below 10 percent.
Mr. Andreassen reviewed prior rate impacts. He noted that
in 2019, the actuarial rate would have exceeded 30 percent
without changes related to state costs adopted in 2015. He
explained that re-amortization reduced the estimated FY 40
cost to below 10 percent, demonstrating the direct
relationship between layered amortization and higher future
rates. He stated that in 2011, the state faced an actuarial
rate above 40 percent and adopted changes to avoid those
costs. The projected normal cost in 2031 would have been
below 10 percent but for layered amortization.
Mr. Andreassen advanced to slide 14 and emphasized that
actuarial assumptions mattered. He stated that the issue
extended beyond the rate of return and included inflation,
investment returns, payroll growth, demographic
assumptions, and funding method changes from level dollar
to level percent of payroll. He explained that each of the
factors affected system costs. He added that vacancy rates
also played a role and that a 14 percent vacancy rate at
the state level resulted in approximately $36 million in FY
24 not being applied to the net pension liability, based on
his calculations.
3:22:20 PM
Mr. Andreassen continued to slide 15 and noted that
actuarial assumptions were adopted every four years, but
many of the assumptions had not changed enough. He
explained that payroll growth experience remained near 1
percent over time. The payroll growth assumption had been 4
percent in 2004, later declined, and remained at 2.75
percent for approximately 10 years, despite continued
experience near 1 percent. He explained that assumption
variances contributed to liability growth.
Mr. Andreassen understood that some of the documents
related to HB 78 showed that valuation assumption errors
related to salary increases added approximately $94 million
to the liability. He noted that errors related to the post-
retirement pension adjustment (PRPA) also increased the
liability. He asserted that the state should be tracking
all relevant assumptions. He added that statute required
ARMB to report the rate of return and compare outcomes, and
he argued that all actuarial assumptions should be included
in the reporting. The chart on the slide illustrated how
such tracking could be presented, but the chart was simply
an example and did not reflect data specific to Alaska.
Mr. Andreassen moved to slide 16 and addressed earnings
assumptions. He stated that smoothing or averaging alone
would not resolve the issues. He explained that when the
actual rate of return failed to exceed the assumed rate,
the system incurred a shortfall that had to be recovered in
addition to meeting average expectations. When cumulative
differences between actual returns and assumed returns were
calculated over time, the result was negative 29.1, which
was why the net pension liability had not improved more
substantially. He stressed that assumptions mattered.
Representative Stapp commented that he agreed that
assumptions mattered and that there were many ways errors
could compound over time. He shared that he had asked Mr.
Kalwarski from Cheiron about the 30-year assumption, to
which he had responded that a 40 basis point difference
could result in approximately $1 billion in additional
liability. He noted that he was not satisfied with Mr.
Kalwarski's response. He did not believe the state should
assume another billion-dollar liability due to inaccurate
assumptions related to plan performance and payroll. He
thought that increasing payroll costs while plan costs
increased created a compounding problem. He asked how Mr.
Andreassen would view shifting another $1 billion liability
to AML.
Mr. Andreassen replied that he did not support transferring
an additional billion-dollar liability to AML. He moved to
slide 17 and added that ARMB had been active in recent
years and had adopted multiple resolutions addressing
pension issues. He stated that the board had focused on
amortization policy and had encouraged the legislature to
review the resolutions to ensure consistency with
legislative intent and statutory requirements.
Mr. Andreassen explained that ARMB had considered
shortening amortization periods and recognized that layered
amortization had shifted approximately $2 billion in costs
beyond 2039. He stated that the board acknowledged that
amortization periods did not need to remain fixed at 25
years and that it had authority to adjust the periods. He
suggested that such considerations were relevant as the
legislature evaluated new pension proposals and bills.
3:26:36 PM
Mr. Andreassen continued to slide 18 and addressed employer
contribution rates. He stated that there was an opportunity
cost associated with high past service costs. He noted that
past service costs of approximately 20 percent for PERS and
TRS limited employers' ability to increase wages, offer
deferred compensation, or provide additional benefits. He
stated that what mattered most to employees was the
combined retirement contribution package. He explained that
if past service costs were addressed directly through
appropriate funding, accurate assumptions, and avoidance of
future liability growth, employers would have significantly
greater flexibility in compensating employees. The approach
represented another way to address ongoing recruitment and
retention challenges.
Representative Bynum commented that Mr. Andreassen appeared
to be operating under a time constraint and requested that
sufficient time be allowed for the details of the
presentation. He thought that the presentation was among
the most substantive the committee had received on the
topic, and he expressed concern that rushing the final
portion would be counterproductive.
Co-Chair Foster agreed and stated that the committee could
go over its scheduled end time of 3:30 p.m.
3:28:47 PM
Mr. Andreassen thanked the committee and continued on slide
19. He stated that several additional proposals had been
introduced in the Senate. He relayed that SB 55 would
require employers to participate in Social Security or the
Supplemental Benefits System (SBS), which would result in
an increase in payroll of approximately 6 percent. He
stated that the change would affect 27 local governments,
school districts, and the University of Alaska (UA), as
well as several housing authorities. He explained that for
non-state employers, the 6 percent payroll increase would
equate to approximately $20 million. He and stated that if
employers chose to hold employees harmless by increasing
salaries to offset the cost, the total impact would be
approximately $42 million. He noted that the proposal would
add approximately $20 million to the UA budget alone.
Mr. Andreassen relayed that PERS and TRS had originally
been designed as alternatives to Social Security. He noted
that the normal cost of earlier tiers had been
approximately 28.12 percent. He argued that the important
question was whether a new Tier IV DB plan would function
as a replacement for Social Security and SBS. If it would
not, the committee would need to consider how to address
employers whose needs had previously been met but were no
longer adequately served. He explained that employers
seeking to exit the system would still carry net pension
liability obligations, which were projected to extend into
FY 83.
