Legislature(2021 - 2022)GRUENBERG 120
03/13/2021 01:00 PM House STATE AFFAIRS
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| Audio | Topic |
|---|---|
| Start | |
| HB55 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 55 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
ALASKA STATE LEGISLATURE
HOUSE STATE AFFAIRS STANDING COMMITTEE
March 13, 2021
1:04 p.m.
DRAFT
MEMBERS PRESENT
Representative Jonathan Kreiss-Tomkins, Chair
Representative Matt Claman, Vice Chair (via teleconference)
Representative Geran Tarr
Representative Andi Story
Representative James Kaufman
Representative David Eastman
MEMBERS ABSENT
Representative Sarah Vance
COMMITTEE CALENDAR
HOUSE BILL NO. 55
"An Act relating to participation of certain peace officers and
firefighters in the defined benefit and defined contribution
plans of the Public Employees' Retirement System of Alaska;
relating to eligibility of peace officers and firefighters for
medical, disability, and death benefits; relating to liability
of the Public Employees' Retirement System of Alaska; and
providing for an effective date."
- HEARD & HELD
PREVIOUS COMMITTEE ACTION
BILL: HB 55
SHORT TITLE: PEACE OFFICER/FIREFIGHTER RETIRE BENEFITS
SPONSOR(s): REPRESENTATIVE(s) JOSEPHSON
02/18/21 (H) PREFILE RELEASED 1/15/21
02/18/21 (H) READ THE FIRST TIME - REFERRALS
02/18/21 (H) STA, FIN
03/13/21 (H) STA AT 1:00 PM GRUENBERG 120
WITNESS REGISTER
REPRESENTATIVE ANDY JOSEPHSON
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Introduced HB 55 as the prime sponsor.
ELISE SORUM-BIRK, Staff
Representative Andy Josephson
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Presented a sectional analysis of HB 55 and
a PowerPoint presentation, titled "House Bill 55," on behalf of
Representative Josephson, prime sponsor.
JIM PUCKETT, Deputy Director
Division of Retirement and Benefits
Juneau, Alaska
POSITION STATEMENT: Answered questions pertaining to HB 55.
PAUL MIRANDA, President
Alaska Professional Fire Fighters Association
Anchorage, Alaska
POSITION STATEMENT: Answered questions pertaining to HB 55.
ACTION NARRATIVE
1:04:06 PM
CHAIR JONATHAN KREISS-TOMKINS called the House State Affairs
Standing Committee meeting to order at 1:04 p.m.
Representatives Tarr, Story, Claman (via teleconference), and
Kreiss-Tomkins were present at the call to order.
Representatives Eastman and Kaufman arrived as the meeting was
in progress.
HB 55-PEACE OFFICER/FIREFIGHTER RETIRE BENEFITS
1:04:34 PM
CHAIR KREISS-TOMKINS announced that the only order of business
would be HOUSE BILL NO. 55, "An Act relating to participation of
certain peace officers and firefighters in the defined benefit
and defined contribution plans of the Public Employees'
Retirement System of Alaska; relating to eligibility of peace
officers and firefighters for medical, disability, and death
benefits; relating to liability of the Public Employees'
Retirement System of Alaska; and providing for an effective
date."
1:05:31 PM
REPRESENTATIVE ANDY JOSEPHSON, Alaska State Legislature, prime
sponsor, introduced HB 55. He recalled 2006, when the
legislature ended the defined benefit plan for any person hired
after the effective date of the legislation. He pointed out
that [defined benefits] are subject to constitutional
protection, which is the cause of some anxiety should that
option be returned to. Nonetheless, he expressed his desire to
"fully assuage" those concerns. He explained that since the
defined benefit plan was eliminated in 2006, new employees have
received a defined contribution [plan], also referred to as a
401K, 401A, or 403, which are all variations of the same model.
He described a defined contribution as "portable," indicating
that employees can take the employer share along with their own.
He added that based on actuarial assessments of anticipated
coverage, the replacement of income is in the low thirtieth
percentile; however, under a defined benefit plan, individuals
could receive closer to 50 percent. He stated that HB 55 is
essentially identical to what was proposed under House Bill 79
in the Thirty-First Alaska State Legislature. The bill would
create a retirement plan option for state and municipal peace
officers and firefighters. He noted that this cohort of public
safety employees is made up of 1,400 individuals. To stay
solvent, the proposed option may need to make a variable
contribution that would be no less than 8 percent, which could
rise to 10 percent. He explained that a person who chooses this
plan could see some diminishment in his/her paycheck during
active service, which was designed to be implemented if the ARM
[Alaska Retirement Management] Board declares that the
investment is less than 90 percent solvent.
