HB 152-PERS TERMINATION COSTS  3:46:55 PM CHAIR OLSON announced that the next order of business would be HOUSE BILL NO. 152, "An Act requiring certain employers who terminate participation in the defined benefit retirement plan or the defined contribution retirement plan of the Public Employees' Retirement System to make contributions related to past service liability and pay termination costs; repealing a requirement that employers who terminate participation in the defined contribution retirement plan or the defined benefit retirement plan of the Public Employees' Retirement System pay for a termination cost study; and providing for an effective date." 3:48:14 PM REPRESENTATIVE STEVE THOMPSON, Alaska State Legislature, introduced himself. 3:48:59 PM REPRESENTATIVE CHENAULT moved to adopt the proposed committee substitute (CS) for HB 152, labeled 28-LS0272\Y, Wayne, 2/26/14, as the working document. CHAIR OLSON objected for the purpose of discussion. 3:49:24 PM JANE PIERSON, Staff, Representative Steve Thompson, Alaska State Legislature, explained that HB 152 addresses the future financial stability of the municipal Public Employees' Retirement System (PERS) employers and PERS unfunded liability. Legislation was passed in 2008 establishing that PERS is a consolidated system combining the defined benefit and defined contribution salary bases to pay down the unfunded obligations. Paying off the unfunded obligation is predicated on a stable, reasonably growing system-wide base. She related a concern in the 2008 legislation was that employers might en mass elect to convert PERS salaried employees to contracted positions to avoid PERS costs thereby shrinking the PERS salary base needed to pay off the unfunded obligation. To address this concern, the state set a contribution floor such that employers would be required to pay the greatest of 22 percent based on the current defined benefit and defined contribution salary base or the total payroll for the period ending June 30, 2008. Language providing for termination studies was also added requiring employers who terminate participation of a department, group or other classification of employee to pay the following: the cost associated with obtaining a termination study from the PERS actuary; the actuarial cost to the employer for future benefits due employees whose coverage is terminated; the past service cost annually on each position terminated until the unfunded liability paid off decades from now. MS. PIERSON said the requirement for termination studies makes it difficult for employers to manage their delivery of services, discriminates against small municipalities, even though their impact on the system is minimal, is costly, and nearly impossible to implement in an equitable manner. It also fails to recognize the original and personnel structures differ between municipalities. The system-wide salaries have increased by $325 million or 18.6 percent over the salary base floor established in 2008. As a result, contributions towards the unfunded liability have not been compromised; rather, they have increased at a greater than actuarial assumed growth of four percent, which is what was assumed in 2008. Thus, Version Y, would eliminate termination costs and provide municipalities with the operational flexibility to effectively manage the delivery of programs and services while maintaining the minimum 22 percent contribution requirement. 3:52:32 PM MS. PIERSON provided a section-by-section analysis of the proposed committee substitute (CS) for HB 152, Version Y, as follows [original punctuation provided]: Section 1. Amends AS 39.35.615(i) Conforming language due to the repealing of termination costs in AS 39.35.625, eliminates being current on the termination costs as a bar for an employer to renew a terminated department, group or classification of employees into the PERS system. Section 2. Amends AS 39.35.620(k) Conforming language due to the repealing of termination costs in AS 39.35.625, eliminates being current on the termination costs as a bar for a terminated employer participant to return into the PERS system. Section 3. Repeals: · AS 39.35.625 Termination Costs · AS 39.35.958(c) Assessing Termination costs · AS 39.35.958(e) Payment of termination costs · AS 39.35.958(f) Payment of the termination cost study Section 4. Annuls AAC 35.235. Section 5. Is a conditional effective date upon the legislature taking action this session to smooth the PRS accrued liability. Section 6. Provides for an immediate effective date for sections 1-4 of the bill, upon the passage of section 5. 3:54:04 PM REPRESENTATIVE JOSEPHSON asked whether the $1.2 billion in Section 5 is in addition to the $3 billion the governor is proposing. MS. PIERSON answered no; that it was basically a placeholder in case the $3 billion did not come through that the governor was proposing. 3:54:37 PM REPRESENTATIVE JOSEPHSON asked whether this would mean the governor would only be contributing $1.8 billion to reduce the unfunded liability. MS. PIERSON answered yes. She pointed out that funds would also go into the Teachers Retirement System (TRS). She pointed out that this bill just addresses the PERS unfunded liability. 3:55:11 PM REPRESENTATIVE JOSEPHSON referred to the fiscal note from the DOA Retirement and Benefits, which suggests the institution paying the costs would change, but the costs would not change, and this could add $75 million to the state's burden. MS. PIERSON acknowledged that is true; it assumes a 20 percent reduction for a $75 million fiscal note, which is the latest draft fiscal note from the agency. 