HOUSE BILL NO. 55 "An Act relating to participation of certain peace officers and firefighters in the defined benefit and defined contribution plans of the Public Employees' Retirement System of Alaska; relating to eligibility of peace officers and firefighters for medical, disability, and death benefits; relating to liability of the Public Employees' Retirement System of Alaska; and providing for an effective date." 9:54:45 AM Co-Chair Merrick reported that HB 55 was previously heard in committee on April 21, 2021. REPRESENTATIVE ANDY JOSEPHSON, SPONSOR, commented that there was some discussion about contribution levels. He reminded committee members that under Tier 4, employees had a contribution level of about 8 percent and under HB 55 contributions would be 8 to 10 percent. He considered that further skin in the game. He referred to the pie chart on slide 10 of the PowerPoint [titled HB 55] (copy on file) presented at the prior meeting and noted it was an excellent graphic depiction of the contribution breakdown of "where the contributions came from and where they went." Co-Chair Merrick moved to invited testimony. 9:56:34 AM PAUL MIRANDA, PRESIDENT, ALASKA PROFESSIONAL FIREFIGHTERS' ASSOCIATION (via teleconference), began the PowerPoint Presentation titled Costs of Maintaining The Status Quo" (copy on file). He shared that the purpose of his presentation was to illustrate that Alaska was facing a public safety recruitment and retention crisis and to demonstrate that there was a real cost to maintaining the status quo. 9:57:59 AM Mr. Miranda began with slide 2 titled Unintended Consequences of Tier IV for Public Safety:" ? Recruitment Difficulties ? Retention Costs ? Workers Compensation Costs ? Unforeseen Costs Mr. Miranda elucidated that Alaska can no longer compete with the lower 48 when it comes to recruitment of public safety officers. The state held a clear disadvantage compared to what other states offered for retirement benefits. He stressed that police officers and paramedics were in high demand. He noted that no other state offered a similar retirement plan as Alaskas. 9:59:27 AM Mr. Miranda turned to slide 3 titled Recruitment Difficulties ? "Alaska cannot compete with agencies offering defined benefit plans. This has left us with vacancies in multiple academies as applicants decide to pursue careers elsewhere." APD Police Chief Justin Doll ? "The number of individuals wanting to work at the Fairbanks Fire Department has declined drastically over the last several years. FFD Fire Chief Jim Styers ? Our firefighter alumni populate most Alaska career fire departments. The 42 young men and women in my program are far more aware of financial planning and retirement concerns than I was at their age. It is troubling that the majority of them are testing and interviewing for jobs in other states." - UFD Fire Chief Doug Schrage 10:00:04 AM Mr. Miranda turned to slide 4 titled Retention: ? "? the inability to provide a defined benefit retirement system have placed the department at critically low staffing levels." DPS Recruitment and Retention Plan Overview 2018- 2023 ? "We are seeing our highly trained, qualified, and experienced officers leave APD to work out of state for other law enforcement agencies offering competitive defined benefit retirement systems." APD Police Chief Justin Doll "The turnover of career staff appears to be higher? compared with other clients. Turnover not only has a financial effect on the department, but it also loses valuable experience. " Fitch & Associates consultant report Capital City Fire and Rescue Mr. Miranda highlighted the retention issues. He pointed out that the fiscal analysis by the state's actuary for HB 79 [HB 79-PEACE OFFICER/FIREFIGHTER RETIRE BENEFITS 2019- 2020] from the prior session, which was virtually identical to HB 55, assumed increased retention. 10:00:53 AM Mr. Miranda advanced to slide 5 titled Worker's Compensation Costs: ? Firefighters particularly prone to musculoskeletal disorders (MSDs). ? "FFs age 55 and older have an MSD injury rate that is more than double that of youngest FFs, and more than ten times greater than that of private-sector workers of same age. ? "It is apparent that older firefighters are associated with much higher rates of reported workplace injuries than both younger firefighters and private sector workers. ? "This is consistent with the notion that the rigorous physical demands of firefighting subject them to trauma throughout their working lives, making them more subject to MSDs in later years. *Rand Corporation study on California fire fighters' workers compensation injuries. Mr. Miranda discussed that Tier IV had been in place for 15 years and the state had yet to have a 20 to 25 year career member retire. He relayed that three independent reviews from the Department of Administration (DOA), Deven Mitchell, Executive Director, Alaska Municipal Bond Bank Authority, Department of Revenue, and William B. Fornia, Fellow of the Society of Actuaries (FSA), President found that most of Alaska's public safety employees would lack money to retire after a 30 year career and most were not covered by social security. The average hiring age was 31, as the workforce aged without enough financial security to retire, the state would expect to see increased workers compensation costs due to the physical nature of the job and because older workers sustain more injuries. 