Legislature(2023 - 2024)BELTZ 105 (TSBldg)
03/13/2023 01:30 PM Senate LABOR & COMMERCE
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| Audio | Topic |
|---|---|
| Start | |
| SB88 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | SB 88 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
SENATE LABOR AND COMMERCE STANDING COMMITTEE
March 13, 2023
1:31 p.m.
MEMBERS PRESENT
Senator Jesse Bjorkman, Chair
Senator Click Bishop, Vice Chair
Senator Elvi Gray-Jackson
Senator Kelly Merrick
Senator Forrest Dunbar
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
SENATE BILL NO. 88
"An Act relating to the Public Employees' Retirement System of
Alaska and the teachers' retirement system; providing certain
employees an opportunity to choose between the defined benefit
and defined contribution plans of the Public Employees'
Retirement System of Alaska and the teachers' retirement system;
and providing for an effective date."
- HEARD & HELD
PREVIOUS COMMITTEE ACTION
BILL: SB 88
SHORT TITLE: RETIREMENT SYSTEMS; DEFINED BENEFIT OPT.
SPONSOR(s): SENATOR(s) GIESSEL
03/01/23 (S) READ THE FIRST TIME - REFERRALS
03/01/23 (S) L&C, FIN
03/13/23 (S) L&C AT 1:30 PM BELTZ 105 (TSBldg)
WITNESS REGISTER
SENATOR CATHY GIESSEL, District E
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Sponsor of SB 88.
SONJA KAWASAKI, Senate Majority Counsel
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Answered questions on SB 88.
JULIA O'CONNOR, Staff
Senator Cathy Giessel
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Presented the sectional analysis on SB 88.
ACTION NARRATIVE
1:31:41 PM
CHAIR JESSE BJORKMAN called the Senate Labor and Commerce
Standing Committee meeting to order at 1:31 p.m. Present at the
call to order were Senators Dunbar, Bishop, Gray-Jackson,
Merrick, and Chair Bjorkman.
SB 88-RETIREMENT SYSTEMS; DEFINED BENEFIT OPT.
1:32:28 PM
CHAIR BJORKMAN announced the consideration of SENATE BILL NO. 88
"An Act relating to the Public Employees' Retirement System of
Alaska and the teachers' retirement system; providing certain
employees an opportunity to choose between the defined benefit
and defined contribution plans of the Public Employees'
Retirement System of Alaska and the teachers' retirement system;
and providing for an effective date."
CHAIR BJORKMAN invited Senator Giessel to put herself on the
record and introduce SB 88.
[This is the first hearing of SB 88.]
1:32:47 PM
SENATOR CATHY GIESSEL, District E, Alaska State Legislature,
Juneau, Alaska, sponsor of SB 88, said she is honored to carry
this bill. She began the presentation on SB 88 with the
slideshow titled, A Shared Risk Public Employee Retirement
Approach [Revised]. She said that she is carrying this bill on
behalf of thousands of public employees statewide who have
worked together over the past ten years to refine this piece of
legislation to an affordable and fair bill. The state faces
significant workforce shortages, whether snow plowing in the
winter, staffing the Pioneer Homes, teachers in the classroom,
or recruiting public defenders. Two Public Defender Offices in
the state have considered declining cases because there are
insufficient attorneys to handle the caseload.
SENATOR GIESSEL said SB 88 represents an effort to remedy
recruitment and retention issues in the state. She expressed her
belief that it will give public employees a secure and livable
retirement while the cost to the state is affordable.
1:34:36 PM
SENATOR GIESSEL summarized slide 2:
CHALLENGE
Alaska's Recruitment and Retention Crisis
CAUSE (WHY?)
2005 Alaska withdrew from Defined Benefit retirement
SOLUTION
A retirement plan with reasonable costs and fair
benefits
SUMMARY
Alaska has a strong interest in ensuring quality
public servants fill the ranks of our public service
agencies
SENATOR GIESSEL said SB 88 proposes to give public employees the
opportunity to have a secure retirement with the ability to
support themselves. She emphasized that this system is
completely different from the previous defined benefit
retirement system. This one is more modest and carefully crafted
with belt and suspenders to protect the state and to cautiously
share the risks with employees, employers, and retirees.
1:35:25 PM
SENATOR GIESSEL reviewed slide 3, Challenges. The slide
contained these news headlines about recruitment and retention
collapses and staggering vacancy rates:
- severe food stamp backlogs due to staff shortages,
- schools struggling to find teachers,
- law enforcement officer shortages are a public emergency, and
- frustrations over the pace of snow removal in Anchorage.
SENATOR GIESSEL said the Alaska Marine Highway System (AMHS) is
significantly understaffed and delayed publishing its summer
schedule because staff shortages affected sailing schedules.
1:36:00 PM
SENATOR GIESSEL advanced to slide 4, Why Is This Happening? She
said that commissioners and other department leaders are
sounding the alarm. They have identified a lack of pension
benefits as a significant recruitment barrier. Slide 4 quotes
the Department of Transportation and Public Facilities (DOTPF)
Central Region Director:
A lot of our vacancies and our cyclic throughput on
employees really began increasing since 2006. If you
remember that was the break point between Tier III and
Tier IV employees for the State of Alaska so once the
pension benefits disappeared and we became
contribution or matching based employer, those
benefits became transportable. Our ability to retain
employees, really much longer than four or five years
anymore, and no more than ten years became largely
impacted by trends and portability of those benefits.