1:11:32 PM
CHAIR KREISS-TOMKINS surmised that Representative Josephson had
stated that in response to the threat of an emerging unfunded
liability there would be an increased employee contribution to
"autocorrect" [the solvency].
REPRESENTATIVE JOSEPHSON confirmed. He added that the
"autocorrect" would presumably cease if [the investment]
returned to 100 percent for some period of time. He resumed his
introduction of HB 55 by highlighting a provision that
stipulates a minimum retirement age of 55 with 20 years of
service. He noted that the proposed plan is modeled, in part,
after Washington's defined benefit [plan], which is overfunded.
The proposal includes additional provisions to effectively
[safeguard and] moderate the plan, such as the constructing the
final calculation on five years of salary versus three,
mechanisms to prevent pension spiking, and the ability to
withhold Post Retirement Pension Adjustments (PRPAs) should the
plan's funding drop below 90 percent. Lastly, he said, to avoid
burdening state and local government, the proposed option
creates a health retirement account similar to Tier IV, which is
three percent of a PERS salary, that can be used to pay doctor
fees or purchase premiums. He pointed out that after
identifying multiple tools that make the bill more affordable,
one might wonder whether it is "so affordable that it's
unattractive." He stated that the answer is no, because people
of a certain age group are being persuaded to leave Alaska for
other states that offer more generous plans. He further noted
that current retention rates are problematic, as the cost of DPS
[Department of Public Safety] training in towns, such as Sitka,
is upwards of $100,000 per recruit.
1:18:27 PM
REPRESENTATIVE STORY sought verification that the new tier would
not be optional for new recruits.
1:18:51 PM
ELISE SORUM-BIRK, Staff, Representative Andy Josephson, Alaska
State Legislature, on behalf of Representative Josephson, prime
sponsor, confirmed. She added that if the bill were to pass,
individuals under Tier IV would be given the option to buy in to
the new tier's defined benefit plan. She reiterated that any
employee hired after the bill's effective date would be part of
the new tier.
1:19:44 PM
REPRESENTATIVE EASTMAN asked how the proposed option compares to
the current option in regard to high inflation.
MS. SORUM-BIRK deferred to Mr. Puckett.
1:20:38 PM
JIM PUCKETT, Deputy Director, Division of Retirement and
Benefits, explained that Tiers I, II, and III have a PRPA based
on the CPI [Consumer Price Index] for the urban area of
Anchorage per the statutory formula. He noted that Tier IV does
not have a PRPA whereas the proposed plan includes a PRPA, which
is why the new tier would be attractive to young public safety
workers. He added that [the proposed plan] does not contain
total inflation proofing, "but it's a good percentage of it, and
it is very beneficial to the retirees."
REPRESENTATIVE EASTMAN shared his understanding that the
proposed plan includes an option to set aside or suspend the
PRPA. He questioned how the new tier would compare to Tier IV
if that option were enacted and the PRPA withheld.
MR. PUCKETT reiterated that Tier IV does not have a PRPA
provision. He explained that with the implementation of this
bill, the ARM Board would have the ability to withhold PRPA
should the cost of PRPA for employees under the new tier make up
more than 10 percent of the overall (indisc.), at which time the
benefit would be similar to Tier IV.
REPRESENTATIVE EASTMAN questioned which plan would be more
attractive if inflation were high and the inflation proofing was
set aside.
MR. PUCKETT pointed out that Tier IV is a defined contribution
plan. He stated that if HB 55 were to pass, the peace officers
and firefighters who chose the new tier would be placed into a
defined benefit pension. He explained that the appeal of a
pension is that everything is calculated by mathematical
formulas and upon retirement, employees know the amount they
will receive monthly for the rest of their lives. In contrast,
under Tier IV, both the employee and the employer make
contributions into the employee's personal account, which can be
invested in a variety of different options and is personally
managed by the employee in his/her retirement years. He went on
to explain that if the ARM Board determined that the new tier's
PRPA had to be withheld, then the two plans would be similar in
the fact that they both would lack any type of inflation
proofing provision; however, Tier IV would still be a defined
contribution and the other a defined benefit.
REPRESENTATIVE EASTMAN asked if an employee would be able to
return to Tier IV after selecting the "hybrid" [Tier V] plan.
MR. PUCKETT said joining the new tier would be an irrevocable
decision.
1:26:46 PM
MS. SORUM-BIRK presented a sectional analysis of HB 55 [included
in the committee packet], which read [original punctuation
provided]:
Section 1: Amends AS 37.10.220(a) regarding the powers
and duties that the Alaska Retirement
Management (ARM) board shall carry out including:
? Adding new duties to account for appropriate
employer contributions for peace officers and fire
fighters and adjustments to these employees'
contributions;
? Determining the amount of the monthly employer
contributions under new subsection AS 39.35.255(i) for
peace officers and firefighters participating in the
defined benefit plan after June 30, 2006.
