03/22/2005 08:00 AM House STATE AFFAIRS
| Audio | Topic |
|---|---|
| Start | |
| HB114 | |
| HB170 || HB177 || HB191 | |
| HB170 | |
| HB177 | |
| HB170 | |
| HB177 | |
| Workgroup: Pers/trs | |
| Adjourn |
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 170 | TELECONFERENCED | |
| *+ | HB 177 | TELECONFERENCED | |
| *+ | HB 191 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| = | HB 114 | ||
ALASKA STATE LEGISLATURE
HOUSE STATE AFFAIRS STANDING COMMITTEE
March 22, 2005
8:04 a.m.
MEMBERS PRESENT
Representative Paul Seaton, Chair
Representative Carl Gatto, Vice Chair
Representative Jim Elkins
Representative Bob Lynn
Representative Jay Ramras
Representative Berta Gardner
Representative Max Gruenberg
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
HOUSE BILL NO. 114
"An Act relating to the retaining of certain privileges of a
parent in a relinquishment and termination of a parent and child
relationship proceeding; relating to eligibility for permanent
fund dividends for certain children in the custody of the state;
relating to child in need of aid proceedings and juvenile
delinquency proceedings; and providing for an effective date."
- MOVED CSHB 114(STA) OUT OF COMMITTEE
HOUSE BILL NO. 170
"An Act relating to the qualifications of public members of the
Public Employees' Retirement Board and the Alaska Teachers'
Retirement Board."
- HEARD AND HELD
HOUSE BILL NO. 177
"An Act relating to employee and employer contributions to the
teachers' retirement system and the public employees' retirement
system; and providing for an effective date."
- HEARD AND HELD
HOUSE BILL NO. 191
"An Act relating to defined contribution systems for members of
the teachers' retirement system and the public employees'
retirement system; and providing for an effective date."
- HEARD AND HELD
PERS/TRS LEGISLATION WORKGROUP
- HEARD
PREVIOUS COMMITTEE ACTION
BILL: HB 114
SHORT TITLE: TERM. PARENTAL RTS/CINA/DELINQUENCY CASES
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR
01/26/05 (H) READ THE FIRST TIME - REFERRALS
01/26/05 (H) STA, HES, JUD
03/01/05 (H) STA AT 8:00 AM CAPITOL 106
03/01/05 (H) Heard & Held
03/01/05 (H) MINUTE(STA)
03/05/05 (H) STA AT 8:30 AM CAPITOL 106
03/05/05 (H) <Subcommittee Meeting>
03/05/05 (H) STA AT 9:30 AM CAPITOL 106
03/05/05 (H) Heard & Held
03/05/05 (H) MINUTE(STA)
03/15/05 (H) STA AT 8:00 AM CAPITOL 106
03/15/05 (H) Scheduled But Not Heard
03/19/05 (H) STA AT 9:00 AM CAPITOL 106
03/19/05 (H) <Subcommittee Meeting>
03/19/05 (H) STA AT 9:30 AM CAPITOL 106
03/19/05 (H) Scheduled But Not Heard
03/22/05 (H) STA AT 7:45 AM CAPITOL 106
03/22/05 (H) STA AT 8:00 AM CAPITOL 106
BILL: HB 170
SHORT TITLE: PUB EMPLOYEES/TEACHERS RETIREMENT BOARDS
SPONSOR(s): REPRESENTATIVE(s) KELLY
02/23/05 (H) READ THE FIRST TIME - REFERRALS
02/23/05 (H) STA, FIN
03/22/05 (H) STA AT 8:00 AM CAPITOL 106
BILL: HB 177
SHORT TITLE: STATE EMPLOYEE RETIREMENT CONTRIBUTIONS
SPONSOR(s): REPRESENTATIVE(s) KELLY
02/25/05 (H) READ THE FIRST TIME - REFERRALS
02/25/05 (H) STA, FIN
03/22/05 (H) STA AT 8:00 AM CAPITOL 106
BILL: HB 191
SHORT TITLE: PUBLIC EMPLOYEE/TEACHER RETIREMENT
SPONSOR(s): REPRESENTATIVE(s) KELLY
03/02/05 (H) READ THE FIRST TIME - REFERRALS
03/02/05 (H) STA, FIN
03/22/05 (H) STA AT 8:00 AM CAPITOL 106
WITNESS REGISTER
REPRESENTATIVE MIKE KELLY
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Presented an overview of HB 170, HB 177,
and HB 191, as sponsor; introduced HB 170 and answered
questions, as sponsor; introduced HB 177 and answered questions,
as sponsor.
HEATH HILYARD, Staff
to Representative Mike Kelly
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Answered questions regarding HB 170 on
behalf of Representative Kelly, sponsor.
LESLIE TEDERS, President
APEA/AFT Local 6070, Alaska Higher Education Crafts & Trades
Fairbanks, Alaska
POSITION STATEMENT: Testified on behalf of AFT Local 6070,
during the hearing on HB 170; testified on behalf of AFT Local
6070, during the hearing on HB 177.
CHRIS BLUST
Juneau, Alaska
POSITION STATEMENT: Testified on behalf of herself and the
Juneau Education Support Staff during the hearing on HB 177.
JULIA BLACK
Juneau, Alaska
POSITION STATEMENT: Testified on behalf of herself during the
hearing on HB 177.
ACTION NARRATIVE
CHAIR PAUL SEATON called the House State Affairs Standing
Committee meeting to order at 8:04:22 AM. Present at the call
to order were Representatives Gatto, Elkins, Lynn, Ramras,
Gardner, Gruenberg, and Seaton.
