Legislature(2023 - 2024)BUTROVICH 205
04/26/2023 03:30 PM Senate LABOR & COMMERCE
Note: the audio ![]()
and video ![]()
recordings are distinct records and are obtained from different sources. As such there may be key differences between the two. The audio recordings are captured by our records offices as the official record of the meeting and will have more accurate timestamps. Use the icons to switch between them.
| Audio | Topic |
|---|---|
| Start | |
| SB94 | |
| SB88 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 94 | TELECONFERENCED | |
| += | SB 88 | TELECONFERENCED | |
| += | SB 123 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
ALASKA STATE LEGISLATURE
SENATE LABOR AND COMMERCE STANDING COMMITTEE
April 26, 2023
3:32 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. 94
"An Act relating to the Board of Pharmacy; relating to the
practice of pharmacy; relating to pharmacies; relating to
prescription drug manufacturers; relating to prescriptions for
epinephrine; relating to the administration of epinephrine; and
providing for an effective date."
- MOVED CSSB 94(L&C) OUT OF COMMITTEE
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
SENATE BILL NO. 123
"An Act relating to commercial motor vehicle drivers' license
requirements; and providing for an effective date."
- BILL HEARING CANCELED
PREVIOUS COMMITTEE ACTION
BILL: SB 94
SHORT TITLE: PROFESSION OF PHARMACY
SPONSOR(s): SENATOR(s) GIESSEL BY REQUEST
03/08/23 (S) READ THE FIRST TIME - REFERRALS
03/08/23 (S) L&C, FIN
04/03/23 (S) L&C AT 1:30 PM BELTZ 105 (TSBldg)
04/03/23 (S) Heard & Held
04/03/23 (S) MINUTE(L&C)
04/12/23 (S) L&C AT 1:30 PM BELTZ 105 (TSBldg)
04/12/23 (S) Scheduled but Not Heard
04/17/23 (S) L&C AT 1:30 PM BELTZ 105 (TSBldg)
04/17/23 (S) Heard & Held
04/17/23 (S) MINUTE(L&C)
04/24/23 (S) L&C AT 1:30 PM BELTZ 105 (TSBldg)
04/24/23 (S) Heard & Held
04/24/23 (S) MINUTE(L&C)
04/26/23 (S) L&C AT 3:30 PM BUTROVICH 205
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)
03/13/23 (S) Heard & Held
03/13/23 (S) MINUTE(L&C)
03/15/23 (S) L&C AT 1:30 PM BELTZ 105 (TSBldg)
03/15/23 (S) Heard & Held
03/15/23 (S) MINUTE(L&C)
03/17/23 (S) L&C AT 1:30 PM BELTZ 105 (TSBldg)
03/17/23 (S) Heard & Held
03/17/23 (S) MINUTE(L&C)
03/20/23 (S) L&C AT 1:30 PM BELTZ 105 (TSBldg)
03/20/23 (S) Heard & Held
03/20/23 (S) MINUTE(L&C)
03/22/23 (S) L&C AT 1:30 PM BELTZ 105 (TSBldg)
03/22/23 (S) Heard & Held
03/22/23 (S) MINUTE(L&C)
03/29/23 (S) L&C AT 1:30 PM BELTZ 105 (TSBldg)
03/29/23 (S) Heard & Held
03/29/23 (S) MINUTE(L&C)
04/26/23 (S) L&C AT 3:30 PM BUTROVICH 205
WITNESS REGISTER
KONRAD JACKSON, Staff
Senator Jesse Bjorkman
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Presented the explanation of changes in the
CS for SB 88, work order 33-LS0505\R.
RYAN FROST, Senior Policy Analyst
Pension Integrity Project
Reason Foundation
Salem, Oregon
POSITION STATEMENT: Presented an analysis of SB 88.
DAN DOONAN, Executive Director
National Institute on Retirement Security (NIRS)
Washington, D.C.
POSITION STATEMENT: Presented a slideshow titled Alaska Teacher
Recruitment and Retention Study: Options and Analysis Supporting
Retirement Design and answered questions on SB 88.
ACTION NARRATIVE
3:32:10 PM
CHAIR JESSE BJORKMAN called the Senate Labor and Commerce
Standing Committee meeting to order at 3:32 p.m. Present at the
call to order were Senators Gray-Jackson, Bishop, Dunbar,
Merrick, and Chair Bjorkman.