Section 2: Amends AS 37.10.220(b) regarding the powers
and duties of the Alaska Retirement Management (ARM)
board, adding the ability to adjust the post-
retirement pension adjustment (PRPA) amounts and the
employee contribution rates for peace officers and
firefighters participating in the defined benefit plan
after June 30, 2006.
Section 3: Adds to the ARM board statute the
definitions for "peace officer" and "firefighter" the
existing in AS 39.35.680 (the PERS defined benefit
definitions section).
Section 4: Amends AS 39.30.090(a) by adding the AS
39.37.537 (the new health reimbursement arrangement
(HRA) medical benefit for peace officers and
firefighters participating in the defined benefit plan
after June 30, 2006 found in section 29) to the list
of retiree medical benefit programs that the
Department of Administration has the power to procure
group insurance for.
Section 5: Amends AS 39.30.097(a) regarding Alaska
retiree health care trusts. Adds the new AS 39.35.537
(the peace officer/firefighter HRA found in section
29) to the list of medical benefit programs that the
Department of Administration commissioner is
authorized to prefund.
Section 6: Amends AS 39.30.097(b) regarding Alaska
retiree health care trusts. Adds the new AS 39.35.537
(the peace officer/firefighter HRA found in section
29) to the list of medical benefit programs that the
Department of Administration commissioner is
authorized to prefund.
1:29:30 PM
CHAIR KREISS-TOMKINS asked whether an HRA [health reimbursement
arrangement] is presently part of Tier IV.
MS. SORUM-BIRK confirmed.
CHAIR KREISS-TOMKINS questioned whether the HRA contemplated in
Tier V is the same as or different than the HRA in Tier IV.
MS. SORUM-BIRK answered it is the same as Tier IV.
1:30:01 PM
MS. SORUM-BIRK resumed the sectional analysis of HB 55, which
read:
Section 7: Makes a Revisor's type technical change by
using the new preferred term for referring to the
state retirement system.
Section 8: Amends AS 39.30.380 regarding how the HRA
medical benefits are handled for terminated employees
who leave prior to retiring. A person who terminates
employment prior to meeting the eligibility
requirements under the new AS 39.35.537 (proposed
peace officer and firefighter HRA found in section 29)
lose rights to their contribution to the HRA trust
fund, in line with other Tier IV HRAs.
Section 9: Amends AS 39.30.390 regarding eligibility
for reimbursement under the HRA. Adds the new AS
39.35.537 (proposed peace officer and firefighter HRA
found in section 29) as eligible for reimbursements
from the HRA.
Section 10: Amends AS 39.30.400(a) regarding benefits
payable from individual HRA accounts. The new AS
39.35.537 (proposed peace officer and firefighter HRA
found in section 29) is added as a plan from which the
administrator may deduct the cost of monthly premiums.
Section 11: Amends AS 39.30.495 which contains the
definitions for the HRA statutes. Adds the new AS
39.35.537 (proposed peace officer and firefighter HRA
found in section 29) to the definition of "eligible
person" found in AS 39.30.495(5).
Section 12: Amends AS 39.35.095 which lays out the
applicability of the defined benefit retirement plan
statutes found in AS 39.35.095-39.35.680 to include
peace officers and firefighters participating in the
defined benefit plan after June 30, 2006.
1:31:38 PM
CHAIR KREISS-TOMKINS surmised that in effect, the bill
mechanically [piggybacks]" on the extant statutes pertaining to
HRA.
MS. SORUM-BIRK confirmed.
1:31:51 PM
MS. SORUM-BIRK continued with the sectional analysis of HB 55,
which read:
Section 13: Conforming amendment to AS 39.35.160(a)
which outlines the employee contribution rates for
peace officers or firefighters hired before June 30,
2006, excepting the new AS 39.35.160(e) (found in
section 14). Deletes material on page 9, lines 18-25
that is reproduced in a new AS 39.35.160(f) (found in
section 14).
Section 14: Creates new subsection AS 39.35.160 (e)
setting the employee contribution rate for peace
officers and firefighters participating in the defined
benefit plan after June 30, 2006, at 8 percent of the
employee's compensation. The ARM board may adjust the
contribution rate from 8 to 10 percent. Subsection (f)
reproduces the deleted material from page 9, lines
lines 18-25 in section 13 of the bill, ensuring that
contributions conform with the federal Internal
Revenue Code.