HB 114-TERM. PARENTAL RTS/CINA/DELINQUENCY CASES
8:05:07 AM
CHAIR SEATON announced that the first order of business was
HOUSE BILL NO. 114, "An Act relating to the retaining of certain
privileges of a parent in a relinquishment and termination of a
parent and child relationship proceeding; relating to
eligibility for permanent fund dividends for certain children in
the custody of the state; relating to child in need of aid
proceedings and juvenile delinquency proceedings; and providing
for an effective date."
8:05:17 AM
VICE CHAIR GATTO announced that the committee substitute (CS)
for HB 144, Version 24-GH1108\I, Mischel, 3/21/05, was reported
out of the House State Affairs subcommittee.
8:05:55 AM
REPRESENTATIVE GRUENBERG moved to adopt the committee substitute
(CS) for HB 114, Version 24-GH1108\I, Mischel, 3/21/05, as a
work draft. There being no objection, Version I was before the
committee.
REPRESENTATIVE GRUENBERG suggested that the committee be allowed
to move Version I out of committee with the ability to later
[switch the order of] subsections (k) and (l).
CHAIR SEATON noted that the bill would be combined with HB 53
when it is heard by the House Health, Education and Social
Services Standing Committee, at which point the consideration
could be made to switch the order of subsections (k) and (l).
8:06:30 AM
REPRESENTATIVE GRUENBERG moved to report CSHB 114, Version 24-
GH1108\I, Mischel, 3/21/05, out of committee with individual
recommendations and the accompanying fiscal notes. There being
no objections, CSHB 114 (STA) was reported out of the House
State Affairs Standing Committee.
HB 170-PUB EMPLOYEES/TEACHERS RETIREMENT BOARDS
HB 177-STATE EMPLOYEE RETIREMENT CONTRIBUTIONS
HB 191-PUBLIC EMPLOYEE/TEACHER RETIREMENT
8:07:57 AM
CHAIR SEATON announced that the committee would hear an overview
of HB 170, HB 177, and HB 191, the full bill titles for which
are listed in the committee calendar.
8:09:07 AM
REPRESENTATIVE MIKE KELLY, Alaska State Legislature, presented
an overview of HB 170, HB 177, and HB 191.
As you know, Alaska has a $5 billion-plus unfunded
liability in its public service pensions and teacher
pensions. The future payout of that liability is
estimated to be over [$15 billion]. The problem is
nationwide to one degree or another. ... However,
anyone who tells you we don't have a problem, or that
it will just go away, or that we should raise
investment target expectations above the current 8.25
percent, or that Alaskans will simply allow us to
write a check out of the Permanent Fund earnings
reserve may not be right.
8:10:51 AM
REPRESENTATIVE KELLY noted that prior to 2000, the funds were
typically nearly 100-percent funded and had remained so for
decades. He remarked that, sometimes, negative factors can
combine and create 100-year events. He explained:
Our defined [benefit] pension funds experienced the
perfect storm when: the investment markets
[plummeted] ...; health care costs - particularly for
the retired age group - skyrocketed; [and] pension
plan actuarials were updated, reflecting the fact that
the baby boomers are entering our retirement rolls and
... will live longer than expected. And as a result
of cutbacks in state government over the past decade,
there are fewer new and younger employees coming in
the front door to replace those retiring.
REPRESENTATIVE KELLY listed those who often get the blame and
reasons why they should not, as follows: The public employees,
who did nothing wrong and whose pension program was [provided by
the legislature]; the pension boards and money managers, who may
have made some bad calls, but who have worked under close
scrutiny, professional reporting requirements, and audits; the
legislature, who is blamed for being too generous with public
employee voters, but whose benefits passed out "didn't cause a
tenth of the problem"; and the employers, who are blamed for not
paying enough into the fund even though they historically paid
in what the PERS/TRS boards required for 100-percent funding.
Representative Kelly said [the employers] increased
contributions fairly dramatically in years when it was required
and were permitted to reduce payments when full funding was
reported. Representative Kelly stated, "So, maybe if you worked
long and hard you could scare up 20 percent to blame on someone
or another that might be in some way justifiable or legitimate;
but we'd still be stuck with a huge and growing problem."
8:15:19 AM
REPRESENTATIVE KELLY emphasized he does not want to see the
legislature wait until next year - an election year - to solve
the problem. He said he senses that there is little will among
some legislators to act now, but he pointed out that next year
there will be nearly no desire to take the steps required to fix
the problem "if there's anything unpalatable or difficult about
the solution."
REPRESENTATIVE KELLY noted that there are three related bills to
be heard by the committee, and he said the Senate is working on
its own solution. He stated, "I believe the package before you
would provide a workable solution." He told the committee that
yesterday he heard a legislator opine to a union leader that it
might be best to write a check from the permanent fund earnings
to extinguish the unfunded liability. He said he doesn't
believe that [Alaskans who are not in PERS or TRS] would support
that action. He said others suggest that the employers pay,
even if it equals as much as 25 to 40 percent or more of the
wages over the next 25 years. Representative Kelly asked how
employers could possibly sustain that impact on their labor
costs. Local governments would have to resort to large
increases in property or sales taxes, and he stated his belief
that voters [not in PERS or TRS] would [rebel].
REPRESENTATIVE KELLY observed that some say the liability should
be reduced to less than 100 percent, but he questions the wisdom
of this approach. The Alaska pension system has maintained a
100-percent funding goal for retirement and retiree medical
benefits. Recent federal rulings have confirmed that such a
conservative approach is favored. He stated, "Our problem is
simple ... - we can no longer afford a defined benefit plan
where the government absorbs all risk associated with the
retirement and the retirement health benefits for our employees
and teachers."
8:17:44 AM
REPRESENTATIVE KELLY opined that attracting and retaining high-
quality public employees and teachers must be a goal underlying
any pension fix. He added, "If we fail at that, we risk our
future completely." He said he agrees with those who point out
that public pay in Alaska has slipped and that generous benefits
have helped "maintain our employees."