Mr. Andreassen noted that there was another proposal that
would require local governments to pay the full actuarial
rate for PERS, which would result in approximately $100
million in increased local taxes for municipal employers.
He stated that for TRS employers, the impact would be
approximately $87 million, which would affect education
funding.
3:31:52 PM
Mr. Andreassen advanced to slide 20 and addressed the e-
reporting system issue. He expressed appreciation that DRB
had been working to resolve the system's inability to
accept contributions. He stated that payroll reporting had
been unavailable, creating outstanding payrolls that were
required to be entered by April 30, 2025. He noted that the
roughly four-month reporting gap would impact system
funding. He relayed that the payrolls submitted by the
State of Alaska and the Municipality of Anchorage had
accounted for approximately 68 percent of total payroll,
while the remainder of the system experienced delays. He
explained that the issue would have measurable impacts on
employer contributions and system operations. He added that
the state had committed to reimbursing employees for lost
earnings during the time period. He asserted that it was
incumbent upon the state to also reimburse the system,
which would carry a significant cost. Without action, the
liability would be shifted into future years, requiring
non-state employers beginning in 2050 to assume obligations
that were the responsibility of the state.
Mr. Andreassen highlighted the importance for the
legislature to monitor employers' ability to submit
outstanding payrolls by the end of the month. He stated
that 31 PERS employers and 13 TRS employers currently had
pending payrolls. He explained that the committee should
ensure these employers did not incur additional costs due
to the system outage. He reported that for PERS, six months
of payroll equated to $560 million, with $123 million
representing the associated contributions. For TRS, the
contribution during the same period was $52 million. He
emphasized that the earnings losses would compound over
time.
3:34:18 PM
Representative Hannan asked for more information about the
calculation of lost contributions. She noted that the
committee had included employee lost earnings in the
supplemental budget but had not received direction from the
state on how to calculate the system impact. She stated
that prior testimony demonstrated how liabilities were
being deferred. She emphasized the importance of making
employees and the system whole. She asked if Mr. Andreassen
had a calculation or if the committee should request a
calculation from DRB.
Mr. Andreassen agreed that it would be appropriate to
request a calculation from DRB or the Legislative Finance
Division (LFD). He noted that the impact of lost earnings
over time was approximately $20 million, which could grow
further over 25 years if not addressed. He noted that the
math was an estimate and he recommended that a qualified
party provide the official calculation.
Representative Hannan emphasized that the committee should
act to address the shortfall immediately rather than
allowing it to become a larger unfunded liability over
time. She noted that the current six-month shortfall should
be addressed immediately to avoid compounding the
liability.
Mr. Andreassen agreed. He moved to slide 21 and explained
that many of the impacted employers had appeared on AML and
non-state employer lists for an extended period. He stated
that there was an opportunity to update the 2008 salary
floor to relieve undue burdens on employers. He suggested
that the floor could be adjusted, removed, or averaged
depending on legislative direction. He explained that new
legislation could incorporate processes such as termination
studies to address employer-specific issues. He clarified
that termination studies allowed an employer to exit PERS,
but the employer incurred the cost of the study and
retained any accrued net pension liability. He emphasized
the importance of considering whose liability accrued
during the process and how termination studies should be
approached in the future.
Mr. Andreasen explained that the 22 percent employer
contribution was a cap, not a floor, and could be decreased
if the state reduced its share. He reported that
preliminary calculations suggested each one-percentage-
point change would cost the state approximately $10 million
in additional contributions. He stated that the cap should
not remain in place beyond 2039, when the rate was expected
to decrease to 15 percent. Maintaining the cap beyond that
point would hinder retiree hiring without transferring
accrued liability between employers. He recommended that
the legislature develop an exit strategy for smaller,
stressed employers. For example, strategies could include
using a five-year audit of terminated employer net pension
liability, elimination of high interest rates on past-due
payments, locking in net pension liability, providing
opportunities to pay down and exit, and creating a strategy
to fully address remaining liability. He concluded that
these goals represented long-term objectives and that no
single bill could solve all issues.
3:39:45 PM
Representative Bynum asked for more information about the
potential opportunities available to employers if net
pension liability were eliminated. He asked what
improvements municipal governments, school districts,
police, fire, and other employers could achieve if the
liability no longer existed.
Mr. Andreassen responded that he had a conversation with an
employer who noted that current contributions to PERS
severely limited the health care benefits the employer
could provide. He explained that the employer could cover
employees, but could not cover employees' families. He
relayed that employees prioritized health care over
retirement benefits. He noted that past service costs of
approximately 10 percent to 20 percent prevented deferred
compensation, restricted other benefits, and slowed payroll
growth over time. He emphasized that eliminating the net
pension liability would create significant opportunity for
employers to improve employee compensation, benefits, and
retention.
Representative Bynum asked if employers would use such
savings responsibly or simply retain the funds.
Mr. Andreassen responded that he had not heard from
employers that they would "take the money and run." He
stated that recruitment and retention remained a key focus
and that several local governments were actively conducting
salary studies and evaluating compensation packages. He
concluded that employers were focused on improving the
employee experience rather than retaining unallocated
funds.
3:43:03 PM
Mr. Andreassen advanced to slide 22 and explained that he
included Oregon as an example while reviewing how other
states addressed employer needs. He stated that the
comparison was instructive in demonstrating available
options. He outlined several tools used in Oregon,
including an employer incentive fund, a rate projection
tool, member redirects, and salary limits. He noted that
such tools could be made available to employers at the
discretion of the plan sponsor as established by the state.
He emphasized that while he could not verify whether each
tool was effective, he believed that having more options
available to employers would be beneficial and that some
ideas could be adapted to fit Alaska's system.