Section 15: Amends AS 39.35.255(a) by referring to a
new subsection (i) and by doing so makes clear that
the total employer contribution remains 22% for peace
officer and fire fighter employers.
Section 16: Amends AS 39.35.255(d) and is a technical
conforming change to accommodate the new subsection
(i) of this statute.
Section 17: Amends AS 39.35.255(e) and is a technical
conforming change to accommodate the new subsection
(i) of this statute.
Section 18: Adds new subsections (i) and (j) to AS
39.35.255.
? New subsection (i) establishes one of the new
features that aim to make this new tier financially
viable. It specifies that the employer contribution to
the employee retirement benefit will remain constant
at 12%. And, that the difference between the 12%
contribution dedicated to employee benefits and the
22% total employer contribution will be available for
the past liability of the PERS system.
? New subsection (j) states that the ARM board may
increase the employer contribution to the employee
retirement benefit based on the board's decision to
increase employee contributions. This is also a new
feature, or "lever," added to help make the new tier
financially viable.
MS. SORUM-BIRK said Section 18 is noteworthy because it
specifies that under the new tier, 12 precent of the employer
contribution would go the employee and 10 percent would go
toward the unfunded liability. The bill also inserts a new
subsection (j), which would allow the ARM Board to increase the
employer contribution if the employee contribution increased.
1:33:40 PM
CHAIR KREISS-TOMKINS asked if the unfunded liability that a
portion of the employer contribution would go towards is the
existing unfunded liability from Tiers I, II, and III.
MS. SORUM-BIRK confirmed.
CHAIR KREISS-TOMKINS asked whether Tier V beneficiaries would be
disproportionately subsidizing the unfunded liability compared
to DB [defined benefit] beneficiaries in previous tiers.
MS. SORUM-BIRK clarified that she had been discussing the
employer contribution. She said the 8 percent employee
contribution goes toward retirement, which would not change
under the new tier. What would change, she said, is how the
employer allocates their 22 percent. Currently, the employer
still contributes 22 percent, but only 5 percent goes toward the
employee. She indicated that Tier IV employees receive a
smaller amount of the [employer contribution].
CHAIR KREISS-TOMKINS asked whether the creation of a Tier V
would benefit the state's long-term unfunded liability by
reducing cost to future legislators.
MS. SORUM-BIRK said the state would be putting slightly less
toward the unfunded liability [with the creation of a Tier V].
1:36:42 PM
MS. SORUM-BIRK added that currently, the bill has an
indeterminate fiscal note; however, for the previous version of
the bill, House Bill 79, the state estimated that $3.5 million
less would be paid toward the unfunded liability per year.
CHAIR KREISS-TOKINS asked if the legislature [would be paying
$3.5 million less per year toward the unfunded liability].
MS. SORUM-BIRK answered yes.
CHAIR KREISS-TOMKINS surmised that in regard to his previous
question, future legislatures would need to appropriate
incrementally less if this bill were to pass.
MS. SORUM-BIRK answered no. She explained that the bill would
cost the state about $3.5 million, which would be less money
paid toward the unfunded liability annually. She added that the
amount of the unfunded liability would not decrease as fast.
REPRESENTATIVE JOSEPHSON added that the amount would be
marginal, relative to how much is spent on the unfunded
liability.
1:38:20 PM
MR. PUCKETT pointed out that all the tiers in the public
employees' retirement system are valued separately on an annual
basis by the actuary. The actuary then consolidates to produce
a single normal cost and a single service rate for the entire
plan.
1:40:22 PM
REPRESENTATIVE TARR asked if each successive tier is less
generous in the benefit offered, such that "the newest tiers
proportionately may be contributing only because of the
difference in the benefit."
MR. PUCKETT acknowledged that in an effort to reduce the cost to
the state and participating employers, benefits have been
reduced with each consecutive tier.
REPRESENTATIVE TARR pointed out that each successive tier
contributes proportionally more to the unfunded liability
because the overall benefit is lessened.
CHAIR KREISS-TOMKINS expressed his interest in the "anatomy" of
the unfunded liability and how much is proportionally
attributable to Tier I versus Tire II versus Tier III.
1:43:38 PM
REPRESENTATIVE EASTMAN proposed a scenario in which the state
found a "pot of money" and paid the unfunded liability to
completion. He asked if that would have any affect on the
employees under Tier IV.
MR. PUCKETT said the benefits are locked in statute and cannot
be diminished due to constitutional protection. He explained
that if the state found a pot of money and used it to pay off
the unfunded liability, the contribution rate from the employers
would be reduced as there would not be an actuarial necessity to
charge the current rate.
