Legislature(2005 - 2006)
04/03/2005 01:04 PM Senate FIN
| Audio | Topic |
|---|---|
| Start | |
| SB141 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
MINUTES
SENATE FINANCE COMMITTEE
April 3, 2005
1:04 p.m.
CALL TO ORDER
Co-Chair Green convened the meeting at approximately 1:04:16 PM.
PRESENT
Senator Lyda Green, Co-Chair
Senator Gary Wilken, Co-Chair
Senator Con Bunde, Vice Chair
Senator Fred Dyson
Senator Bert Stedman
Senator Lyman Hoffman
Senator Donny Olson
Also Attending: MELANIE MILLHORN, Director, Health Benefits
Section, Division of Retirement & Benefits, Department of
Administration; JERRY BURNETT, Special Assistant to the
Commissioner, Department of Revenue; KEVIN BROOKS, Deputy
Commissioner, Department of Administration; TRACI CARPENTER, Staff
to Co-Chair Green; MILES BAKER, Staff to Senator Stedman
Attending via Teleconference: There were no teleconference
participants.
SUMMARY INFORMATION
SB 141-PUBLIC EMPLOYEE/TEACHER RETIREMENT/BOARDS
The Committee heard from the bill's sponsor and the Department of
Administration. Seventeen amendments were considered with thirteen
being 7adopted. The bill was held in Committee.
SENATE BILL NO. 141
"An Act relating to the teachers' and public employees'
retirement systems and creating defined contribution and
health reimbursement plans for members of the teachers'
retirement system and the public employees' retirement system
who are first hired after July 1, 2005; establishing the
Alaska Retirement Management Board to replace the Alaska State
Pension Investment Board, the Alaska Teachers' Retirement
Board, and the Public Employees' Retirement Board; adding
appeals of the decisions of the administrator of the teachers'
and public employees' retirement systems to the jurisdiction
of the office of administrative hearings; and providing for an
effective date."
This was the tenth hearing for this bill in the Senate Finance
Committee.
Co-Chair Green stated that the purpose of today's hearing is to
consider amendments to SB 141, Work Draft, Version 24-LS063\F.
Co-Chair Green pointed out that her office has provided Members a
copy of a Legislative Affairs Agency Division of Legal and Research
Services Memorandum [copy on file], dated April 2, 2005, from
Barbara Craver, Legislative Counsel, that specifies that a
severability clause would not be a required component of this
legislation. "Adding a severability section to this bill would not
add anything to the existing statutory presumption…." The
severability clause question was asked by Co-Chair Green to assure
that "the core of the bill could remain, even if something was
found unconstitutional."
Amendment #1: This amendment replaces all language in Sec. 40,
subsections (b) through (i) beginning on page 36, line 27 through
page 38, line six of 24-LS0637\G; with the following language.
[NOTE: This language must be conformed to Version "F".]
(b) The Alaska Retirement Management Board consists of nine
trustees. The commissioner of administration and the
commissioner of revenue shall serve on the board. Four
trustees shall be appointed by the governor and three shall be
elected from the membership of state retirement systems.
(c) The governor shall appoint four trustees who meet the
eligibility requirements for an Alaska permanent fund dividend
and who are professionally credentialed or have recognized
competence in investment management, finance, banking,
economics, accounting, pension administration, or actuarial
analysis as follows:
(1) two trustees shall be appointed from the general
public; a trustee appointed under this paragraph may not hold
another state office, position, or employment and may not be a
member or beneficiary of a retirement system managed by the
board;
(2) one trustee shall be employed as a finance officer
for a political subdivision participating in the public
employees' retirement system;
(3) one trustee shall be employed as a finance officer
for a political subdivision participating in the teachers'
retirement system.
(d) Two trustees shall be members of the public employees'
retirement system elected by members of the public employees'
retirement system. One trustee shall be a member of the
teachers' retirement system elected by members of the
teachers' retirement system. Elections shall be conducted by
the board. The candidate who receives the most votes cast in
the election is elected to the seat. If two seats are to be
filled at the election, the candidate who receives the highest
number of votes cast and the candidate who receives the second
highest number of votes cast are elected to the seats. The
term of office of an elected member is three years. The
governor shall fill a vacancy in an unexpired elective term by
appointment for the period remaining before the next regularly
scheduled election held under this subsection. The term
limitations of (e)(1) of this section do not apply to trustees
elected under this subsection.
(e) The trustees appointed under (c) of this section
(1) shall serve for staggered terms of three years and
may be reappointed to the board for a total of three
consecutive terms, a person who has served three consecutive
terms may not be reappointed to the board for at least one
year;
(2) may be removed by the governor for cause by written
notice, after a trustee receives written notice of removal,
the trustee may not participate in board business and may
not be counted for purposes of establishing a quorum.
(f) A vacancy on the board of trustees appointed to the
board under (e)(2) of this section shall be promptly filled.
A person filling a vacancy holds office for the balance of
the unexpired term of the person's predecessor, and the
balance of the unexpired term served is not included in the
three-term limitation under (e)(1) of this section. A
vacancy on the board does not impair the authority of a
quorum of the board to exercise all the powers and perform
all the duties of the board.
(g) Five trustees constitute a quorum for the transaction of
business and the exercise of the powers and duties of the
board.
(h) A trustee may not designate another person to serve on
the board in the absence of the trustee.
(i) The board shall provide annual training to its members
on the duties and powers of a fiduciary of a state fund and
other training as necessary to keep the members of the board
educated about pension management and investment.
(j) The board shall elect a trustee to serve as chair and a
trustee to serve as vice-chair for one-year terms. A
trustee may be reelected to serve additional terms as chair
or vice-chair."
Furthermore, this amendment deletes language in Sec. 112, page 90
lines 19 through 26 of Version "G" and replaces it with the
following language. [NOTE: This language must be conformed to
Version "F".]
* Sec. 112. The uncodified law of the State of Alaska is
amended by adding a new section to read:
TRANSITION: INITIAL STAGGERED TERMS OF TRUSTEES OF THE ALASKA
RETIREMENT SECURITY AND PORTABILITY BOARD. (a) Notwithstanding
AS 37.10.210(e), as repealed and reenacted by sec. 40 of this
Act, in making the initial appointments under AS 37.10.210(c),
as repealed and reenacted by sec. 40 of this Act, the governor
shall appoint one member for one year, one member for two
years and two members for three years.
(b) Notwithstanding AS 37.10.210(d), as repealed and
reenacted by sec. 40 of this Act, the initial term of the
candidate who receives the highest number of votes cast in a
two-seat election shall be elected to a three-year term, and
the candidate in a two-seat election who receives the second
highest number of votes cast shall be elected to a one-year
term. The initial term of a candidate who receives the
highest number of votes cast in a one seat election shall be
two years.
Senator Olson moved for the adoption of Amendment #1. He noted that
the Amendment's language must be conformed to the current work
draft, Version 24-LS0637\F. Thus, the language being referenced is
located in Section 41, subsections (b) through (i) beginning on
page 37, line 13 through page 38, line 23 of Version "F".]
Co-Chair Green objected to the Amendment.
1:06:29 PM
Senator Olson stated that in order to provide "more balance" on the
Board, this amendment would serve to increase the Public Employees
Retirement System (PERS) member representation on the Alaska
Retirement Management Board (ARMB) from one to two and would
decrease the number of general public members representation from
three to two. The total number of current PERS employees relative
to the current level of TRS employees, as reflected in the "Public
Employees/Teachers Retirement System Information Briefing" handout,
dated October 11, 2004 [copy on file] justifies the addition of
another PERS member on the ARMB.
Senator Olson specified that the second portion of the amendment
would continue the practice wherein active and retired employees
select their own representation on retirement boards. "The election
process has worked well in the past in finding people who have the
interest, ability and experience to serve on this type of board. I
believe the adoption of this amendment will greatly improve the
management and labor partnership that is absolutely necessary for
the successful operation of our public employees' retirement
systems." In conformance to Version "F", this change would apply to
language in Sec. 114, page 91 lines seven through fourteen.
Senator Olson stated that the amendment clarifies how the terms of
the elected Board members would be staggered during the phase in of
the new Board in that the PERS/TRS member elected to the Board with
the highest number of votes would receive the longer term seat.
Were a vacancy of an unexpired term to occur, the Governor would
appoint a person to that seat for the remaining time.
Senator Hoffman asked that consideration be given to dividing the
amendment into two parts: one to address the issue of whether or
not Board members should be elected and the other to address
whether or not to change the Board membership allocations.
Co-Chair Green asked whether the wording of the amendment would
allow for a "logical division".
Senator Olson communicated that dividing the amendment in the
manner suggested by Senator Hoffman had been discussed when it was
being drafted; however, the determination was to present it in its
entirety as the primary purpose of the amendment was to insure
"adequate representation from the participants who are involved",
specifically the PERS and TRS membership.
Senator Stedman voiced "mixed feelings" in regards to this
amendment. He would prefer that Board members were appointed rather
than elected. It is difficult, under the current election process,
for PERS/TRS members "to even know who they are voting for" as only
a pamphlet with limited information is distributed. He voiced
greater acceptance of the portion of the amendment that would
increase the PERS membership on the Board. Therefore, the will of
the Committee should decide the issue.
Senator Stedman pointed out that the Commissioner of the Department
of Health and Social Services or any PERS member demonstrating the
required professional competency could be considered for Board
participation.
Senator Bunde asked whether information is available regarding the
percent of voter participation in PERS/TRS Board elections. He
recalled receiving information regarding candidates to the TRS
Board because he is a retired educator, but admitted that voting in
those elections was not deemed "a high priority" and any
participation on his part was probably spurred by the fact that he
knew one of the candidates. He recalled telling the University of
Alaska student body that, "the ten percent that turn out for the
election, create a majority that claims to speak for the other 90
percent".
Co-Chair Green stated that the percentage of PERS/TRS members
voting in Board elections would be requested.
Co-Chair Green pointed out that the Board, as proposed in Version
"F", would include four PERS members, two TRS Members and three
financial "experts … This is a very generous distribution of
membership". The goal is to seat a Board with immediate
understanding of the situation. The $100,000 expense associated
with conducting a two-year election cycle would be paid by
Retirement funds.
MELANIE MILLHORN, Director, Health Benefits Section, Division of
Retirement & Benefits, Department of Administration informed the
Committee that the answer to member participation in PERS/TRS Board
elections is being researched.
JERRY BURNETT, Special Assistant to the Commissioner, Department of
Revenue, affirmed Ms. Millhorn's remark.
Senator Hoffman pointed out that Sec. 41(b)(4) and (5) on page 37,
lines 28 through 30, of Version "F" specify that there would be one
PERS member and one TRS member on the Board.
Co-Chair Green stated that included in her calculation were the
Commissioners of the Department of Revenue and the Department of
Administration who would be classified as PERS members, as well as
the person employed as a finance officer for a political
subdivision participating in PERS and another person employed as a
finance officer for a political subdivision participating in TRS.
Therefore, the nine-member board would consist of six total
PERS/TRS members: four from PERS and two from TRS.
Senator Hoffman, referencing the aforementioned "PERS/TRS
Information Briefing" document provided with Senator Olson's
amendment, stated that the information indicates that approximately
75-percent of the total PERS/TRS membership are from PERS and 25-
percent are from TRS. Were the Commissioners who represent the
Administration removed from the PERS calculation, the evidence
would support a further increase the percent of PERS members on the
Board. He again requested the amendment to be divided.
Co-Chair Green voiced the understanding that Senator Olson's
earlier response had addressed the question of dividing the
amendment.
Senator Olson again commented that the initial desire was to
separate the issues; however, due to "constraints that were put
upon us, we weren't able to work that out with the drafters."
Co-Chair Green deferred to that decision.
Senator Olson stated that the matter that "caught his attention" is
the fact, that as currently detailed in Sec. 41, subsection
37.10.210(b), on page 37, the entirety of the nine ARMB trustees
would be appointed by the governor. Even were this amendment
adopted, seven of the Board members would be appointed by the
governor. Even though holding elections would cost money, "rank and
file" employees would support the process. There would also be
recognition that the elected members would allow PERS/TRS members
to be stakeholders in the decision-making rather than the
ramifications of the Board's decisions being regarded as those of
the Administration.