Mr. Andreasen concluded that the presentation was not
intended to advocate specifically for HB 78 or for a DB
plan versus a DC plan. He stated that the goal was to
contribute to a solution that worked for the system,
employers, and employees. He emphasized the importance of
asking fundamental questions, including what employees
needed, whether all employees required the same benefits,
whether all employers had the same needs, and how
accountability should be managed between employers and the
plan sponsor. He thought it was important to examine the
role of the state as plan sponsor and how it engaged with
employers, particularly when decisions could significantly
affect long-term employer costs. He stated that the intent
of the presentation was to encourage stepping back from
individual bills to evaluate the overall employer
experience and the long-term sustainability of the system.
He emphasized the need to ensure that normal costs were
addressed in the present rather than shifted to future
employers or taxpayers.
Representative Jimmie commented that it was difficult for
private businesses to offer retirement plans due to high
costs, particularly in communities such as Toksook Bay. She
noted that the City of Toksook Bay appeared on the list of
employers that were behind on payments [slide 10] and she
emphasized that the high cost of living made it challenging
for both public and private employers to provide retirement
benefits.
Mr. Andreassen responded that he had recently spoken with
the mayor of Toksook Bay. He explained that the city paid
approximately $25,000 annually into PERS despite having no
PERS employees. He expressed concern for communities that
continued contributing to the system without receiving
corresponding benefits.
HB 78 was HEARD and HELD in committee for further
consideration.
Co-Chair Foster handed the gavel to Co-Chair Josephson.
3:46:38 PM
AT EASE
3:46:43 PM
RECONVENED
Co-Chair Josephson stated the meeting would reconvene at
4:00 p.m.
3:47:06 PM
AT EASE
4:03:05 PM
RECONVENED
HOUSE BILL NO. 53
"An Act making appropriations for the operating and
loan program expenses of state government and for
certain programs; capitalizing funds; amending
appropriations; making supplemental appropriations;
making reappropriations; making appropriations under
art. IX, sec. 17(c), Constitution of the State of
Alaska, from the constitutional budget reserve fund;
and providing for an effective date."
HOUSE BILL NO. 55
"An Act making appropriations for the operating and
capital expenses of the state's integrated
comprehensive mental health program; and providing for
an effective date."
^AMENDMENTS
Co-Chair Josephson noted that the committee would continue
hearing amendments for the operating and mental health
budgets.
4:03:44 PM
AT EASE
4:05:17 PM
RECONVENED
Co-Chair Josephson MOVED to ADOPT Amendment N 64 (copy on
file):
Agency: Health
Appropriation: Public Assistance
Allocation: General Relief Assistance
Transaction Details
Title: Add Funding for Alaskan Food Banks and Pantries
to Promote Food Security
Section: Section 1
Type: IncOTI
Line Items (Amounts are in thousands)
Personal Services: 0.0
Travel: 0.0
Services: 0.0
Commodities: 0.0
Capital Outlay: 0.0
Grants: 1,000.0
Miscellaneous: 0.0
1,000.0
Positions
Permanent Full-Time: 0
Permanent Part-Time: 0
Temporary: 0
Funding (Amounts are in thousands)
1004 Gen Fund 1,000.0
Explanation
Representative Stapp OBJECTED.
Co-Chair Josephson explained that Amendment 64 proposed
adding $1 million for the Food Bank of Alaska (FBA). He
understood that the committee was nearing the end of the
amendments process, but he believed the amendment was
important. Excluding statewide functions such as the Alaska
Marine Highway System (AMHS) backstop and other additions
made by the Senate totaling $10 million, as well as the $5
million restoration of the Community Assistance Program
(CAP) for one year, the committee had reduced state
spending by approximately $744,000 due to adopted
decrements to the budget through amendments. He clarified
that the figure excluded the unallocated cut. He explained
that although Amendment 64 proposed an additional $1
million in spending, his rough calculation showed that,
excluding those statewide functions, adoption of the
amendment would result in a net increase of approximately
$300,000.
Co-Chair Josephson explained that FBA had expressed strong
support for Amendment 64. He stated that he had received
written correspondence three days earlier from Chief of
Advocacy at FBA, Ms. Rachel Miller, who noted that one in
eight Alaskans and one in six Alaskan children experienced
hunger. He relayed that Ms. Miller described ongoing
backlogs caused by administrative challenges at the
Department of Health (DOH), SNAP, and Medicaid. He stated
that the backlogs had led to increased demand at food
pantries across the state. Food banks and pantries were
often the only available option for individuals who were
uncertain where their next meal would come from.
Co-Chair Josephson stated that Ms. Miller referenced
national policy discussions, including proposals that would
require states to absorb a greater share of SNAP costs or
significantly reduce SNAP benefits. She indicated that
potential reductions in SNAP, Medicaid, or other assistance
programs could result in increased demand at food banks and
pantries. He referenced a recent article by Iris Samuels
titled, "Alaska Receives Federal Warning at Risk of Losing
Funding Over Food Stamp Backlog." He explained that the
article described a federal penalty related to SNAP
administration. He noted that the penalty was in addition
to a separate unfunded penalty adopted earlier that day on
the House floor by a vote of 21 to 19.
Co-Chair Josephson explained that while SNAP benefits were
still being distributed, the program was not functioning
effectively due to federal concerns regarding compliance
and administration. He added that Ms. Miller shared that
FBA and its partners had previously received $1.68 million
and more recently, $1,011,500.
Co-Chair Josephson stated that he had provided the
committee with a spreadsheet (copy on file) listing
communities with participating food banks that received
food primarily from larger distribution centers such as
Anchorage, Juneau, and Fairbanks. He explained that funds
appropriated for the current fiscal year would not arrive
until January. Despite receipt of those funds, FBA
expressed concern about a growing gap in the hunger
response network as more Alaskans experienced financial and
food insecurity.
4:10:53 PM
Co-Chair Josephson reiterated that one in eight Alaskans
and one in six Alaskan children were affected by food
insecurity, according to FBA's State of Hunger in Alaska
report. He explained that the numbers equated to nearly
100,000 individuals, including approximately 30,000
children. In 2024, FBA distributed more than 7.9 million
pounds of food, equivalent to 6.7 million meals, to
Alaskans in need. He stated that the organization delivered
approximately 583,000 meals to children in rural school
districts. He also noted that food was distributed to older
Alaskans through the Commodity Supplemental Food Program
(CSFP). He asserted that the need for food assistance was
clearly established. While he supported UA sports programs
and appreciated prior committee action to fund the
programs, he believed it placed the legislature in an
inconsistent position to fund athletics while not providing
funding for food banks.