3:56:06 PM REPRESENTATIVE JOSEPHSON referred to the 2013 Administrative Order 37 issued by Mayor Sullivan, which he characterized as one of the most divisive in his community. He asked how to avoid incentivizing reduction in the public sector, since the public sector tends to be more responsive to citizens. MS. PIERSON said she believes his concern relates to privatization. She noted that there may be some privatization, but if that is happening that some divisions might not be able to be maintained. She recalled that happened in Fairbanks. She said that currently the employer must keep departments that it cannot maintain due to the termination costs and studies. 3:57:55 PM REPRESENTATIVE JOSEPHSON asked why HB 152 was abandoned for the wholesale repeal of the termination studies in Version Y. MS. PIERSON answered that the sponsor thought it was a cleaner approach. 3:58:19 PM REPRESENTATIVE THOMPSON stated that as a former mayor having faced costs of PERS when the actuarial presented the actuals, and in observing how termination costs have affected municipalities, he predicted many small communities will go away because they can't afford to exist. He explained that with the current budget situation and potential reductions to revenue sharing, municipalities will likely layoff more people, which will lead to more termination studies and increased liabilities. He offered his belief that this is something that must be addressed, that it has a fiscal note, but it will save communities. 3:59:21 PM REPRESENTATIVE CHENAULT expressed concern about the municipalities and the costs associated with PERS and TRS and said the state has stepped up to the tune of hundreds of millions of dollars, if not $1 billion. The state has picked up the amount in excess of 22 percent for municipalities. He cautioned that as the committee reviews this it needs to make sure that it considers the municipalities "bottom line" but that the committee also consider the state's "bottom line" in terms of continuing to pay for associated costs. 4:00:13 PM MICHAEL BARNHILL, Deputy Commissioner, Department of Administration (DOA), stated that the DOA has been working with municipalities and the Alaska Municipal League (AML) on various versions of HB 152 for about three years. He said that, generally speaking, the DOA is sympathetic to the concerns expressed by the sponsor in terms of the difficulty in managing the personnel workforce for municipalities, which is one reason the DOA has been working with them. He asked to take a step back and understand the reasons for termination studies and costs in the first place, which Ms. Pierson adequately addressed. The DOA is fundamentally concerned about cost shifting. He reminded members the state has an $11.9 billion unfunded liability across the PERS and TRS. In 2007-2008, the legislature wanted to maintain some participation by municipalities in paying off the unfunded liability. The state was concerned that without statutory provisions to maintain the participation, that positions would be pulled out of the PERS, reducing the payroll base and the unfunded liability that would be paid by the positions being included in the PERS payroll would then shift to the state. MR. BARNHILL acknowledged that as Speaker Chenault just mentioned, since the enactment of Senate Bill 125 in 2008, the state has paid in excess of $600 million on behalf of municipalities through FY 2014. The state will continue to pay substantial amounts on behalf of municipalities going forward. This happens through the 22 percent employer contribution rate cap. If the actuarial rate is greater than 22 percent, and it has been in the PERS since 208, the state pays it. IN FY 15, the actuary is recommending adopting an employer contribution rate of 44 percent. The employers are capped out at 22 percent but the actual rate will be 44 percent, which means the state pays 22 percent of the total payroll on behalf of municipal employees, which is considerable relief. He said he has not done a state-by-state comparison, but he imagined this magnitude of state assistance on behalf of municipalities is quite extraordinary. The state has gone a considerable distance in providing relief, he said. In 2008, one means of avoiding further cost shifting, which is the reason for the termination cost studies. Another feature put into law was the 2008 salary floor; thus, if the municipal payroll base goes below what it was in 2008, that 22 percent will be based on the 2008 payroll. These are important measures to keep in place to preserve a certain amount of municipal participation in paying down the unfunded liability. 4:04:03 PM MR. BARNHILL pointed out that the municipalities have found this particular feature of law as being restrictive so the state has been examining ways to make adjustments without shifting unfunded liabilities to the state. He explained that Version Y repeals all termination study cost requirements. The state's actuary has said that if this is passed into law that all municipalities will take 22 percent of their payroll out of PERS service. He said the state isn't sure that is a good assumption, but certain municipalities are considering making changes that will pull a considerable number of PERS positions out of PERS service. He did not think it would be unreasonable to assume a 20 percent reduction over time. The actuary has reported that the net present value out of pulling 20 percent of the positions out of PERS will cost approximately $75 