1:46:08 PM
REPRESENTATIVE EASTMAN asked how much the unfunded liability is
now and when it would be paid to completion on the current
trajectory. Further, he asked for a comparison between the
proposed plan's trajectory and the current trajectory. Lastly,
should the bill pass, he asked how much it would cost if the
debt were carried for a longer period of time.
MS. SORUM-BIRK offered to follow up with the requested
information.
1:47:56 PM
REPRESENTATIVE KAUFMAN referencing the pie chart on page 7 of
the DPS Commissioner Employment Engagement Survey [included in
the committee packet], noted that 9 percent of employees
indicated that a defined benefit retirement package was one
factor that would most improve their employment. He pointed out
that a higher percentage of employers chose other factors, such
as improve department leadership and culture; more training; and
increased staffing. He asked if [HB 55] is the lever that would
improve retention and recruitment.
MS. SORUM-BIRK said this is one lever that would improve
retention and recruitment, which has been requested by
individuals in the public safety field who are being recruited
by states with better retirement plans. She further noted that
the cost of retention and recruitment in Alaska is high, which
would be discussed further in a future presentation by the
Alaska Professional Fire Fighters Association (AKPFFA). She
stated that [a defined benefit retirement plan] might not be the
only way to improve retention and recruitment, but it's a big
part of it.
REPRESENTATIVE KAUFMAN maintained his understanding that a
defined benefit plan appeared to be a minor lever according to
the DPS survey. He questioned what else could be done to
increase employment satisfaction at a quicker pace. He
suggested that improving department leadership and culture could
be "a better bang for the buck." Additionally, he recommended
focusing on low-cost factors, such as alternate schedule options
and employee recognition programs to improve retention.
1:51:25 PM
REPRESENTATIVE JOSEPHSON, in reference to the pie chart
identified on page 7 of the DPS survey, pointed out that the
separation of opinion is not large. He relayed that there is
"incredible passion" about this issue. However, he noted that
the Alaska State Troopers (ASTs) had expressed some concern that
the benefits [proposed under HB 55] are not great enough, as the
proposed plan would prohibit them from drawing retirement until
age 55. He reported that ASTs typically begin their service at
a younger age; consequently, many wish they could collect
retirement at age 45. He emphasized that the proposed plan is
equipped with triggers and mechanisms to maintain solvency. He
acknowledged the desire to return to Tier I for groups that want
to retire earlier, but it would put the plan at risk of creating
an unfunded liability.
1:55:32 PM
MS. SORUM-BIRK resumed the sectional analysis of HB 55, which
read:
Section 19: Amends AS 39.35.282 regarding employer
contributions for medical benefits, conforming that
section to changes in the bill affecting peace
officers and firefighters first participating in the
defined benefit plan after June 30, 2006.
Section 20: Conforming amendment to AS 39.35.370(a)
which outlines the years of service requirements to
become eligible for retirement benefits under the
defined benefit retirement plan. The conforming
language specifies that the credit service
requirements in subparagraphs 1-3 only apply to
persons who became members of the defined benefit
retirement plan prior to July 1, 2006.
Section 21: Amends AS 39.35.370 by adding a new
subsection (l) detailing the service requirements for
peace officers and firefighters participating in the
defined benefit plan after June 30, 2006. Members are
eligible for a normal retirement benefit:
? At age 60 with at least five years of credited
service as a peace officer or firefighter, or
? At age 55 with at least 20 years of credited service
as a peace officer or firefighter.
Section 22: Amends AS 39.35.381 concerning the
alternative benefits for elected public officials. The
new AS 39.35.537 (proposed peace officer and
firefighter HRA found in section 29) is added to the
list of plans that elected public officials are not
entitled to under the alternative benefit for elected
public officials.
Section 23: Conforming amendment to AS 39.35.475(a)
concerning the schedule for making the annual
postretirement pension adjustments (PRPA), making
those payments subject to the exceptions in the new
subsection (g) (found in section 25).
Section 24: Conforming amendment to AS 39.35.475(b)
concerning the calculation of the annual
postretirement pension adjustments (PRPA), making
those payments subject to the new subsection (h)
(found in section 25).
Section 25: This section contains one of the new
features, or "levers," added to help keep the new tier
financially viable. The section is intended to allow
the ARM board to reduce a benefit, the automatic post-
retirement pension adjustment, to keep the new tier
financially viable. The proposed new subsections:
? Subsection (g) sets up the adjustment feature of the
next subsection.
? Subsection (h) allows the ARM board to reduce PRPA
payments to peace officers and firefighters
participating in the defined benefit plan after June
30, 2006, if the plan has an unfunded liability
greater than 10 percent and clarifies that the feature
can be used if the liability to PERS is attributable
to the employees of this new tier.