Senator Stedman likened the proposed Board appointments to the
process in which the governor appoints members to the Permanent
Fund (PF) Board. Generally speaking, those appointments have been
conducted in a positive manner. The financial decisions made by the
ARMB would affect "a substantial amount as beneficiaries", and,
like the PF Board, any negative financial impact of their decisions
would affect everyone in the State.
1:19:16 PM
Senator Bunde reiterated that knowing the percentage of the
PERS/TRS membership who voted in the PERS/TRS Board elections would
be helpful. To that point, he suggested that the amendment be set
aside until the answer were provided.
Co-Chair Green concurred.
Senator Olson asked whether there being a high percent or a low
percent of voters would affect "the validity of the concern".
Senator Bunde responded that had only two or three percent of PERS
and TRS employees voted in an election would not be representative
of the majority of the eligible individuals who could vote nor
would spending thousands of dollars per vote be "the best use" of
fund money.
After conferring with Senator Olson, Co-Chair Green ordered
Amendment #1 to be SET ASIDE for later consideration.
Amendment #2: This amendment deletes all material in Section 29
subsection Sec. 14.25.348 on page 14, lines 22-31.
In addition, "contribution to a member's individual account" is
deleted and replaced with "member's defined contribution plan
contributions" following the word "a" in Section 29, subsection
Sec. 14.25.370 on page 16, line 28.
Furthermore, "AS 14.25.410" is deleted in Section 29, subsection
14.25.440(a)(5), on page twenty-one, line eleven, and replaced with
"AS 14.25.430".
In addition, the words "determined on the basis of actuarial value"
are deleted in Section 29, subsection (G) on page 31, line 26
following "AS 14.25.490,".
Following "AS 14.25.150(b)," in Section 32, on page thirty-three,
line twenty-eight, "14.25.390" is deleted and replaced with
"14.25.360".
"AS 37.10.220" is inserted following "AS 37.10.210" in Section 53
on page forty-six, line eight.
The words "application and eligibility for normal retirement" are
deleted in Section 62, subsection Sec. 39.30.380, on page 49, line
11 and replaced with "meeting the eligibility requirements of AS
14.25.470 or AS 39.35.870".
The words "Dependent children of an eligible member, until such
time as those persons no longer meet the definition of a dependent
child, are eligible for reimbursements if the eligible member and
surviving spouse have both died." is inserted in Section 62,
subsection Sec. 39.30.390 on page 49, following "plan." on line 20.
The word "in" is deleted following the word "account" in Section
102, subsection Sec. 39.35.730, on page 70, line 23.
Insert the words "entering the plan" following "employee" on line
22 in Section 102, subsection Sec. 39.35.760 on page 71.
"AS 39.35.830" is deleted in Section 102, subsection 39.35.840(a)(5
on page 77, line 20, and replaced with "AS 39.35.810".
Re-letter subsections (i), (j), (k), and (1) to (h), (i), (j), and
(k) in Section 102 on page 83.
"AS 39.30.730" is deleted in Section 102, subsection
39.35.990(7)(A)(ii) on page 85, line 26, and replaced with "AS
39.35.730".
Insert the words "and the Department of Revenue" in Section 119(a)
following "Administration" on page 92, line 25.
Insert the words "and the Department of Revenue" in Section 119(b)
following "Administration" on page 92, line 27.
Co-Chair Green moved for the adoption of Amendment #2.
Senator Stedman objected for discussion.
TRACI CARPENTER, Staff to Co-Chair Green, informed the Committee
that this "is basically a technical amendment" in that it would
correct and change inadvertent errors or omissions that occurred
during the drafting of the bill.
Co-Chair Green stated that the changes proposed would correct
inadvertent drafting errors or omissions that had occurred either
in the original bill or updated versions of the bill.
Ms. Carpenter pointed out that the amendment would also allow the
two sets of Statutes, one relating to TRS and one relating to PERS,
to align with each other.
Co-Chair Green explained that AS 14.25 and AS 39.35 are the
Statures pertaining to TRS and PERS, respectfully.
Senator Olson asked the impact of deleting language in Section 29,
subsection 14.25.348 on page 14, lines 22 -31 as indicated in the
amendment. This section reads as follows.
Sec. 14.25.348. Teachers of Alaska Native language and
culture. An employee employed by a participating employer
shall participate in the plan if the employee
(1) teaches Alaska Native language or culture in a
permanent full-time or permanent part-time position;
(2) learned about the subject to be taught by living in
the culture or using the language in daily life; and
(3) is qualified to teach the subject to elementary or
secondary students as required by regulations adopted by the
Department of Education and Early Development.
Ms. Carpenter replied that this language is currently included in
existing TRS Defined Benefit Plan (DBP) Statutes, and the drafter
included it in this bill "thinking it might be required". However,
the language is not required, as, while those employees were not
certificated, they were allowed to participate in the TRS program.
The Department of Education and Early Development has since
developed a certification program for these teachers, and
therefore, they are allowed to participate in TRS.
Senator Olson understood therefore that teachers of the Alaska
Native culture and language who are already enrolled in the TRS
system would continue to be eligible.
Ms. Carpenter affirmed.
Senator Stedman removed his objection.
There being no further objection, Amendment #2 was ADOPTED.
Amendment #3: This amendment specifies that the references to AS
14.25.142 and AS 39.35.480 should be removed from the Repealer
Instruction language in Sec. 112 on page 91. The Reviser of
Statutes is instructed to make conforming amendments in order to
continue Cost of Living Adjustment (COLA) payments.
Co-Chair Green moved for the adoption of Amendment #3 and objected
for explanation.
Ms. Carpenter stated that this amendment would strike from the bill
all language eliminating the Alaska resident Cost of Living
Adjustment (COLA). Thus, "the COLA language is restored".
Co-Chair Green stated that COLA and its related issues have been a
point of separate Committee discussion. At one point, the decision
was made to eliminate COLA from the Defined Contribution Plan
(DCP); however, upon further consideration, "it was not advisable
to do that".
Senator Olson asked whether this bill would alter any COLA
conditions; specifically "the adjustment or the formula for the
COLA".
Ms. Carpenter stated that no changes to existing COLA provisions
have been made.
Senator Olson understood therefore that the COLA language specified
in Version "F" is unchanged from existing regulations.
Ms. Carpenter stated that approval of this amendment would serve to
negate the repeal of the Alaska resident COLA provisions as
specified in Version "F". The result would be that the ten-percent
Alaska Resident COLA provisions would continue as specified in
current Statute.
Co-Chair Green removed her objection.
There being no further objection, Amendment #3 was ADOPTED.
Amendment #4: This amendment inserts "providing for political
subdivisions and public organizations to request to participate in
the public employees' defined contribution retirement plan;" into
the bill's title on page one, line eight, following "hearings;"
In addition a new section is inserted into the bill in Sec. 102 on
page 85, following line five.
"Sec. 39.35.940. Request by political subdivision to
participate and adoption of resolution. A municipality or
other political subdivision of the state may request to become
an employer in this plan. The request shall be made after
adoption of a resolution by the legislative body of the
political subdivision and after approval of the resolution by
the person required by law to approve the resolution. A
certified copy of the resolution shall be filed with the
administrator. If the administrator approves the request for
participation, the political subdivision is an employer of the
plan.
Sec. 39.35.945. Request by public organization to
participate and adoption of resolution. A public organization
may request to become an employer in this plan. The request
shall be made after adoption of a resolution by the governing
body of the public organization. A certified copy of the
resolution shall be filed with the administrator. If the
administrator approves the request for participation, the
public organization is an employer of the plan."
Co-Chair Green moved for the adoption of Amendment #4.
Senator Stedman objected.
Ms. Carpenter explained that this amendment is offered at the
request of the Division of Retirement and Benefits, Department of
Administration. Including this Statute in the bill would "simply"
provide "a mechanism through which political subdivisions and
public organizations who do not currently participate in the
retirement programs to opt into the programs if they choose".
Co-Chair Green understood therefore that the adoption of this
amendment would allow such entities to participate in the DCP.
Ms. Carpenter affirmed. These statutes are identical to existing
provisions in the current DBP.
Co-Chair Green stated therefore that the inclusion of these
Statutes would be consistent with current language.
Senator Stedman clarified that this amendment would allow other
political subdivisions such as cities and municipalities "to come
into" the new DCP, "but would not allow them to join the existing
tier structure."
Ms. Carpenter affirmed. "The existing program would be closed to
new entrants on the effective date of this legislation".
Senator Stedman removed his objection.
Senator Hoffman asked the number of political subdivisions that
would be affected by this amendment.
Ms. Carpenter voiced being unfamiliar with the number of political
subdivisions that do not participate.
Co-Chair Green expressed that this language would provide
consideration to "future cities, entity, or school district".
Senator Hoffman asked whether "it would be fair to say that it"
would apply to any political subdivision that is not on the
[unspecified] list that was distributed".
Ms. Carpenter expressed that "that would be accurate".
There being no further objection, Amendment #4 was ADOPTED.
Amendment #5: This amendment inserts a new subsection into Section
46 of the bill on page 42 following line six as follows.
(3) "recognized competence" means a minimum of ten years
professional experience in the fields of investment
management, finance, banking, economics, accounting, pension
administration or actuarial analysis.
Senator Stedman moved Amendment #5.
Co-Chair Green objected for explanation.
Senator Stedman stated that this amendment would address the
qualifications required for Board membership.
1:27:53 PM
Senator Stedman read the amendment and explained that the intent is
to seat citizens on the Board who possess the knowledge "to
understand, comprehend, and possibly challenge the items under
discussion." The ARMB duties would be "substantially different"
from those of the current PERS and TRS Boards; specifically that,
unlike the current Boards that spend approximately 80-percent of
their time hearing appeals, this Board would be charged with
handling investments and monitoring of the liabilities, with the
goal of "eventually" balancing the liabilities with the assets.
Co-Chair Green removed her objection.
Senator Bunde asked whether this amendment "is an attempt to
address" his concern regarding possible difficulties that the PERS
member and the TRS member of the ARMB might encounter when trying
to meet the current Board qualifications as identified in Sec. 41,
subsection Sec. 37.10.210 located on page 37 of Version "F".
1:30:00 PM
Senator Stedman stated that the intent is to seat PERS and TRS
members who possess the qualifications required for Board members.
AT EASE: 1:30:26 PM / 1:31:23 PM
Senator Stedman, in addressing Senator Bunde's concern, voiced that
in developing the qualification language, efforts were made "not to
exclude" as Board candidates, for example, educators who might have
experience in teaching such related fields as statistics, business,
or mathematics. To that point, the current language might require
further modification in order to more thoroughly address the issue.
1:32:15 PM
Senator Bunde suggested that rather than simply allowing the
teaching of statistics, for example, to be a qualifier, language
requiring practical experience or application in the field or
active participation in the State's Supplement Benefits System
(SBS) or activity in the stock market, might suffice.
Co-Chair Green suggested that the words "instruction in the related
fields" be considered.
Senator Stedman voiced support for Co-Chair Green's suggestion as
opposed to "looser language" through which someone might suggest
that administration of their personal portfolio would provide the
necessary qualifications.
Co-Chair Green noted that the words "or as an instructor" might
also be incorporated.
Senator Hoffman asked whether the current language would apply to
all ARMB members as, he opined that the language as written is not
"too restrictive" were it to only apply to the qualifications of
the PERS and TRS financial officer member. It would be too
restrictive were it applied to the two public members representing
TRS and PERS.
Senator Stedman expressed that the language, as written, would
apply to all members.
1:34:13 PM
Senator Stedman reiterated his willingness to modify the PERS and
TRS Board members' qualification requirements, and, to that point
suggested that language requiring a minimum of "ten years of
practical experience working or teaching in the field" might
address it. He cautioned about opening the qualifications too
broadly, as that would negate the goal of seating people with the
desired knowledge. He noted that testimony before the Committee has
substantiated the fact that Board members who possess "substantial"
knowledge of the field would enhance the Board.
Senator Hoffman asked how the current definitions pertain to the
commissioners of the Department of Revenue and the Department of
Administration.
Co-Chair Green clarified that those Board member positions would be
exempt from the qualification language, as they are "named
designees".
Senator Hoffman questioned this interpretation.
Co-Chair Green read the language in Sec. 42, Subsection Sec.
37.10.210(b), line 15, page 37, which specifies that in addition to
the commissioners of the Department of Administration and the
Department of Revenue, "the governor shall appoint seven additional
trustees who meet the eligibility requirements for an Alaska
permanent fund dividend and who are professionally credentialed or
have recognized competence …".