SB 94-PROFESSION OF PHARMACY
3:32:55 PM
CHAIR BJORKMAN announced the consideration of SENATE BILL NO. 94
"An Act relating to the Board of Pharmacy; relating to the
practice of pharmacy; relating to pharmacies; relating to
prescription drug manufacturers; relating to prescriptions for
epinephrine; relating to the administration of epinephrine; and
providing for an effective date."
He stated that this is the fourth hearing of the bill in this
committee, and Amendment 1 is pending adoption from the previous
hearing. He removed his objection to Amendment 1. He found no
further objection and Amendment 1 was adopted.
3:34:05 PM
CHAIR BJORKMAN solicited the will of the committee.
3:34:13 PM
SENATOR BISHOP moved to report SB 94, work order 33-LS0294\U, as
amended, from committee with individual recommendations and
attached fiscal note(s).
3:34:28 PM
At ease.
CHAIR BJORKMAN reconvened the meeting and asked Senator Bishop
to make a technical correction to the previous motion.
3:35:26 PM
SENATOR BISHOP rescinded the previous motion.
3:35:31 PM
SENATOR BISHOP moved to report SB 94, work order 33-LS0293\U, as
amended, from committee with individual recommendations and
attached fiscal note(s).
CHAIR BJORKMAN found no objection and CSSB 94(L&C) was reported
from the Senate Labor and Commerce Standing Committee.
3:35:59 PM
At ease.
SB 88-RETIREMENT SYSTEMS; DEFINED BENEFIT OPT.
3:37:57 PM
CHAIR BJORKMAN reconvened the meeting and 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."
He stated that this is the seventh hearing of the bill in this
committee and there is a committee substitute (CS) for the
committee to consider.
3:38:21 PM
CHAIR BISHOP moved to adopt the committee substitute (CS) for SB
88, work order 33-LS0505\R, as the working document.
CHAIR BJORKMAN objected for purposes of discussion.
3:39:02 PM
KONRAD JACKSON, Staff, Senator Jesse Bjorkman, Alaska State
Legislature, Juneau, Alaska, advised that the following acronyms
will be used in the discussion on this bill:
- DB Defined Benefits
- DC Defined Contribution
- TRS Teacher Retirement System
- PERS Public Employees Retirement System
- HRA Health Reimbursement Arrangement
MR. JACKSON presented the explanation of changes from version B
to version R in the CS for SB 88:
[Original punctuation provided.]
Explanation of Changes
SENATE CS for Senate Bill 88
Version 33-LS0505/B to 33-LS0505/R
The Committee Substitute adopts the following changes:
Section 1, page 1, lines 9-11:
Adds language to clarify the applicability is for
teachers eligible for the proposed Defined Benefit
(DB) plan and not just for those teachers who are
currently members in the Teacher Retirement System
(TRS).
Section 2, page 2, lines 5-13:
Strikes and adds language to clarify eligible
teachers may continue in the Defined Contribution
(DC) Retirement Plan and choose to not participate
in the proposed Defined Benefit Retirement Plan.
Section 3, adds a new section, page 2, line 14 to page
3, line 19:
Codifies the procedure TRS DB members who are also
members of a PERS DB can elect to have their PERS
earnings included in their TRS base salary to
potentially count toward their pension benefit
calculation.
Section 4, adds a new section, page 3, line 20 to page
6, line 11:
Codifies the procedure for rehired teachers
currently enrolled in the DC Plan to elect the
proposed DB Plan.
Section 8, page 7, line 28 to page 8, line 8:
Amending Subsection (e) increases the range of the
employee contribution rate from 8-10% to 8-12%.
Adds Subsection (g) adds that the when the funding
ratio of the proposed plan falls below 90%, the
Alaska Retirement Management (ARM) Board may
increase the employee's contribution rate to address
the past service liability attributable to the
proposed plan. Subsection (g) further stipulates
that the ARM Board may not increase the employee
contribution rate by more than is needed to address
50% of the gap between the funding level at that
point in time, and the 90% or greater threshold.
3:42:54 PM
MR. JACKSON continued presenting the explanation of changes:
[Original punctuation provided.]
Section 9, page 8, lines 9-23
Deletes the added subsection (a) language.
Adds subsection (b) which directs that the employer
contributions must be deposited into the retirement
fund and the Alaska retiree health care trust at the
end of each pay period. The late fee for delinquent
employer contributions has been reduced from one and
one-half times to the actuarial rate of earnings.
Section 10, page 8, line 24 to page 9, line 7:
Stipulates that the employer contribution rate may
be adjusted between 12-12.56% and is determined by
the ARM Board based on the full actuarially
determined cost of the new TRS system.