Section 26: Conforming amendment to AS 39.35.535(a)
concerning the medical benefits for employees under
the defined benefit retirement plan. Adds a new
subsection (g) (found in section 28) as an exception
to the defined benefit retirement plan medical
benefits for peace officers and firefighters
participating in the defined benefit plan after June
30, 2006.
Section 27: Conforming amendment to AS 39.35.535(c)
concerning the major medical insurance coverage for
those under the defined benefit retirement plan. It
specifies that the section only applies to those
members or their surviving spouse who joined prior to
July 1, 2006.
Section 28: Amends AS 39.35.535 by adding a new
subsection (g) that states peace officers and
firefighters participating in the defined benefit plan
after June 30, 2006, are to receive benefits under the
HRA as allowed under the new AS 39.25.537 (found in
section 29).
Section 29: Adds a new section AS 39.35.537 creating
an HRA medical benefit for peace officers and
firefighters first participating in the defined
benefit plan after June 30, 2006. The section
specifies the eligibility, cost of premiums for the
major medical insurance, and procedures for
participation.
Section 30: Amends AS 39.35.680 (4) which contains the
definitions for the defined benefit retirement plan
statutes. Adds a new paragraph (F) under the
definition of "average monthly
compensation" that states the calculation for peace
officers and firefighters first participating in the
defined benefit plan after June 30, 2006, will be
based on the highest five consecutive payroll years
during the employee's career.
Section 31: Conforming amendment to the definition of
"employer" under AS 39.35.680(18) to include peace
officers and firefighters participating in the defined
benefit plan after June 30, 2006.
Section 32: Conforming amendment to the definition of
"normal retirement" under AS 39.35.680(26) to include
AS 39.35.370(l) detailing the service requirements for
peace officers and firefighters participating in the
defined benefit plan after June 30, 2006.
Section 33: Conforming amendment to AS 39.35.720
regarding the membership in the defined contribution
retirement system, stating that all employees who
become members on or after July 1, 2006, except as
provided in AS 39.35.095, are part of the defined
contribution plan, thus excepting peace officers and
firefighters participating in the defined benefit plan
after June 30, 2006.
Section 34: Adds a new subsection to AS 39.35.750
regarding employer contributions to the defined
contribution retirement plan, stating those
contribution requirements do not apply to peace
officers and firefighters participating in the defined
benefit plan after June 30, 2006, whose employer
contribution requirements are found in the new AS
39.35.255(i) (found in section 18).
Section 35: Adds a new section to the uncodified law
of the State of Alaska allowing peace officers and
firefighters hired after June 30, 2006 and before the
bill's effective date to elect, within 90 days of the
effective date of this section, to transfer their
contributions to their defined contribution retirement
plan to the defined benefit retirement plan. Those
transfers will be used to purchase credited service
under the defined benefit retirement plan on an
actuarially equivalent basis set by the ARM board.
Section 36: Adds a new section to the uncodified law
of the State of Alaska creating procedures set out by
the Department of Administration for employees to
transition their contributions under the defined
contribution retirement plan to the defined benefit
retirement plan. This section also states that the
election to transition from the defined contribution
to the defined benefit plan is irrevocable. If there
is a difference between the actual years of service
and the equivalent years of service calculated by an
employee's contributions to the defined benefit
retirement plan, then the Department of Administration
will allow persons to buy the difference. If the
equivalent years of service are in excess of the
actual years of service, then the excess remains under
the defined contribution retirement plan.
Section 37: Adds a new section to the uncodified law
of the State of Alaska instructing the Department of
Administration commissioner to make conforming
regulations.
Section 38: States that section 37 takes immediate
effect under AS 01.10.070(c).
Section 39: Sets effective date of July 1, 2021
2:00:43 PM
REPRESENTATIVE EASTMAN sought clarification on the significance
of the [June 30,] 2006 date that is present in various sections
of the bill.
MS. SORUM-BIRK said Tier IV went into effect in 2006. She
explained that throughout the bill, the language in question
specifies what applies to individuals who join the defined
benefit after 2006.
REPRESENTATIVE EASTMAN asked for verification that the language
in question separates Tier IV from the other three tiers.
MS. SORUM-BIRK clarified that the language indicates that there
is a new defined benefit tier that would exist after 2006.
REPRESENTATIVE EASTMAN asked whether an individual could receive
credit for previous work if he/she opts into the new plan.
MS. SORUM-BIRK stated that anyone under Tier IV could buy into
the new tier; however, it would be significantly more expensive
for those that had served longer. She expounded that it would
cost more to buy into the new tier for a person who started
his/her career in 2006; further, he/she may not get credit for
every year of service because it's calculated by the ARM Board
at a certain rate, which is outlined in Section 35 and Section
36 of the bill. She conveyed that to buy in, there is a base
percentage and an additional annual percentage.