million, assuming this takes place over an extended period of time. 4:05:30 PM MR. BARNHILL explained that the governor has proposed to appropriate $3 billion from the state's Constitutional Budget Reserve to the PERS and TRS retirement trusts. He reported that it would be allocated at $1.9 billion to the PERS and $1.1 billion to the TRS. Equally important to the governor's plan is that on a going forward basis the state assistance for the PERS will be capped at $172 million per year as compared to the current fiscal year in excess of $300 million per year for PERS grading up to close to $500 million. In response to a question, Mr. Barnhill answered that the $157 million in the governor's plan is state assistance from the general fund on behalf of municipal employers, including the state since state employees participate in PERS. 4:06:54 PM MR. BARNHILL stated that capped state assistance is roughly 50 percent of the current costs for PERS, which is fixed until 2036 and should give substantial fiscal certainty with respect to general fund expenditures going forward. Additionally, this plan better aligns the municipal and state's interests in terms of new unfunded liability. New unfunded liability can come in the form of investment losses and changes that municipalities may make to their payroll. Under the governor's proposal, any new unfunded liability will get added to the end of the amortization term in 2036, which is shared on a proportional basis between the state and the municipalities. Under the status quo any new unfunded liabilities that are created are borne entirely by the state. When the legislature passed Senate Bill 125 in 2008, there was an assumption that the payments the state would make on behalf of municipalities would grade down, but the opposite has happened and the costs have graded up steeply. The reason for that is due to the substantial dislocations in the investment markets. In FY 2009, the state lost 25 percent of its investment assets. MR. BARNHILL reiterated that the state has borne the unfunded liability associated with that loss in the form of steadily increasing state assistance payments. Under the governor's proposal, new unfunded liability would be shared. In viewing the conditional effect of this bill, if the legislature appropriates $1.2 billion from the CBR for PERS and TRS, without any indication how that would be allocated if the bill takes effect. It is not clear that Version Y will accomplish what the governor proposes, which is that $1.9 billion for PERS, capped $157 million payments going forward through 2036, and alignment of the state and municipal interests. The $1.2 isn't sufficient to do that, so the $75 million - if all employers remove 20 percent out of PERS service - would still be borne by the state under this version of the bill. He said that DOA's concerns remain the same until a conditional effect is put into place which is to align the interests through a capped state assistance that will put new unfunded liability at the end of the amortization terms to be shared by the state and municipalities. 4:10:45 PM CHAIR OLSON asked what kind of shape PERS would be in if it had gone forward with Senate Bill 125 in 2008. MR. BARNHILL answered that employer contribution rates paid by employers and municipal employers would have paid $609 million more than they did since the state picked up those payments. He said you'd have to ask your constituents what that would have felt like. CHAIR OLSON offered his belief that a good number of entities would not have been able to pay that. MR. BARNHILL answered absolutely. He said that other states have not provided this sort of relief to municipalities, which are evident by the various bankruptcy proceedings that have happened in Detroit, Stockton, and San Bernardino. 4:12:22 PM KATHIE WASSERMAN, Executive Director, Alaska Municipal League (AML), stated that municipalities truly appreciate the 22 percent that has saved numerous municipalities from huge financial concerns. This bill was crafted with the governor's proposal in mind, she said. She understood discussions are being held about the amount. The first concern was not to repeal, but after the governor's proposal, considerable discussion was held with the DOA, the AML's members, and some PERS board members that this could be tacked on to the end of the amortization schedule. In other words, the municipalities chose "to remortgage our home and extend the payments out." The municipalities will cost share those costs with the state at the end of the amortization over 31 years. She reminded members that the non-state employers are 38 percent of the entire liability. The AML and municipalities support Version Y. Referring to Senate Bill 125, she said the termination costs have made a huge difference on whether municipalities want to accept grants that would entail hiring a grant person since it would trigger a termination study and costs on that employee for the next 25 years or until the end of the liability. 4:15:03 PM MS. WASSERMAN recalled Representative Thompson's earlier remarks. When you go to the small communities, the people terminated must be included in a class or group. For example, in the City of Pelican, if one harbormaster exists, and the harbormaster is laid off, it will immediately trigger a termination study; whereas in a larger community, laying one off wouldn't trigger a study. 