Section 11, page 9, lines 8-11:
Adds a new section to allow the legislature to
appropriate funds to decrease the employer
contribution rate.
Sections 12, 13, and 14 pages 9-10:
Conforms with the CS changes.
Section 15, page 10, lines 22-28:
Adds a new section to direct the employer
contributions on behalf of members of the proposed
Defined Benefit plan must be deposited into a new
sub-trust of the retirement plan, (other than those
needed for Health Reimbursement Arrangement, medical
insurance, the Defined Contribution (DC) plan and
past service cost.)
Section 16, page 10, line 29 to page 11, line 9:
Amends language to clarify that the contributions
for medical benefits must be accounted for
separately and deposited into the health care trust.
Section 17, page 12, lines 4-9:
Adds a new subsection (a)(2) explaining the
qualifications for retirement for those hired after
June 30, 2006.
3:45:24 PM
MR. JACKSON continued presenting the explanation of changes:
[Original punctuation provided.]
Section 18, page 12, lines 10-14:
Adds a new subsection (b) noting the requirements
for early retirement.
Version B's sections 17 and 18 have been removed to
align the TRS disability benefits in the proposed DB
Plan with the benefit in TRS Tier II.
Section 19, page 12, line 27 to page 13, line 5:
Changes TRS benefit calculation criteria from the
members highest five consecutive years to highest
five years of membership service.
Version B's sections 22, 24 thru 33, and 35 have been
removed to align the TRS death and duplicate benefits
in the proposed DB Plan with the benefit in TRS Tier
II.
Section 23, page 14, lines 1-12
Adds a new subsection (g) that reduces the Post
Retirement Pension Adjustment (PRPA) by half for
plan beneficiaries who are not Alaska Residents.
Provides that residency is determined using
Permanent Fund Dividend eligibility requirements
that are currently in law.
Conforming changes to subsection (h).
Section 25, page 15, lines 13-17:
Adds language to carry over the eligibility
requirement for medical benefits under the DC plan
and inserts it into the DB section of statute.
Section 27, page 18, lines 25 to page 19, lines 4:
Adds a section aligning the definitions of "base
salary" and "compensation" to include a teacher's
main contract along with any contract addenda.
Section 29, page 19, lines 20-24:
Deletes the definitions of "non-occupational
disability" and "occupational disability."
Adds the definition of "first became a member after
June 30, 2006."
3:48:06 PM
MR. JACKSON continued presenting the explanation of changes:
[Original punctuation provided.]
Section 30, page 19, lines 25-31, and page 20, lines
1-7:
Amends language to reflect that applicability of the
DC Plan includes those eligible for the proposed DB
Plan but who choose not to elect.
Section 32, page 20, lines 11-16:
Amends language to conform.
Version B's section 43 has been deleted to conform
with the CS changes.
Section 37, page 23, line 26 to page 24, line 14:
Adds two new subsections:
Subsection (17) directs the ARM board to establish
sub-trusts of the pension fund for the proposed DB
plans.
Subsection (18) directs the ARM board to account and
track the employer contributions, employee
contributions, and the earnings in these sub-trusts.
Version B's section 51 has been deleted to conform
with the CS changes.
3:49:31 PM
MR. JACKSON highlighted a correction on page 3 to the
explanation of changes, correcting a typo that read "page 27",
that should read "page 28", before continuing the explanation of
changes:
[Original punctuation provided.]
Section 41, page 27, line 15 to page 20, line 7:
Amends language to establish the Health
Reimbursement Arrangements for members of the
proposed DB plan.
Section 50, page 29, line 30 to page 30 line 7:
Amends the definition of "employer."
Section 51, page 30 lines 8-14:
Amends the definition of "member."
Section 52, page 30, lines 15-25:
Conforms applicability of the current DB plan with
the CS changes.
Section 53, page 30, line 26 to page 31 line 8:
Adds new subsections to provide specific
circumstances under which a rehired employee can
come back into the DC Plan after this bill's
effective date.
Section 54, page 31, lines 9-18:
Amends language to conform with the CS changes.
Section 55, page 31, line 19 to page 34, line 11:
Adds new section to codify the procedure for rehired
public employees currently enrolled in the DC Plan
to elect participation in the proposed DB Plan.
Section 57, page 34, line 26 to page 35, line 21:
Amends subsection (e) increases the range of
employee contribution rate from 8-10% to 8-12% for
all PERS members.