2:03:15 PM
REPRESENTATIVE EASTMAN considered a scenario in which a full-
time, Tier IV employee started his/her career on June 30, 2006.
He questioned whether all years would be eligible [for credit
under the new plan] or if something else determines eligibility.
REPRESENTATIVE JOSEPHSON said they would be eligible for the
purpose of running the calculation; however, the individual
would not receive 15 years of service under the new tier. He
approximated that 11 or 12 years of the 15 would be transferred.
He reiterated that under the new plan, there would be a
difference in cost, which is mostly a reflection of factors such
as the later age of retirement; reduction mechanisms if the ARM
Board does not see sufficient returns; and different medical
provisions from Tiers I-III. He stated that the aforementioned
factors allow for an attractive plan that would keep people in
Alaska for the entirety of their career. He returned to
Representative Kaufman's question and noted that in reference to
the DPS survey, 23 percent of employees indicated that a return
to a defined benefit would help retention within the department.
2:06:42 PM
REPRESENTATIVE TARR opined that the minimum retirement age of 55
with 20 years of service is sensible, but the retirement age of
60 with 5 years of service seems overly generous in comparison.
She asked for further clarification on that provision.
CHAIR KREISS-TOMKINS echoing Representative Tarr's sentiments,
asked if an individual who became a firefighter at age 55 and
retired at age 60 would receive a defined benefit pension.
MS. SORUM-BIRK explained that the provision in question would be
for a person "who worked five or more years in the system and
was vested." She added that the individual would not be able to
access his/her retirement until the age of 60 rather than 55.
REPRESENTATIVE TARR surmised that under that scenario, if a
person aged 25 worked five years and then left state service,
he/she would be eligible [for retirement] at age 60.
MS. SORUM-BIRK deferred to Mr. Miranda.
2:08:29 PM
PAUL MIRANDA, President, Alaska Professional Fire Fighters
Association, in response to Representative Tarr, answered yes.
He said if someone had five years of service and then left
his/her public service job, that person would collect two
percent of the final average salary for those five years of
service after age 60. He noted that the benefit would likely be
quite small.
REPRESENTATIVE EASTMAN asked to be pointed to further
information on this provision to compare the difference in
benefit per age of retirement.
MS. SORUM-BIRK stated that the calculation referenced by Mr.
Miranda exists under AS 39.35.370(c), which read as follows:
(c) The monthly amount of a retirement benefit for a
peace officer or fire fighter is two percent of the
average monthly compensation times the years of
credited service through 10 years, plus two and one-
half percent of the average monthly compensation times
the years of service over 10 years. For all other
employees it is
2:10:42 PM
MS. SORUM-BIRK introduced a PowerPoint presentation, titled
"House Bill 55" [hard copy included in the committee packet].
She began on slide 3, which highlighted previous versions of the
bill going back to the Twenty-Eighth Alaska State Legislature.
CHAIR KREISS-TOMKINS inquired about the differences that exist
in HB 55 compared to House Bill 79 [proposed in the Thirty-First
Alaska State Legislature].
MS. SORUM-BIRK said the only difference is that the name of a
trust fund was changed. She added that the mechanics of HB 55
are the same as in House Bill 79.
2:11:49 PM
MS. SORUM-BIRK resumed the presentation on slide 4, which
detailed Tier IV. She explained that Tier IV is a 401A made up
of 13 percent payroll - 8 percent from the employee and 5
percent from the employer. The HRA is 3 percent of the average
PERS salary. The plan includes Medicare coverage at the
eligible age or with 25 years of service for public safety
[workers]; further, disability in Tier IV is similar to Tier
III. She additionally noted that Tier IV employees have the
401A in addition to SBS [Supplemental Annuity Plan] - the
state's "opt-out" for Social Security - offering them slightly
more security than municipal employees, many of whom are not
covered by Social Security or SBS. She turned to slide 5 and
reviewed three independent evaluations that all found
inadequacies in Tier IV: William Fornia of Pension Trust
Advisors indicated that Tier IV would replace 31 percent of
income after 25 years; Department of Administration (DOA)
estimated 38.5 percent of income replacement after 30 years; and
Bob Mitchell, State of Alaska CIO, put the probability of a 25-
year public safety employee replacing 70 percent of income in 30
years at 6 percent and a 30-year employee at 22 percent.