10:04:06 AM Mr. Miranda moved to slide 6 titled Unforeseen Costs: ? Increase overtime costs due to inadequate staffing ? Increased training costs ? Loss of operational capabilities ? Loss of experience and future leadership ? Rise in organizational stress levels Mr. Miranda returned to slide 5 and added that the mental tolls of the job build over time and employees should be able to leave the job when necessary. He discussed slide 6. 10:04:54 AM Mr. Miranda continued to slide 7: "Recruitment and Retention Problems Will Only Increase:" ? Current recruitment & retention difficulties highlighted by DPS, DOC, and chief Officers from across the state are occurring with 40-50% of workforce in DB system ? Tier 4 currently makes up 50-60% of public safety workforce ? The problems will be magnified as the Tier 4 workforce population grows ? A 100% portable public safety workforce is a frightening thought for chief Officers around the state Mr. Miranda relayed that both labor and management were united in finding a solution to issues resulting from Tier IV. The intensifying problems troubled police chiefs throughout the state. 10:06:12 AM Mr. Miranda reviewed the costs of remaining at the status quo level on slide 8 [untitled]: 3,400 = Number of public safety employees in Alaska $120,000 = Average training cost for public safety employees ? Some agencies report costs as high as $240,000 (Airport Police & Fire) 10:07:22 AM Mr. Miranda advanced to slide 9 titled What is the fiscal note for maintaining the status quo: ? DPS & DOC have testified to the Legislature of non- retirement separations greater than 6% ? This is at a time when Tier 4 makes up less than 60% of overall public safety workforce ? Here we will examine costs of Alaska losing 1%, 2% and 3% of a Tier 4 public safety workforce each year ? We will use a conservative training cost of $120,000 , not increased for inflation over a 20-year period Mr. Miranda moved to slide 10 titled "1 Percent of Workforce Leaving:" The slide reflected the costs of training and recruitment and the costs of one percent of public safety officers leaving the state. ? 3,400 x 0.01 = 34 employees ? 34 x $120,000 = $4,080,000 cost per year ? 5 x $4,080,000 = $20,400,000 5-year cost ? 20 x $4,080,000 = $81,600,000 20-year cost 10:09:35 AM Mr. Miranda continued to slide 11 titled "2 Percent of Workforce Leaving:" 3,400 x 0.02 = 68 employees ? 68 x $120,000 = $8,160,000 cost per year ? 5 x $8,160,000 = $40,800,000 5-year cost ? 20 x $8,160,000 = $160,200,000 20-year cost 10:09:48 AM Mr. Miranda looked at Slide 12 titled 3 Percent of Workforce Leaving: ? 3,400 x 0.03 = 102 employees ? 102 x $120,000 = $12,240,000 cost per year ? 5 x $12,240,000 = $61,200,000 5-year cost 20 x $12,240,000 = $244,800,000 20-year cost 10:10:19 AM Mr. Miranda reiterated that some agencies estimated significantly higher pre-retirement separations. He highlighted slide 13 titled Conclusions: ? These costs do not fully represent the problems that will result from non-retirement separation of public safety employees, it is only one aspect. These costs far outweigh the cost of HB 55. ? Other jurisdictions across the country have restored DB systems after experience such as this. Mr. Miranda indicated that even a 1 percent improvement from adoption of the bill more than paid for its cost and the costs of officers leaving the state was much greater. He related that there were several other states that had returned to a defined benefit system after experiencing a similar situation as Alaska. 10:11:36 AM Mr. Miranda explained that HB 55 proposed a shared risk hybrid retirement system for public safety employees. He highlighted a few of the provisions in the bill. He pointed out that the bill dramatically decreased the benefit from the legacy DB tiers. The plan did not provide retiree medical coverage that accounted for 36 percent of the liability of the defined benefit tiers. The bill established a minimum retirement age of 55 that did not exist in previous tiers. He elaborated that a provision utilized a high 5-year average for benefit calculations rather than a high 3-year. The provisions resulted in significant benefit reductions. Additionally, a portion of the retirees Post Retirement Pension Adjustments (PRPA) inflation proofing benefit could be withheld if the plans funding level decreased. It was an incredibly powerful lever that was employed in Wisconsin during the economic downturn in 2008; currently the Wisconsin plan is fully funded. The bill allowed for employees to contribute more and retirees to receive less if the funding level dropped below 90 percent. He reported that 80 percent was considered a healthy standard for retirement plans. He concluded that the risk was shared among employees, retirees, and employers together so that no one group was left holding all the risk. 10:13:35 AM Mr. Miranda finished his presentation on slide 15 titled Conclusion: We have a shared interest in ensuring quality public servants fill the ranks of Alaska's public safety agencies. Adopting an adequate retirement plan with reasonable costs, fair benefits, and shared risk will help us in this mission. 