Legislature(2021 - 2022)SENATE FINANCE 532
02/18/2022 09:00 AM Senate FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| Pers/trs Update | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SENATE FINANCE COMMITTEE
February 18, 2022
9:02 a.m.
9:02:20 AM
CALL TO ORDER
Co-Chair Stedman called the Senate Finance Committee
meeting to order at 9:02 a.m.
MEMBERS PRESENT
Senator Click Bishop, Co-Chair
Senator Bert Stedman, Co-Chair
Senator Lyman Hoffman
Senator Donny Olson (via teleconference)
Senator Bill Wielechowski
Senator David Wilson
MEMBERS ABSENT
Senator Natasha von Imhof
ALSO PRESENT
Ajay Desai, Director, Division of Retirement and Benefits;
Kevin Worley, Chief Finance Officer, Division of Retirement
and Benefits; Emily Ricci, Chief Health Administrator,
Department of Administration.
PRESENT VIA TELECONFERENCE
David Kershner, Actuary, Buck Global, LLC, Florida.
SUMMARY
^PERS/TRS UPDATE
9:04:57 AM
AJAY DESAI, DIRECTOR, DIVISION OF RETIREMENT AND BENEFITS,
introduced himself. He discussed the presentation, "State
of Alaska Department of Administration; Presentation to the
Senate Finance Committee" (copy on file). He looked at
slide 2, "Organization - Public Employees' Retirement
System (PERS)/Teacher Retirement System (TRS)." He
explained how the department works with the Alaska
Retirement Management Board (ARMB).
Mr. Desai addressed slide 3, "Membership (as of June 30,
2021)." He stated that there were approximately 102,901
members in the system.
Mr. Desai pointed to slide 4, "Investment Experience":
The actuarial value of assets was reinitialized to
equal fair value as of June 30, 2014, with the
$3Billion infusion from HB 119.
Beginning in FY 2015, the valuation method recognizes
20 percent of the investment gain or loss each year
for a period of five years ("Smoothing").
Mr. Desai looked at slide 5, "Funded Status Valuation
Results ($000's)." He stated that that there was a marked
difference, and noted the increase in each system.
9:10:41 AM
Mr. Desai addressed slide 6, "Funded Status Pension
($000's)":
According to the June 30, 2020 PERS and TRS DB
actuarial valuation reports, PERS DB pension trust
fund was projected to be 93.4 percent funded and TRS
at 96.3 percent by June 30, 2039.
It is anticipated the June 30, 2021 projections to be
presented to the ARM Board at the March meeting will
reflect a 100 percent funded level 2 or 3 years
earlier than the last reported projections, based on
the FY 2021 investment returns.
9:11:23 AM
KEVIN WORLEY, CHIEF FINANCE OFFICER, DIVISION OF RETIREMENT
AND BENEFITS, explained that there was an examination of
comparison of funding between the current and previous
years, and projected to 2039, which was the projected 100
percent funding of the trust funds.
Senator Wielechowski asked the difference between actuarial
asset value and fair asset value.
Co-Chair Stedman asked why there were two different values.
9:13:33 AM
DAVID KERSHNER, ACTUARY, BUCK GLOBAL, LLC, FLORIDA (via
teleconference), explained that market value was the fair
value of the investment taken directly from the financial
statement. He stated that the actuary value was the
comparison of the actual return and the expected return.
Co-Chair Stedman wondered whether the investment return to
the mean, or should there be an expectation of similar
types of returns moving forward.
Mr. Kershner stated that he was not an investment expert,
but did not believe that anyone would have predicted
returns as high as 30 percent.
Co-Chair Stedman wondered whether the state had ever used
an ignored the actuarial valuation of the assets, and only
concentrated on the market value when setting the
contribution rates.
Mr. Kershner replied that as recently as 2014, the smooth
value was used as the standard. He did not recall time when
the actuarial value was used as the standard.
Co-Chair Stedman surmised that market values were not used
for the contributions.
Senator Wielechowski asked how the state compared its
funded status, versus other public and private pensions in
the country.
Mr. Worley replied that annually, the National Association
of State Retirement Administrators regularly monitored 119
plans. He stated that the last report, which was through
June 2020, the accrued liability for TRS was 78 percent and
PERS was 98 percent. He stated that California had the
highest accrued liability, so Alaska had a lower accrued
liability compared to other states.
9:21:11 AM
Co-Chair Stedman recalled that Alaska was one of the few
states that combine the retirement health liability and
pension.
Mr. Worley replied that, in the last ten years, the
Governmental Accounting Standard Board had issued
accounting statements for both pension and health trust
plans.
Co-Chair Stedman remarked that Alaska noticed their own
unfunded liability before the other states' recognized
their own unfunded liability.