Senator Hoffman acknowledged.
1:37:08 PM
Senator Olson asked whether the number of PERS and TRS candidates
who could meet the qualifications would be sufficient.
Co-Chair Green surmised that there would be "a lot of people in
both the PERS and TRS systems" who would meet the qualifications.
Senator Stedman suggested that the words "working or teaching" be
inserted following the word "experience" on the second line of the
amendment. The addition of this language would allow individuals in
the school system who teach business or math classes, to qualify.
Senator Bunde stated, for the record, that the earlier suggestion
of including the language "professional or practical experience"
was not intended to exclude people with a reasonable background in
these areas. A working knowledge would suffice. He pointed out that
he had no actuarial experience, but after one week of discussing
actuarial reports, he was quite comfortable in discussing the
issue. Therefore, he stated that people possessing a "reasonable
background could achieve a level of competency". In addition, Board
membership by one of their peers in the decision making process
would provide the people in the system "some level of comfort." His
concerns would be addressed by the addition of the suggested
language.
1:39:48 PM
Senator Stedman clarified the proposed language.
Amendment-to-Amendment #5: This amendment to the amendment inserts
the words "working or teaching" following the word "experience".
The revised language would read as follows.
(3) "recognized competence" means a minimum of ten years
professional experience working or teaching in the fields of
investment management, finance, banking, economics,
accounting, pension administration or actuarial analysis.
Senator Stedman moved the Amendment-to-Amendment #5.
There being no objection, the Amendment to the Amendment was
ADOPTED.
Amendment #5, as Amended, was before the Committee.
There being no objection, Amendment #5, as Amended, was ADOPTED.
Amendment #6: This amendment deletes "the same" after the word
"with" and replaces it with "a participating" in Section 62,
subsection 39.30.380, on page 49, line 14 of Version "F". In
addition, the words "and if the employer is still a participating
employer" are deleted on line 15 of that subsection.
Co-Chair Green moved Amendment #6.
Senator Bunde objected for explanation.
Ms. Carpenter explained that the amendment would allow a person who
terminated employment and then returned within a five-year period,
to have their health reimbursement arrangement (HRA) balance
restored. Current bill language requires that the employee return
to the same employer. This amendment would alter the language to
allow the re-employment to be with a participating employer.
Senator Bunde removed his objection.
There being no further objection, Amendment #6 was ADOPTED.
Senator Hoffman asked whether Amendment #6 would allow a teacher
leaving a TRS system position to be rehired in a PERS position.
Ms. Carpenter affirmed that that would qualify.
Amendment #7: This Amendment inserts "providing for non-vested
members of the teachers' retirement system defined benefit plans to
transfer into the teachers' retirement system defined contribution
plan; and for non-vested members of the public employees'
retirement system defined benefit plans to transfer into the public
employees' retirement system defined contribution plan;" into the
bill's title on page one, line eight, following the word
"hearings;".
In addition, ", or to members who transfer into the defined
contribution plan under AS 14.25.540" is inserted following "July
1, 2005" in Section 29 page 13, line 11.
Furthermore a new bill subsection is inserted in Sec. 29, on page
28, following line 26 as follows.
"Sec. 14.25.540. Transfer into defined contribution plan
by non-vested members of defined benefit plan. (a) An active
member of the defined benefits retirement plan of the
teachers' retirement system is eligible to participate in the
defined contribution retirement plan established under AS
14.25.310 - 14.25.590, if that member has not vested.
Participation in the defined contribution retirement plan is
in lieu of participation in the defined benefits plan
established under AS 14.25.009 - 14.25.220.
(b) A member who has vested in a defined benefits
retirement plan is not eligible to transfer under this
section.
(c) Each eligible member who elects to participate in the
defined contribution retirement plan shall have transferred to
a new account the present value of the member contribution
account balance held in trust for the member under the defined
benefits retirement plan of the teachers' retirement system.
A matching employer contribution shall be made on behalf of
that employee to the new account. Upon transfer of the member
contribution account balance, all service credit previously
earned under the defined benefits plan shall be nullified for
purposes of entitlement to a future benefit under the defined
benefits plan, but shall be credited for purposes of
eligibility to elect medical benefits under AS 14.25.470. An
eligible member whose accounts are subject to a qualified
domestic relations order may not make an election to
participate in the defined contribution retirement plan under
this section unless the qualified domestic relations order is
amended or vacated and court-certified copies of the order are
received by the administrator.
(d) As directed by the participant, the board shall transfer
or cause to be transferred the appropriate amounts to the
designated account. The board shall establish transfer
procedures by regulation, but the actual transfer may not be
later than 30 days after the effective date of the member's
participation in the defined contribution retirement plan
unless the major financial markets for securities available
for a transfer are seriously disrupted by an unforeseen event
that also causes the suspension of trading on any national
securities exchange in the country where the securities were
issued. In that event, the 30-day period of time may be
extended by a resolution of the board of trustees. Transfers
are not commissionable or subject to other fees and may be in
the form of securities or cash as determined by the board.
Securities shall be valued as of the date of receipt in the
participant's account.
(e) If the board or the administrator receives
notification from the United States Department of the
Treasury, Internal Revenue Service, that this section or a
portion of this section will cause the retirement system, or a
portion of the retirement system, to be disqualified for tax
purposes under the Internal Revenue Code, the portion that
will cause the disqualification does not apply and the board
and the administrator shall notify the presiding officers of
the legislature.
(f) The election to participate in the defined
contribution retirement plan must be made in writing on forms
and in the manner prescribed by the administrator. Before
accepting an election to participate in the defined
contribution plan, the administrator must provide the employee
planning on making an election to participate in the defined
contribution plan with information including calculations to
illustrate the effect of moving the employee's retirement plan
from the defined benefit plan to the defined contribution plan
as well as other information to clearly inform the employee of
the potential consequences of the employee's election. An
election made under this section to participate in the defined
contribution retirement plan is irrevocable. Upon making the
election, the participant shall be enrolled as a member of the
defined contribution retirement plan, the member's
participation in the plan shall be governed by the provisions
of AS 14.25.310 - 14.25.590 and the member's participation in
the defined benefits retirement plan under AS 14.25.009 -
14.25.220 shall terminate. The participant's enrollment in the
defined contribution retirement plan shall be effective the
first day of the month after the administrator receives the
completed enrollment forms. An election made by an eligible
member who is married is not effective unless the election is
signed by the individual's spouse.
(g) In this section,
(1) "defined benefits retirement plan" means the
retirement plan established in AS 14.25.009 - 14.25.220;
(2) "defined contribution retirement plan" means the
retirement plan established in AS 14.25.310 - 14.25.590."
The words ", or to members who transfer into the defined
contribution plan under AS 39.35.940" are inserted in Section 102,
subsection Sec. 39.35.700 on page 70, line two following "July 1,
2005".
A new subsection is inserted following line five in Section 102, on
page 85.
"Sec. 39.35.940. Transfer into defined contribution plan by
non-vested members of defined benefit plan. (a) Subject to
(g) of this section, an active member of the defined benefits
retirement plan of the public employees' retirement system is
eligible to participate in the defined contribution retirement
plan established under AS 39.35.700 - 39.35.990, if that
member has not vested. Participation in the defined
contribution retirement plan is in lieu of participation in
the defined benefits plan established under AS 39.35.095 -
39.35.680.
(b) A member who has vested in a defined benefits
retirement plan is not eligible to transfer under this
section.
(c) Each eligible member who elects to participate in the
defined contribution retirement plan shall have transferred to
a new account the present value of the member contribution
account balance held in trust for the member under the defined
benefits retirement plan of the public employees' retirement
system. A matching employer contribution shall be made on
behalf of that employee to the new account. Upon transfer of
the member contribution account balance, all service credit
previously earned under the defined benefits plan shall be
nullified for purposes of entitlement to a future benefit
under the defined benefits plan, but shall be credited for
purposes of eligibility to elect medical benefits under AS
39.35.870. An eligible member whose accounts are subject to a
qualified domestic relations order may not make an election to
participate in the defined contribution retirement plan under
this section unless the qualified domestic relations order is
amended or vacated and court-certified copies of the order are
received by the administrator.
(d) As directed by the participant, the board shall
transfer or cause to be transferred the appropriate amounts to
the designated account. The board shall establish transfer
procedures by regulation, but the actual transfer may not be
later than 30 days after the effective date of the member's
participation in the defined contribution retirement plan
unless the major financial markets for securities available
for a transfer are seriously disrupted by an unforeseen event
that also causes the suspension of trading on any national
securities exchange in the country where the securities were
issued. In that event, the 30-day period of time may be
extended by a resolution of the board of trustees. Transfers
are not commissionable or subject to other fees and may be in
the form of securities or cash as determined by the board.
Securities shall be valued as of the date of receipt in the
participant's account.
(e) If the board or the administrator receives
notification from the United States Department of the
Treasury, Internal Revenue Service, that this section or a
portion of this section will cause the retirement system, or a
portion of the retirement system, to be disqualified for tax
purposes under the Internal Revenue Code, the portion that
will cause the disqualification does not apply, and, the board
and the administrator shall notify the presiding officers of
the legislature.
(f) The election to participate in the defined
contribution retirement plan must be made in writing on forms
and in the manner prescribed by the administrator. Before
accepting an election to participate in the defined
contribution plan, the administrator must provide the employee
planning on making an election to participate in the defined
contribution plan with information including calculations to
illustrate the effect of moving the employee's retirement plan
from the defined benefit plan to the defined contribution plan
as well as other information to clearly inform the employee of
the potential consequences of the employee's election. An
election made under this section to participate in the defined
contribution retirement plan is irrevocable. Upon making the
election, the participant shall be enrolled as a member of the
defined contribution retirement plan, the member's
participation in the plan shall be governed by the provisions
of AS 39.35.700 - 39.35.990, and the member's participation in
the defined benefits retirement plan under AS 39.35.095 -
39.35.680 shall terminate. The participant's enrollment in
the defined contribution retirement plan shall be effective
the first day of the month after the administrator receives
the completed enrollment forms. An election made by an
eligible member who is married is not effective unless the
election is signed by the individual's spouse.
(g) A member may make an election under this section only
if the member's employer participates in both the defined
benefits retirement plan and the defined contribution
retirement plan and consents to transfers under this section.
The employer shall notify the administrator if the employer
consents to allowing the employer's members to choose to
transfer from the defined benefits retirement plan to the
defined contribution retirement plan under this section. An
employer's notice to allow transfers is irrevocable and
applicable to all eligible employees of the employer.
(h) In this section,
(1) "defined benefits retirement plan" means the
retirement plan established in AS 39.35.095 - 39.35.680;
(2) "defined contribution retirement plan" means the
retirement plan established in AS 39.35.700 - 39.35.990."
Co-Chair Green moved and objected to Amendment #7. She noted that a
conceptual amendment to this amendment would be forthcoming.
1:42:13 PM
Ms. Carpenter explained that this amendment would provide non-
vested PERS and TRS members the option to transfer their individual
account balances from the DBP to the DCP, provided their employer
chooses to participate. No time limit for enrollment is specified.
Senator Bunde asked for further clarification; specifically in
regards to whether the employer "chooses to participate in allowing
the transfer or chooses to participate in a PERS or TRS program".
Ms. Carpenter clarified that the employer must participate "in
allowing the transfer. A participating employer has to first choose
to allow their employees to transfer into the new plan because
they're required to make a match".
Senator Hoffman asked whether the employee could conduct a partial
transfer or whether a total transfer would be required.
Ms. Carpenter clarified that the employee would be required to
totally transfer their funds, "in lieu of participating in the
DBP". This would forfeit any participation in the DBP from that
point forward. This would be an "irrevocable decision" in that,
once made, the decision could not be reversed.
Senator Bunde referenced remarks made to the Committee by a current
TRS Board member, Dr. Richard Solie, in which he voiced support for
a combination, or "hybrid" DBP and DCP retirement benefit program.
To that point, he asked whether any consideration had been given to
stopping vested PERS and TRS employees' DBP at a certain point.
This would provide "a floor", as referenced by Dr. Solie, and, from
that point forward, the employees would be transitioned to a DCP
for future participation in the system.
Ms. Carpenter stated that discussion of such a proposal has not
occurred.
Senator Bunde acknowledged and stated that he would not further
"adding a complication this late in the game".