4:15:43 PM CHAIR OLSON asked whether this applies to seasonal employees. MS. WASSERMAN answered that will depend on agreements with the state. She acknowledged that Mr. Barnhill has assisted municipalities considerably. She understood that cuts will be happening throughout the state, which usually results in a trickledown effect. She stated that municipalities are in a "no win situation" since municipalities to raise extra money through taxes or cutting services since they cannot cut employees. 4:16:30 PM REPRESENTATIVE CHENAULT asked for clarification if Anchorage and Pelican laid off harbormasters, whether it would result in termination studies. MS. WASSERMAN responded that it would likely result in only one study, through the City of Pelican. REPRESENTATIVE CHENAULT asked if two municipalities eliminate a harbormaster if it would result in two termination studies. MS. WASSERMAN answered that the municipalities would have done that if it were possible. REPRESENTATIVE CHENAULT suggested that perhaps everyone could be reclassified. 4:17:24 PM MS. WASSERMAN stated that the municipalities have looked for ways to make this work but are not trying to slip through the cracks. REPRESENTATIVE CHENAULT related he is trying to find a solution. MS. WASSERMAN summarized that most municipalities know that the governor's proposal at 22 percent is something they can budget; that the municipalities are willing to pick up more years if that is what it takes, but to have ongoing termination studies constantly arising creates difficulties and it affects their hospitals, schools, and economic development. 4:18:24 PM REPRESENTATIVE HERRON said after reviewing correspondence he understood municipalities want to eliminate the termination studies. He wondered what would happen if a cost shift occurred and the small municipalities didn't pay the costs. He asked whether the PERS needs the termination cost study. MS. WASSERMAN answered that if the governor's proposal goes through in some form, the entire termination study that each city incurs will be "pushed to end" and everyone will share the costs. REPRESENTATIVE HERRON asked whether the state would pay for the studies. MS. WASSERMAN answered that the [municipalities and the state] will all pay for them. REPRESENTATIVE HERRON clarified that if there was no cost to municipalities whether the state would pick up termination costs. 4:19:27 PM MS. WASSERMAN answered that is not what is being proposed. 4:19:34 PM REPRESENTATIVE HERRON asked if it would be acceptable if the municipalities were not responsible but someone else paid the termination study costs. MS. WASSERMAN said that AML is not attempting to cost shift. REPRESENTATIVE HERRON asked whether the AML would support something like that to look out for the smallest employers. MS. WASSERMAN answered that she would like to see the proposal in writing. 4:20:12 PM CHAIR OLSON said he's been out of municipal government for about 12 years. He asked whether the AML has been seeing a trend in privatization, in which the jobs are contracted out. MS. WASSERMAN answered that some communities are holding discussions, but most of Alaska's communities cannot do so. She recalled only two situations in a list of jobs that were contracted out. She did not believe there has been much discussion overall; however, she anticipated there could be considerable "push back" from people in the community. 4:21:26 PM CHAIR OLSON understood that many communities might be desperate enough to do so since they may not see any other alternative. MS. WASSERMAN offered her belief the communities would still incur a termination study so they haven't done so. CHAIR OLSON suggested it would do away with future termination studies. MS. WASSERMAN indicated she was unsure what municipalities might do. She said she hoped that municipalities would not layoff people. 4:22:10 PM CHAIR OLSON asked whether smaller communities are not aware of the issues or are not prepared. MS. WASSERMAN asked for clarification on whether he meant not prepared for extra costs or for termination studies. She stated that municipalities are aware of the issues and many have not laid off any employees since they don't want to incur the termination study costs. 4:22:59 PM CHAIR OLSON stated that there isn't any easy answer. MS. WASSERMAN responded that the AML has been working on this issue for three years. The AML has not been trying to push off employee costs to the state and is trying to find a way to all share the [unfunded liability costs], but the municipalities cannot absorb the upfront costs every time they need to manage their personnel. 4:23:23 PM REPRESENTATIVE JOSEPHSON related his understanding that this bill will shift costs to 2036. MS. WASSERMAN answered that the AML hopes the governor's proposal will pass. If so, this bill will transfer the unfunded liability cost to the end of the amortization. The AML and state would each pay 22 percent. She acknowledged there would be some transfer of costs, but everyone shares the costs and the payments would be extended at least five to six years or more. 4:24:24 PM REPRESENTATIVE JOSEPHSON suggested that the original bill seemed to take more a "scalpel than a knife" approach and have a graduated system with payrolls under $1 million, $1-5 million, and over $ 5 million. He wondered if smaller cities are having more difficulty since they have one harbormaster instead of three, whether the committee should consider the original version of the bill as the approach. MS. WASSERMAN answered that AML is very supportive of HB 152, but with the governor's proposal the AML envisioned a way to help even more and contain costs. 