Mr. Morley replied that Alaska had initiated boards and
statutes to review the work of the consulting actuary
reporting.
9:25:52 AM
Co-Chair Bishop stressed that without the large deposit in
2014, the numbers were look much different.
Mr. Desai explained that the $3 billion deposit created a
compounding effect.
Co-Chair Stedman remarked that the department had been
asked to evaluate the outcome of a smaller unfunded
liability. He remarked that it would enable a lower
contribution from the state to the municipalities.
Mr. Desai agreed, and stated that the presentation would
show calculations of projections. He pointed to slide 7,
"Funded Status HealthCare ($000's)."
Senator Wielechowski requested a brief historical rational
for why health care and pension were separate entities.
Mr. Desai replied that the defined benefit was considered a
guaranteed benefit.
9:31:23 AM
EMILY RICCI, CHIEF HEALTH ADMINISTRATOR, DEPARTMENT OF
ADMINISTRATION, furthered that she could not speak
specifically to the accounting, but stated that the
division focused on identifying ways to offer the same set
of benefits at lower prices.
Mr. Desai discussed slide 8, "Funded Ratio History (Based
on Actuarial Valuation Reports)." noted the "dive" that
began in 2009.
9:32:31 AM
Mr. Desai looked at slide 9, "Unfunded Actuarial Liability
PERS / TRS ($000's)." He looked at 2013, which showed the
highest unfunded liability, but noted that the current
status was under $1 billion.
Mr. Desai addressed slide 10, "FY 2023 Employer
Contribution Rates (with and without Health Plan Normal
Cost)."
9:34:17 AM
Co-Chair Stedman queried the normal cost, and request that
acronyms not be used in the presentation.
Mr. Desai replied that the normal cost was for the year
where employees had accrued benefits. He stated that the
cost was the additional cost up to the last deviation date.
Co-Chair Stedman surmised that the normal cost was for the
annual year of service.
Mr. Desai replied that normal cost required an accrual of
benefits.
Co-Chair Stedman remarked that there should be an addition
to include all payroll.
Mr. Desai looked at line 1, which showed a total payroll
for the retirement fund.
Senator Wielechowski felt that public employees and
teachers expected their pensions and health care to be
paid. He stressed that just because one fund was over-
funded, does not mean that another fund should be cut.
9:40:04 AM
Co-Chair Stedman stated that the question was one of the
main points of the meeting.
Mr. Morley stated that there would be a slide to address
that concern.
Mr. Desai pointed to slide 11, "Additional State
Contributions Projected (Buck Presented to the ARM Board
at October 2021 Meeting)." He said that based o Oct.2021
the numbers of projected contributions were expected to be
a total of $1.85 billion.
Mr. Desai discussed slide 12, "Health Care Trusts":
Funded Levels with and without normal cost
contributions
Buck has determined that the PERS and TRS health
trusts would have to suffer the following investment
losses in FY 2022 on the FAIR value of assets to
return to 100 percent funded levels at June 30, 2022:
PERS:-19.9 percent
TRS:-25.5 percent
The PERS and TRS health trusts would have to suffer
the following investment losses in FY 2022 on the
ACTUARIAL value of assets to return to 100 percent
funded levels at June 30, 2022:
PERS:-86 percent
TRS:-115 percent
Co-Chair Stedman asked about stress testing and simulations
on returns. He thought that returns had to regress to the
mean. He
9:45:08 AM
Mr. Worley stated that the impact of the fair value of
assets had been discussed by the board. He spoke of losses
and smoothing reflected in different scenarios.
Co-Chair Stedman offered that the committee had had its own
projections run. He wondered whether the board used the
Monte Carlo simulation in their
Mr. Worley deferred to Mr. Kershner.
Mr. Kershner replied that Monte Carlo simulation had not
been run as it would offer numerous randomly generated
return numbers. He spoke of years of higher than expected
claims and the percentage funding of the trusts. that
Senator Wielechowski argued that the pensions and the
healthcare should be funded equally. He asked whether
actuaries in the 90s had advised the state to underfund
pensions.
9:50:01 AM
Mr. Worley replied that he could not speak to practices in
the 1990s. He elaborated on the current contributions to
the healthcare and pension funds.
Co-Chair Stedman recalled that the data at the time (1990)
had shown that. He noted that no matter what the funding
rations was it made no difference on the receiving of
retirement checks and healthcare benefits. He said that the
work of the committee was to ensure proper funding.
Co-Chair Bishop reiterated that a Monte Carlo scenario had
not been run.
Senator Wilson asked whether the plans were audited by two
different firms.
Co-Chair Stedman asked why there were two actuaries doing
the work.
Mr. Worley explained the work of the two actuaries.
Co-Chair Stedman understood that the extra review had been
established to minimize the potential of an actuarial
mistake.