1:45:03 PM
Co-Chair Green surmised that such a plan would have "financial
implications".
Senator Stedman stated that such a proposal "would be challenging"
to implement as, for example, Tier III employees are eligible for
employer funded retirement health care premiums at the age of 60;
in contrast, there would be an employer/employee sharing of
retirement health care premiums under the DCP. In addition, the
State could not require employees to change to the DCP because
there are Constitutional protections in place regarding the benefit
structure.
Co-Chair Green commented that the two would not "blend very well
from past to future".
Senator Bunde countered that "the financial impact on the system
would be no different" than were someone to quit and take another
job; leaving their defined benefit" alone "until they reached the
appropriate age." In addition to the Constitutional protection
issue, another complication would be that this proposal would only
apply to people who were currently vested and "no one in the
future" would be provided this option. This might result in legal
action.
Amendment-to-Amendment #7: This amendment to the amendment inserts
the words "Subject to (g) of this section," following "(a)" in Sec.
14.25.540.
In addition, the entirety of subsection (g) as depicted in Sec.
39.35.940 of the amendment, is duplicated and inserted following
the word "spouse" in Sec. 14.25.540(f). This language reads as
follows.
(g) A member may make an election under this section only
if the member's employer participates in both the defined
benefits retirement plan and the defined contribution
retirement plan and consents to transfers under this section.
The employer shall notify the administrator if the employer
consents to allowing the employer's members to choose to
transfer from the defined benefits retirement plan to the
defined contribution retirement plan under this section. An
employer's notice to allow transfers is irrevocable and
applicable to all eligible employees of the employer.
Furthermore, a typographical error is corrected in Sec.
14.25.540(f) of the amendment by replacing "defined retirement
contribution plan" with the words "defined contribution retirement
plan". This language is again corrected in Sec. 39.35.940(f) of the
amendment. Another grammatical correction to Amendment #7 is the
changing of the word "chose" to "choose" in Sec. 39.35.940(g).
[NOTE: These changes were handwritten into the proposed amendment
and therefore are reflected as such in the original amendment.]
Co-Chair Green explained that while subsection (g) was included in
the PERS section of Amendment #7, it was inadvertently omitted from
the TRS section of the amendment. Amending the amendment to include
the references to subsection (g) would make the PERS and TRS
language in the amendment "identical".
[NOTE: Although no formal motion was made to adopt the changes to
the amendment and thus amend the amendment that was the implied
intent of the Committee.]
Co-Chair Green removed her objection.
There being no further objection, Amendment #7, as Amended, was
ADOPTED.
Amendment #8: This amendment provides the authority to the bill's
drafter to conform the following existing sections, which are
specific to the current retirement tiers of AS 14.25 and AS 39.35,
to the concept of the defined contribution retirement plan and to
make any other changes necessary as a result of adding these new
sections to the bill.
AS 14.25.040(b) and (c). Legislators who were teachers.
AS 14.25.045. Participation by National Education Association
employees.
AS 14.25.047. Participation by Special Education Service
Agency employees.
AS 39.35.131. Membership in teachers' and public employees'
retirement systems.
AS 39.35.153. Army and air national guard employees.
AS 39.35.154. North Pacific Fishery Management Council
employees.
AS 39.35.158. Administrative director of courts.
Co-Chair Green moved and objected to Amendment #8 for purpose of
explanation.
Ms. Carpenter informed the Committee that when the bill was
originally drafted, "no consideration" was provided to "other types
of employees that participate now in the existing retirement
programs" such as legislators who have the option to participate in
TRS; National Education employees, special education service
employees, army and air national guard employees, Northern Pacific
Fishery Management Council employees, and the Administrative
director of courts.
Ms. Carpenter stated that information [copy on file] regarding
these employees is attached to the amendment. The purpose of the
amendment would be to allow future employees of these entities to
participate in the DCP.
Co-Chair Green expressed that "this is not new language"; it would
simply serve to duplicate these employees' current DBP eligibility
provisions in the DCP provisions.
Ms. Carpenter affirmed; however, pointed out that section AS
39.35.131. Membership in teachers' and public employees' retirement
systems., is a section "that prevents" people from receiving
"double credit in the systems". In that regard, it must be
duplicated in the DCP. The inclusion of this language would prevent
a teacher who qualifies for a full year's credit by working the
required 172-day school year and who, in addition, might work
during that same year in the PERS system, from accumulating more
than a full year's credit.
Senator Hoffman asked whether the bill includes language that would
prevent anyone from receiving double-time.
Ms. Carpenter understood that the aforementioned situation is the
only one to which this concern would apply.
Senator Hoffman contended that there "may be others".
There being no objection, Amendment #8 was ADOPTED.
AT EASE 1:53:24 PM / 1:57:11 PM
Amendment #9: This amendment inserts a new bill section into the
bill on page 34 following line twelve as follows.
Sec.____. AS 24.08.035(a) is amended to read:
(a) Before a bill or resolution, except an appropriation
bill, is reported from the committee of first referral, there
shall be attached to the bill a fiscal note containing an
estimate of the amount of the appropriation increase or
decrease that would result from enactment of the bill for the
current fiscal year and five succeeding fiscal years or, if
the bill has no fiscal impact, a statement to that effect
shall be attached. The fiscal note of a bill that makes any
change to the benefit structure of the state's retirement
system shall include the additional analysis required in AS
24.08.036. The fiscal note or statement shall be prepared in
conformity with the requirements of this section by the
department or departments affected and may be reviewed by the
office of management and budget. Except as allowed in AS
24.08.036, [T]the fiscal note or statement shall be delivered
to the committee requesting it within five days of the request
or within two days if the request is made after the 90th day
of a regular session, or during a special session of the
legislature. If the bill is presented by the governor for
introduction in accordance with AS 24.08.060(b) and the
uniform rules of the legislature, the fiscal note or statement
shall be attached to the bill before the bill is introduced.
An amendment or substitute bill proposed by a committee of
referral that changes the fiscal impact of a bill shall be
explained in a revised fiscal note or statement attached to
the bill.
Sec ___. AS 24.08.035(b) is amended to read:
(b) In addition to the fiscal note required by this
section and AS 24.08.036, the sponsor of a bill or resolution
may prepare a fiscal note in conformity with the requirements
of this section, and submit it to the committee of first
referral by the finance committee. A committee may prepare an
additional fiscal note in conformity with the requirements of
this section.
Sec ___. AS 24.08.036 is repealed and reenacted to read:
Sec. 24.08.036. fiscal notes on bill affecting the
benefit structure of state retirement systems. (a) In addition
to the requirements of AS 24.08.035, the fiscal note of a bill
that makes any changes to the benefit structure of the state's
retirement system shall include an actuarial analysis of the
bill's affect on the assets and liabilities of the retirement
systems. This analysis shall be prepared and certified by a
member of the American Academy of Actuaries and coordinated
through the division of retirement and benefits.
(b) The completed fiscal note shall be reviewed by the
Commissioner of Administration and forwarded to the chair of
the Alaska Retirement Management Board for comment and
recommendations.
(c) A committee of referral proposing an amendment or
substitute bill that changes the inputs or assumptions used by
the actuary in preparing the fiscal note required in this
section must obtain a revised actuarial analysis prior to
reporting the amended bill or committee substitute from
committee. This revised actuarial analysis shall be preformed
in accordance with this section.
Senator Stedman moved to adopt Amendment #9.
Co-Chair Green objected for explanation.
Senator Stedman noted that, while this amendment would require
further revision, "the issue at hand" is that the Legislature
should be provided an "accurate estimate of the impacts and the
liabilities" that any future Legislative change might have on the
benefit structure of the PERS and TRS systems. This does not
necessarily occur under the current structure. This amendment would
require a fiscal note of any bill that would change the benefit
structure of the State's retirement system to include an additional
analysis as required under AS 24.08.36 in the amendment.
1:59:44 PM
Senator Stedman noted that the amendment should be amended in order
to exclude the requirement that a fiscal note reflecting the impact
of any legislation affecting the benefits State's retirement system
be provided within a five-day period as currently specified in AS
24.08.035, as such an analysis could not be conducted in that
length of time.
Senator Bunde asked whether both the five-day and two-day rule
specified in that Statute should be exempted, as, were the
legislation considered after the 90-day of the Legislative Session,
the two-day rule would apply.
Amendment-to-Amendment #9: This amendment to the amendment adds a
new section following subsection (c) as follows.
(d) The five day and two day requirement specified in AS
24.08.35 does not apply to bills affecting the benefit
structure of state retirement systems.
Senator Stedman offered Amendment-to-Amendment #9.
Co-Chair Green understood the validity of conducting a thorough
review; however, she voiced concern regarding the length of time
the process might take. She also questioned which entities would be
recognized as a certified member of the American Academy of
Actuaries. She asked how "a must pass bill" regarding some crisis
occurring late in a Legislative Session could be addressed were
this language adopted. Limiting legislation in this manner, absent
some practical methodology, could be worrisome as it might require
a lengthy process. The question is whether the language might
"create a bar that could not be stepped over".
Senator Stedman responded that, "we're definitely increasing that
hurtle". The concern is that once a benefit is granted, "under the
current Tier structure", it cannot be removed. Therefore, slowing
down the process would allowing a more thorough review could
decrease unanticipated consequences. In the past, some bills'
"fiscal notes were moving all over the place" and, as time
advanced, some initial cost estimates were increased substantially.
Senator Stedman addressed Co-Chair Green's concern regarding how to
address an unexpected crisis in a timely manner by stating that he
did not anticipate any crisis occurring to the benefit structure
that would require quick Legislative action.
Co-Chair Green asked the anticipated timeframe for development of
these fiscal notes.
Senator Stedman replied that the timeframe would depend on "the
complexity of the change". The actuary under contract with the
State would have the pertinent data and the ability to calculate
the effects on the system of any proposed change. The timeframe
involved in developing a fiscal note could be as long as 120 days.
Minor revisions would not require as much time.
Senator Bunde agreed that, at times, problems have occurred when
changes have been made and the fiscal note only focused on "the
implementation of the change" without any review of the impact the
change might impose on the system. Those impacts should be
considered. To further address Co-Chair Green's concern, he
suggested that, in a time of an emergency, the Legislature could
repeal subsection Sec. 24.08.036.
Senator Bunde wondered whether any Legislator would have the
authority to ask the State's actuary to review a proposed piece of
legislation. Such requests, depending on the proposal, could incur
expenses ranging from $10,000 or $100,000. To that point, the
expense of that actuarial modeling must also be included in the
fiscal note.
While waiting for a response to Senator Bunde's question regarding
the actuarial costs associated with a modeling request, Senator
Stedman qualified that the State's actuarial consulting firm,
Mercer Human Resource Consulting, is a member of the American
Academy of Actuaries. The intent would be to use the State's
contracted actuary when developing legislative analysis; otherwise
"the cost would be prohibitive".
2:07:14 PM
KEVIN BROOKS, Deputy Commissioner, Department of Administration,
stated that, based on the experience involved in the development of
this legislation, it would not be inconceivable that a minimum of
several weeks would be required to develop a fiscal note regarding
the impact of a change to the retirement system. The complexity of
the issue would be the primary factor. While the desire to not rush
through the analysis is "admirable", it could extend the current
five-day process by two or three weeks.
Mr. Brooks shared that, oftentimes, an analysis is requested with a
one-day turnaround. This is not a problem when the issue is a minor
one; however, some issues have been more extensive and have
required more time. He was unaware of any issue addressed by SB 141
that would exceed a two-week turnaround.
Ms. Millhorn agreed with that developing an impact analysis for
legislation that would effect the benefits of the State retirement
system could require two or three weeks to develop, depending on
the complexity of the legislation.
Ms. Millhorn shared that when the fiscal note for HB 91, which
provided medical enhancements to firefighters and police, was being
developed, Mercer had reviewed "the current retirement parties
within that segment based on the historical data" and consultation
with a number of employers. However, the Department recognized the
fact that "Mercer had not prepared the fiscal analysis to project
what would happen in the event that it incentivized police and fire
members to retire early". Therefore, the Department adjusted the
initial fiscal note upward from eight million dollars to $18
million. That Department review did lengthen the time of the
process.
Senator Bunde asked regarding how Mercer is compensated,
specifically whether they billed by the hour.