Subsection (g) adds that the when the funding ratio
of the proposed plan falls below 90%, the ARM Board
may increase the employee's contribution rate to
address the past service liability attributable to
the proposed plan. Subsection (g) further stipulates
that the ARM Board may not increase the employee
contribution rate by more than is needed to address
50% of the gap between the funding level at that
point in time, and the 90% or greater threshold.
3:52:17 PM
MR. JACKSON continued presenting the explanation of changes:
[Original punctuation provided.]
Section 58-61, page 35, line 22 to page 37, line 4:
Specifies how rehired public employees may purchase
credited service under the proposed Defined Benefit
plan.
Section 62, page 37, lines 5-27:
This section is amended to say that the employer
contribution rate is established by the full
actuarially determined contribution rate and is
variable being no less than 12% and no greater than
22%.
Section 63, page 37, lines 28-31:
Adds a new section to allow the legislature to
appropriate funds to decrease the employer
contribution rate.
Section 64, page 38, lines 1-7:
Amends language to specify which funds must be put
in the proposed plan sub-trusts.
Section 65, page 38, lines 8-19:
Amends the language to clarify that the
contributions for medical benefits must be
accounted for separately and deposited into the health
care trust.
Section 66, page 38, lines 20-28:
Conforming change adopting military service credit
language from the prior PRS DB system.
Section 66-67, page 38, lines 20 to page 39, line 6:
Conforming changes to make members of the proposed
plan eligible for past service credit options
available in the DB sections of statute.
Section 71, page 40, lines 10-21:
Adds a new subsection (g) that reduces the Post
Retirement Pension Adjustment (PRPA) by half for
plan beneficiaries who are not Alaska Residents.
States residency is determined using Permanent Fund
Dividend eligibility requirements.
Section 76, page 42, line 21 to page 43, line 7:
Amends and adds language to carry over the
eligibility requirement for medical benefits under
the PERS DC plan and inserts it into the PERS DB
section of statute.
3:55:14 PM
MR. JACKSON continued presenting the explanation of changes:
[Original punctuation provided.]
Section 77, page 45, lines 21-28:
Adds subsection which directs that the employer
contributions must be deposited into the retirement
fund and the Alaska retiree health care trust at the
end of each pay period. The late fee for delinquent
employer contributions has been reduced from 150% to
100% of the actuarial rate of earnings.
Section 79, page 46, lines 20-29:
Amends the definition of "employer."
Section 80, page 46, line 30 to page 47, line 3:
Adds the definition of "first became a member after
June 30, 2006."
Section 81, page 47, lines 4-16:
Amends language to reflect that applicability for
the PERS DC Plan to include those eligible for the
proposed PERS DB Plan but who choose not to elect.
Version B's section 85 has been deleted to conform
with the CS changes.
Version B's uncodified section 97 has been partially
deleted as the procedures for a DC member choosing to
elect the proposed DB plan are now codified. The
uncodified implementation of this Act is still in
effect in Version R's section 90.
3:57:26 PM
SENATOR BISHOP drew attention to the explanation of changes page
2, Section 9, page 8, lines 9 - 23 and sought clarification of
subsection (b).
MR. JACKSON reread the section, explaining that the CS reduces
the late fee penalty for delinquent employer contributions from
1.5 times to 100 percent of the actual actuarial rate.
3:59:08 PM
CHAIR BJORKMAN advised that he invited two people to talk about
the implications of SB 88 and the general state of retirement
and benefits for the State of Alaska.
CHAIR BJORKMAN invited Ryan Frost with the Reason Foundation to
speak on this legislation.
4:00:43 PM
At ease.
4:03:11 PM
CHAIR BJORKMAN reconvened the meeting.
4:03:27 PM
RYAN FROST, Senior Policy Analyst, Pension Integrity Project,
Reason Foundation, Salem, Oregon, provided an analysis of SB 88.
MR. FROST spoke to points on slide 1, "About the Pension
Integrity Project":
[Original punctuation provided.]
About the Pension Integrity Project
We offer pro-bono technical assistance to public
officials to help them design and implement pension
reforms that improve plan solvency and promote
retirement security, including:
Customized analysis of pension system design, trends
Independent actuarial modeling of reform scenarios
Consultation and modeling around custom policy
designs
Latest pension reform research and case studies
Peer-to-peer mentoring from state and local
officials who have successfully enacted pension
reforms
Assistance with stakeholder outreach, engagement,
and relationship management
Design and execution of public education programs
and media campaigns
He clarified that his team is not anti-defined benefit and
most of the reforms they have worked on included opening
defined benefit plans for new hires. He said it is usually
up to the legislators and stakeholders to decide what they
want and then the Pension Integrity Project team serves as
empires guiding them.