-Wolfgang Junge, DOT&PF Central Region Director
House Finance, February 15, 2022
1:36:24 PM
SENATOR GIESSEL advanced to slide 5, which reads:
Challenge
The collapse of recruitment and retention has created
the inability to meet basic service obligations in all
agencies
SENATOR GIESSEL said that the state faces this challenge in all
its services, including delays in professional licensing and
permit processing. The state has to solve these problems to be
open for business.
1:36:45 PM
SENATOR GIESSEL advanced to the chart on slide 6, Budget
Challenges - Vacancy. She said this slide originated with the
Office of Management and Budget (OMB), the governor's finance
office. The slide lists each department and its percentage of
vacant position control numbers (PCNs) in December 2022. The
number of full-time filled vacancies has been plummeting since
July 2017. Slide 6 reads:
• Most departments are experiencing significantly
greater vacancies than pre-pandemic levels.
• Recruitments are taking longer and are less likely
to result in a hire.
• Recruitment incentives being used to address most
critical public needs.
FY22 Unspent Personal Services
Working Reserve 8.3
Group Health Life 9.5
Catastrophic Reserve 12.4
CBR 39.3
(Dollars in Millions)
...probably the biggest challenge that faces our state
agencies right now in terms of executing on the
programs in the appropriations they've been entrusted
with, and that is the challenge of recruiting and
retaining the staff to actually do the work.
-OMB Director Neil Steininger
S FIN 1-24-23
SENATOR GIESSEL said departments have been offering hiring
bonuses to address this issue:
- $20,000 for a state trooper
- $10,000 for a corrections officer, and
- 20 percent salary increases for Department of Law attorneys.
SENATOR GIESSEL said hiring bonuses cost the state money. The
cost of losing staff is hidden in the expense of onboarding a
new firefighter or police officer, which is estimated at
$100,000 in education, training, and mentoring. The Office of
Children's Services (OCS) manages the state's foster care
system. OCS had 92 staff depart the division in 2022. It costs
about $54,000 to onboard a new staff person, so replacing those
92 employees cost about $5 million. The estimated cost to
onboard a new teacher is $18,000, which includes the expense of
recruitment and mentoring but does not quantify the cost of lost
knowledge and skills as employees leave their positions. An
effectiveness factor is lost; a new teacher that has never
taught in a classroom has a different effectiveness factor than
a seasoned teacher.
1:39:05 PM
SENATOR GIESSEL reviewed three charts on slide 7, which compares
the defined benefit (DB) retirement plan to the defined
contribution (DC) plan. One chart compares the retirement
earnings of peace officers and firefighters, the second chart
compares the retirement earnings of teachers, and the third
chart compares the retirement earnings of all employees.
SENATOR GIESSEL drew attention to the "PERS - Tier III and Tier
IV Comparison All Other Members" chart, which compares all state
employees, including peace officers, firefighters, and teachers.
She noted the defined contribution plan has been in place for
about 16 years. The chart is split into two spreadsheets,
"hypothetical salaries" and "actual salaries."
SENATOR GIESSEL said the "hypothetical salaries" spreadsheet
compares the salary replacement ratios for the DB and DC plans
based on an employee's years of service. She pointed out that
the defined contribution plan earned significantly less towards
retirement than the defined benefit plan on this spreadsheet.
SENATOR GIESSEL compared the spreadsheet for the "actual
salaries" categories:
- Comparable Salaries
The data shows the DC plan salary replacement ratios
underperformed the DB plan on the "hypothetical salaries"
spreadsheet.
- All Salaries
This category represents 3,901 employees enrolled in the DC
plan. Their salary replacement ratios underperformed the
"hypothetical salaries."
- Rate of Return (ROR) >= 7 Percent Projection
She said this small group of DC plan employees are investment
overachievers with good salary replacement ratios. However,
their investment returns are dramatically smaller than the
"hypothetical salaries" DB plan.
SENATOR GIESSEL said the Division of Retirement and Benefits
created similar comparison charts for peace officers,
firefighters, and teachers; these charts are on slide 7. She
emphasized that all three charts demonstrate the defined
contribution program earnings are comparatively minimal; she
stressed that employees face challenges operating as independent
managers and governing their stock market investments. Most
Alaskans are not knowledgeable about stock market management and
do not have the time to do it. The charts show how the DC plan
has compromised the retirement benefit of employees. The current
defined contribution plan fails to earn comparable benefits to
the defined benefit plan and fails to give employees retirement
security.
1:46:43 PM
SENATOR GIESSEL reviewed slide 8, the factors that influenced
the state's decision to switch from a defined benefit to a
defined contribution plan:
Cause & History
• Prior to 2002 the DB system was well funded
SENATOR GIESSEL said escalating health care costs were a minor
contributing factor.
• 2002 to 2004 - Erroneous actuarial advice by Mercer
compromised the DB plan
SENATOR GIESSEL said the primary factor that influenced the
state's decision to switch to a defined contribution plan was
inaccurate actuarial assessments provided by the financial
services company Mercer. The state hired a second party to audit
Mercer and found Mercer made inaccurate predictions. She said
that not only did Mercer make erroneous predictions, but they
lied about having made those kinds of errors and failed to
disclose the errors to the state. They covered up the errors in
more than one of their evaluations. Consequently, the state
retirement system failed to operate correctly and became
unfunded.