9:56:41 AM
Mr. Worley added that Alaska statute required a full audit
every four years.
Ms. Ricci interjected that detail and accuracy had improved
since the 1990s.
Co-Chair Bishop asked whether the new data be a
contributing factor for those who were 65 years old and
older that were not on Medicaid primary to help alleviate
the cost.
Ms. Ricci replied that there was an attempt to be more
precise, particularly in the age spectrum.
Mr. Desai addressed slide 13, "Additional State
Contributions -History."
10:00:12 AM
Mr. Desai looked at slide 14, "Historical Rate of Return
and Funded Ratio."
Co-Chair Stedman felt that the funding ratios should be
"taken with a grain of salt."
Senator Wilson wondered whether health care utilization
rates factored into costs in ongoing years.
Ms. Ricci replied that the upswing was not spiking, and
returning to previous levels.
10:05:46 AM
Mr. Desai discussed slide 15, "SFC Request -Infusion into
the PERS DB Pension Trust."
Co-Chair Stedman stressed the committee should see the
benefit of the infusion, especially to eliminate the
unfunded liability.
Mr. Morley replied that the results were only for the
additional state contribution.
Mr. Kershner explained the different scenarios.
10:11:23 AM
Co-Chair Stedman requested a response specifically
addressing the net cash flow.
Mr. Morley agreed to provide that information.
Co-Chair Stedman asked that there be efforts to "refine the
numeric." He hoped to examine all avenues in order to lower
the forward expenditures.
Senator Wielechowski agreed.
Mr. Desai displayed slide 16, "Additional Infusion into the
DB Pension Trust Fund -PERS":
Source: Buck, October 2021 ARMB Meeting Presentation
NOTES:
In years that the PERS total employer contribution
rate is 22 percent or higher
1. State-as-an-employer contributes the total
contribution rate
2. Non-State employers contribute 22 percent
(capped rate)
3. Additional state contributions are greater
than zero
In years that the PERS total employer contribution
rate is less than 22 percent
1. State-as-an-employer contributes the total
contribution rate
2. Non-State employers contribute the total
contribution rate
3. Additional state contributions are zero
10:15:50 AM
Co-Chair Stedman surmised that the goal was to eliminate
the 22 percent.
Mr. Desai agreed.
Mr. Desai discussed slide 17, "SFC Request -Infusion into
the TRS DB Pension Trust."
Mr. Desai pointed to slide 18, "FY2023 Contribution Rates
Defined Benefit Plans."
Mr. Desai looked at slide 19, "FY2023 Contribution Rates
Defined Contribution Plans."
Mr. Desai displayed slide 20, "Contribution Rates
History."
Co-Chair Stedman felt that good news could occur in the
future.
Mr. Desai agreed.
Mr. Desai discussed slide 21, "Projected Pension Benefit
Recipients."
Mr. Desai pointed to slide 22, "Projected Pension Benefits
Payment ($000's)."
10:20:55 AM
Co-Chair Stedman asked why the tail was so long.
Mr. Desai replied that last suspected payment would be in
the next century.
Co-Chair Stedman queried the year of the last suspected
payment.
Ms. Desai replied that it would be in eighty years, in
2102.
Co-Chair Bishop noted that the total payments in 2023 to
retirees was $1.58 billion.
Mr. Desai agreed.
Co-Chair Bishop noted that the money goes directly into
Alaska's economy.
Mr. Desai displayed slide 23, "Employers and Additional
State Contributions Process Timeline."
Mr. Desai discussed slide 24, "An Employer Group Waiver
Plan (EGWP) Subsidy."
Ms. Ricci explained that the program was one of the first
programs implemented by the division working
collaboratively with Retiree Stakeholder Group.
Senator Wielechowski asked for a brief explanation of the
addition of preventative care.
Ms. Ricci stated that it was added in 2022, and included
the types of screenings that were regularly available to
most employee plan members.
Senator Wielechowski wondered whether colonoscopies was
eligible in the preventive care.
Ms. Ricci replied in the affirmative.
10:26:28 AM
Ms. Ricci pointed to slide 25, "Health Care Cost Trend
Rates."
Co-Chair Stedman asked about whether there were concerns
with accounting principles.
Mr. Kershner replied that there was no choice on the
accounting because there was a requirement that the state
measures the fair value of assets.
Co-Chair Stedman recalled that there was a time when the
actuarial return was higher than the market,
Co-Chair Bishop hoped to have the conversation in a
prospective context.
Mr. Desai thanked the committee.
Co-Chair Stedman discussed the committee schedule.
ADJOURNMENT
10:35:20 AM
The meeting was adjourned at 10:35 a.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| 021822 DOA_PERS_TRS_Overview_SFC-2022_FINAL-02172022.pdf |
SFIN 2/18/2022 9:00:00 AM |