2:14:30 PM
MS. SORUM-BIRK continued to slide 6, which illustrated the
following issues with the Tier IV retirement plan: recruitment,
retention costs, workers' compensation costs, operational
capabilities, and unforeseen costs. She noted that unforeseen
costs include overtime payments caused by understaffing, which
municipalities or the state end up paying for. She reviewed the
cost containment measures in HB 55 on slide 7, including:
significantly reduced benefit from Tier III; plan built on
conservative assumptions with reasonable costs; requires a
steady level of contributions from both employee and employer;
mechanisms for dealing with adverse experience; and shared risk
between employees, employers, and retirees.
2:16:11 PM
MS. SORUM-BIRK moved to slide 8 and outlined the following
benefit reductions in Tier V compared to the Tier III defined
benefit: no pre-Medicare coverage; elimination of the 10 percent
cost of living allowance (COLA) on pensions; final calculation
based on five years as opposed to three years; require a minimum
age of 55 with 20 years of service to collect full benefits.
Slide 9 summarized the proposed plan's best practices: built on
a lower expected rate of return; requires steady contribution
from employees and employers; allows the employee contribution
to go up to 10 percent but not fall below 8 percent; allows the
PRPA (inflation proofing) to be withheld when funding falls
below 90 percent; replicates Tier IV defined contribution
medical; reasonable employer costs.
2:17:43 PM
MS. SORUM-BIRK continued to slide 10, which illustrated the
state's actuarial analysis of the previous version of this
legislation, House Bill 79, Version G, which emphasized that the
Additional State Contribution would increase because the
percentage being deposited to the defined benefit trust would
decrease from 12.2 percent to 10 percent. She further noted
that the actuaries estimated that $3.5 million less would be
paid toward the defined benefit trust annually. Slide 12 showed
a graph that compared the current cost of replacing employees to
House Bill 79 costs.
CHAIR KREISS-TOMKINS, referencing slide 12, asked if DOT
referred to Department of Transportation & Public Facilities.
MS. SORUM-BIRK clarified that DOT signified Airport Police and
Fire.
CHAIR KREISS-TOMKINS asked what DOC denoted.
MS. SORUM-BIRK answered Department of Corrections.
2:19:56 PM
REPRESENTATIVE JOSEPHSON relayed that the turnover within DOC is
"horrendous."
CHAIR KREISS-TOMKINS expressed concern with the analysis. He
opined that there's rarely a fall through in reduction of the
preempted costs. He added that he likes social impact bonds
because they codify the relationship of long-term savings and
require them to materialize. He said he is inclined to be
supportive of the bill; however, he noted his desire for budget
decrements in DPS, DOT, and DOC in five years. Further, he
acknowledged that there are decreased costs that materialize but
conveyed "little faith" that the Thirty-Fifth Alaska State
Legislature would have the experience if HB 55 were to pass this
year.
2:21:34 PM
REPRESENTATIVE EASTMAN sought further clarification on the
implication of slide 11.
MS. SORUM-BIRK explained that slide 11 estimated how much it
costs the state in training costs to replace one, two, and three
percent of the public safety workforce. She noted that the
actual amounts are higher than one, two, or three percent.
2:22:54 PM
REPRESENTATIVE KAUFMAN asked if that is one percent per year.
MS. SORUM-BIRK confirmed [that slide 11 examined annual costs].
2:23:06 PM
REPRESENTATIVE EASTMAN asked how Alaska compares to the states
and localities to which [public safety] employees relocate.
MS. SORUM-BIRK said Alaska is not very competitive. She
deferred to Mr. Miranda for further explanation.
CHAIR KREISS-TOMKINS noted that Mr. Miranda would present the
authoritative analysis on Alaska's comparative competitiveness
at a future hearing.
2:23:58 PM
REPRESENTATIVE EASTMAN inquired about the legal liability if a
state employee [who was not a public safety worker] sued the
state for access to Tier V.
MS. SORUM-BIRK stated that legally, public safety retirement is
treated differently. She explained that public safety
employment is based on a 20-year standard; further, different
tiers pay different percentages and receive different benefits,
which other public employees do not receive. She emphasized
that public safety employees have different retirement benefits
in statute.
REPRESENTATIVE JOSEPHSON stated his understanding that there is
no liability, noting that [the state] contracts with different
bargaining units for different benefits. He added that there is
real concern about the lack of defined benefits for teachers,
spill prevention response, and other agencies. However, he
expressed his desire to first see whether public safety workers
secure this benefit. He emphasized that HB 55 is about
providing a defined benefit to first responders, so they stay in
Alaska; further, to prevent other states from recruiting
Alaska's workers and benefiting from them.
2:27:22 PM
CHAIR KREISS-TOMKINS announced HB 55 was held over.
2:28:08 PM
ADJOURNMENT
There being no further business before the committee, the House
State Affairs Standing Committee meeting was adjourned at 2:28
p.m.