• 2006 - The DC system was implemented
• 2007 State of Alaska ARM Board filed suit against
Mercer for covering up its malpractice, SOA
prevailed
1:48:08 PM
SENATOR GIESSEL reviewed the bar graph on slide 9, DB System
Funded Ratio History. According to a Buck Consulting actuarial
valuation report done May 2022, the DB system funded ratio grew
from 68 percent in 1979 to over 100 percent in 1986, bounced
around between 90 to 100 percent from 1987 to 1995, and spiked
to over 100 percent from 1996 to 2001. After that, the Mercer
errors began, illustrated by the drastic drop to 61 percent in
2012.
SENATOR GIESSEL said the state became aware of the downward
trend and switched to a defined contribution plan in 2006.
Employees enrolled in the DB plan stayed in the program per
[art. XII, sec. 7, Constitution of the State of Alaska] which
prevents diminishment or impairment of accrued retirement
benefits. New hires enrolled in the defined contribution plan.
She pointed out that the legislature voted to make a balloon
payment of $3 billion in 2014 to the past service cost deficit,
reflected on the bar graph as a bump to 70 percent. The graph
shows that the DB system funded ratio grew to 86 percent in
2021.
SENATOR GIESSEL said the legislature intensely debated the
defined benefit plan in 2006. They disputed whether the DB plan
was broken and a bad idea to continue. Some contended the
problem was with the actuary Mercer who had erred significantly.
She cited Representative Hawker as saying that it was a
disservice to consider this a crisis and that the state should
continue with the defined benefit plan. Ultimately, the
legislature voted to switch to a defined contribution plan.
1:50:43 PM
SENATOR GIESSEL advanced to slide 10. She said the legislature
believes it is unlikely the state retirement system will find
itself in a deficit situation again. She reviewed the prudent
changes the legislature made on slide 10:
Will This Happen Again?
Triple Safeguards Since 2006
1. Buck Consulting, (State Actuary) provides annual
review of pension assets and liabilities
2. ARM Board [Alaska Retirement Management Board
(ARMB)] Actuary reviews Buck's work every year
3. Every 4th year a third Actuary reviews ARMB and Buck
actuarial reports
SENATOR GIESSEL said the state has mandatory contribution rates
projected to pay off the unfunded liability by 2039.
She reiterated these safeguards are in place to prevent another
DB retirement system failure.
1:52:02 PM
SENATOR GIESSEL advanced to slide 11 to introduce:
A Proposed Solution Senate Bill 88
A retirement system with reasonable costs and fair benefits.
SENATOR GIESSEL said the retirement plan proposed in SB 88 would
benefit employees and Alaska. It is a much more modest pension
system based on lessons learned from past tiers, and it features
the best practices for well-funded and stable plans from around
the country. It will provide a reliable, modest retirement for
employees. It shares the risk between employees, employers, and
the state and does not expose the state to problems experienced
in the past.
1:52:51 PM
SENATOR GIESSEL summarized slide 12, Structural Features of SB
88:
• Builds on best practices of other states
• Shares risk between employees, employers, and
retirees
• Ensures plan will remain solvent
1:53:04 PM
SENATOR GIESSEL reviewed slide 13 to discuss sharing costs,
Employee Contribution:
PERS & TRS
• 8 - 10 percent adjustable by ARM Board
SENATOR GIESSEL explained SB 88 allows ARMB to adjust the
contribution rate between 8 - 10 percent based on market
conditions. ARMB would make incremental rate adjustments and
require higher contributions if the market were to tank.
• Employees share the risk contributing more during poor
market returns
SENATOR GIESSEL advanced to slide 14, which lists states using a
variable 8 to 10 percent employee contribution rate. These
states are Arizona, Colorado, Idaho, Iowa, Maine, Montana, and
Nevada.
1:54:33 PM
SENATOR GIESSEL reviewed slide 15, Employer Contribution:
• Remains the same and aligns with rates set by prior
Defined Benefit (DB) tiers.
SENATOR GIESSEL explained the Public Employees Retirement System
(PERS) employers have a rate ceiling of 22 percent. School
districts have a rate ceiling of 12.56 percent. The state covers
any gap over these rate ceilings to keep the plan solvent.
• The state continues to pay the full normal and past
service cost of the system.
• Sets 12 percent hard floor for long term success of
the plan.
SENATOR GIESSEL said SB 88 authorizes ARMB to adjust the
employer contribution no lower than 12 percent. She said that
lowering the employer contribution is based on whether the
program funding is at 90 percent or higher, which is the gold
standard for a well-funded, sustainable pension program. The
bill lacks the statement that 90 percent funding needs to be
present, and she advised this is a criterion the committee might
consider clarifying. She emphasized that 90 percent is important
and meaningful to local governments. Ninety percent is not an
arbitrary number.
1:58:08 PM
SENATOR GIESSEL advanced to slide 16, which summarizes what the
existing Public Employees Retirement System (PERS) and Teacher
Retirement System (TRS) employer rate ceilings are:
PERS
• 22% = existing limit of 22%
TRS
• 12.56% = existing limit of 12.56%
SENATOR GIESSEL said SB 88 does not propose to change these rate
ceilings.
1:58:32 PM
SENATOR GIESSEL advanced to the chart on slide 17. The "2024
Actual Employer Contribution Rates" chart shows that the DB plan
costs the state one-third less than the DC plan. She explained
that a defined benefit plan pools the funds of many employees
and is professionally managed. This differs from defined
contribution plans managed by employees who may have different
expertise or time to manage their retirement funds. The DB plan
provides better value for the employee and the employer.