Representative Stapp stated that when food bank
appropriations began approximately three years earlier, the
funding had been described as temporary assistance to
address the SNAP backlog. He referenced the SNAP penalty
and noted that earlier committee discussion had established
that the penalty resulted from over-issuance of benefits
intended to reduce backlog delays. He asked whether the
appropriation was becoming an ongoing commitment rather
than a temporary measure. He also asked why it took nine to
11 months for the department to distribute funds that were
approved to address what was described as an immediate
need, noting that the prior year's funds had not been
scheduled for distribution until March.
Co-Chair Josephson responded that DPA was experiencing
significant administrative challenges. He stated that he
was glad the funds were distributed when they were, but he
expressed concern that the current grants would expire in
January of 2026. He stated that FBA had reported prior
distributions of funds, including approximately $420,000 to
the Fairbanks Community Food Bank (FCFB), $100,000 to the
Kenai Peninsula Food Bank (KPFB), and $150,000 to the
Southeast Alaska Food Bank (SAFB). He explained that these
figures illustrated how funding was distributed statewide
rather than concentrated in a single community.
4:14:41 PM
Representative Tomaszewski asked where the remaining funds
had been distributed beyond the examples provided.
Co-Chair Josephson responded that the figures referenced
were from calendar year 2024, when $4.5 million had been
included in the governor's proposed FY 24 budget. He
clarified that the $1.68 million distributed that year was
allocated across multiple regions and he had used the
examples to demonstrate the statewide distribution model.
He emphasized that the funding was not limited to
Anchorage.
Representative Tomaszewski asked how much funding remained
or whether all funds had been expended.
Co-Chair Josephson responded that he did not have the
information available. He suggested that LFD or DOH may
have the information.
Representative Tomaszewski asked to follow up on
Representative Stapp's question. He stated that the food
bank funding appeared to have originated during the COVID-
19 pandemic and had initially been described as temporary.
He was uncertain whether the original justification still
applied, but he understood that Co-Chair Josephson appeared
to have researched the issue already. He would like more
information on the remaining funds and he thought that the
committee should consider the matter further.
Representative Galvin stated that she had reviewed her
notes related to FBA after meeting with representatives
from the organization multiple times during the year. She
wanted to share several observations. She expressed
appreciation for Lutheran Social Services of Alaska (LSSA)
for visiting her office and she thought the information
presented to her was deeply concerning. In Midtown
Anchorage alone, approximately 600 seniors received a food
box once per month through LSSA. She explained that
eligibility was limited to individuals aged 60 years or
older with monthly income of $2,000 or less. She stated
that the 30-pound food box was insufficient and seniors
continued to experience food insecurity. She emphasized
that older Alaskans were going hungry. Government grants
and contracts declined from $6.22 million in 2023 to $4.24
million in 2024, representing a 31.8 percent decrease year
over year. She stated that while federal funding had
previously provided support, demand continued to increase
and more individuals than ever continued to access pantries
and meal programs even after the pandemic.
Representative Galvin stated that while food bank funding
had initially been framed as a temporary response to the
pandemic, ongoing conditions demonstrated sustained need.
She relayed that despite declining funding, rising
operational costs, and inflationary pressures, food banks
distributed approximately 7.9 million pounds of food and
nearly 6.7 million meals in 2024. She asserted that the
food was being utilized and not wasted, and that demand
remained high, particularly in rural Alaska.
Representative Galvin shared that families were reportedly
waiting up to three months or longer to receive SNAP
benefits. She argued that food pantries were not an ideal
substitute for SNAP because they did not always provide
culturally or nutritionally preferred foods, but the food
pantries were necessary under current circumstances. She
expressed support for Amendment 64 because food insecurity
persisted.
4:20:05 PM
Representative Johnson asked whether the committee could
request that LFD Director Alexei Painter address the issue.
She suggested that language could be added to reappropriate
FY 25 funds into FY 26 or extend FY 25 funding into FY 26
to account for any unspent balances.
ALEXEI PAINTER, DIRECTOR, LEGISLATIVE FINANCE DIVISION,
responded that when the matter was discussed in December of
2024, DPA indicated it planned to begin disbursing the
funds in February of 2025. He stated that the department
assumed the full amount would be disbursed, but any unspent
funds would lapse back to the general fund. If an unspent
amount remained, the legislature could choose to extend the
appropriation. He explained that the department issued
requests for proposals in November of 2024 and likely had
full grant agreements in place at that time. A second
appropriation that was made in 2024 through the Department
of Commerce, Community and Economic Development (DCCED) for
food banks had also been fully expended.
Representative Bynum stated that the budget listed $605,400
under the public assistance line [page 20, line 20]. He
asked whether the proposed funding would be added to the
existing line item or whether it constituted a new addition
to the budget.
Mr. Painter responded that the funding was comparable to a
one-time appropriation of $1.5 million made in the same
line item during the previous year. He stated that the
current budget proposal would place a smaller amount in the
same budget line.
Co-Chair Foster expressed his support for Amendment 64. He
stated that he appreciated that the food bank distributed
food to 75 communities and organizations. He noted that
Alaska had more than 200 villages and he encouraged FBA to
expand distribution to additional communities, if possible,
particularly given SNAP-related challenges. He shared that
that the SNAP backlog represented the most frequent
category of constituent calls received by his office during
the legislative session. He relayed that constituents
experienced long wait times, delays of weeks or months, and
disconnections while seeking assistance. He expressed
concern for affected individuals and stated that food banks
provided an important means of support.