REPRESENTATIVE KELLY said he has 11 grandchildren - 6 in public
schools, and 4 in private schools. He noted that he is related
to many teachers and public employees in the Alaska system. He
stated his belief that the bills before the committee today
could help to unify a larger number of Alaskans behind a
solution than ignoring the problem and hoping it goes away,
writing a check out of permanent fund earnings, or dramatically
raising local taxes.
REPRESENTATIVE KELLY noted that Chair Seaton told him he intends
to introduce a committee bill that will incorporate elements of
[HB 170, HB 177, and HB 191] with other ideas from the House
State Affairs Standing Committee. He said he supports that
approach, but encourages Chair Seaton to hurry. Representative
Kelly noted that there are about 40 days left in the legislative
session. He predicted that the desired solution will not be
reached if the legislature allows the issue to go unresolved
until election year [2006].
8:20:39 AM
REPRESENTATIVE KELLY asked the committee to imagine a cut in
federal funding in the future. He spoke of state funds and
taking care of future problems now. He said the bills before
the committee would leave the current benefits in place for the
existing and retired employees, but would make a bold attempt to
protect those benefits "on out into the future." He reiterated
that he cares about and is related to some of the folks who are
"counting on those dollars to be there."
8:22:15 AM
REPRESENTATIVE KELLY explained what each of the bills would do.
He said [HB 170] would be a simple fix to PERS/TRS boards. He
said that while he respects the fact that the Senate has studied
all three boards with a view to conducting an overhaul, he
looked at the positions on the boards and decided that perhaps a
less dramatic approach may be best. He indicated that his
intent is to combined employee- and management-type thinking.
REPRESENTATIVE KELLY said HB 170 specifies that the majority on
the boards would [not be members of either system] and at least
two of the public members on the boards would have certain
professional skills. He said, "So, the board fix is a
relatively simple non-invasive surgery attempt to bring in some
perspective from ... the bill-paying side of the table."
8:24:40 AM
REPRESENTATIVE KELLY indicated that [HB 177] would bring active
employees to the payment table to show a recognition that
employers "just can't shoulder this entire burden." He
predicted that that will be received favorably by Alaskans [not
in either system]. He estimated that the active Alaskan work
force is approximately 45,000, and by sharing the burden with
the employer and the taxpayer, they send a signal that they are
willing to work on it as well.
8:27:08 AM
REPRESENTATIVE KELLY indicated that [Legislative Legal and
Research Services] informed him that accrued benefits [cannot be
touched], but one solution to the retirement system problem
could be to ask employees to come to the table and help with the
payment. He stated he believes that the competitiveness of
public employees' and teachers' pay has slipped in Alaska. He
said, "It may well be [that] the generosity of our benefits are
holding this together competitively; so I think [it's] a very
honest aspect of this that we have to be mindful of." He said
the "second bill" would require active employees to help out
with the pension programs.
8:29:34 AM
REPRESENTATIVE KELLY commented that the Senate's version of the
bill [SB 141] would make a change for existing employees
regarding the normal cost rate - the rate in any given year -
and it would not help to fund the unfunded liability.
8:30:05 AM
CHAIR SEATON clarified that when Representative Kelly referred
to the "first bill" he meant HB 170, by "second bill" he meant
HB 177, and by "third bill" he meant HB 191. He said the
committee is not yet hearing those bills; it is just listening
to a general review right now.
8:30:59 AM
REPRESENTATIVE KELLY pointed out that HB 191 would put new
employees in a defined contribution plan. He noted that a
defined contribution plan is similar to a defined benefit plan
in that the employer and the employee both put money into the
plan. In the defined benefit plan, the money buys a future
benefit, "the cost of which - if it changes - is entirely on the
employer, under the current situation." He indicated that the
employees have "a percentage share" and the employers' shares
are predicted - "in order to take out this unfunded liability" -
to grow at a certain percent "up to that amount of pay." In a
defined contribution plan, a dollar amount goes into the pot;
it's not a benefit with an undefined amount. He explained, "If
somehow the value of that purchase changes in any manner by
changes in the investment market or any other impact, then that
is on the employee ...." He mentioned similarities between the
Senate's bill and his own plan in regard to the medical aspect,
and he said he would send that information to the committee.
8:33:00 AM
REPRESENTATIVE KELLY said probably close to a dozen states have
moved from a defined benefit plan to a defined contribution
plan, or a hybrid of the two. He offered his understanding that
there has been an increase up to 42 percent of employers having
moved to defined contribution plans. He also stated his belief
that the state will be able to attract and maintain qualified
people with a defined contribution plan. He added, "It is
simply about the numbers of the contributions." He stated his
belief that the employees should be allowed to contribute money
to their retirement above and beyond the amount put in through
the employer/employee match.
8:34:22 AM
CHAIR SEATON stated for the benefit of those listening to the
meeting that the [Alaska] Supreme Court has interpreted the
Alaska State Constitution to say that the State of Alaska has a
contract with retirees, and "those benefits must be paid." No
matter the liability, unless the state declares bankruptcy, the
state will be "making those payments as they were scheduled
...." Nothing in the proposed ideas for PERS/TRS bills would
change that, he clarified.
CHAIR SEATON announced that the committee would address each
bill, starting with HB 170. He outlined that the three elements
to discuss would be regarding the [PERS/TRS] board, current
employees, and new employees.
8:35:48 AM
REPRESENTATIVE LYNN asked how an upswing in Alaska's economy
would affect the PERS/TRS situation.
8:36:16 AM
REPRESENTATIVE KELLY responded that it might change the
perceived ability of the state to fund an unfunded liability; it
might not be as difficult to make a payment. He clarified, "It
wouldn't change the plans on the face of it, but it would give
us more money to address unfunded liability."