2:01:32 PM
SENATOR GIESSEL reviewed the chart on slide 18, "Pension and
Healthcare Trust Combined Valuation, Funded Status - Valuation
Results." The retirement benefit can be divided into healthcare
and pension costs. The healthcare component is better funded
than the pension. She drew attention to "DB Health Plan - Normal
Cost" on slide 17, pointing out that the DB health plan will
cost the state $0 [in FY24]. She said that statutory language
keeps the healthcare and pension funds separate.
SENATOR GIESSEL hypothesized what would happen if the healthcare
and pension funds were combined. The chart shows that in a
merged funds scenario, PERS would be funded at 87.7 percent and
TRS over 90 percent. She reiterated that the retirement gold
standard is 90 percent or higher. The legislature could combine
the funds with a statute change. She said SB 88 does not
currently include this language, but it would benefit the state
to add it.
2:04:41 PM
SENATOR GIESSEL reviewed slide 19, Vesting:
PERS and TRS
• Vested at 5 years for both PERS and TRS
• Consistent with current Defined Contribution (DC)
plans.
SENATOR GIESSEL said that under the DC PERS and TRS plans,
employees may sever service after five years and take whatever
percent they have from their employer's contribution as well as
their own. They can take that money and leave service. This is
happening with police officers and firefighters in particular
and is part of the retention problem. They take their retirement
funds, training, and expertise to work in other states.
2:06:14 PM
SENATOR GIESSEL advanced to slide 20 and reviewed the
requirements for police officers and firefighters to qualify for
retirement under the bill's proposed defined benefit retirement
structure:
QUALIFICATION FOR RETIREMENT
PERS - (Public Safety only)
• 50 years of age with 25 years of service
OR
• 55 years of age with 20 years of service
SENATOR GIESSEL said that in the previous defined benefit tiers,
police officers and firefighters could retire with 20 years of
service. SB 88 recognizes that these public servants need to
have the option to retire earlier because they have physically
demanding jobs. The bill strikes a balance with earlier
retirement, encouraging longer employment patterns and slightly
increasing the service requirement.
• Allows Public Safety employees to reach retirement
eligibility prior to 60 year of age
2:07:38 PM
SENATOR GIESSEL advanced to slide 21 and reviewed the
requirements for non-public safety employees and teachers to
qualify for retirement under the bill's proposed defined benefit
structure:
QUALIFICATION FOR RETIREMENT
PERS - (Non-Public Safety)
TRS - (Teachers)
• 60 years of age OR 30 years of service
2:07:55 PM
SENATOR GIESSEL advanced to slide 22 and reviewed the bill's
benefit calculation for firefighters and police officers:
BENEFIT CALCULATION FORMULA
PERS - (Public Safety only)
• 2.00 percent first 10 years
• 2.50 percent thereafter
• New Plan is consistent with [prior] PERS Tier III
2:08:37 PM
SENATOR GIESSEL advanced to slide 23 and reviewed the bill's
benefit calculation for non-public safety employees:
BENEFIT CALCULATION FORMULA
PERS - (Non-Public Safety)
• 2.00 percent first 10 years
• 2.25 percent next 10 years
• 2.50 percent thereafter
• New Plan is consistent with prior PERS Tier III
2:09:04 PM
SENATOR GIESSEL advanced to slide 24 and reviewed the bill's
benefit calculation for teachers:
BENEFIT CALCULATION FORMULA
TRS - (Teachers)
• 2.00 percent first 10 years
• 2.25 percent next 10 years
• 2.50 percent thereafter
• New Plan is consistent with prior PERS Tier III
SENATOR GIESSEL said SB 88 proposes calculating the TRS benefit
like PERS non-public safety employees. She said the expectation
is to encourage employees to stay and work longer because people
live longer. She noted a difference from the previous defined
benefit tier for teachers, which went from 2 percent in the
first ten years to 2.5 percent after ten years. SB 88 proposes a
more incremental path toward retirement for teachers.
2:10:09 PM
SENATOR GIESSEL reviewed slide 25, stating the retirement
calculation is based on the average five consecutive high years:
FINAL AVERAGE SALARY
PERS and TRS
• Highest 5 consecutive years of service
• Teacher retirement was previously based on highest 3
contract salaries in TRS II
• New plan is consistent with PERS Tier III. Aligns
TRS with PERS final average salary calculation
SENATOR GIESSEL explained the purpose for five consecutive high
years. It establishes uniformity for all employee groups. She
expressed her belief this will help promote longer career
employment, smooth out the averages to prevent employees from
cherry-picking random high years, and encourages long-term,
uninterrupted terms of service.
2:11:14 PM
SENATOR GIESSEL advanced to slide 26, stating this slide
presents a policy decision for the committee on whether to
include cost-of-living allowance (COLA) language in SB 88. She
reviewed slide 26:
ALASKA COST OF LIVING (COLA)
PERS and TRS
• No COLA is provided for new PERS or TRS Defined
Benefit (DB) plans.
• Keeps the plan solvent
SENATOR GIESSEL said the positive of excluding a COLA benefit is
that it keeps the plan solvent; however, the negative is that
retirees might consider moving elsewhere without it. She wants
to encourage retirees to stay in Alaska. Growing a senior
population enriches Alaska with wisdom, knowledge, diverse age
groups, and disposable income. She contended that inserting COLA
language in the bill might be a good policy decision.