Co-Chair Foster noted that while food banks were not
present in every village, hub communities such as Nome
sometimes assisted surrounding areas. He stated that
increased support would improve outreach. While he
generally favored limited government, he viewed food
assistance for individuals and families unable to meet
basic nutritional needs as an appropriate government
responsibility, along with public safety, roads, and
sanitation. He noted that it was particularly important
when children were involved.
4:24:32 PM
Representative Hannan indicated that she also supported
Amendment 64. If SNAP was not functioning as intended, the
state needed to assist through alternative means. She asked
Mr. Painter whether funds retained by the state from SNAP-
related penalties could be used for direct food assistance.
She noted that Alaska was required to pay a $12 million
fine due to having insufficient eligibility technicians for
SNAP, with $6 million repaid to the federal government and
$6 million retained by the state. She asked whether
retained funds could be used to support food banks.
Mr. Painter responded that he did not know the details of
the settlement and advised that DOL would need to be
consulted. He stated that the language submitted to the
legislature specified that retained funds were designated
for new SNAP investment projects. He explained that the
designation did not include direct food assistance such as
funding food banks. He could not speak to whether the
limitation resulted from negotiation decisions by DOL.
Representative Hannan commented that the legislature would
not be able to achieve such changes before addressing the
FY 26 budget. There was concern that the state could again
face additional federal penalties due to the ongoing SNAP
backlog. She thought the committee should consider whether
future negotiations conducted by DOL regarding public
assistance penalties might allow funds to be directed
toward providing food assistance to individuals who
experienced food insecurity, including through food banks.
She reiterated that such changes were not achievable within
the FY 26 budget process.
Representative Bynum commented that he continued to hear
discussion regarding SNAP and whether the program was
effectively administered. He stated that speculation
regarding the future operation of SNAP appeared to be
influencing support for the amendment. He did not believe
he had sufficient information to determine whether SNAP
services would continue as expected. He had limited time to
research the program and was speaking only to the
information available to him. When considering food
security, particularly in remote communities, he believed
support should be narrowly focused on low-income, hard-to-
reach, and highly vulnerable areas. He thought there should
be less emphasis on communities such as Ketchikan,
Anchorage, and Fairbanks, where additional resources and
services were available. He would prefer to see funding
directed toward communities such as Kake, Hoonah, and
Yakutat, which were more vulnerable to food shortages and
supply disruptions. He did not yet understand how the
program ensured assistance reached the most vulnerable
communities. He requested that Co-Chair Josephson provide
an additional explanation regarding how the program was
intended to protect those communities.
4:28:58 PM
Representative Allard stated that she found the discussion
informative. She stated that she recognized several
Anchorage-based organizations listed in the handout
provided by Co-Chair Josephson (copy on file), including
Beans Café and the Chugiak Eagle River Food Pantry. She
stated that the Municipality of Anchorage provided
significant funding to these organizations through grants,
bond authorizations, and actions exceeding the tax cap. She
did not believe Anchorage qualified as one of the most
vulnerable communities, given the level of municipal
support available. She emphasized the need to target
funding toward the most vulnerable areas of the state. She
did not support approving the funding in the current budget
cycle because she believed nonprofits were capable of
raising funds independently and that continued reliance on
government funding was not appropriate. She stated that if
funding were provided, it should be narrowly targeted,
which she did not believe was occurring under the
amendment.
Representative Tomaszewski noted that he could not speak to
conditions in Anchorage, Kenai, Southeast Alaska, or other
communities that had received funding under the
appropriation; however, he could speak to conditions within
the Fairbanks community. He explained that FCFB performed
extensive food distribution work and that he had
volunteered and worked with the organization for many
years. He stated that the organization not only raised
funds for its own projects but also worked with the state
on food distribution, including distributing fish to
villages when fish availability was limited. He explained
that FCFB served as a distribution hub and sent food
throughout the interior region of Alaska. The organization
partnered with local grocery stores to donate food weekly,
such as Costco and Fred Meyer. He described the work as a
coordinated effort to distribute food to people in need and
noted the significant contribution of volunteers over many
years. He stated that he believed it was a reasonable
appropriation to help those in need.
4:32:57 PM
Representative Stapp expressed appreciation for the
comments from Representative Tomaszewski. He noted that the
committee had discussed the issue the previous year in
relation to separate legislation. He offered a warning that
the department would not be able to clear the SNAP backlog.
He had cautioned that increasing eligibility conditions
would create an additional backlog. As of the current
month, the backlog remained unresolved and additional
individuals would be added to the program in July of 2025,
which he believed would likely worsen the backlog. He
stated that he supported the amendment because he believed
the department would continue to face challenges processing
applications. He clarified that his comments were not
intended to criticize departmental staff, but that his
concern was structural rather than personal. Without
addressing capacity issues, additional funding for food
banks might be required in future years.
Representative Bynum shared that he sought a clearer
understanding of how the program functioned in terms of
distributing food to communities. He wanted additional
information before the committee voted on the amendment
regarding how food was transported and allocated. He stated
that while the program appeared beneficial, he believed
further discussion would be necessary in the future to
ensure that the most vulnerable communities were
prioritized.
Co-Chair Josephson responded that he was not an expert on
food distribution operations, but he had provided the
committee with a list showing the number of pallets and
pounds distributed to villages (copy on file). He indicated
that he believed the information addressed some of the
concerns raised. He referenced a September 2023 press
release in which the administration reallocated $1.7
million to support food distribution statewide in response
to difficulties processing SNAP applications. He explained
that the press release originated from DOH Commissioner
Heidi Hedberg and noted that the organization distributed
567,000 pounds of food to 82 partners statewide, from
Ketchikan to Bethel and Gambell, in response to food
insecurity. He relayed that FBA had a number of
testimonials from partner organizations across the state,
including Southeast Alaska, the Kenai Peninsula, Bethel
Community Services, the Matanuska-Susitna Food Bank, the
Bristol Bay Native Association, the Nome Community Center,
and the Upper Susitna Food Pantry.