Mr. Millhorn replied that the State's professional services
contract with Mercer includes a one-year renewal option the
Department could exercise. Mercer bills by the hour, up to $500,000
annually. The cost of each billable hour is approximately $400.
Mercer provides an itemized breakout of each request that has been
addressed. A non-complex issue might bill out between $5,000 and
$7,000.
Senator Bunde stated therefore that were he, being just one of 60
Legislators, to author a bill and ask Mercer to review it as
proposed in this amendment, he could "run up tens of thousands of
dollars in actuarial expenses just because" he would be required to
ask for the information. This should be a consideration.
Senator Stedman agreed with Senator Bunde's comments. Sixty
Legislators could propose a multitude of bills, some of which might
not ever advance. Some of those bills could be very complex and
might consume a lot of actuarial time, for naught. The solution
evaded him.
2:12:44 PM
Co-Chair Green asked for further discussion regarding the process
of requesting fiscal notes, as she understood that Legislators
could not "arbitrarily request one". The process should be further
clarified.
Senator Bunde suggested that, in order to allow a fiscal note to
properly address certain necessary issues, language could be
included in the amendment to specify that the Commissioner of the
Department of Administration must request the fiscal note regarding
the actuarial impact. This would allow a person with expertise to
make a decision that might cost tens of thousands of dollars.
Senator Olson asked whether Mercer's compensation plan is
"completely independent of the performance of the investment".
Ms. Millhorn and Mr. Brooks responded yes, the compensation is a
stand-alone contract, billable by the hour.
Senator Bunde continued that were the Commissioner of the
Department of Administration responsible for fiscal note requests,
then the associated actuarial service expenses would be reflected
in the Department's budget and therefore, subject to Legislative
review.
Mr. Brooks stated that Mercer has been "engaged on a number of"
issues this Legislative session, in addition to this bill, as other
Legislators have sponsored bills needing actuarial review. Charges
have been accumulating. The Department is attempting to be
responsible with administering its budget while at the same time
being responsive to "crafting the best pieces of legislation that
we can going forward".
Co-Chair Wilken noted that while the discussion has expanded to
discussing who could request a fiscal note, the amendment to the
amendment under consideration addresses whether a pertinent fiscal
note must be held to the five or two day rule. To that point, he
suggested that the inclusion of subsection (d), as proposed in the
Amendment-to-Amendment #9 might serve to "tie our hands" in the
future and might not be required. The goal is to develop solid
information upon which a decision could be made. Therefore, rather
than "flavoring" the fiscal note request "by the press of time", it
should be flavored by" the desire to acquire the best information
available in predicting the future. Therefore rather than time
exerting pressure, the committee chair, who would be waiting for
that information, in order to move forward, would exert the
pressure. In conclusion, he suggested that deleting the five and
two-day timeframe specified in AS 24.08.035 would be the best
course of action. Doing so would eliminate the need to add
subsection (d) to Sec. 24.08.036.
Co-Chair Green clarified that AS 24.08.035 is in current statute
and serves its purpose well. Were Sec. 24.08.036(d), adopted, AS
24.08.035 would continue to apply to other legislation.
Co-Chair Green asked whether the impact analysis being sought could
be a function assumed by the Alaska Retirement Management Board.
The Legislature could specify a date upon which a report from the
ARMB would be expected. In the meantime, a moratorium could be
placed "on anything that enhances benefits".
Senator Stedman stated "that that would accomplish the intent … of
not getting into the trap that we've got into in the past where we
don't have the information we should" from which to make the best
decision. The goal is to get both the AMRB and the actuary "in the
loop".
2:19:34 PM
Senator Bunde understood therefore that the purpose would be to
require any legislation that would change the funding or benefits
of the retirement system and result in financial impact on that
system, to have a fiscal note from the Board. The Board would have
the discretionary authority to use Mercer if desired.
In response to a remark by Co-Chair Green, Mr. Brooks stated that
the fact that the Board would meet on a quarterly basis would be an
issue.
Co-Chair Green suggested that the Board could be charged with
establishing guidelines for a process that would allow for greater
scrutiny; specifically one that would involve the Commissioner of
the Department of Administration, the Legislature, the actuary, and
the Board. Any change to the system's structure would require an
additional review by the actuary.
AT EASE 2:21:16 PM / 2:26:44 PM
Senator Stedman offered a motion to withdraw the amendment to the
amendment.
There being no objection, the Amendment-to-Amendment #9 was
WITHDRAWN.
Senator Stedman offered a motion to withdraw Amendment #9.
There being no objection, Amendment #9 was WITHDRAWN.
Senator Bunde informed the Committee that Ms. Millhorn could
provide information clarifying how the Department of Administration
addresses fiscal note requests from legislators.
Ms. Millhorn communicated that when Legislators request a fiscal
analysis from the Department of Administration, they are provided
an "approximate cost" estimate pertaining to their request. At
times, the request has been withdrawn due to its anticipated cost.
Were a Legislator to continue their request of an analysis that
might cost thousands of dollars, that request would be advanced to
the Commissioner for approval. The Retirement Fund would fund the
expense of the analysis.
Amendment #10: This amendment inserts new language into Sec. 43,
Sec. 37.10.220(a) as specified on page 39, following line 30 as
follows.
(8) contract for annual review of the primary actuarial
valuation and the primary actuarial assumptions by a secondary
nationally recognized actuarial firm. The review shall be
prepared no later than 90 days after the primary actuarial
recommendations are received by Alaska Retirement Management
Board. Alaska Retirement Management Board shall consider
substantial concerns raised by the second firm within 60 days
of receiving the review and shall make rate adjustments or
take other appropriate actions in order to fulfill their
fiduciary duties under this section.
Co-Chair Wilken moved for the adoption of Amendment #10.
Co-Chair Green objected.
Co-Chair Wilken noted that in consideration of a previous Committee
discussion relating to garnering a second opinion about the
findings of the State's primary actuarial consultant, this
amendment would insert under Board duties, language that would
require the recommendations of the State's primary actuarial to be
substantiated by a peer review from a second actuarial firm. He
reviewed the timeline in which the second actuarial review must be
conducted as well as the Board's response time to reviewing the
secondary actuarial report of the primary actuarial findings. The
language could be revised if deemed necessary.
Co-Chair Green understood therefore, that each year a secondary
actuarial firm would be asked to review the annual primary
actuarial assumptions and recommendations.
Co-Chair Wilken affirmed that a second actuarial consultant would
review the primary actuary's assumptions and recommendations and
either agree or disagree with the findings. In hindsight, had a
secondary actuarial firm scrutinized the primary actuarial
recommendations in 1995, the decision to adopt "the corridor
method" might not have been supported. That decision is one of "the
major" reasons that the State has a deficit in its retirement
systems today. This language would serve to minimize that "singular
advice".
Senator Bunde asked whether the review would be conducted on an
annual basis.
Co-Chair Wilken replied that the frequency of when the actuary
makes recommendations is "unclear"; it does not appear that it
occurs on an annual basis. At times, actuarial assumptions have
been unchanged for four to six years.
AT EASE 2:31:06 PM / 2:32:46 PM
Mr. Brooks asked, for clarification, whether the desire is for an
audit of the actuarial assumptions to be conducted on a regular
basis or whether the desire is that the annual evaluation report be
subject to a second review each year.
Co-Chair Wilken responded that the intent is not to conduct an
audit, as he defined an audit as a "look backwards". His desire is
to conduct a review of "the recommendations as we move forward".
The desire would be to anticipate events going forward rather than
making decisions based on historical data.
Mr. Brooks communicated that there is a distinction between a
standard financial audit, which is a backwards look, and the audit
of the actuary. The actuarial audit, rather than being a backwards
look, is a review of the assumptions being used to insure that the
actuarial valuations being made into the future are based on
assumptions that "are accurate".
Co-Chair Green noted that she, rather than Co-Chair Wilken, had
inferred the term "audit" in her remarks. Continuing, she asked how
often actuarial assumptions are reviewed.
Ms. Millhorn stated that, from this time forward, medical
assumptions would be reviewed annually. The June 30, 2004
valuation, which is currently in draft form, conducted an "analysis
on the medical tier reconfiguration, and as a consequence of that",
new medical methodology was incorporated that included such things
as age, trends and the separation of medical claims from
prescription drug claims. While this "added additional liabilities
to the system", this is "the new methodology that is being advanced
right now under the valuation". The remainder of the assumptions,
as specified "in Section 2.3 of the valuation would be reviewed
under an experience and an assumption study" which is currently on
a four-year review cycle. The most recent "experience assumption
study conducted on the PERS/TRS system occurred in the year 2000;
the next one is scheduled for the fall of 2005.
Co-Chair Green asked "how many additional times" the secondary
actuarial firm would conduct a review were this amendment adopted;
specifically whether an annual review of both medical and
retirement assumptions would be required.
Ms. Millhorn understood that the amendment would require "a review
of the actuarial assumptions, not an audit, but just a review and a
confirmation that that meets with generally accepted actuarial
national assumptions".
Co-Chair Wilken concurred with Ms. Millhorn's remark. The word
"annual" could be eliminated from the amendment were it an ill fit
with the intent of the amendment. "The concept is" that whenever
"the primary actuarial makes the recommendation to change the plan
looking forward", a second actuarial consultant should conduct "an
analysis of that recommendation".
In response to a comment from Senator Hoffman, Co-Chair Wilken
agreed that the amendment would require something akin to "a second
review of the primary recommendation".
Co-Chair Green stated therefore that the intent would be for this
to apply to a change in any assumption.
Senator Dyson commented that the second actuarial should provide a
second opinion in regards to both a change in an assumption and the
ensuing recommendation; both must be "sound", as the change in an
assumption would precede the change in a recommendation.
Co-Chair Wilken concurred.
Co-Chair Green asked for confirmation that it would be the actuary
who would make the recommendation.
Ms. Millhorn affirmed. The recommendation would then be considered
by the ARMB for adoption.
Co-Chair Wilken stated that the decision to specify the 90 and 60-
day timeframes in the amendment was an arbitrary one and could be
changed. He voiced that, were the timeframes altered, a shorter
rather than longer timeframe would be preferred.
Co-Chair Green, giving consideration to the intent of the
amendment, asked whether the term "the primary actuarial
"valuation" as reflected in the amendment is the appropriate
language or would "the primary actuarial assumptions" be more
appropriate.
Co-Chair Wilken deferred to Ms. Millhorn.
Ms. Millhorn replied that the term "primary actuarial valuation"
would suffice; actuarial assumptions, as specified in Sec. 2.3,
underlie the "primary actuarial valuation".
Ms. Carpenter commented that were the intent not to require a
second valuation to be conducted on an annual basis, then it is
possible that the concerns being brought forward in the amendment
are addressed in Version "F" of the bill, as a second valuation is
specified in Sec. 43, subsection Sec. 37.10.220(8) and (9)
beginning on page 39, line 31.
(8) review actuarial assumptions prepared and certified
by a member of the American Academy of actuaries and conduct
experience analyses of the retirement systems not less than
once every four years, except for health care assumptions,
which shall be reviewed annually.
(9) contract for an independent audit of the state's
actuary not less than once every four years.
Ms. Carpenter noted that Sec. 37.10.220(8) would require a review
of the actuarial assumptions, with the exception of the health care
assumption review that would be done annually, to be conducted
"once every four years". Sec. 37.10.220(9) would require "a peer
review of the actuary" to occur not less than once every four
years.
Co-Chair Wilken did not interpret this language to address his
concern due to the fact that this section, Section 43 of the bill,
addresses the powers and duties of the ARMB. Therefore, subsection
(8) would specify that the Board, rather than a second actuary,
would review the actuarial assumptions of the State's primary
actuary. Furthermore, the review could not be conducted more than
once every four years. This is a concern because the current PERS
and TRS Boards "did not catch that assumption". This is "one of the
reasons we are in trouble today". The Board would also be
responsible for reviewing health care assumptions on an annual
basis.
Co-Chair Wilken argued that, other than the fact that a new Board
would be in place, the language in subsections (8) and (9) would
essentially mirror existing practice. "One more step" should be
implemented to specify that someone should review the primary
actuary, and more often than every four years. That is the language
offered in his amendment. A peer review that looks forward rather
than an audit that looks backward is the preferred course of
action. He concluded that his amendment, in contrast to the
language in Section 43, subsection (8), "would contemplate a review
of assumptions marching forward".