8:37:19 AM
CHAIR SEATON said:
There has been one comment that has been made about
municipal assistance and that our contribution on
PERS/TRS has been municipal assistance over time, and
I would draw to the members' attention that we have
made contributions to PERS and TRS for school
districts, which are not municipalities. Although
sometimes they are related to the size of a borough,
or some other entity, some of them aren't at all. ...
I don't want to get the concept of municipal
assistance and PERS and TRS contributions to the ...
school districts confused, because they're not
municipalities.
8:38:14 AM
REPRESENTATIVE GARDNER said she is having a difficult time
understanding the scope of the whole issue. She surmised that
the focus is to solve an existing problem, while simultaneously
trying to avoid "a future manifestation of the same problem."
She compared the situation to taking out a mortgage. She asked
how having a defined contribution plan at the outset might have
changed the financial situation for current retirees.
8:39:25 AM
REPRESENTATIVE KELLY said the current situation would not exist
if a defined contribution plan had been used from the beginning.
8:39:55 AM
CHAIR SEATON offered his belief that about 40 percent of the
unfunded liability in TRS is due to medical costs. He indicated
that protecting against "the downside in the defined benefit
[plan], as far as retirement, ... depends on what system's
adopted for medical." He asked if that is correct.
8:40:34 AM
REPRESENTATIVE KELLY responded that the model used is the Mercer
[Human Resource Consulting] Alternative 2 system. He said the
medical component would be addressed in any defined contribution
plan that is adopted. He reiterated that he would get his
medical plan idea to the committee, but he said it would attempt
to limit the exposure to risk in the cost of health care by
involving the employee in sharing that risk.
8:42:10 AM
CHAIR SEATON stated that he wants to clarify that adoption of a
defined contribution plan with a medical component would not
eliminate all potential for unfunded liability. He said that
subject would be discussed in depth.
8:42:36 AM
REPRESENTATIVE GARDNER mentioned big companies "going under,"
such as Enron, which leaves employees in a bad position. Ms.
Gardner asked, "Leaving aside the medical cost question, if the
employees from the State of Alaska or from our school districts
had had a [defined contribution] plan to begin with, does
anybody know what their financial security would look like
today?"
8:43:16 AM
REPRESENTATIVE KELLY replied that it is not known what that plan
would have been. However, based on a comparison of the plans,
for example, "when the market went down, ... the employee would
not have been protected from that drop in return on the asset."
8:43:44 AM
CHAIR SEATON said, "I don't think any of the plans that I've
seen would allow what has been done ..., [for example], with
Enron in investing in their own stock. ... All of the options
that are on the table would allow a spread like SBS for managed
accounts." He reminded the committee that all the benefits of
current participants are secured through the constitution, as
well as all the future benefits that have to be paid.
8:44:19 AM
REPRESENTATIVE GARDNER responded that the proposal is to change
that, and she said she's just curious to know how things would
stand if the state had [used a defined contribution plan] to
begin with. She pointed out that if people's retirement plans
go under, the state is still responsible and "ends up supporting
them in another way."
8:44:33 AM
REPRESENTATIVE RAMRAS stated his concern is how the state's
solution to the PERS/TRS problem would be connected to the 155
municipalities that are "in for a dime/in for a dollar with the
state." Specifically, he said he wants to know how
Representative Kelly's proposed plans would affect the City of
Fairbanks and the Fairbanks North Star Borough.
8:45:35 AM
REPRESENTATIVE KELLY answered that [his plan would] bring
another plan and new money to the table to help fund the
unfunded liability. The plan would bring active employees to
the table. He predicted that the municipalities would see that
as positive.
8:46:17 AM
REPRESENTATIVE RAMRAS asked if the same provisions would be
adopted by the municipalities as by the state.
8:46:25 AM
REPRESENTATIVE KELLY answered that whatever is done for PERS and
TRS employees would impact those municipal employees, because
they are either PERS or TRS employees. He indicated that a
concern which would be focused on is the ability of schools and
municipalities to attract and maintain employees.
8:47:20 AM
REPRESENTATIVE RAMRAS stated that Fairbanks is arguably in the
worst shape of all the municipalities in the state; there are 89
workers supporting 453 retirees. He asked if Representative
Kelly's solution, if adopted, would solve the all
municipalities' problems at the same rate.
8:48:27 AM
REPRESENTATIVE KELLY replied that he believes it would be an
equitable solution for all players. Notwithstanding that, he
said splitting an insurmountable cost to an employer with the
employees still results in a challenge. He mentioned a pension
obligation bond "to knock this thing down for everyone."
8:50:16 AM
REPRESENTATIVE KELLY, in response to a question from
Representative Gatto, reviewed the differences between the
defined contribution and defined benefit definitions. He said,
"It's a definition of the dollar, versus the benefit."
HB 170-PUB EMPLOYEES/TEACHERS RETIREMENT BOARDS
8:51:54 AM
CHAIR SEATON announced that the committee would now focus solely
on HOUSE BILL NO. 170, "An Act relating to the qualifications of
public members of the Public Employees' Retirement Board and the
Alaska Teachers' Retirement Board."
8:52:11 AM
CHAIR SEATON directed attention to the first sentence of the
second paragraph of the sponsor statement [included in the
committee packet], which read as follows:
When reviewing the past performance of the retirement
systems, focusing attention on the decisions that have
increased liabilities, it is clear that board
decisions generally and the actions of any one board
specifically have not been the primary cause of our
sizeable unfunded liability.
CHAIR SEATON said there could have been some bad decisions made;
however, the primary cause of the unfunded liability is not the
doing of the boards.
8:52:57 AM
REPRESENTATIVE MIKE KELLY, Alaska State Legislature, as sponsor
of HB 170, noted that new language was inserted into HB 170 on
page 1, line 10, and page 2, line 21. The first insert would
require that three of the five members appointed [to the
Teachers' Retirement System (TRS) Board] by the governor must
not ever have been or be employed by an employer participating
in [TRS].