4:05:18 PM
MR. FROST spoke to points on slide 2, "Policy Objectives."
[Original punctuation provided.]
Policy Objectives
Keeping Promises: Ensure the ability to pay 100% of
the benefits earned and accrued by active workers
and retirees
Retirement Security: Provide retirement security for
all current and future employees
Predictability: Stabilize contribution rates for the
long-term
Risk Reduction: Reduce pension system exposure to
financial risk and market volatility
Affordability: Reduce long-term costs for
employers/taxpayers and employees
Attractive Benefits: Ensure the ability to recruit
21st Century employees
Good Governance: Adopt best practices for board
organization, investment management, and financial
reporting
4:06:22 PM
MR. FROST spoke to points on slide 3, "Brief History of Alaska's
Retirement System":
[Original punctuation provided.]
Brief History of Alaska's Retirement Systems
1940s: TRS established
1960s: PERS established
Early 2000s: significant growth in unfunded
liabilities
2006: pensions closed to new hires, offering instead
the defined contribution (DCR) plan
2006-today: frequent efforts to bring back the
defined benefit (DB) pension plan
2022: DB reforms (HB 55 & HB 220) pass in the House,
not the Senate
Pension Integrity Project Analysis indicates that
if the 2022 bills had passed, the state would
have developed new pension debt after -4.08%
returns in year one:
o $33 million for public safety (HB 55)
o $254 million for PERS & TRS combined (HB 220)
4:07:40 PM
MR. FROST advanced to slide 4, "Challenges Facing PERS & TRS."
and slide 5, "A History of PERS Funding (2001-2022)," explaining
that the slide showed a chart tracking the growth and unfunded
liabilities for PERS from in that time period. He said that TERS
is underfunded. Between 2013 and 2015, the legislature
appropriated approximately $2 billion into the TERS fund to
encourage investment returns.
4:08:51 PM
SENATOR MERRICK clarified that House Bill 220 did not pass the
House in last year's legislature; it died in the House Rules
Committee.
4:09:19 PM
MR. FROST continued with the presentation, speaking to points on
slide 8, "PERS Investment Return History, 2001-2022." He
explained that Alaska's average for the last 20 years of average
market valued returns is 6.8 percent; the last 15 years it was
5.4 percent, and over the last 10 years it was much improved at
8.6 percent due to a 30 percent return in 2021 that boosted many
statewide pension systems. He briefly spoke to the charts on
slide 6, "A History of TRS Funding (2001-2022)," and slide 7,
"PERS Liabilities are Growing Faster than Assets."
4:10:10 PM
MR. FROST advanced to slide 9, "Probability Analysis: Measuring
the Likelihood of Alaska Plans Achieving Various Rates of
Return," explaining that the foundation ran a Monte Carlo
analysis on the PERS and TRS asset allocations. Based on the
PERS and TRS assumptions as aligned with possible rates of
return there is a 50/50 chance of hitting the projected market
forecast. Looking at the short-term market forecast, over the
next 15 years the expected earnings are 5-6 percent, but if over
the next 15 years the returns are far below what is projected,
it would add a lot of unexpected costs to the plan.
4:11:28 PM
MR. FROST advanced to slide 11, "SB 88 Concerns." He commented
that the concerns are generally design elements that can be
tweaked to align with defined benefit plan reforms that they or
other states have been honing.
4:11:42 PM
MR. FROST spoke to points on slide 12, "Problem #1: Poor Plan
Design":
[Original punctuation provided.]
Problem 1: Poor Plan Design
Plan assumptions are an outlier among other defined
benefit plans.
o Starting a new pension tier at a 7.25% assumed
rate of return is the biggest issue in this
bill.
Closes the DC plan to all new hires
o DC plans are vastly more beneficial for
shorter-term workers.
o Average new employee holds 7-8 jobs over the
course of their career.
Capped employee contribution rates.
o Employees: 8%-12%
o Employers: 12% + all unfunded liabilities
o Increases to employee rates are at discretion
of board instead of automatic.
The small changes made by bill proponents do not,
practically speaking, take any of the real risk off
the table.
o Cost sharing, discount rates, longevity are
where the needle moves for taking down risk.
4:14:28 PM
CHAIR BJORKMAN asked whether he assumed the contribution rates
would remain static when he costed out the plan.