Co-Chair Green commented that a benefit of conducting "an audit
that looks back" is that it would indicate whether the actuary's
assumptions were correct or incorrect. This would be beneficial to
the Board because it could substantiate that actuary's assumptions
going forward.
2:43:54 PM
Co-Chair Green stated that there is a question as to whether
requiring a second actuarial to review the assumptions of the
primary actuary would usurp the power of the ARMB. Currently, the
ARMB would be responsible for deciding whether another actuary
should be involved.
Co-Chair Wilken referenced a [unspecified] chart in the "What went
wrong?" section of the March 16, 2005 "Retirement Security Act"
presentation [copy on file] and stated that the decision in 1995 to
utilize the "corridor" methodology for five years in determining
liability and asset values, was later determined by an audit to
have been "the wrong decision". Were this amendment in affect at
the time, it would have required a review of the recommendation to
implement the corridor method. A second opinion might have
prevented the 1995 decision from occurring.
2:45:39 PM
Senator Bunde opined that, "the four-year gap" between audits is
one of our problems". He pointed out that the language in
subsection (8) specifies that the Board could not conduct the
experience analysis "less than once every four years". Therefore,
in order to allow "for more current information more often", the
question is whether language should be added to specify that an
analysis must be conducted no less than once every four years
"unless the Board determines its in the best interest of the fund"
or "that it must be conducted every two years" Continuing, he
stated that language could be added that would require the Board to
acquire a second opinion when they determine "it would be in the
best interest of the Fund".
Senator Stedman voiced agreement with the concept of a peer review,
as "if there is an error, it would be picked up quicker". He
suggested that a peer review could occur every other year and an
audit every three or four years.
Mr. Brooks supported the language proposed by Senator Stedman and
suggested new language to read, "An independent peer review not
less than every two years" could be inserted on page 40 line four
of the bill following Sec. 43, Sec.37.10.220.(8). This would
provide "an independent look at this every two years", either in
the form of a peer review or a full audit. This "frequency" might
accomplish the goal desired.
Co-Chair Green asked the definition of a peer review.
Mr. Brooks responded that it would mean a review of the
assumptions.
Co-Chair Wilken asked whether it would be more cost effective for
the State to contract with both a primary and secondary actuary in
order to allow the secondary to be familiar with the State's system
and the on-going recommendations as opposed to contracting with a
second actuary every two years. He determined that it would be more
expensive to have a second actuary "start from zero" every two
years.
Ms. Millhorn stated that there would be merit in having an actuary
who was already familiar with the existing assumptions. However,
she shared the philosophy of a [unidentified] Certified Public
Accountant who works for a school district and who supports the
hiring of an independent auditor "every four years only" because
initially "they work really, really hard for you and then" as they
get comfortable with the relationship, their performance might
"slip". This situation might also apply to the case of "an
independent actuary who comes in who's not the same actuary looking
at your primary actuary's performance".
Co-Chair Wilken asked whether the Department would be comfortable
working with a secondary actuary and, in addition, would the two-
year time frame for the review be required regardless of whether or
not there were changes in the recommendations.
Ms. Millhorn understood that subsection (8) would consist of an
experience study looking back at the State's actual experience.
"What it does is, it looks at the actual experience and
recalibrates your assumptions based on your actual experience …
that represents a re-review of the underlying assumptions and any
recommendations for change at that point". Therefore, it would be
beneficial to have a secondary actuarial "look at the experience
assumption study" before the recommendations advanced to the Board
for final adoption as that study "forms the basis for any
recommendations for changes that then are in the system for the
next four-year period".
Co-Chair Wilken asked that Amendment #10 be withdrawn in order to
allow replacement language to be drafted by the Department.
There being no objection, Amendment #10 was WITHDRAWN.
2:53:15 PM
Amendment #11: This amendment inserts a new section into the bill
on page ten, following line 16.
Sec. __. AS 14.25.143(a), as that subsection read following
amendment by sec. 3, ch. 146, SLA 1980, until amended by sec.
12, ch.106, SLA 1988, is amended to read:
(a) When the administrator determines that the cost of
living has increased and that the financial condition of the
retirement fund permits, the administrator shall increase
benefit payments to persons receiving benefits under this
system. For purposes of this section, the financial condition
of the retirement fund would permit an increase only if the
ratio of total fund assets to accrued liabilities meets or
exceeds 110%.
In addition, the amendment inserts a new section into the bill
after Section 94 on page 67, following line 22.
Sec. ___. AS 39.35.475(a), as that subsection read following
amendment by sec. 3, ch. 146, SLA 1980, until amended by sec.
12, ch. 106, SLA 1988, is amended to read:
(a) When the administrator determines that the cost of living
has increased and that the financial condition of the
retirement fund permits, the administrator shall increase
benefit payments to persons receiving benefits under this
system. For purposes of this section, the financial condition
of the retirement fund would permit an increase only if the
ratio of total fund assets to accrued liabilities meets or
exceeds 110%.
Senator Stedman moved Amendment #11.
Senator Stedman explained that this amendment would address the
situation in which additional demands might be placed on the assets
of the Retirement Fund as a result of the "paying out an extra
benefit, on occasions", relating to cost of living increases. Such
a liability had previously occurred when the plan was approximately
94-percent funded; currently the plans are approximately 70-percent
funded. This equates to an approximate $5,700,000,000 funding
shortfall. In addition to requiring the Fund's assets to equal the
liabilities, the amendment would require there to be "an extra ten-
percent in assets". The reason "being that these liabilities aren't
reflected in the actuarial analysis". A 100-percent asset base
rather than the 110 percent asset base proposed in the amendment
would not provide sufficient funds "at the time the benefit was
triggered and paid out", and, as a result, the Fund would move into
an under-funded status. Thus the need to require the fund's status
to be at the 110-percent level. While the State is obligated to
fund this liability, sufficient assets must be available with which
to operate the system. In addition, the cost of living benefits
"are cumulative benefits" in that, the years in which the benefit
was not paid, would be calculated into the benefit when it is paid
out in five, ten or fifteen years, This would be "a substantial hit
to the portfolio".
2:55:54 PM
Co-Chair Green asked whether language could be developed that would
confine the benefit to a specific year, as opposed to allowing "the
look-back … as clearly, there was not a 110-percent in those
years". The account should not be allowed to drop below 110-percent
funding.
Senator Stedman surmised that the answer to that suggestion is
"probably no".
Co-Chair Green inquired whether this would also be the case in the
future.
Senator Stedman replied that that was his understanding, as the
existing language is "written so tight". He asked that his
Legislative staffer, Miles Baker, be allowed to further address the
question.
Co-Chair Green voiced surprise that this language could not be
altered as she thought that only changes to the DB language would
be prohibited.
AT EASE 2:57:06 PM / 2:57:10 PM
Co-Chair Green restated the question regarding whether language
could be incorporated into the bill that would limit the Cost of
Living Allowance adjustment to the year in which it was determined
feasible: this would prevent the prior years in which the
adjustment was not feasible, from being included in that
obligation.
MILES BAKER, Staff to Senator Stedman, expressed that "the simple
answer is no, although" further review of the Statute would be
required.
AT EASE 2:58:22 PM / 2:58:41 PM
Mr. Baker, after reviewing the Statute, communicated that the
provision being discussed "only applies to Tier I PERS/TRS"
employees. The Statute does not apply to any other Tier group and
would not be applicable under the proposed DCP. The amendment would
amend "a section of the Statute that's currently in the editor's
notes about a previous section of Statutes". It would add the
definition stating for purposes of this section, the award of an ad
hoc Post Retirement Pension Adjustment (PRPA) would be based upon
the financial condition of the retirement fund would permit an
increase the COLA only if the ratio of total assets to the accrued
liabilities meets or exceeds 110 percent.
Co-Chair Green stated that the term "ad hoc" is not specified in
the amendment.
Mr. Baker clarified that the term is not included because "it is
not described as an ad hoc in Statute".
2:59:58 PM
Senator Bunde asked whether the Fund has ever been over-funded by
ten percent.
Senator Stedman replied that the aforementioned March 16th
financial chart and others exhibited that the corridor method
modification artificially lowered the Funds "actuarial computed
asset value", and subsequently the funding ratio was lowered to
approximately "100". This, combined with a miscalculation of the
liabilities, served to inaccurately indicate an over-funding
scenario in the range of ten to fourteen percent. The reason for
suggesting that assets should exceed liabilities by ten percent is
that the actuaries do not calculate the COLA expense. That expense
should be a consideration, for, when the State is forced to pay
this liability, it might "push the fund into under funded status".
This liability could accumulate upwards of twenty years. The
actuary has projected that it would take twenty-five years to
obtain a 100-percent funding status. "A substantial claim on the
assets" would occur whenever the specified funding status is
reached. The claim would be "so egregious" that it would demand a
funding status of 110 percent in order to "not adversely impact the
plan" … "when it was triggered".
3:02:17 PM
Senator Bunde surmised that there could be a variety of opinions in
this regard; another actuary might support a 104-percent funding
status. The 110-percent level would provide some "cushion".
Senator Stedman agreed that the numbers are a forecast out into the
future, and as such there should be consideration of incorporating
a band, or range, in regard to the numbers. "The magnitude" is what
is important.
Senator Hoffman understood therefore that the level of unfunded
liability would prevent this issue from being addressed for a
minimum of another 20 to 25 years. He wondered if this language
"that would take something away that had been granted" to employees
would be contrary to language included in the Alaska Constitution.
Co-Chair Green recalled a discussion in which it was inferred that
this provision "was undefined".
Senator Stedman affirmed.
Co-Chair Green continued that this amendment might be an attempt to
provide a definition.
Senator Stedman agreed and recalled that the last time COLA was
paid, the funding status was approximately 94 percent.
Mr. Baker informed that the funding status at the times the COLA
has been provided has fluctuated. The PERS funding ratio was as low
as 84-percent on one occasion when it was awarded as part of a
lawsuit settlement.
Senator Hoffman stated that the basis of the question is in regards
to the cost of living allowance, "regardless of [what] the
liquidity or wellness of the fund is". The language specifies that
the State has an obligation to address cost of living increases,
and the fact that the Fund has been badly managed and that
liabilities exist is not the fault of the employees. "The premise
was set" when it was established that no employee would contribute
towards this liability. The question is why was the cost of living
included in the PRPA. The answer could be that it was included to
protect the value of the retirement, and accrued liabilities were
not an issue. Now, the State is attempting to implement parameters
in regards to the COLA.
Mr. Baker reminded the Committee that in addition to Tier I
employees receiving the COLA, they and all other eligible employees
would receive the PRPA. Tier I employees would receive a higher
adjustment.
Co-Chair Green understood that there a provision stating that the
awarding of the COLA was dependent on the condition of the Fund.
Mr. Baker affirmed. "The old version" which was repealed by the
Legislature was referred to "as ad hoc or discretionary because it
depended on this poorly defined condition of the fund". Subsequent
language attempted to develop criteria through which the COLA would
be automatic but more accurately tied to the CPI "and not
necessarily to the funding ratio of the fund".
Senator Hoffman stated that had the original language not been
supplanted with new provisions then "perhaps this would work".
However, this amendment is attempting to eliminate it by "making it
virtually impossible" to meet, as projections are that the Funds
unfunded liability status would not dissipate until approximately
the year 2032.
Co-Chair Green stated that that timeframe would serve to preserve
"the sanctity and security of the Fund.
3:08:33 PM
Senator Bunde expressed that rather than impacting COLA, the
amendment would serve to identify the funding status of the Fund
that would be appropriate to support it.
There being no objection, Amendment #11 was ADOPTED.
AT EASE 3:09:33 PM / 3:20:37 PM
Amendment #12: This amendment inserts intent language into Sec. 41
before the beginning of subsection Sec. 37.10.210, on page 37, line
one.
It is the intent of the legislature that after the members of
the Alaska Retirement Management Board are appointed and the
board is assembled, that they report to the legislature within
120 days or at the start of the next legislative session which
ever is sooner, on the following:
a. Their preliminary assessment of the health of the
retirement system.
b. Their assessment of the state's actuary.
c. Their recommendations for what additional policy measures
might be taken by the administration or the legislature to
further improve the health of the system.
d. Their recommendations of possible long and short-term
financial solutions to the system's unfunded accrued
liabilities.
This amendment was not offered. Refer to Amended Amendment #12.