2:12:54 PM
SENATOR GIESSEL reviewed slide 27, Post Retirement Pension
Adjustments (PRPA), aka Inflation Protection:
• ARM Board may provide PRPA to employees if Defined
Benefit (DB) Trust Fund values are equal to or
greater than 90% funded
• The ARM Board will have the ability to withhold PRPA
if the Defined Benefit (DB) Trust Fund values fall
below 90% funded
• This keeps the plan solvent regardless of funding
level
SENATOR GIESSEL said ARMB would annually review actuarial
valuations, and every four years their decisions would be
examined by a second party to ensure plan solvency. She said
this is another piece that can fluctuate to keep the plan
solvent.
2:14:37 PM
SENATOR GIESSEL advanced to slide 28, which lists six states
that use inflation protection as part of their retirement plan:
Louisiana, Maryland, Massachusetts, Nebraska, South Dakota, and
Wisconsin. She emphasized that SB 88 incorporates some of the
other states' best practices nationwide.
2:14:59 PM
SENATOR GIESSEL reviewed slide 29, stating the proposed
retirement medical coverage in SB 88 is a huge change from the
past DB plan:
RETIREMENT MEDICAL COVERAGE
PERS & TRS
• Coverage is consistent with PERS Tier IV and TRS
Tier III Defined Contributions (DC) Plans for all
employees
• Employer makes contribution of 3 percent to employee
Health Reimbursement Arrangement (HRA)
SENATOR GIESSEL clarified the state does not deduct the cost of
HRA from the employee's paycheck; the employer contributes the
funds.
• HRA can be used for any qualifying medical need
• Keeps the plan solvent
SENATOR GIESSEL said that to keep the cost of this program down,
the state does not offer more generous medical coverage at
retirement.
SENATOR GIESSEL explained the intended use for the HRA. She
directed attention to slide 20, stating employees would use this
medical coverage if they were to retire before qualifying for
Medicare. Suppose a police officer or firefighter retires today
at age 50, they would be eligible for Medicare after 15 years.
The retiree could use the HRA to buy into a state health
insurance policy until then. The HRA accrues funds with the
annual three percent employer contribution. Medicare health
insurance takes over when an employee qualifies for it. She
noted that the bill does not refer to the qualifying age as 65
because Congress is thinking about raising the age.
2:18:45 PM
SENATOR GIESSEL reviewed slide 30, stating many public employees
are not enrolled in Social Security; consequently, they are not
eligible for a death and disability benefit. SB 88 proposes this
option:
DEATH & DISABILITY BENEFIT
PERS
• Non-occupational disability benefits are calculated
as normal retirement, death benefit is provided
• Occupational disability or death provides 40% of the
gross monthly compensation
• Added non-occupational benefits to provide minimal
protection to employees and families should they
have career ending injuries or disabilities occur
off the job
2:20:17 PM
SENATOR GIESSEL reviewed slide 31, stating SB 88 proposes the
same death and disability benefit for TRS employees with one
caveat:
- TRS benefits are calculated based on average base salary,
while
- PERS benefits are calculated based on gross monthly
compensation.
She explained this difference presents the committee with an
opportunity to make a policy decision defining "average base
salary." A teacher's base salary does not include
extracurricular duties, like coaching or supervising an after-
school club. Teachers often get compensated for these duties,
but the earnings are not included in their base salary. She
suggested one option is to pass an amendment inserting language
that defines the "average base salary" for TRS employees. The
committee could define it as gross monthly compensation or
whatever it deems appropriate.
2:21:39 PM
SENATOR GIESSEL advanced to slide 32 to explain what happens to
current employees hired after 2006 if the state enacts the new
defined benefit system proposed by SB 88:
What will happen to CURRENT employees
hired after 2006?
PERS & TRS
• Current PERS IV and TRS III members would have the
option to convert from their Defined Contribution
(DC) plan to the new Defined Benefit (DB) system by
November 1, 2024
SENATOR GIESSEL reminded the committee that 2006 was the year
the state moved to the defined contribution plan. DC plan
employees could choose whether to convert their retirement
savings to the new DB plan.
2:23:03 PM
SENATOR GIESSEL reviewed slide 33:
What will happen to NEW employees after
SB 88 effective date?
PERS & TRS
• New employees would automatically be enrolled in the
Defined Benefit (DB) system
SENATOR GIESSEL explained new employees would be automatically
enrolled in the new DB plan because the plan benefits everyone,
and a larger participation pool keeps the plan fully funded. She
acknowledged that the committee might want to consider a policy
decision that gives new hires the choice of enrolling in the DB
plan or the DC plan.
2:24:04 PM
SENATOR GIESSEL advanced to slide 34 and made concluding
remarks:
CONCLUSION
• Alaska's workforce challenges, recruiting and
retaining public workers are the primary motivation
driving this legislation.
• Pensions remain the best fiscal choice for the state
to meet these goals: recruitment and retention.
SENATOR GIESSEL said the state's challenges in recruiting and
retaining public workers are significant, not minimal.
Legislators see and hear about them from constituents every day.
These challenges include loss of public defenders, delayed food
stamp distribution, snow build-up on roads, and concern about
state trooper, police officer, and firefighter attrition rates.
Data from the Division of Retirement and Benefits indicates that
90 percent of individuals enrolled in the DC plan:
- do not have the expertise or time to manage their retirement
funds,
- their defined contribution plan earnings are falling way
behind, and
- they will be unable to support themselves in retirement.
The Division of Retirement and Benefits indicates that the
defined benefits plan saves state and local governments money
and costs less than the defined contribution plan.
SENATOR GIESSEL said the state's workforce challenges are
multifaceted. SB 88 offers one significant way to address the
recruitment and retention issue, and she expressed her belief
this would produce a substantial improvement, positively affect
the economy, and keep families in the state, making Alaska a
better place to live. More families mean a more diverse
population and a more secure workforce.