MR. FROST replied that two methods were used. The first cost
achieved under the assumption of all factors being at status
quo, at 8 percent in which case everything went great. The
second was a poor return scenario in which the employees would
then pay the full 12 percent.
CHAIR BJORKMAN sought confirmation that as the plan needs more
funding, it is designed to split costs using the Actuarially
Determined Employer Contribution (ADEC) model that is preferred
by Mr. Frost's organization.
MR. FROST confirmed that was true, as it is a simpler model,
though not as common currently.
CHAIR BJORKMAN clarified that the employer contribution amount
at 22 percent was chosen as a settlement for employers and local
municipalities to pay off past service costs of the legacy
tiers.
4:16:37 PM
MR. FROST continued his review of slide 12. He said that the
organization recommendation is to set the rate of return at what
the projected earnings are. He stated that if a company allows
people to retire early there is a longevity risk, which will
increase pension payments.
4:19:02 PM
MR. FROST spoke to points on slide 13, "Problem 2: Minimal
Actuarial Scrutiny":
[Original punctuation provided.]
Problem 2: Minimal Actuarial Scrutiny
There is no publicly available long-term actuarial
forecasting or stress testing performed by the
PERS/TRS actuaries.
Supporters claim that "tweaks to the new pension
would eliminate financial risk to the state" but
those claims have faced minimal actuarial scrutiny
to support them.
What happens to costs and unfunded liabilities if
plan experience differs from expectations?
The proposed reforms would commit Alaska and its
government employees to unpredictable long-term
costs. It is crucial to consider the costs over
decades, not just a few years.
Recognizing the need for a long-term perspective on
funding and costs, we prepared modeling of the
proposed reforms.
4:20:54 PM
MR. FROST spoke to points on slide 14, "Problem 3: Pension Cost
Increases Already Coming":
[Original punctuation provided.]
Problem 3: Pension Cost Increases Already Coming
The bills propose the use of a 7.25% assumed rate of
return, discount rate, and DC annuitization rate.
They also propose the ability to transfer all
employee assets from the DC plan into the new DB
plan to purchase service credit.
The legacy pension tier also still uses a 7.25%
rate.
National average is now 6.93% and dropping quickly.
Survey of largest public pension systems shows they
expect to earn around 5.5-6% over the next 10-15
years.
When Alaska PERS and TRS lowers their investment
return assumptions, costs will go up dramatically
for both legacy and new tiers.
4:22:01 PM
MR. FROST spoke to points on slide 15, "Problem 4: Pension Swap
Unlikely to Solve Retention Issues":
[Original punctuation provided.]
Problem 4: Pension Swap Unlikely to Solve Retention
Issues
Policymakers are concerned with recruitment and
retention challenges.
Proponents claim they are having trouble recruiting
and retaining members due to the lack of a defined
benefit pension for their members.
Across the country, median state employee tenure is
6.3 years.
o Most state employees have access to a defined
benefit plan.
86% of police stations across the country are facing
a shortage of members.
o Every one of those stations, outside of Alaska,
has a pension with some defined benefit
component.
We have an academic working paper that shows
retention rates for teachers did not change when
Alaska swapped from a DB to DC in 2005.
o Alaska Legislative Finance Division presented
to Senate Finance in March and showed similar
results for state employees.
4:23:31 PM
MR. FROST spoke to points on slide 18, "Long-term Cost Impact of
SB 88." He said if SB 88 does not pass the state can expect to
pay about $17.7 billion and if the next 20 years of returns
match the last 20 years, then they can expect to pay $5.1
billion more.
4:23:58 PM
MR. FROST advanced to slide 20, "DB vs DC: Who Does it Benefit?"
to show some benefit modeling to the committee.
4:24:16 PM
SENATOR DUNBAR referred to slides 20-22 in which defined
contribution and defined benefit plans are compared. He referred
to Mr. Frost's comment that 7.25 percent was an unrealistic rate
of return. He stated that individual employees tend to
underperform, and asked why he used a 7.25 percent rate of
return. He mentioned that Mr. Frost assumed entry dates to new
workplaces are around 30 years of age but the average starting
age for employees is 46. He asked how that changes the modeling.
MR. FROST replied that the foundation was doing a comparison to
the benefit modeling done by the Division of Retirement and
Benefits (DRB), so they used exact same outline. He agreed with
Senator Dunbar that 7.25 percent is an unrealistic rate of
return.