Amended Amendment #12: This amendment inserts intent language into
Sec. 41 before the beginning of subsection Sec. 37.10.210, on page
37, line one.
It is the intent of the legislature that there be a moratorium
of legislation affecting the retirement systems until after
the members of the Alaska Retirement Management Board are
appointed and the board is assembled. The Board will report to
the legislature within 120 days or 15 days after the start of
the next legislative session whichever is sooner, on the
following:
a. Their preliminary assessment of the health of the
retirement system.
b. Their assessment of the state's actuary.
c. Their recommendations for what additional policy measures
might be taken by the administration or the legislature to
further improve the health of the system.
d. Their recommendations of possible long and short-term
financial solutions to the system's unfunded accrued
liabilities.
e. Their recommendations on what new procedures should be
adopted by the legislature regarding fiscal notes for any new
legislation affecting the state's retirement system.
Senator Stedman moved for the adoption of Amended Amendment #12.
Co-Chair Green objected for purposes of explanation.
Senator Stedman explained that this amendment would address
concerns regarding changes to the "benefit schedule that would have
major implications on the liability side". He noted that the
amended language might require revisions for clarity.
Senator Bunde, while endorsing the intent of the amendment; opined
that a moratorium on such legislation would not be binding on
future Legislatures.
Co-Chair Green countered that, since this is the first session of
the Twenty-Fourth Alaska State Legislature, the report would be
provided to the seated Legislature.
Senator Bunde acknowledged.
Senator Stedman declared that the intent would be for the report to
be provided in January 2006. Were no report forthcoming at that
time, the Committee should address "in earnest, the unfunded
liability and the restructuring issue".
Co-Chair Wilken asked whether this amendment would incorporate "the
concept of the Board wiping the slate clean as to current
actuarials", the intent being that of having the ARMB issue a
Request for Proposal (RFP) for a new actuarial, and perhaps a
secondary actuarial.
Co-Chair Green suggested that this might be addressed by subsection
"b." of the amendment.
Senator Stedman voiced the understanding that the Mercer actuarial
contract would soon be up for renewal or revision. The creation of
the new Board could allow this issue to be automatically furthered.
Section "b." was included in the amendment due to the interest that
has been focused on this area. While the language "their assessment
of the state's actuary" is "softer language" than directly asking
for an RFP, the intent is there.
Co-Chair Green asked whether Co-Chair Wilken would prefer the
incorporation of stronger language.
Co-Chair Wilken suggested that the words "and replacement if
necessary" could be added to the language in subsection (b.).
Senator Bunde reminded the Committee that "the new Board would be
held to a high level of accountability" and efforts should be taken
to not "tie their hands with specific directions" as this would
negate their ability to utilize their own "judgment and wisdom".
Too much specificity would narrow "the parameters" in which they
would work.
Co-Chair Wilken withdrew his suggestion as he agreed that the new
Board would consist of professional people. Were they determine
that the actuary should be replaced, they could further that
determination.
Senator Stedman clarified that the actuarial contract is with the
Department of Administration rather than with the Board. To that
point, the desire would be that the Department would seek
competitive bids for the actuary position.
Senator Bunde voiced the opinion that the new Board would have an
"obligation to recommend continuation, changes, or modifications to
the Department". To that point, he asked whether the Department
would be required to respond to the Board's advice.
Co-Chair Green understood there to be no obligation on the part of
the Department.
Senator Stedman opined that the Department should listen to the
Legislature, the appropriator of financial resources, as it
endeavors to address the $5.7 billion under funding issue. All
entities should "work together" in an effort to solve the problem.
Co-Chair Green asked whether there was any further objection to the
amendment.
There being no further objection, Amended Amendment #12 was
ADOPTED.
Amendment #13: This amendment changes language in Sec. 29,
subsection Sec. 14.25.350(a) on page 15, lines one through three as
well as language in Sec. 102, subsection Sec. 39.35.750(a) on page
71, lines eleven through thirteen to read as follows.
(a) An employer shall contribute to the member's individual
account an amount equal to 4.5 [3.5] percent of each member's
compensation from July 1 to the following June 30.
In addition, the amendment changes language in Sec. 62, subsection
Sec. 39.30.370 on page 49, lines two through nine, to read as
follows.
Sec. 39.30.370. Contributions by employers. For each member of
the plan, an employer shall contribute to the teachers' and
public employee's retiree health reimbursement arrangement
plan trust fund an amount equal to two [ONE] percent of the
employer's average annual employee compensation [, NOT TO
EXCEED $500 A MEMBER A YEAR].
New Text Underlined [DELETED TEXT BRACKETED]
Senator Stedman moved to adopt Amendment #13.
Co-Chair Green objected for explanation.
Senator Stedman reminded the Committee that the calculation models
developed in regard to the employer contribution funding indicated
there to be two percentage points "that could be moved around". The
second portion of this amendment would increase the employer's
contribution into the employee's health reimbursement account (HRA)
by one-percent. The HRA contribution would be 100-percent funded by
the employer, would be "compounded tax free", and could be
withdrawn by the employee tax-free. The remaining one-percent would
be contributed to the employee's retirement fund, would be
"compounded tax-deferred", and would be taxed as regular income
when withdrawn.
Senator Hoffman asked whether schedules were drafted to reflect the
change in the HRA account, as he suspected that the additional one
percent would make a significant difference.
Upon conferring with Ms. Carpenter, Co-Chair Green stated that the
"Projected individual account balances" chart on page seven of the
April 2, 2005 "Health Reimbursement Arrangement" presentation [copy
on file] contained the model reflecting the two-percent HRA rate.
Upon reviewing that chart, she declared that, "it would make a
substantial difference."
In response to a comment by Co-Chair Wilken, Senator Stedman
affirmed that, in addition to increasing the employer contribution
to the HRA account by one percent, the amendment would also
eliminate the $500 limit on the employer's HRA contribution. He
stated that the ability to withdraw the HRA funds tax-free would be
"very attractive".
Co-Chair Wilken, referencing the aforementioned chart, understood
that the affect of the amendment on a person's HRA account, with an
8.25 percent return, would be to increase the balance from $56,465
to $138,513.
Senator Stedman furthered that the balance of a person with 25
years of service would increase from $39,400 to $84,200. The
balance for a person with 20 years of service would increase from
$22,000 to approximately $50,000. A six-percent return for a person
with 20 years of service would increase from $17,000 to $39,000. A
significant increase would occur.
3:33:13 PM
Senator Stedman noted that were this one percent placed in the
retirement fund, it would be subject to taxes and the individual
would not fare as well. Increasing the amount placed in the HRA
would advantage the employee.
Co-Chair Green concluded that this would provide "a very nice
benefit."
Senator Olson agreed.
Co-Chair Green asked whether there was any further objection.
There being none, Amendment #13 was ADOPTED.
Co-Chair Green stated that Amendment #1, which had been offered by
Senator Olson and set aside in order to obtain further information
regarding the number of PERS/TRS members voting in a Board member
election, was again before the Committee.
Amendment #1: This amendment replaces all language in Sec. 40,
subsections (b) through (i) beginning on page 36, line 27 through
page 38, line six of 24-LS0637\G; with the following language.
[NOTE: This language must be conformed to Version "F".]
(b) The Alaska Retirement Management Board consists of nine
trustees. The commissioner of administration and the
commissioner of revenue shall serve on the board. Four
trustees shall be appointed by the governor and three shall be
elected from the membership of state retirement systems.
(c) The governor shall appoint four trustees who meet the
eligibility requirements for an Alaska permanent fund dividend
and who are professionally credentialed or have recognized
competence in investment management, finance, banking,
economics, accounting, pension administration, or actuarial
analysis as follows:
(1) two trustees shall be appointed from the general
public; a trustee appointed under this paragraph may not hold
another state office, position, or employment and may not be a
member or beneficiary of a retirement system managed by the
board;
(2) one trustee shall be employed as a finance officer
for a political subdivision participating in the public
employees' retirement system;
(3) one trustee shall be employed as a finance officer
for a political subdivision participating in the teachers'
retirement system.
(d) Two trustees shall be members of the public employees'
retirement system elected by members of the public employees'
retirement system. One trustee shall be a member of the
teachers' retirement system elected by members of the
teachers' retirement system. Elections shall be conducted by
the board. The candidate who receives the most votes cast in
the election is elected to the seat. If two seats are to be
filled at the election, the candidate who receives the highest
number of votes cast and the candidate who receives the second
highest number of votes cast are elected to the seats. The
term of office of an elected member is three years. The
governor shall fill a vacancy in an unexpired elective term by
appointment for the period remaining before the next regularly
scheduled election held under this subsection. The term
limitations of (e)(1) of this section do not apply to trustees
elected under this subsection.
(e) The trustees appointed under (c) of this section
(1) shall serve for staggered terms of three years and
may be reappointed to the board for a total of three
consecutive terms, a person who has served three consecutive
terms may not be reappointed to the board for at least one
year;
(2) may be removed by the governor for cause by written
notice, after a trustee receives written notice of removal,
the trustee may not participate in board business and may
not be counted for purposes of establishing a quorum.
(f) A vacancy on the board of trustees appointed to the
board under (e)(2) of this section shall be promptly filled.
A person filling a vacancy holds office for the balance of
the unexpired term of the person's predecessor, and the
balance of the unexpired term served is not included in the
three-term limitation under (e)(1) of this section. A
vacancy on the board does not impair the authority of a
quorum of the board to exercise all the powers and perform
all the duties of the board.
(g) Five trustees constitute a quorum for the transaction of
business and the exercise of the powers and duties of the
board.
(h) A trustee may not designate another person to serve on
the board in the absence of the trustee.
(i) The board shall provide annual training to its members
on the duties and powers of a fiduciary of a state fund and
other training as necessary to keep the members of the board
educated about pension management and investment.
(j) The board shall elect a trustee to serve as chair and a
trustee to serve as vice-chair for one-year terms. A
trustee may be reelected to serve additional terms as chair
or vice-chair."
In addition, language in Sec. 112 page 90, lines 19 through 26 is
deleted and replaced with the following language. [NOTE: This
language must be conformed to Version "F".]
* Sec. 112. The uncodified law of the State of Alaska is
amended by adding a new section to read:
TRANSITION: INITIAL STAGGERED TERMS OF TRUSTEES OF THE ALASKA
RETIREMENT SECURITY AND PORTABILITY BOARD. (a) Notwithstanding
AS 37.10.210(e), as repealed and reenacted by sec. 40 of this
Act, in making the initial appointments under AS 37.10.210(c),
as repealed and reenacted by sec. 40 of this Act, the governor
shall appoint one member for one year, one member for two
years and two members for three years.
(b) Notwithstanding AS 37.10.210(d), as repealed and
reenacted by sec. 40 of this Act, the initial term of the
candidate who receives the highest number of votes cast in a
two-seat election shall be elected to a three-year term, and
the candidate in a two-seat election who receives the second
highest number of votes cast shall be elected to a one-year
term. The initial term of a candidate who receives the
highest number of votes cast in a one seat election shall be
two years.
Senator Olson reiterated that the sectional references in the
amendment relate to Version "G" and must be conformed to Version
"F". Thus, the language referenced in Sec. 40 is located in Sec.
41, subsections (b) through (i) beginning on page 37, line 13
through page 38, line 23 of Version "F". The changes proposed for
Sec. 112 would apply to language in Sec. 114, page 91 lines seven
through fourteen of Version "F".
Co-Chair Green informed the Committee that the Department of
Administration has informed that 11,077 out of 62,720 ballots that
were mailed out to members in the 2002 PERS Retirement Board
election were cast. This would equate to approximately a 17 percent
voter turnout. The Department has indicated that election
participation in other years has ranged between 30 to 40 percent.
Co-Chair Green maintained her objection to the amendment.
A roll call was taken on the motion.
IN FAVOR: Senator Hoffman, Senator Olson
OPPOSED: Senator Bunde, Senator Dyson, Senator Stedman, Co-Chair
Wilken, and Co-Chair Green.
The motion FAILED (2 - 5)
Amendment #1 FAILED to be adopted.
Senator Olson asked that Amendment #1 be divided and offered as
Amendment #14.
AT EASE 3:37:00 PM / 3:37:57 PM
Amendment #14: This amendment replaces the word "three" with the
word "two" in Sec. 41, subsection Sec.37.10.210(b)(1) on page 37,
line 20 of Version "F" to read as follows.