2:26:08 PM
SENATOR GIESSEL advanced to slide 35. The final slide reads:
Senate Bill 88
CHALLENGE
Alaska's Recruitment and Retention Crisis
CAUSE
Alaska withdrew from DB retirement program in 2005
SOLUTION
A retirement plan with reasonable costs and fair
benefits
Summary
Alaska has a strong interest in ensuring quality
public servants fill the ranks of our public service
agencies
SENATOR GIESSEL said she identified three places in the bill
where the committee might consider policy changes:
1. She drew attention to slide 15. SB 88 authorizes ARMB to
adjust the employer contribution from 22 percent to no lower
than 12 percent based on whether the plan is funded at 90
percent or higher. She advised this is a criterion the
committee might consider putting in statute.
2. Combining pension and healthcare funds would bring the
funding ratio higher than 90 percent for teachers and just
below 90 percent for public employees. Currently, statute
requires these funds to remain separate. Combining them would
require a statute change.
3. Including COLA in the bill.
2:27:31 PM
SENATOR GIESSEL mentioned a chart is available on BASIS that
identifies various benefits of the bill listed by category. [It
is titled SB 88 - Public Employee Defined Benefits Plan
Reinstatement Proposal Summary and Bill Section References
(3/10/23 Update) Version SB0088A - Work Draft 33-LS0505\B.] The
chart defines how SB 88 would affect public safety employees,
non-public safety employees, and teachers. It has a column that
describes the rationale for the policy choice, and it lists
which section and page to find specific policy language.
2:28:43 PM
SENATOR GRAY-JACKSON thanked Senator Giessel for taking the lead
on SB 88 and bringing it forward. She said she is honored to be
a cosponsor on the bill and hopes the committee will consider
the cost-of-living allowance.
2:29:30 PM
SENATOR DUNBAR asked about the statutory rationale for keeping
the healthcare and pension funds separate.
SENATOR GIESSEL replied that she could not speak to the
statutory history. She deferred the question to Sonja Kawasaki.
2:30:12 PM
SONJA KAWASAKI, Senate Majority Counsel, Alaska State
Legislature, Juneau, Alaska, replied that she does not know the
legislative history behind the separation. She said there is a
separate account for the pension system, the major medical
healthcare trust, and the health reimbursement account created
for the defined contribution plan. She said she could look into
the rationale for separating the healthcare and pension funds,
stating it would help to know that before combining the funds.
2:31:04 PM
SENATOR DUNBAR said he would appreciate that historical
perspective if the committee decides to amend the bill.
CHAIR DUNBAR referenced detailed actuarial information and
projections based on Senate Bill 55 [Chapter 9, SLA 21]
distributed along with the materials for SB 88. He asked about
the differences between SB 88 and Senate Bill 55 that might lead
to different actuarial projections.
2:32:14 PM
SENATOR GIESSEL answered that no actuarial assessments have been
done on this bill yet. Statute requires SB 88 to have an
actuarial assessment before it is considered on the floor. She
said one will be done after the Senate Finance Committee amends
it. Actuarial assessments are costly, so they get done after the
completion of the amendment process, and the bill is in its
final form. It is expected to be similar to the previous bill
that looked at just public safety.
2:33:11 PM
CHAIR BJORKMAN drew attention to slides 17 and 19 relating to
vesting and the cost differences between the defined
contribution and defined benefit plans. He sought confirmation
that the defined benefit plan would not be portable and asked if
the state is better off keeping the funds within the plan.
SENATOR GIESSEL sought clarification that he was contrasting
that to the defined contribution plan where employees can
withdraw their money after five years of service and move.
CHAIR BJORKMAN answered that is correct.
SENATOR GIESSEL replied yes, that is key. She said that even
without the dollars and cents retirement calculations, it
behooves the state on several levels to encourage long-term
employment to save on recruiting, retraining, and spending
hundreds of thousands of dollars replacing employees.
2:34:34 PM
CHAIR BJORKMAN sought confirmation that a larger pool of DB plan
participants reduces the overall cost to the state and increases
the benefit to retiring employees. He reiterated that the
proposed DB plan would also incentivize long-term service,
decreasing turnover and saving the state on recruiting and
training costs.
SENATOR GIESSEL answered absolutely. One hundred thousand
dollars is the minimum cost for training a firefighter.
Onboarding a new teacher costs $18,000; that hire is likely a
recent graduate. The Department of Law (DOL) has spoken about
the difficulty in recruiting attorneys, whether public defenders
or prosecutors. DOL is recruiting students right out of law
school who require supervision for at least two years before
they can manage complex cases independently. She said it is
zapping the system.
2:35:58 PM
At ease.
2:40:09 PM
CHAIR BJORKMAN reconvened the meeting and asked Ms. O'Connor to
put herself on the record and present the sectional analysis.
2:40:17 PM
JULIA O'CONNOR, Staff, Senator Cathy Giessel, Alaska State
Legislature, Juneau, Alaska, presented the sectional analysis
which is available on BASIS. She read the sectional analysis for
SB 88, version B, Sections 1 through 54.
2:59:14 PM
CHAIR BJORKMAN stated the committee has run out of time and will
resume the sectional analysis on March 15, 2023.
CHAIR BJORKMAN held SB 88 in committee.