8:53:37 AM
REPRESENTATIVE KELLY, in response to a request from Chair
Seaton, offered an introduction of HB 170 for clarification
purposes. The proposed bill would change the makeup of both the
PERS and TRS Boards so that all of the members of the boards are
not beneficiaries. The intent of that change is to bring an
outside view, perhaps a more management-oriented one, to the
boards. At least two of the five would have to have significant
private sector experience in administration, financing,
accounting, or economic development.
8:55:44 AM
CHAIR SEATON asked for a review of the current members of the
board.
8:55:58 AM
HEATH HILYARD, Staff to Representative Mike Kelly, on behalf of
Representative Kelly, sponsor, noted that currently at least one
member must be a beneficiary. He offered his understanding that
presently there is only one member between the two boards who
has no connection to either of the systems. In general, there
are five full-voting members on each board. Additionally, there
are two physicians and two alternate physicians available to
review disability claims.
8:57:36 AM
REPRESENTATIVE GARDNER asked if there has been a problem,
historically, in finding physicians willing to serve on the
boards.
8:58:10 AM
MR. HILYARD offered his understanding that there has been no
difficulty in that regard. He noted that statute stipulates
that the physicians are paid fair-market wage for their
services. In response to a question from Chair Seaton, he said
the requirement to pay applies only to the physicians, not to
all board members.
8:58:26 AM
REPRESENTATIVE GARDNER asked why the language on page 2,
beginning on line 11, was included, which read: "if the
administrator, after making a reasonable effort to secure the
participation of two physicians to serve on a disability appeal,
is unable to do so, the board may hear the appeal with the
participation of only one physician or alternate".
MR. HILYARD surmised that that language is there in case there
is difficulty securing participating physicians; however, he
said to his knowledge and through speaking with the director of
the Division of Retirement & Benefits, he is not aware that
[securing physicians] has been difficult thus far.
8:59:38 AM
MR. HILYARD, in response to a question from Chair Seaton,
clarified that Section 1 addresses the TRS board, while Section
2 addresses the PERS board.
9:01:28 AM
CHAIR SEATON stated, "Currently ... there are three public
members that are appointed by the governor for PERS and two that
are elected by their association; and in ... TRS, all five
members are appointed by the governor, of which none necessarily
need to be associated with the system at all."
MR. HILYARD responded that's correct.
9:02:21 AM
REPRESENTATIVE RAMRAS remarked that HB 170 strikes him as the
equivalent of good corporate governance in the private sector.
9:03:01 AM
REPRESENTATIVE KELLY agreed with Representative Ramras. He said
HB 170 "attempts to provide that kind of input to the
deliberations that would come from the management side of the
table." He said there are some stellar folks serving on the
boards and his intention is not to [totally restructure the
boards].
9:03:39 AM
CHAIR SEATON asked Representative Kelly why he wants to have
members serve on the boards who are not involved in teaching,
for TRS, or public employment, for PERS. He questioned who
would be willing to do a job with no remuneration.
9:04:18 AM
REPRESENTATIVE KELLY suggested some may serve because of having
a desire to have a positive impact, to do something good, or to
respond to the governor's call. He stated, "A significant
portion of the bill, for this, is being paid by ... those
Alaskans that have no stake whatsoever in the programs, but step
up to the payment plate. So, I ... doubt that we'll have
trouble attracting people to these positions." He indicated
that he thinks the mix of being able to elect or recommend would
be helpful. Having people on the boards who have a different
perspective is healthy, he opined.
9:06:29 AM
CHAIR SEATON responded that most boards have members who are
associated with a specific profession; however, he said he can
see Representative Kelly's point in looking at the liability
that the state might have and [considering that] people might be
willing to serve.
9:06:46 AM
REPRESENTATIVE RAMRAS noted that many of the folks in Fairbanks
who weighed in on a teleconferenced meeting this morning were
not members of PERS or TRS, but nonetheless were "very much
engaged in the PERS/TRS debate." He said he doesn't think there
will be a problem finding a pool of appropriate applicants.
9:07:46 AM
REPRESENTATIVE GRUENBERG asked what the reason is for requiring
there be physicians as board members, and if elimination is
being considered, why Representative Kelly is not considering
elimination of a physician.
9:08:53 AM
REPRESENTATIVE KELLY explained that the physicians serve a
technical purpose on the board relating to the hearing of
appeals to determine medical eligibility for disability
benefits.
9:09:23 AM
CHAIR SEATON opened public testimony.
9:09:36 AM
LESLIE TEDERS, President, APEA/AFT Local 6070, Alaska Higher
Education Crafts & Trades, testified on behalf of AFT Local
6070. She expressed concern about mandating that board members
have no experience in PERS or TRS. She stated her belief that
working in the public sector is different than working in the
private sector. Ms. Teders said she thinks there has to be a
pretty good understanding [among board members] of what public
employees deal with, and members should not only have excellent
accounting and investment knowledge, but must also have a strong
interest in the retirement system.
9:11:42 AM
CHAIR SEATON closed public testimony.
9:11:52 AM
CHAIR SEATON noted that the end of the sponsor statement read:
"Please support HB 163." He suggested the sponsor's staff may
want to change that to HB 170.
9:12:13 AM
REPRESENTATIVE LYNN questioned the balance of board members with
outside experience, versus those who are members of PERS or TRS.
He asked, "Who should be the driving horse on here?" He added
that he thinks both should exist on the boards.
9:13:07 AM
CHAIR SEATON suggested a further question might be whether there
should be "any requirement that somebody has experience with the
system."
9:13:37 AM
REPRESENTATIVE LYNN reiterated that he thinks both sides should
be represented, but questions who should hold majority.