10:14:11 AM Representative LeBon thanked Mr. Miranda for his presentation. He wondered how portable the plan would be for an employee to move to another state. Mr. Miranda responded that the allowance for portability was the problem the state was currently experiencing. In the current system, vested employees could move away after 5 years and carry their account balances with them. Some out- of-state agencies allowed the employee to buy time in its system. He voiced that the possibility did not exist in HB 55. The qualifications for retirement in HB 55 was 55 years old or 20 years of service or 60 years of age if vested with less than 20 years of service. Someone could leave once they were vested but could not receive any benefit from the plan until age 60. There was a high incentive for employees to stay and invest in the system. He indicated that Chief Schrage, Fire Chief, University of Alaska, Fairbanks, testified that under the defined benefit plan, it was rare for an individual to quit before working a full career and presently, it was a common occurrence under Tier IV. 10:16:48 AM Representative LeBon supposed that someone hired under a DB plan wanted to reach vestment. He deduced that if a 25 year old was hired, worked for 5 years then moved, they would not have access to their money for 30 years. He wondered whether his statement was correct. Mr. Miranda responded in the affirmative. He added that at age 60, the individual would only receive 10 percent of their average salary. Representative LeBon asked whether there would be a buy in factor if a person were to change over from Tier IV. Mr. Miranda replied in the affirmative. He indicated that there was a buy-in and the buy-in amount would be calculated by an actuary. Current employees could choose to remain in Tier IV or buy-in to the new tier. 10:19:33 AM Representative LeBon suggested that Mr. Miranda would find out how many employees would want to switch from Tier IV to the new plan. He wondered if it was a concern that some would take their accrued benefits under Tier IV after vestment and leave and not join the new defined benefit (DB) plan. Mr. Miranda speculated that most individuals in Tier IV in the public safety group would exercise the option to join the new tier. There were many advantages to a DB plan. Representative Josephson interjected that Section 5 of the legislation provided for a 90 day period for current employees to make the election. The bill was identical to what the prior bill offered on the same subject. The defined contribution employee would likely find that their accrued contribution would fully qualify them for the new plan. Representative LeBon was surprised that the average age of public safety professionals was 31. He suggested that the University of Alaska campus had a very highly rated fire management program. He wondered whether students graduating from the program who chose to work for an Alaskan fire department would automatically be entered into the new DB plan if adopted. He asked if the Tier IV system would be voided. Representative Josephson responded in the affirmative. He explained that a new employee would fall under the new Tier V. Representative LeBon reasoned that only those already in Tier IV could remain in Tier IV. Representative Josephson replied in the affirmative. Vice-Chair Ortiz understood that HB 55 continued the Tier IV medical plan and relied on the Health Reimbursement Arrangement (HRA) to cover premiums from retirement until the retiree was Medicaid eligible. He asked if the health insurance portion of the plan was similar to and as equally competitive as other states who returned to a DB plan. Representative Josephson deferred to Mr. Miranda. 10:26:05 AM Mr. Miranda responded in the affirmative. He relayed that many of the plans across the nation were similar to the medical portion of the HB 55 plan. He was certain that the Washington state plans retiree health plan was similar. Vice-Chair Ortiz understood that the person under Tier V would be responsible for 100 percent of the medical insurance premium upon retirement and 20 percent thereafter. He inquired whether he was correct. Mr. Miranda answered that it was correct that the TIER V plan had the same medical plan as the Tier IV medical plan. He explained that the plans utilized a health reimbursement arrangement, which was an account in which 3 percent of the average Tier IV employees' salaries were deposited. The employees, at retirement, would have access to the lump sum of money to purchase coverage until Medicare age. Once on Medicare, there was cost sharing based on years of service. 10:28:48 AM Representative Thompson asked about an actuarial analysis. He wondered when it would be available. 10:29:04 AM ELISE SORUM-BIRK, STAFF, REPRESENTATIVE JOSEPHSON, answered that the Division of Retirement and Benefits was in the process of updating the actuarial analysis. She had included the previous actuarial analysis in the members files [A letter from Buck Consulting dated February 29,2020 (copy on file)]. She did not think the updated actuarial analysis would be much different. 10:29:50 AM Co-Chair Merrick indicated the committee was waiting on the committee substitutes for the operating budget bills. She recessed the meeting to the call of the chair. [The meeting never reconvened.]