Co-Chair Josephson advised that he could not provide a
precise operational breakdown but emphasized that the
article he had mentioned earlier by Iris Samuels was
concerning. According to federal data cited in the article,
the state met required SNAP application processing
deadlines only 36 percent of the time, compared to the
federal performance standard of 95 percent. He explained
that the data helped explain the federal penalty assessed
against the state. He reported that more than 2,700
Alaskans had waited longer than three months for SNAP
applications to be processed, despite a federal requirement
that applications be completed within 30 days. He added
that the article referenced a vacancy rate of 30 percent
within the department as of March of 2025 and reported that
only three employees were hired between January and March
to address the backlog. He characterized the amendment as a
reduction rather than an expansion, acknowledging the $1
million cost and the fiscal challenges facing the state. He
stated that the need for food assistance remained evident.
4:37:47 PM
A roll call vote was taken on the motion.
IN FAVOR: Jimmie, Johnson, Hannan, Tomaszewski, Stapp,
Galvin, Bynum, Foster, Josephson
OPPOSED: Allard, Schrage
The MOTION PASSED (9/2). There being NO further OBJECTION,
Amendment 64 was ADOPTED.
4:38:37 PM
AT EASE
4:41:53 PM
RECONVENED
Co-Chair Josephson MOVED to ADOPT Amendment N 95 (copy on
file):
Agency: Permanent Fund
Appropriation: Permanent Fund Dividends
Allocation: Dividend Fund 1050
Transaction Details
Title: POMV Draw with $1000 Dividend
Section: Language
Type: IncOTI
Line Items (Amounts are in thousands)
Personal Services: 0.0
Travel: 0.0
Services: 0.0
Commodities: 0.0
Capital Outlay: 0.0
Grants: 0.0
Miscellaneous: 681,700.0
681,700.0
Positions
Permanent Full-Time: 0
Permanent Part-Time: 0
Temporary: 0
Funding (Amounts are in thousands)
1041 PF ERA 681,700.0
Explanation
Page 57, lines 14 - 17:
Delete all material and insert:
"(1) the amount necessary, estimated to be
$681,700,000, to the dividend fund
(AS 43.23.045(a)) for the payment of a permanent fund
dividend of $1,000 and for
administrative and associated costs for the fiscal
year ending June 30, 2026;"
Page 57, line 18:
Delete "$1,294,439,328"
Insert "$3,117,188,398"
Representative Stapp OBJECTED.
Co-Chair Josephson explained that Amendment 95 proposed
changing the amount of the 2025 Permanent Fund Dividend
(PFD) from the $3,000 amount proposed by the governor to
$1,000. He wanted to place several points on the record
regarding the Permanent Fund and the dividend. He explained
that between 1982 and 2015, the legislature appropriated a
PFD each year based on the statutory formula. During his
initial legislative terms in 2013 and 2014, the legislature
did not regularly debate the dividend. He reported that
over the 34-year period, the average dividend was $1,150.
He emphasized that during that time, the dividend had no
impact on the operating budget and functioned separately
from it. He explained that a portion of earnings was
distributed as dividends while the remainder stayed in the
fund to support growth. During that period, the Permanent
Fund grew from approximately $3 billion to nearly $53
billion, which materially affected the formula used to
calculate dividends.
Co-Chair Josephson relayed that in 2016, Governor Bill
Walker introduced legislation to use the fund as an
endowment to support state government through a percent of
market value (POMV) mechanism. He stated that the approach
was enacted in 2018 through SB 26. Following enactment, the
POMV framework created a zero-sum dynamic in which each
dollar allocated to the dividend reduced the amount
available for other general fund needs, and vice versa. He
stated that the dynamic was especially pronounced in a
fiscal environment where the state did not raise broad-
based revenue and did not tax its residents to fund
government operations.
Co-Chair Josephson stated that in 2016, the governor vetoed
a portion of the dividend appropriation, and that in each
year since then, the legislature appropriated a dividend
amount smaller than what would have been paid under the
historic statutory formula. He stated that the cumulative
reduction in dividend payments over the nine-year period
totaled $9.3 billion. He added that when interest was
included, the amount exceeded $12 billion. By comparison,
the Permanent Fund currently held just over $5 billion in
uncommitted earnings reserve funds, excluding the $3.8
billion already committed to the upcoming fiscal year
budget. He stated that excluding those funds was necessary
because the funds were required to support the budget and
included an inflation-proofing transfer scheduled for June
of 2025. He stated that without those funds, the state
would face serious fiscal risk. He asserted that the state
currently lacked the financial capacity to pay historic
dividend amounts.
Co-Chair Josephson relayed that in prior years, proposals
were offered to pay full dividends or pay back dividends.
He stated that such proposals were no longer feasible. He
explained that the limitation was not solely due to
insufficient funds, nor solely due to the version of the
budget under consideration, which allocated approximately
66 percent of the annual draw to the dividend. He stated
that the underlying issue was that the historic dividend
formula no longer aligned with the structure of the
Permanent Fund under the POMV framework. When the
legislature was considering SB 26, both the House and the
Senate passed versions of the bill that included new
dividend formulas tied to POMV. He stated that the Senate
version included a dividend allocation equal to 25 percent
of the POMV draw. He explained that under a 25 percent
draw, the dividend for the current year payable in October
would have been approximately $1,440. The House version
included a 33 percent dividend, which would have resulted
in a higher amount than $1,440. He explained that the
conference committee was unable to reach consensus on a new
dividend formula, and as a result, the final bill was
silent on the issue.
Co-Chair Josephson explained that because no new formula
was adopted, the historic dividend formula remained in
statute despite being unaffordable. The outcome resulted in
an annual debate over the dividend. He wanted to change the
dividend formula to an amount the state could realistically
afford. If the legislature enacted a new formula, it would
be honored and paid. He argued that adoption of a
sustainable formula would help frame future budget
discussions regarding affordability, but the legislature
had not yet reached agreement on a new dividend formula. He
relayed that the absence of a realistic formula delayed
resolution of essential budget issues until late in the
legislative process. The state faced a deficit exceeding
$1.5 billion under a full dividend scenario.