4:25:22 PM REPRESENTATIVE JOSEPHSON said if he heard Mr. Barnhill correctly, there is some resistance from the administration. He asked whether the committee is back at "ground zero" on this issue. MS. WASSERMAN answered no, she did not think so, but Mr. Barnhill would need to assess any pushback. CHAIR OLSON said everyone seems to still be talking so he did not think that the stakeholders were at loggerheads. 4:25:50 PM BOB BARTHOLOMEW, Director of Finance, City and Borough of Juneau (CBJ), commented that the CBJ has been working with AML. He said that at times CBJ would be considered a small employer and at others a large employer. From CBJ's perspective the termination study is very difficult to implement and to try to manage changes in the workforce. Two recent instances did not try to remove PERS positions - and historically CBJ has not removed many PERS positions - but CBJ has tried to make organizational changes that would result in some classes not being used. For example, an investment officer might not be needed, but CBJ might need an investment accountant, and that simple reclassification would trigger a termination study, even though CBJ would still retain the same number of PERS employees. Therefore, CBJ doesn't do something that makes logical sense because CBJ doesn't know what that study will be. MR. BARTHOLOMEW said the statement that it's hard to implement and administer is true, which is something many municipalities are encountering. He stated that the bill eliminating the termination study makes things simpler. Secondly, the "big picture" of the unfunded liability still exists and how it would be affected by the bill creates some uncertainty, which is difficult for employers. Representative Josephson's question about how to minimize the risk and incentives to do some gaming or downsizing brings the issue back to the governor's proposal. He acknowledged considerable effort was made in the governor's proposal and suggested that a comprehensive solution to move forward and how to address the unfunded liability is how to minimize the risk. If employers are confident that their share will stay at 22 percent, and an infusion of capital occurs [via the governor's proposal], the financial markets will likely consider it as a positive, and local government credit ratings won't be adversely affected. He offered his belief that this bill on its own needs help as far as a comprehensive solution, which includes the contribution and commitments to cap the rate that will give the state some fiscal certainty on the general fund. In response to Chair Olson, he stated that he previously worked for the Alaska Permanent Fund Corporation and the Department of Revenue. 4:29:36 PM JIM WILLIAMS, Chief of Staff, Office of the Mayor, City of Fairbanks, stated that he echoes the comments and concerns expressed by Ms. Wasserman. The City of Fairbanks recognizes that termination studies were added to prevent employers from initiating steps to intentionally and unfairly reduce their portion of the growing unfunded liability obligation. However, evidence has shown that employers have not acted in this way. In fact, the salary base has grown since 2008. Additionally, the unintended consequences of the termination study and contributions have led to some challenges for small municipalities and employers. The impact of the termination studies and long term continuing past service payment obligations is significant and burdensome. The laws make the day to day management of workforce impractical and difficult to implement changes. He expressed concern about the long-term sustainability and fairness of the PERS and supports HB 152. 4:31:46 PM LUKE HOPKINS, Mayor, Fairbanks North Star Borough (FNSB), suggested that if it was possible to roll back to the discussions on unfunded liability, the FNSB's past chief financial officer, Michael Lamb, identified the proposed municipal share at 22 percent. He offered his belief that the proposed appropriation of $1.9 billion for PERS should be done. He urged members to move forward with HB 152. With respect to termination study costs, he recalled Buck Consultants projected $75 million in costs. He indicated that 20 percent reduction in workforce seems to be a "pretty wild assumption." He emphasized that he wanted to manage his workforce. He stated that the FNSB's workforce has grown and the idea of termination costs being assessed to municipalities seems unwarranted to him. MAYOR HOPKINS asked the committee to consider removing the termination study costs. He said, "It is real. It is not going away, but there are ways to manage it." He suggested that HB 152 puts forward pieces that are reasonable for the state and all the other employers who are paying [the liability] to PERS. 4:35:41 PM KATIE KOESTER, Community and Economic Development Coordinator, City Manager's Office, City of Homer, asked to testify in support of HB 152, which eliminates termination study costs. Municipalities are feeling "the pinch of lean times and reduced budgets." Personnel costs represent the largest expense and it's important for municipalities to manage their workforce and personnel. Homer is one of the municipalities that have a number of very small departments. In fact, the personnel department has a personnel director and economic development consists solely of her position. As the city makes choices about how to organize the workforce, it is limited due to the termination costs even in instances in which the city considers whether it would be beneficial to have a city attorney. Currently, the city contracts out its legal work, but it can't consider creating a new class of employees. She expressed support for transferring funds to the retirement trust and thanks the legislature for its leadership on the serious issues of past service cost, and PERS and TRS retirement costs. She encouraged members to continue to work on this thorny issue. 