3:00:02 PM
There being no further business to come before the committee,
Chair Bjorkman adjourned the Senate Labor and Commerce Standing
Committee meeting at 3:00 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SB 88 ver B.PDF |
SL&C 3/13/2023 1:30:00 PM SL&C 3/15/2023 1:30:00 PM SL&C 3/17/2023 1:30:00 PM SL&C 3/20/2023 1:30:00 PM SL&C 3/22/2023 1:30:00 PM |
SB 88 |
| SB 88 Sponsor Statement ver B.pdf |
SL&C 3/13/2023 1:30:00 PM SL&C 3/15/2023 1:30:00 PM SL&C 3/17/2023 1:30:00 PM SL&C 3/20/2023 1:30:00 PM SL&C 3/22/2023 1:30:00 PM |
SB 88 |
| SB 88 Sectional Analysis ver B 3.10.23.pdf |
SL&C 3/13/2023 1:30:00 PM SL&C 3/15/2023 1:30:00 PM SL&C 3/17/2023 1:30:00 PM SL&C 3/20/2023 1:30:00 PM SL&C 3/22/2023 1:30:00 PM |
SB 88 |
| SB 88 Presentation to SL&C 3.13.23.pdf |
SL&C 3/13/2023 1:30:00 PM SL&C 3/15/2023 1:30:00 PM SL&C 3/17/2023 1:30:00 PM SL&C 3/20/2023 1:30:00 PM SL&C 3/22/2023 1:30:00 PM |
SB 88 |
| SB 88 Letters of Opposition - Received as of 3.7.23.pdf |
SL&C 3/13/2023 1:30:00 PM SL&C 3/15/2023 1:30:00 PM SL&C 3/17/2023 1:30:00 PM SL&C 3/20/2023 1:30:00 PM SL&C 3/22/2023 1:30:00 PM |
SB 88 |
| SB 88 Letters of Support - Received as of 3.10.23.pdf |
SL&C 3/13/2023 1:30:00 PM SL&C 3/15/2023 1:30:00 PM SL&C 3/17/2023 1:30:00 PM SL&C 3/20/2023 1:30:00 PM SL&C 3/22/2023 1:30:00 PM |
SB 88 |
| SB 88 Repealed Sections ver B.pdf |
SL&C 3/13/2023 1:30:00 PM SL&C 3/15/2023 1:30:00 PM SL&C 3/17/2023 1:30:00 PM SL&C 3/20/2023 1:30:00 PM SL&C 3/22/2023 1:30:00 PM |
SB 88 |
| SB 88 Research AK Educator Turnover Infographic 3.10.23.pdf |
SL&C 3/13/2023 1:30:00 PM SL&C 3/15/2023 1:30:00 PM SL&C 3/17/2023 1:30:00 PM SL&C 3/20/2023 1:30:00 PM SL&C 3/22/2023 1:30:00 PM |
SB 88 |
| SB 88 Research 2017 ISER cost of teacher turnover 3.10.23.pdf |
SL&C 3/13/2023 1:30:00 PM SL&C 3/15/2023 1:30:00 PM SL&C 3/17/2023 1:30:00 PM SL&C 3/20/2023 1:30:00 PM SL&C 3/22/2023 1:30:00 PM |
SB 88 |
| SB 88 Research APFO Recruitment and Retention Report 3.10.23.pdf |
SL&C 3/13/2023 1:30:00 PM SL&C 3/15/2023 1:30:00 PM SL&C 3/17/2023 1:30:00 PM SL&C 3/20/2023 1:30:00 PM SL&C 3/22/2023 1:30:00 PM |
SB 88 |
| SB 88 Research DB v DC comparison DOA presentation to Sen Fin 3.10.23.pdf |
SL&C 3/13/2023 1:30:00 PM SL&C 3/15/2023 1:30:00 PM SL&C 3/17/2023 1:30:00 PM SL&C 3/20/2023 1:30:00 PM SL&C 3/22/2023 1:30:00 PM |
SB 88 |
| SB 88 Research DPS - Cost to Replace a State Trooper - 3.10.23.pdf |
SL&C 3/13/2023 1:30:00 PM SL&C 3/15/2023 1:30:00 PM SL&C 3/17/2023 1:30:00 PM SL&C 3/20/2023 1:30:00 PM SL&C 3/22/2023 1:30:00 PM |
SB 88 |
| SB 88 Research DPS Employee Engagement Survey Results 3.10.23.pdf |
SL&C 3/13/2023 1:30:00 PM SL&C 3/15/2023 1:30:00 PM SL&C 3/17/2023 1:30:00 PM SL&C 3/20/2023 1:30:00 PM SL&C 3/22/2023 1:30:00 PM |
SB 88 |
| SB 88 Research DPS Recruitment-Retention Plan Overview 3.10.23.pdf |
SL&C 3/13/2023 1:30:00 PM SL&C 3/15/2023 1:30:00 PM SL&C 3/17/2023 1:30:00 PM SL&C 3/20/2023 1:30:00 PM SL&C 3/22/2023 1:30:00 PM |
SB 88 |
| SB 88 Research FFD Cost of hiring from Scott Raygor Fire Chief Fairbanks 3.10.23.pdf |
SL&C 3/13/2023 1:30:00 PM SL&C 3/15/2023 1:30:00 PM SL&C 3/17/2023 1:30:00 PM SL&C 3/20/2023 1:30:00 PM SL&C 3/22/2023 1:30:00 PM |
SB 88 |