9:13:55 AM
CHAIR SEATON asked Representative Kelly if he would have a
problem with language requiring that two or three of the members
appointed by the governor would be selected from the recommended
nominees of the system.
9:14:19 AM
REPRESENTATIVE KELLY said he would have to think about that.
9:14:45 AM
REPRESENTATIVE RAMRAS stated that there's nothing that would
preclude members on the board from being PERS/TRS members, but
he doesn't think two positions on the PERS/TRS boards should be
reserved. He explained that he doesn't want to see a situation
where there are two "yes votes" on a potentially divisive issue.
9:16:30 AM
CHAIR SEATON said it sounds like some committee members may be
thinking that the PERS/TRS boards have the ability to change
benefits. He said that is 100 percent the purview of the
legislature. The boards recommend the contribution rate based
upon the actuarial computations, at which time the Department of
Administration actually has to adopt the employer contribution
rate. The boards also serve as an adjudicatory body that
considers people's disputes with the system.
9:17:53 AM
REPRESENTATIVE LYNN said he was talking about having different
perspectives on the boards.
9:18:21 AM
CHAIR SEATON said the committee would have a chance to hear from
someone on the boards, to get a better perspective of what the
boards do.
9:18:33 AM
REPRESENTATIVE GARDNER directed attention to [language beginning
on line 8, in subsection (a)], which read: "statewide teacher
organizations may submit to the governor a list of recommended
nominees to serve on the board". She asked, "But this does not
mean that the governor's appointees have to come from that list,
is that correct?"
9:19:02 AM
REPRESENTATIVE KELLY answered in the affirmative.
9:19:13 AM
REPRESENTATIVE GRUENBERG, in response to Representative Ramras'
remark that there shouldn't be a requirement that some members
should be PERS/TRS members, noted that the bill would specify
that there shall be people who are not retirees - a flipside of
the same issue. He said the question is whether people are
going to be able to access their retirement benefits, or be
denied or allowed early retirement. He said, "This is, in some
ways, a little bit like worker's [compensation], where you
really do kind of have two sides: people who want to access and
the people who may not."
9:19:55 AM
CHAIR SEATON said he would request a statement from the PERS and
TRS boards as to how they function.
9:20:14 AM
REPRESENTATIVE RAMRAS said he respects Representative
Gruenberg's point; however, he said "you don't need to have been
an injured worker in order to be able to weigh in on a [worker's
compensation] board." He reiterated that he doesn't want there
to be a stacked board. He offered further details.
9:21:33 AM
CHAIR SEATON observed that it seems some committee members think
that the PERS/TRS boards have been making bad decisions. He
said he would like any member who thinks so to be prepared with
details. He said, "We want to make sure we're hearing the
problem that exists."
9:21:56 AM
REPRESENTATIVE RAMRAS responded that that's not his impression.
9:22:03 AM
REPRESENTATIVE LYNN added that it is not his either.
9:22:09 AM
CHAIR SEATON announced that HB 170 was heard and held.
HB 177-STATE EMPLOYEE RETIREMENT CONTRIBUTIONS
9:22:16 AM
CHAIR SEATON announced that the next order of business was HOUSE
BILL NO. 177, "An Act relating to employee and employer
contributions to the teachers' retirement system and the public
employees' retirement system; and providing for an effective
date."
9:22:28 AM
REPRESENTATIVE MIKE KELLY, Alaska State Legislature, introduced
HB 177, as sponsor. Currently, employee contributions are fixed
in statute and the employer contributions "float" to make up the
difference between the employee contributions and the actuarial
cost of supporting the program. The proposed legislation would
require active employees to move from a fixed percentage to a
50/50, employee/employer split of the actuarially adjusted cost
of the program. It would provide the same limits for the
employee annual increase, as currently in effect, which is a
maximum of 5 percent in any given year.
9:24:36 AM
REPRESENTATIVE GARDNER said Representative Kelly had previously
alluded that there is some dispute regarding whether "we can do
this." She asked if it is Representative Kelly's understanding
that the proposed change cannot be made retroactively, and the
benefit cannot be changed, but the contribution rates can be
changed from this point forward, under existing tiers.
9:25:10 AM
REPRESENTATIVE KELLY answered yes.
[CHAIR SEATON turned the gavel over to Vice Chair Gatto.]
9:25:14 AM
REPRESENTATIVE GARDNER asked if there would be a legal challenge
if [HB 177] were to pass.
9:25:28 AM
REPRESENTATIVE KELLY said some believe the intention of the law
is that the contribution rate not be changed; however, based on
the legal opinion he received, the legislature would be
complying with the constitution if it does not change the
benefits, but changes the contribution in order to support those
benefits.
HB 170-PUB EMPLOYEES/TEACHERS RETIREMENT BOARDS
9:26:15 AM
VICE CHAIR GATTO reverted back to discussion of HB 170. He made
comments regarding the statutory requirements for PERS board
membership, and he noted that the requirements differ between
the PERS and TRS boards.
9:27:22 AM
REPRESENTATIVE KELLY said that's correct, and he added, "I
haven't heard of problems with that."
HB 177-STATE EMPLOYEE RETIREMENT CONTRIBUTIONS
9:28:32 AM
[CHAIR SEATON took back the gavel.]
CHAIR SEATON returned discussion to HB 177. He directed
attention to page 2, lines 6 and 7, which read:
The employee contribution rate is the percentage of
the employee compensation needed to fund the system
under AS 14.25.053.
CHAIR SEATON asked for confirmation that HB 177 would require
the employee to share a 50/50 split with the employer, not "fund
the entire system."
9:29:17 AM
REPRESENTATIVE KELLY said that's the intent.