Co-Chair Josephson noted that the committee had spent the
prior two months developing the operating budget through
subcommittees and full committee work. The range of
remaining budget options was limited to tens of millions of
dollars. He clarified that the limitation applied to the
operating budget itself and not to the dividend. The
committee had completed less work on the capital budget but
he could reasonably estimate its size. He noted that the
legislature was also considering substantial increases to
K-12 education funding. The state faced a projected deficit
of approximately $2 billion if the operating budget as
proposed was adopted.
Co-Chair Josephson explained that Amendment 95 would
provide a $1,000 dividend to all eligible Alaskans. He
stated that adoption of the amendment would increase funds
available to the general fund and reduce the deficit by
approximately $1.8 billion. He stated that $1,000 was
within the range the state could afford and he
characterized the proposal as realistic and fair.
4:48:06 PM
Co-Chair Josephson understood that it was widely believed
that the dividend would ultimately fall near the $1,000
range. He stated that few discussions involved amounts
lower than the $1,000 level. He explained that under a
residual dividend approach, assuming growth in K-12
funding, the dividend could be approximately $700. He
stated that further discussion was expected. The dividend
amount would be changed through the legislative process,
including in committee, conference committee, and on the
House floor. He stated that he was open to conceptual
amendments.
Representative Jimmie stated that the PFD was critically
important to her district. She shared that statewide per
capita income was approximately $41,000, but annual income
in her district was approximately $21,000 or less. During
recent travel to villages in her district, she encountered
a family heating their home with an oven because they could
not afford stove oil. She stated that the dividend helped
keep approximately 40 percent of her constituents out of
poverty.
Representative Tomaszewski believed the PFD should be paid
as written in statute. He stated that he would vote against
Amendment 95. He viewed reductions to the dividend as
regressive and harmful to individuals with the lowest
incomes in the state. He argued that a reduction of $2,000
to the dividend could represent 10 percent or 15 percent of
an individual's annual income. The dividend provided
significant assistance to retirees, individuals on fixed
incomes, and individuals living in poverty. Reducing the
dividend disproportionately affected lower-income
individuals compared to higher-income earners. He noted
that a $2,000 reduction represented approximately 1 percent
of income for someone earning $200,000 annually but a
substantially larger share of income for individuals with
lower earnings. He stated that he could not support the
reduction.
Representative Allard noted that the legislature frequently
emphasized the importance of following the law and adhering
to statute. She stated that her opposition to the amendment
was because she wanted to represent her community as well
as support her colleagues who represented rural
communities. She stated that she did not want rural
communities to suffer. Regardless of whether an individual
was a single parent in Eagle River, Bethel, or Nome, she
wanted to ensure that families could afford medical care,
orthodontic care, and education expenses for their
children.
4:52:32 PM
Representative Johnson expressed her opposition to the
amendment. She thought that the legislature had an
insatiable appetite for spending and that accountability
and restraint were lacking. She stated that the dividend
allowed individuals to decide how to best meet their needs
without government direction. Recipients might choose to
spend the dividend on fuel, food, or other necessities
rather than government-selected programs. She asserted that
the dividend represented the only effective spending cap on
government and that public attention to the dividend helped
restrain government spending. She expressed concern that
support for a larger dividend was sometimes portrayed
negatively. She relayed that the dividend helped working
families save money, support education, and improve their
quality of life. She stated that she could not support the
amendment.
Co-Chair Foster shared that he opposed Amendment 95 because
he supported paying the full statutory PFD. He shared that
his district ranked either the lowest or second lowest in
per capita income statewide. He stated that residents in
his district relied on the dividend to pay for necessities
such as heating oil, food, and medicine. He noted that a
reduction of $1,000 or $2,000 might not significantly
affect some Alaskans, but it had a substantial impact on
many of his constituents. He explained that a $2,000
reduction affected families disproportionately. For a
family of five, the reduction equated to $10,000. He stated
that evaluating the reduction as a percentage of income
further illustrated the disparity. For example, a $2,000
reduction represented 2 percent of income for a household
earning $100,000 annually. For a family in a village
receiving approximately $10,000 in cash income supplemented
by subsistence, the same reduction equated to a 20 percent
loss of total income.
Co-Chair Foster stated that he had visited all of the
villages in his district and he had personally observed the
high cost of living and economic hardship in those areas.
He stated that residents were barely managing financially,
especially considering the current challenges related to
SNAP. He asserted that his constituents needed a robust
dividend. He supported a larger PFD particularly for rural
Alaska and he was in opposition to the amendment.
4:58:47 PM
Co-Chair Schrage expressed his full support for Amendment
95. He acknowledged that the full statutory dividend was
established in law. The committee had made efforts to limit
spending but even with reductions, the budget had to
balance against available revenues. He asserted that the
constitution required passage of a funded budget and that
the state could not meet all obligations simultaneously. He
noted that members of the committee had supported various
budget increments, including funding for dementia
awareness, a deaf navigator, fisheries research, and
reimbursement for required air quality studies. He stated
that these expenditures reduced the funds available for the
dividend. He recognized the importance of the dividend,
particularly for low-income and rural families, but the
committee faced a mathematical constraint that required
tradeoffs. He relayed that maintaining essential state
functions required acknowledging revenue limitations and
reallocating funds accordingly.
Co-Chair Schrage stated that if the committee did not
address the imbalance, the responsibility would fall to
others, and he did not want to abdicate the responsibility.