4:26:27 PM
SENATOR BISHOP requested a copy of the academic working paper
that shows retention rates.
MR. FROST replied that he can.
SENATOR BISHOP sought confirmation that his number one issue
with the plan is the multiplier, the 7.25 percent figure.
MR. FROST responded that the issue is not the multiplier, but
the assumed rate of return, 7.25 percent figure.
SENATOR BISHOP sought confirmation that was his biggest
complaint with the whole bill.
MR. FROST replied yes. That is the largest cost driver.
SENATOR BISHOP expressed his belief that the permanent fund rate
of return is forecast at 7.02 percent for 10 years.
4:27:24 PM
CHAIR BJORKMAN brought up a previous question about the 8 to 12
percent range for contribution rate adjustability. He asked if
those numbers were reflected on slide 18.
MR. FROST replied yes. The employer's contribution does not
increase much. The employee pays 12 instead of 8 percent. If the
employee contributed 8 percent, the employer contribution would
be about $3.5 billion more. He said the employer contribution is
reduced $3.5 billion if the employee contributes 4 percent more;
meaning, the state will contribute $5.1 instead of $8.6 billion.
CHAIR BJORKMAN indicated that $8.6 billion is not on the slide.
4:28:38 PM
MR. FROST said the number was removed from the slide. A previous
version of the presentation assumed the employee rate would stay
at 8 percent and employer contribution increased to $39.8
billion. He said essentially the employee rate increase by 4
percent saves the employer $3.5 billion.
CHAIR BJORKMAN asked factors which determine that stress.
MR. FROST replied negative 10. He said taking into consideration
the ups and downs of projected recessions, the long-term figure
is averaged out at a 6 percent return.
4:30:27 PM
SENATOR GRAY-JACKSON said his working paper shows that retention
rates did not change from the DB to the DC plan. She asked
whether he has a working paper that shows the retention rate of
public safety officers when moving from a DB to a DC plan.
MR. FROST answered that he believes the Legislative Finance
Division has that data.
4:32:03 PM
CHAIR BJORKMAN invited Mr. Doonan with the National Institute on
Retirement Security to put himself on the record and speak to SB
88 and the proposed CS.
4:32:39 PM
DAN DOONAN, Executive Director, National Institute on Retirement
Security (NIRS), presented the slideshow titled "Alaska Teacher
Recruitment and Retention Study: Options and Analysis Supporting
Retirement Design" and answered questions on SB 88. He
emphasized that this bill is not just a black and white take on
choosing a DB or a DC plan, but that there are more complex
factors and layers to consider when making policy decisions.
He advanced to slide 1, "First: A Workforce Observation." He was
hoping to share a subset of the paper to share risk taking
mechanisms, and what other states have done.
4:34:33 PM
MR. DOONAN advanced to slide 2, "Most Leaving the DC Plans Are
Quitting; DB Plans See Mostly Retirements." He said that most
people leaving the DC plans are quitting. On the other side,
most people leaving the DB plans are transitioning into
retirement. The point of this slide is to point out that if
employers want to improve retention, the focus must be on DC
employees.
4:36:38 PM
MR. DOONAN advanced to slide 3, "Strategies to Produce Stable
Costs and Risk-Sharing Observations."
MR. DOONAN spoke to the chart on slide 4, "Cost Stability
Strategies and Observations on Other States" He discussed
success rates in Wisconsin, South Dakota, Indiana, and Tennessee
that employ strategies to produce stable costs.
4:39:29 PM
MR. DOONAN spoke to the chart on slide 5, "Effectiveness of
Risk-Sharing Provisions Changes as a Plan Matures." He explained
that the slide shows a conceptual chart that is meant to
illustrate a supply and demand curve. He discussed two common
types of risk-sharing policies.
4:42:32 PM
MR. DOONAN spoke to points on slide 6, "Conditional PRPAs Have
Greater Impact in More Mature Plans." He used a sample to show
how Post Retirement Pension Adjustments (PRPAs) work. In the
case of a Great Recession or a similar event, three PRPAs are
skipped. The new tier is not seriously affected, but skipping
those PRPAs are effective on the retiree-heavy tier, because a
quarter of unfunded liabilities are eliminated.
4:43:34 PM
MR. DOONAN spoke to the chart on slide 7, "Assuming a Larger
Conditional PRPA Has a Greater Impact on Risk-Sharing." He said
another thing to think about is if the plan assumes a 3 percent
increase each year, then a third of the benefit is not
guaranteed. Reducing the cost-of-living-adjustment COLA reduces
the mechanism of risk-sharing itself.