9:29:22 AM
CHAIR SEATON said that's a little unclear in the language. He
directed attention to [page 2, beginning on line 11], which read
as follows:
(a) The administrator shall determine the annual
amount that is required in addition to the amounts in
the retirement fund to provide the benefits of this
chapter to all members.
CHAIR SEATON asked, "Is this where we are talking about the past
service cost, as well as the normal cost rate?"
9:29:49 AM
REPRESENTATIVE KELLY responded, "I believe that to be the case."
9:29:55 AM
REPRESENTATIVE GATTO directed attention to the last sentence on
page 2, [beginning on line 31 and continuing through page 3,
line 2], which read as follows:
The maximum increase in the contribution rate for
employers from one year to the next may not be more
than five percentage points, as actuarially
calculated.
REPRESENTATIVE GATTO asked, "5 percent points above the previous
number, or no more than 5 percent above the previous number?"
REPRESENTATIVE KELLY answered it's the former.
REPRESENTATIVE GATTO said, "So, it could go from 6 to 11, as I
understand it."
9:30:24 AM
REPRESENTATIVE KELLY answered that's correct.
9:30:36 AM
REPRESENTATIVE GARDNER asked if the employees' portion could
increase by more than the employers'.
9:30:52 AM
REPRESENTATIVE KELLY answered no. He added, "There could be a
circumstance where initially that could be the case." He
clarified that if the employer is currently paying more than the
employee, the employee will be temporarily be paying more to
catch up to the 50/50 match.
9:32:04 AM
CHAIR SEATON observed that with a maximum increase of 5 percent,
unfunded liability could still be building while the goal is
met.
9:32:19 AM
REPRESENTATIVE KELLY confirmed that is so.
9:32:28 AM
CHAIR SEATON opened public testimony.
9:32:36 AM
CHRIS BLUST, testifying on behalf of herself and the Juneau
Education Support Staff, told the committee that the support
staff includes, for example, nurses, custodians, and
electricians.
9:34:04 AM
MS. BLUST revealed that she has worked as a paraeducator in
Juneau for 11 years. She said when she moved to Alaska she was
able to make the same amount of money in a classified job in
Juneau than she made as a schoolteacher in Northern California.
She expressed that of prime importance to her was the ability to
have good benefits, because her husband is self-employed. Ms.
Blust detailed her levels of satisfaction regarding her [health]
insurance, retirement benefits, and salary. She said the
expected pay increases were not consistent and the school
district has had to revamp its plan to adjust to rising health
insurance costs that, along with the cost of prescriptions,
continue to increase each year.
9:37:20 AM
CHAIR SEATON reminded Ms. Blust that the issue before the
committee was solely retirement benefits.
9:37:24 AM
MS. BLUST indicated that she was trying to illustrate her
situation and [how it would be affected by] the 5 percent
increase. She noted that there is large group of people in the
state who earn under $25,000 a year. She reported that every
four years there is a 50 percent turnover in the classified
staff; therefore, retention and recruitment is a big issue. She
stated, "We are not the ones who are foolishly spending ... what
we should be putting away for our retirement. The reason we're
not foolishly spending it: we don't have a dime to spare." She
stated that all classified employees are "on the same boat
together." She said sometimes those employees are overlooked
and there are not many that are willing to come forward [to
testify] because they are intimidated by the process.
9:38:42 AM
MS. BLUST said she heard a Senator question why employees
haven't been putting money away and why the state should be
burdened with their retirement. She said, "We cannot afford 5
percent this year."
9:39:57 AM
MS. BLUST, in response to a question from Representative
Gardner, indicated the reason she had previously spoken about
the medical insurance was because the cost for it has increased,
which effects how much people can afford towards other aspects
of their retirement.
9:40:32 AM
CHAIR SEATON said he thinks the committee realizes the possible
impacts. He continued as follows:
And part of the problem is that when the state is
talking about having to put $39 million for PERS/TRS
retirement fund into their -- that means the increases
are not [then] available for wage increases or for
other classroom things. So, that's what we're trying
to solve here. And if we go to where we're paying
$200 million a year for PERS and TRS, which is in the
schedule up to $300 million a year, what's that do for
the ability to fund the educational system to where we
want it for our kids?
CHAIR SEATON stated his understanding that Ms. Blust's point is
that an increase on the individual employees account of 5
percent a year would be difficult.
9:41:49 AM
LESLIE TEDERS, President, APEA/AFT Local 6070, Alaska Higher
Education Crafts & Trades, testified on behalf of AFT Local
6070. She said the average wage of the 250-280 members she
represents is $15. She offered further details regarding
specific salaries, and she said the contractual yearly increase
does not keep up with other increased costs. She said, "We're
looking at a 200 percent increase that the employee contribution
has been towards our health care." She stated, "Along that same
line, we haven't seen our increases in our wages; ... it does,
in a [way], have an effect on what we have available on our
paycheck to be able to live." She offered examples of jobs that
already have been opened for a long time and predicted that a 5
percent increase a year to meet a 50/50 match with the employer
would seriously affect recruitment.
9:45:06 AM
JULIA BLACK, testifying on behalf of herself, told the committee
that she is a single mother of two children and a Para educator,
and is passionate about both. She handed out a copy of one of
her paychecks for the committee to see what she lives on. She
illustrated the importance of her job, and gave examples of how
she has positively affected children's lives. She warned that
if another solution is not found, the people who are hired in
the future will not be passionate about their jobs and will not
help those children. If they cannot survive in this type of
work, they will find other jobs. Ms. Black stated that the
education system is already in trouble. She said:
You folks all had to be educated to be [in] this room.
... It floors me that we keep taking money from our
system and from our educators and expect our education
to be good.
9:47:28 AM
MS. BLACK said she understands through her board experience that
the committee is facing some tough questions. However, so far,
she said, she has not seen an adequate solution for the existing
problem. She asked the committee to continue to search for as
many solutions as possible until one is found that will not
jeopardize the quality of employees working in the system.