He wanted the committee to take ownership of the budget,
which required acknowledging that the dividend needed to be
reduced. The alternatives included drawing large amounts
from the Constitutional Budget Reserve (CBR), overdraws
from the Permanent Fund that could eliminate the dividend
entirely, or instituting taxes. He stated that he had not
observed sufficient will within the committee to pursue the
other options. He noted that there was unwillingness among
members to draw from the CBR. He stated that the public
needed honesty regarding where funding would come from. If
the state was unwilling to use savings, overdraw the fund,
or impose taxes, the dividend would have to be reduced. He
stated that although the vote was difficult, he was willing
to take responsibility because the financial reality
required it. He thought that the committee needed to accept
ownership of the process and be honest about what was
required to fund the budget priorities members had
supported.
5:02:57 PM
Representative Galvin expressed hesitant support for
Amendment 95. She explained that her hesitation stemmed
from the regressive nature of reducing the dividend and she
thought that her colleagues from rural Alaska were correct
in raising concerns. There were mixed feelings about
reducing the PFD in her district, but as a whole, her
district understood that the state faced a $1.6 billion
deficit and that action was required. She reiterated that
reducing the dividend was regressive, but the state lacked
other revenue mechanisms. She relayed that Alaska was the
only state without a statewide sales tax or income tax and
that the state had previously relied on oil revenue, which
had declined significantly. The state currently faced a
severe fiscal challenge and could not rely upon oil
increasing again in the future.
Representative Galvin suggested that additional revenue
options should be considered, including sales taxes, income
taxes, modernization of tax systems, and mining revenue.
She stated that a $1.6 billion deficit could not be
resolved through cuts alone, regardless of fiscal
conservatism. She thought that the committee had
prioritized essential services such as food assistance,
health care, and legally required obligations and had
avoided unnecessary spending. She explained that her votes
were cast with statewide interests in mind rather than
district-specific benefits. The state needed to remain a
place where people wanted to live, with safe communities,
strong schools, and opportunities for children. The state
was at a difficult juncture that required deciding how it
would invest in itself amid fiscal constraints. She wanted
to ensure that the legislature was doing what was necessary
for rural Alaskans, particularly in regions facing severe
hardship. She stated that the PFD issue posed a difficult
question for her. She was actively working on ideas to
improve the distribution of wealth statewide. She stated
that her constituents expected the legislature to balance
the budget and adjourn on time. She would vote in favor of
the amendment, though reluctantly.
Representative Tomaszewski commented that there had been
significant discussions about potential solutions. He noted
that Representative Mike Prax had introduced legislation
during the past three legislative sessions allowing
individuals to voluntarily relinquish their PFD. He
explained that the legislation allowed applicants to check
a box to donate their dividend to the general fund. He
noted that he was a co-sponsor of the bill. He stated that
individuals who did not need the dividend should have the
option to return it to the state to reduce the need for
difficult budget decisions. He expressed hope that the
committee would support the bill.
5:07:50 PM
A roll call vote was taken on the motion.
IN FAVOR: Galvin, Hannan, Schrage, Josephson
OPPOSED: Johnson, Stapp, Allard, Bynum, Tomaszewski,
Jimmie, Foster
The MOTION to adopt Amendment N 95 FAILED (4/7).
5:08:36 PM
Co-Chair Schrage MOVED to REPORT CSHB 53(FIN) out of
committee with individual recommendations and with
authorization to the Legislative Finance Division and
Legislative Legal Services to make any necessary technical
and conforming changes.
Representative Johnson OBJECTED.
5:09:23 PM
AT EASE
5:10:04 PM
RECONVENED
Co-Chair Josephson asked if the objection was maintained.
Representative Johnson MAINTAINED the OBJECTION.
5:10:14 PM
A roll call vote was taken on the motion.
IN FAVOR: Hannan, Jimmie, Galvin, Foster, Schrage,
Josephson
OPPOSED: Johnson, Allard, Bynum, Tomaszewski, Stapp
The MOTION PASSED (6/5).
There being NO further OBJECTION, CSHB 53(FIN) was REPORTED
out of committee with one "do pass" recommendation, two "no
recommendation" recommendations, and eight "amend"
recommendations.
[Note: action on reporting the bill from committee was
rescinded on 4/10/25 at approximately 6:30 p.m. The bill
was then reported out of committee with no additional
changes. See separate minutes dated 4/10/25 1:30 p.m. for
detail.]
5:11:20 PM
Co-Chair Schrage MOVED to REPORT CSHB 55(FIN) out of
committee with individual recommendations and with
authorization to the Legislative Finance Division and
Legislative Legal Services to make any necessary technical
and conforming changes.
There being NO OBJECTION, CSHB 55(FIN) was REPORTED out of
committee with six "do pass" recommendations, three "no
recommendation" recommendations, and two "amend"
recommendations.
Co-Chair Josephson noted that the bills would be sent to
the House Rules Committee for calendaring.
Co-Chair Josephson reviewed the schedule for the following
day.
ADJOURNMENT
5:12:44 PM
The meeting was adjourned at 5:12 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 78 AML 2025-04-Actuarial-Amortization-Policy.pdf |
HFIN 4/3/2025 1:30:00 PM |
HB 78 |
| HB 78 ALSKNEAP Report Letter 032025vs.pdf |
HFIN 4/3/2025 1:30:00 PM |
HB 78 |
| HB 78 Cheiron Presentationv 040325-2.pdf |
HFIN 4/3/2025 1:30:00 PM |
HB 78 |
| HB 53 ACTIONS ON AMENDMENTS 040325.pdf |
HFIN 4/3/2025 1:30:00 PM |
HB 53 |
| HB 78 NEW FN HFIN RETIREMENT SYS Defined Benefit Op PERS 040325.pdf |
HFIN 4/3/2025 1:30:00 PM |
HB 78 |
| HB 78 NEW FN HFIN RETIREMENT SYS Defined Benefit Op Various 040325pdf.pdf |
HFIN 4/3/2025 1:30:00 PM |
HB 78 |
| HB 53 ACTIONS ON AMENDMENTS ALL 1-96 040825.pdf |
HFIN 4/3/2025 1:30:00 PM |
HB 53 |