4:44:45 PM
MR. DOONAN spoke to points on slide 8, "Key Takeaways on Risk-
Sharing":
[Original punctuation provided.]
Key Takeaways on Risk-Sharing
Risk-sharing generally becomes more important as a
tier matures.
Risk-sharing through conditional PRPAs grows more
effective as as a tier matures. Cost-sharing grows
less effective.
The inflation adjustment assumption is important,
with a higher assumption meaning stronger risk-
sharing.
Conditional PRPAs must be pre-funded (or assumed to
be provided) for risk-sharing to work.
The bill before you will align stakeholder
interests. Workers, retirees, and state employees
have an incentive to keep the plan on track.
4:45:45 PM
MR. DOONAN advanced to slide 9, "IN, SD & WI Have Kept
Contribution Rates Stable Over Past Two Decades."
4:47:54 PM
SENATOR BISHOP thanked the presenter.
4:48:26 PM
SENATOR DUNBAR commented that turnover - particularly in the
case of teachers - but in general is one of the reasons to
consider returning to defined benefit plans. He asked whether DB
plans are effective at retaining younger workers.
4:49:21 PM
MR. DOONAN replied that asking in context does not give the full
story.
MR. DOONAN drew attention to slide 29, "Termination: Select
Rates - TRS DCR." He pointed out rates of years of service of
male and female teachers, noting that there is a loss of 31
percent of female teachers before one year of teaching is
complete.
MR. DOONAN drew attention to slide 30, "Quick Comparison of
Retention in Other States." About half of Alaskan teachers are
lost before five years are complete, which is a better rate than
California and some other states.
MR. DOONAN jumped to slide 32, "Cumulative Years Taught from 100
newly hired, 25-year-Old Teacher Over Next 30 Years." He
discussed how many teaching years the state gets out of
different numbers of teachers.
4:54:05 PM
CHAIR BJORKMAN drew attention slide 9. He asked where Alaska
might fall on the chart with the cost-sharing measures currently
in place.
MR. DOONAN replied that he did a chart in which contributions
were factored in as pension payroll. He did not add in the DC
payroll which is growing. With a shrinking workforce, rates go
up as employers pay them off. He said that costs vary in the
state, and he figured that costs would be between 5-12 percent.
CHAIR BJORKMAN clarified his questions. He asked if this
legislation was adopted, what would Mr. Doonan expect the
contribution rates as a percentage of pay to be with the cost-
sharing provisions currently in place.
MR. DOONAN replied that there are two pieces to consider. It
can't be helped if markets go down and costs go up. If the state
wants to create a plan for a funding strategy moving forward
that is deliberate about creating more stable costs, then that
is possible. New strategies for DB plans can work if their
execution is serious and deliberate.
4:56:41 PM
SENATOR BISHOP asked if he was familiar with the assumption
rates in Wisconsin, Indiana, South Dakota, and Tennessee.
MR. DOONAN clarified that Senator Bishop was referring to return
assumptions.
SENATOR BISHOP said yes.
MR. DOONAN expressed his belief that Wisconsin and South Dakota
are sub seven but that he did not know for sure.
SENATOR BISHOP clarified that he said, "sub seven."
MR. DOONAN said that the National Association of State
Retirement Administrators (NASRA) is a good resource, and he
would pass that along to the committee. He said even with a low
discount rate, if the markets drop, one still must put money in.
The low discount rate alone doesn't solve volatility.
4:58:25 PM
CHAIR BJORKMAN held SB 88 in committee with the motion to adopt
the committee substitute (CS) pending.
4:58:46 PM
There being no further business to come before the committee,
Chair Bjorkman adjourned the Senate Labor and Commerce Standing
Committee meeting at 4:58 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SB 88 Presentation to SL&C_Reason Foundation 04.26.23.pdf |
SL&C 4/26/2023 3:30:00 PM |
SB 88 |
| SB 88 Draft Proposed CS ver R.pdf |
SL&C 4/26/2023 3:30:00 PM |
SB 88 |
| SB 88 Explanation of Changes Version B to R.pdf |
SL&C 4/26/2023 3:30:00 PM |
SB 88 |
| SB 88 Presentation to SL&C_National Institute on Retirement Security 04.26.23.pdf |
SL&C 4/26/2023 3:30:00 PM |
SB 88 |
| SB 88 Summary Table-CS Version R 04.25.23.pdf |
SL&C 4/26/2023 3:30:00 PM |
SB 88 |