9:48:34 AM
CHAIR SEATON told Ms. Black that that is the intention of the
committee.
[HB 177 was heard and held.]
CHAIR SEATON talked about the calendar for related bills and
encouraged Representative Kelly to stay tuned to future meetings
of the House State Affairs Standing Committee.
^WORKGROUP: PERS/TRS
9:50:24 AM
CHAIR SEATON announced that the committee would now engage in
the work group portion of the meeting.
CHAIR SEATON directed attention to a handout entitled,
"Understanding PERS/TRS," and dated March 22 [included in the
committee packet]. He reminded the committee that an actuary is
used all the time, and that the actuary is really a
fortuneteller who uses a statistical model, inputs, and
assumptions. He said, "If the ball is cloudy when you're
looking into the globe, you're going to miss the target some of
the time." Furthermore, if the assumption is changed at a later
date, that changes all the outcomes.
CHAIR SEATON stated that he would like everyone to focus on the
unfunded liability, which has been said to be $5 billion, as of
2003. He said he views the situation of the unfunded liability
as payments that will be needed to make payments to retirees
when their benefits are due. Those benefits are due over a
course of time. He added, "And if you look at the 25-year
spread that the actuarials have used, that number ... is
actually $15.6 billion. That means those are the payments that
have to be made in addition to paying for the benefits that
people are going to receive."
CHAIR SEATON said if $5 billion is put in a bank today at 8.25
percent earnings, "that will eat itself up over the next 25
years paying off those liabilities when they come due." He
offered an example.
9:54:03 AM
CHAIR SEATON noted that if the state goes to a defined
contribution plan, the employer will still have to contribute
the exact same percentages paid currently for everyone's wages.
He clarified:
In other words, the unfunded liability payoff is
calculated - those percentages that are like 40
percent on TRS and 20-30 percent on PERS are
calculated - on the total wages. So, if today we
started with a defined contribution plan totally - no
new employees on defined benefit - still you have to
collect the money ... over those 20 years on all of
the wages, even the people receiving a defined
contribution plan. And that's in addition to the
normal cost rate or what it takes to pay off whatever
plan that is.
CHAIR SEATON directed attention to slide 7 of a Power Point
presentation [not shown on the screen due to technical
difficulties, but included in the committee packet], which shows
the potential in anticipated variables that could create
additional unfunded liabilities. He said, "The question is,
'Are we out of the woods on this?'" One of the assumptions, he
noted, is mortality rates: From 1984 to 2002, a 1984 mortality
table was used. He stated that the legislature should have
realized throughout the 90s that "people were going to live
longer." Money was not collected "for that longer life," thus
that became an unfunded liability. By the time the legislature
adopted the 1994 mortality table in 2002, which extended life
expectance by 2.5 years, there was a "huge balloon in the
unfunded liability." Currently there is a 2002 mortality table,
which is adjusted to 2004, which, if adopted by the legislature,
would increase the unfunded liability. If the legislature
chooses not to adopt it, then it would not be collecting the
money now that is needed to pay the benefits, thus it would
still create an unfunded liability.
9:56:48 AM
REPRESENTATIVE GARDNER observed that because [the legislature]
failed to keep the mortality tables current, "we were
underpaying ourselves."
9:57:30 AM
CHAIR SEATON answered that's correct, "because we weren't
collecting enough to pay for the years of potential retirement
that we were going to have to pay under those defined benefits."
9:57:47 AM
CHAIR SEATON said there are other factors, as well. He directed
attention to slide 9 of the Power Point presentation, which
shows that the medical inflation rate was kept at 7.5 [percent]
for many years, changing to 12 percent in 2002. That [resulted
in] a huge unfunded liability, because now the state must look
at projecting that 12 percent annual increase for three years,
at which point it will slowly decline. Chair Seaton continued
as follows:
Does that mean we know those expenses are there? No.
I mean, if we had a catastrophe and half the retirees
[die], then it wouldn't happen .... But if we expect
medical science to do what it is doing, we need to
have the medical inflation rate accurately reflect
what we project as the future.
9:58:42 AM
REPRESENTATIVE LYNN asked how often the mortality rate changes.
9:58:53 AM
CHAIR SEATON answered that the federal mortality rate is updated
every decade and changes for Alaska when the legislature adopts
it. He reiterated that the state is currently working with the
1994 mortality table.
9:59:45 AM
CHAIR SEATON noted that there is an automatic cost of living
adjustment, which was set at 10 percent in 1961 to "give a
benefit for Alaskans." The courts decided in 2004 that that is
unconstitutional, "unless you give it to everybody that has a
cost of living equal or greater than Anchorage." That factor
also increases the unfunded liability.
CHAIR SEATON stated that there is an Ad Hoc Post Retirement
Pension Adjustment (PRPA), which means if the administrator of
the system sees that there has been a cost of living increase
and the system can support it, then he/she can give an increase
in benefits. In response to a question from Representative
Gardner, he said the administrator is not answerable to the
boards; however, he noted that the boards suggest PRPAs. He
said that the board suggested two PRPAs that were turned down by
the administrator because the system could not support them.
CHAIR SEATON mentioned a couple of retirement incentive plans
and "a number of House and Senate bills that have increased
unfunded liabilities." He stated, "We've got those in there now
that say, 'Okay, we're going to decrease the time in which you
have to qualify for medical benefits.' Well, those schedules
have not been paid over time, so what it would mean is you're
going to be paying out benefits that you haven't collected for:
unfunded liability."
10:01:12 AM
CHAIR SEATON asked the committee to study a summary of PERS/TRS
in preparation for a future work session.
ADJOURNMENT
There being no further business before the committee, the House
State Affairs Standing Committee meeting was adjourned at
10:01:44 AM.
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