4:37:25 PM LUCINDA MAHONEY, Chief Financial Officer, Municipality of Anchorage, stated that the MOA needs to have flexibility especially as the state faces fiscally challenging times. She acknowledged that repeal of termination costs will give the MOA the ability to adjust the staffing levels as funding levels change year to year. She emphasized that the MOA needs this to determine what programs to offer citizens. For example, some grant funding could be reduced or eliminated due to changes beyond municipal control, such as reduced state or federal funding. That loss of funding may result in our need to reduce staff and change staff classifications. For instance, if the MOA transferred an employee from one job classification to another and in the process eliminate a classification, this will trigger a termination cost even though the particular employee is still employed. Anchorage is working on modernizing and standardizing its job classification to achieve efficiency. This effort could result in fewer classifications, but not necessarily fewer employees. She said that the MOA currently has many classifications on the books that have been vacant - some for over 10 years. She indicated it would be efficient to eliminate these positions since it would reduce administrative costs, but the MOA doesn't do so since it may trigger termination costs. MS. MAHONEY said the MOA understands the fiscal impact everyone faces due to the unfunded liability, but the fiscal impact of the termination costs is significant to Anchorage, but immaterial to the total PERS unfunded liability of $12 billion. Certainly, the MOA appreciates every dollar that reduces the unfunded liability and are committed to partner with the state to reduce this burden by supporting the governor's plan to contribute $3 billion and assuming a greater financial portion of the unfunded liability. This represents nearly $300 million more that the MOA would pay into the unfunded liability if the $3 billion is contributed. As Kathie Wasserman explained, the way that happens is because the 22 percent of our payroll would be contributed for approximately five more years, which illustrates the importance of this bill. 4:40:59 PM JENNIFER JOHNSTON, Member, Anchorage Assembly, Municipality of Anchorage, stated that she is past president of the AML. She thanked the legislature for its assistance with the unfunded liability. She stressed that the governor's plan outlines a way in which the municipalities can share the risk and will have alignment as far as managing the liability. She considered a different perspective, and what happens with the termination costs. For example, when the permanent dividend program initially started, it was extremely labor intensive. She surmised that the PFD program probably does not have as many employees or the employees may be working differently in the current "My Alaska" program. She asked what would happen to the state if it maintained the past employees in non-existent positions, and how they could adapt to the 21st Century technology. She said that is how the state and municipalities will have to manage. She suggested that the MOA wants to grow and manage its workforce. She emphasized that the MOA wants to grow its workforce but adapt to the 21st Century technology. 4:42:50 PM REPRESENTATIVE JOSEPHSON asked for the AML's position at the time Senate Bill 125 passed. In other words, did the municipalities believe that dispensing with Tier III and defined benefits was a bargain they'd be happy to take in exchange for the burden of termination costs and termination cost studies. He asked what whether she knew about the history. MS. JOHNSTON answered that she came in late in 2008. She related her understanding that a number of retirement funds existed but no one knew the allocation of the unfunded liability. Trying to come up with something that was fair to everyone going forward was "trying to wrap their arms, their huge arms around a big problem." She was unsure of the AML's policy at the beginning, but she understood the AML was active. She stated that if the state didn't come up with another program other than defined benefits that the state would extend the situation to a point at which it would be completely unmanageable. She suggested that Mr. Barnhill and Ms. Wasserman could probably better answer the question. 4:45:06 PM REPRESENTATIVE JOSEPHSON related a scenario in which it was 2036 and the $11 billion unfunded liability was gone, but a new unfunded liability was created by another stock market crash or other variables. He wondered what would prevent the municipalities from asking the state to absorb the unfunded liability from the permanent fund. He wondered why this wouldn't become a "moving target" for decades. MS. JOHNSTON acknowledged that the MOA and state can't predict the future. She offered her belief that the governor's proposal does "set the table" for managing the unfunded liability and having alignment between the employers and the state. 4:46:26 PM CHAIR OLSON removed objection to adopt the work draft. There being no further objection, the committee substitute (CS) for HB 152, Version Y was before the committee. [HB 152 was held over.]