(1) two trustees shall be appointed from the general public; a
trustee appointed under this paragraph may not hold another
state office, position, or employment and may not be a member
or beneficiary of a retirement system managed by the board;
In addition, the amendment deletes "one" and replaces it with the
word "two" in Sec. 41, subsection Sec.37.10.210(b)(4) on page 37,
line 28 to read as follows.
(4) two trustee shall be an member of the public employees'
retirement system;
Senator Olson moved Amendment #14.
Co-Chair Green objected to the amendment. She continued to view a
minimum of three professional members on the Board as essential.
A roll call was taken on the motion.
IN FAVOR: Senator Hoffman, Senator Olson, and Senator Stedman
OPPOSED: Senator Dyson, Senator Bunde, Co-Chair Wilken, and Co-
Chair Green.
The motion FAILED (3-4)
Amendment #14 FAILED to be adopted.
Conceptual Amendment #10A: This amendment replaces language in Sec.
43, subsection Sec.37.10.220(8), beginning on line 31, page 39 with
new language as follows.
(8) review actuarial assumptions prepared and certified by a
member of the American Academy of Actuaries and conduct
experience analyses of the retirement systems not less than
once every four years the results of the assumption experience
study will include a "peer review" before going to the ARM for
review. Health cost assumptions shall be reviewed annually.
Co-Chair Wilken explained that the Department of Administration
developed this conceptual language to replace that previously
offered in Amendment #10. [NOTE: Amendment #10 was previously
discussed and withdrawn from consideration.]
At this point, Co-Chair Green briefly conducted housekeeping in
regards to a continuing delay of a University of Alaska amendment,
pertinent to this bill.
AT EASE 3:41:39 PM /3:42:23 PM
Co-Chair Wilken moved for the adoption of the Amendment and
objected for discussion.
Ms. Millhorn reminded the Committee that a new experience
assumption study would be conducted on the systems every four
years. Prior to the new experience assumption study being presented
to the ARMB for either adoption, review, or revision, two things
must occur. The first being that the primary actuarial firm must
review "the actual experience by the system" and recalibrate each
of the system's assumptions. Recommendations regarding any revision
of an assumption must be developed. Secondly, at this point,
another independent, peer actuarial firm would review the primary
actuary's "study and provide their recommendation for change".
Co-Chair Wilken asked whether the assumption experience study could
occur more frequently than every four years.
3:44:08 PM
Ms. Millhorn replied that only the medical assumption studies would
be conducted on an annual basis.
Co-Chair Wilken asked whether any significance is assigned to the
four-year review timeline for other studies.
Ms. Millhorn replied that no specific significance is attached to
the timeframe. The experience study would be a look back over the
actual experiences of the system for the previous three or four
years in order to re-evaluate and perhaps revise or modify the
assumptions. The assumption study would be a look forward. A period
of time would be necessary when conducting an experience study and
an assumption study simultaneously.
Co-Chair Wilken ascertained therefore that a four-year review cycle
would be an acceptable timeframe and is "standard practice". The
peer review would occur following that study.
Ms. Millhorn acknowledged.
Co-Chair Wilken asked whether the language would also require a
peer review to occur in regards to the medical assumptions.
Ms. Millhorn replied that, "yes, it could".
Co-Chair Wilken, to clarify the answer, asked whether that would be
"yes, it would."
Ms. Millhorn affirmed.
Co-Chair Wilken understood therefore that the four-year review
timeframe is standard procedure in this industry.
Co-Chair Green commented that the amendment's language specifies
that the analyses of the retirement system occur "not less than
once every four years". This language would allow an analysis to be
conducted every four years or every year if the ARMB chose.
Co-Chair Wilken appreciated Co-Chair Green's clarification as he
had misunderstood the language.
In response to further questioning from Co-Chair Wilken, Co-Chair
Green clarified that an analysis could be conducted yearly, every
two years, three years or four years. The language would not allow
for an analysis to be conducted every five or six years.
Senator Hoffman and Senator Bunde affirmed Co-Chair Green's
interpretation that an analysis must be conducted in a timeframe of
"four years or less" or "at least once every four years".
Co-Chair Green suggested that a semicolon should be inserted in the
conceptual amendment after the words "four years".
Co-Chair Green clarified, for the record, that the Amendment before
the Committee is Conceptual Amendment 10A.
[NOTE: Co-Chair Wilken did not formally remove his objection, which
has been offered for the sake of discussion; however, that was the
implied intent.]
There being no further objection, Amendment 10A was ADOPTED.
Conceptual Amendment #15: This amendment requires that a "hybrid"
or "blended" retirement program, consisting of both a defined
contribution and defined benefit plan, be established in Tier IV,
as supported by the PERS/TRS Tier Review subcommittee.
Senator Hoffman moved Conceptual Amendment #15. He recalled
testimony before the Committee from Dr. Richard Solie, a current
TRS Board member and a member of the PERS/TRS Tier Review
Subcommittee, in which Dr. Solie had shared information about the
two retirement program alternatives the subcommittee had developed:
one being the DCP being presented in this bill and the second being
a blended or hybrid plan which was a combination of both a DBP and
a DCP. The subcommittee favored the hybrid plan. Rather than the
two-percent retirement benefit calculation modified by length of
service as specified in the current DBP, the proposed hybrid
alternative would encompass a flat one-percent DBP retirement
benefit calculation combined with a one-percent DCP element.
Senator Hoffman voiced that the fact that the 100-percent DCP plan
proposed in this legislation has "no floor" is the reason he
supports the blended plan. In addition, there is concern that some
State employees might not qualify for the federal social security
program. A hybrid program could be developed that would remove half
of the State's DBP obligation while providing assurance to the
employee that, regardless of how they invested the money in their
DCP component, the DBP component would provide some benefit.
Another "compelling argument" voiced by Dr. Solie against the
adopting of a 100-percent DCP, would be that Alaska would be one of
only a few states doing so, and in that regard, might experience
some "drawbacks". These are the reasons the blended plan received
unanimous support from the Tier Review Subcommittee. Therefore, "at
least the concept [of a hybrid plan] should be discussed and voted
upon by this Committee".
Co-Chair Green objected to the amendment.
Senator Stedman communicated that the DCP being considered in this
legislation is Option Two of the two alternative plans developed by
the PERS/TRS Board Tier Review Subcommittee. The minutes of the
Subcommittee's discussions affirm that the Subcommittee favored
Option One, which was the combined or "hybrid" DC and DB plan. That
hybrid plan option was forwarded to the full PERS and TRS Boards
where it failed both Boards: it failed with a 50/50 split vote in
the PERS Board.
Senator Stedman stated that "there are pros and cons to each type
of a plan" and that both options were reviewed during the
development of this legislation. The determination was to further
the 100-percent DCP, even with the absence of a "floor". The floor
issue could be addressed through "the investment selection where
there could be a fixed rate" such as a Certificate of Deposit or a
six-month rolling rate option "so that the employee can pick if
they so choose a fixed rate and not take any market volatility".
Therefore the floor issue was addressed with the concept being that
when the Administration develops the investment selections, such
things as a Fixed Rate option and a balanced fund option would be
included.
Senator Stedman warned that once a DB component is defined in a
plan, "you can never take it back". This is the experience of the
DBP that is currently in place. "It is very unforgiving".
Consideration should be given to the fact that were a DCP adopted,
the decision could be made in the future to make it a hybrid plan
by revising it and adding a DB component. He reiterated, however,
that, "once it's in, you can never get it out". Significant costs
to the employer are associated with a DBP as the result of
actuarial expenses and financial market risks. These facts
contributed to the reason a DCP was selected. He noted that, over
the past few decades, most private sector retirement systems in the
nation have moved away from DBPs, and, more recently, public
sectors are anticipating this action too.
Senator Stedman opined that "the employer is in a better position
dealing with a 100-percent" DCP as it would provide more
flexibility. The adoption of a 100-percent DCP would assist in
balancing the constraints the State faces with the current "rigid"
tier structure.
3:56:01 PM
Senator Hoffman countered that PERS and TRS Boards' votes on the
hybrid plan should not "be interpreted" as supporting the DCP. That
vote would be better interpreted as saying that "they prefer the
existing plan over the blended plan". Were the current plan "off
the table, their vote might have a different outcome. He opined
that in that case, the Boards would "overwhelmingly support the
blended plan".
Senator Stedman responded that were an employee poll taken, all
respondents would support participation in Tier I. Were Tier I not
an option, they would support Tier II, and so on. Efforts were made
to develop a DCP that would be comparable to or provide advantages
that would be "at least on equal footing with the Tier III". There
would be agreement with the statement that while Tier I is
attractive to the employee, it is "extremely financially burdensome
and risk riddled" to the employer. That is the reason the State
moved from Tier I to Tier II to Tier III.
Senator Stedman reminded that the PERS and TRS Boards did not
recommend adoption of either Option One or Option Two. In that
regard, "they walked away from their obligation to help us deal
with this issue".
Senator Hoffman agreed that employees would be attracted to the
best plan. Organized labor associations would also endeavor to
develop the best plan for their members. The Boards must consider
such things as the solvency of the plans and what is best for the
State as well as how their decisions would effect employer
retention and recruitment efforts. To that point, "the better the
plan", the more successful retention and recruitment efforts are.
The proposed plan should be compared to those offered in similar
markets, specifically those in the Pacific Northwest. The fact that
this plan might be "outside" of the ones offered in this area might
be another reason that Dr. Solie, who is more familiar with the
Northwest market, supported the hybrid plan. The Boards should be
asked whether "they were leaving the slate clean" or were
indicating support for continuing the existing plan. The Boards
have addressed the concerns associated with the plans longer than
the Legislature has although the Legislature is responsible "for
writing" approximately "half of the check".
4:01:09 PM
Senator Stedman commented that the current Boards conducted "an
exhaustive analyses to create the two options: the 100-percent
defined benefit plan that is being recommended in this legislation
and the hybrid plan that is being referenced in Amendment #15.
Extensive research regarding the two plans, including comparisons
to other plans in Alaska and the Pacific Northwest, was conducted
in order to allow the State to remain competitive in the
recruitment and retention of employees. This legislation, which
considered both options developed by the Boards, "picked up where
they dropped the ball".
A roll call was taken on the motion to adopt Amendment #15.
IN FAVOR: Senator Olson and Senator Hoffman
OPPOSED: Senator Stedman, Senator Dyson, Co-Chair Wilken, and Co-
Chair Green
ABSENT: Senator Bunde
The motion FAILED (2-4-1)
Amendment #15 FAILED to be adopted.
Amendment #16: This amendment reduces the percent of each member's
compensation from 3.75 percent to 1.75 percent as specified in Sec.
14.25.350(b) on page 15, line four and in Sec. 39.35.750(b) on page
71, line 14.
Co-Chair Green moved for the adoption of Amendment #16. She
explained that this amendment is necessary as a result of the
adoption of Amendment #13.
Senator Stedman affirmed.
There being no objection, Amendment #16 was ADOPTED.
In order to allow the bill's drafter to make appropriate changes,
Co-Chair Wilken clarified that Amendment #10A was a conceptual
amendment.
Senator Hoffman asked when updated fiscal notes might be expected.
Co-Chair Green expected that the fiscal notes would be developed by
Tuesday, April 5, 2005.
Senator Hoffman asked whether the proposed compensation of the ARMB
members might be affected by the changes in the bill.
Co-Chair Green commented that the compensation would not be
altered.
Senator Hoffman inquired as to whether the compensation proposed
for the ARMB would be similar to that provided to the Permanent
Fund Corporation Board.
Co-Chair Green stated that it is different. The PFC Board receives
a compensation of $400 per day. This Board would receive $150 per
day. That amount would be increased slightly as travel days, which
are not currently accounted for, would be recognized. She stated
that the compensation would be considered to be a "modest" amount
when considering the financial responsibility associated with such
a Board.
Senator Hoffman asked how the amount would compare to other
financial management boards.
Senator Stedman commented that the members of this "public service"
Board would receive $150 per day. The amount could be revisited
were it to become an obstacle. He shared that one of the current
PERS/TRS Board members participates at a substantially lesser
amount that his traditional consultation fee.
Co-Chair Green characterized the compensation as a pittance
compared to what their service is probably worth. This is the case
with a number of appointed boards.
The bill was HELD in Committee.
ADJOURNMENT
Co-Chair Green adjourned the meeting at 04:07 PM
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