| SB 88 Research Legislative Finance Division Research Report on Retirement System 3.10.23.pdf |
SL&C 3/13/2023 1:30:00 PM SL&C 3/15/2023 1:30:00 PM SL&C 3/17/2023 1:30:00 PM SL&C 3/20/2023 1:30:00 PM SL&C 3/22/2023 1:30:00 PM |
SB 88 |
| SB 88 Research NIRS Teacher Retirement Plan Offerings March 2022 3.10.23.pdf |
SL&C 3/13/2023 1:30:00 PM SL&C 3/15/2023 1:30:00 PM SL&C 3/17/2023 1:30:00 PM SL&C 3/20/2023 1:30:00 PM SL&C 3/22/2023 1:30:00 PM |
SB 88 |
| SB 88 Research PERS Tier chart 3.10.23.pdf |
SL&C 3/13/2023 1:30:00 PM SL&C 3/15/2023 1:30:00 PM SL&C 3/17/2023 1:30:00 PM SL&C 3/20/2023 1:30:00 PM SL&C 3/22/2023 1:30:00 PM |
SB 88 |
| SB 88 Research Returning Alaska State Employees to Social Security 3.10.23.pdf |
SL&C 3/13/2023 1:30:00 PM SL&C 3/15/2023 1:30:00 PM SL&C 3/17/2023 1:30:00 PM SL&C 3/20/2023 1:30:00 PM SL&C 3/22/2023 1:30:00 PM |
SB 88 |
| SB 88 Research Risk Sharing in Public Retirement Plans NASRA 3.10.23.pdf |
SL&C 3/13/2023 1:30:00 PM SL&C 3/15/2023 1:30:00 PM SL&C 3/17/2023 1:30:00 PM SL&C 3/20/2023 1:30:00 PM SL&C 3/22/2023 1:30:00 PM |
SB 88 |
| SB 88 Research TRS Tier chart 3.10.23.pdf |
SL&C 3/13/2023 1:30:00 PM SL&C 3/15/2023 1:30:00 PM SL&C 3/17/2023 1:30:00 PM SL&C 3/20/2023 1:30:00 PM SL&C 3/22/2023 1:30:00 PM |
SB 88 |
| SB 88 Summary Table Version B 3.10.23.pdf |
SL&C 3/13/2023 1:30:00 PM SL&C 3/15/2023 1:30:00 PM SL&C 3/17/2023 1:30:00 PM SL&C 3/20/2023 1:30:00 PM SL&C 3/22/2023 1:30:00 PM |
SB 88 |
| SB 88 News Articles 3.10.23.pdf |
SL&C 3/13/2023 1:30:00 PM SL&C 3/15/2023 1:30:00 PM SL&C 3/17/2023 1:30:00 PM SL&C 3/20/2023 1:30:00 PM SL&C 3/22/2023 1:30:00 PM |
SB 88 |
| SB 88 Research Alaska Public Pension Coalition White Paper 2010 3.10.23.pdf |
SL&C 3/13/2023 1:30:00 PM SL&C 3/15/2023 1:30:00 PM SL&C 3/17/2023 1:30:00 PM SL&C 3/20/2023 1:30:00 PM SL&C 3/22/2023 1:30:00 PM |
SB 88 |
| SB 88 Fiscal Note-DOA-DRB-03.03.23.pdf |
SL&C 3/13/2023 1:30:00 PM SL&C 3/15/2023 1:30:00 PM SL&C 3/17/2023 1:30:00 PM SL&C 3/20/2023 1:30:00 PM SL&C 3/22/2023 1:30:00 PM |
SB 88 |
| SB 88 REVISED_ Presentation to SL&C 3.13.23.pdf |
SL&C 3/13/2023 1:30:00 PM SL&C 3/15/2023 1:30:00 PM SL&C 3/17/2023 1:30:00 PM SL&C 3/20/2023 1:30:00 PM SL&C 3/22/2023 1:30:00 PM |
SB 88 |
| SB 88 Research Dept of Law Recruitment and Retention.pdf |
SL&C 3/13/2023 1:30:00 PM SL&C 3/15/2023 1:30:00 PM SL&C 3/17/2023 1:30:00 PM SL&C 3/20/2023 1:30:00 PM SL&C 3/22/2023 1:30:00 PM |
SB 88 |
| SB 88 Research (pg 5) Defined Benefit Total Funded Status DOA to SFIN 2.14.23.pdf |
SL&C 3/13/2023 1:30:00 PM SL&C 3/15/2023 1:30:00 PM SL&C 3/17/2023 1:30:00 PM SL&C 3/20/2023 1:30:00 PM SL&C 3/22/2023 1:30:00 PM |
SB 88 |
| SB 88 Research OCS Staff Departure 2.23.23.pdf |
SL&C 3/13/2023 1:30:00 PM SL&C 3/15/2023 1:30:00 PM SL&C 3/17/2023 1:30:00 PM SL&C 3/20/2023 1:30:00 PM SL&C 3/22/2023 1:30:00 PM |
SB 88 |
| SB 88 REVISED_Summary Table Ver B 3.12.23.pdf |
SL&C 3/13/2023 1:30:00 PM SL&C 3/15/2023 1:30:00 PM SL&C 3/17/2023 1:30:00 PM SL&C 3/20/2023 1:30:00 PM SL&C 3/22/2023 1:30:00 PM |
SB 88 |
| SB 88 Research Actuarial Report from HB 55 (plus all other public employees) 01.18.21.pdf |
SL&C 3/13/2023 1:30:00 PM SL&C 3/15/2023 1:30:00 PM SL&C 3/17/2023 1:30:00 PM SL&C 3/20/2023 1:30:00 PM SL&C 3/22/2023 1:30:00 PM |
HB 55 SB 88 |