CS FOR HOUSE BILL NO. 306(FIN) "An Act relating to disbursement options under the Public Employees' Retirement System of Alaska and the Teachers' Retirement System of Alaska for participants in the defined contribution plan; and providing for an effective date." 9:30:22 AM LESLIE RIDLE, COMMISSIONER, DEPARTMENT OF ADMINISTRATION, conveyed that the Alaska Retirement Management (ARM) Board asked the administration to introduce the bill. She explained that the Defined Contribution Committee of the ARM board worked to assure that anyone under the defined contribution plan could retire with a good pension. She stated that currently, all the products that a retiree could receive through the defined contribution plan were not listed in statute. She lamented that this limited flexibility of what could be offered to retirees that would allow for a lasting pension and secure financial future in retirement. She said that those with supplemental benefits system benefits as well as deferred compensation benefits had retirement options that were written into regualtion and were flexible in their product offerings. The ARM board had asked for a bill that would allow for products to be offered through regulation for those under the defined contribution plan. She shared that the change would not be of cost to the state and there would be no actuarial change in the plan. 9:33:28 AM Co-Chair MacKinnon asked whether it had been written into the bill that there would be no cost to the state for the plan. KATHY LEA, CHIEF PENSION OFFICER, DEPARTMENT OF ADMINISTRATION, replied that it was not in the bill specifically, but within the plan itself, all the disbursement options were up to the participant. She related that any cost associated with the participant's choices would be borne by the participant. Co-Chair MacKinnon asked whether the administration would oppose language that stipulated that the change in statute would not be of cost to the state. Ms. Lea responded that the administration would not oppose such language. 9:34:47 AM Senator Micciche asked for examples of payment choices that would be different from what currently existed. Ms. Lea detailed that current options included a lump sum payment, a bi-annual lump sum payment, or an annuity payment that was designed in the 1980s. She relayed that new products under review by the ARM board included a qualified lifetime annuity contract, which would allow for a deferred portion of up to $125 thousand to be paid when the retiree was 80 years old. This was a method to hedge against longevity risk. She related that a guaranteed lifetime withdrawal option would allow a participant to ensure their balance; at the time the participant retired, the highest balance they had in the plan during the time they had been in that option, would be what their monthly payment was based on. She added that if after retirement the account balance grew, they would get the benefit of the higher amount and would be protected against market cycling risk. 9:36:27 AM Vice-Chair Bishop considered that the bill offered options for guaranteed lifetime income. Ms. Lea answered in the affirmative. Vice-Chair Bishop stated he supported the defined benefit option. He thought if the bill became law, it would give an individual an option to have guaranteed benefit. Ms. Lea stated that some of the choices could mimic a defined benefit option. 9:37:37 AM Senator von Imhof referenced her experience in finance and understood the products. She referenced Vice-Chair Bishop's comments and agreed that a product could mimic the defined benefit option but cautioned that investment cycles could vary to a degree that it could risk a person outliving funds. She referenced page 2, line 11 of the bill, which provided options for people that fit their specific life needs but felt discomfort with the suggestion that a plan could be designed that would provide a person benefits for the rest of their lifetime. 9:39:25 AM Senator Micciche wanted to clarify the intent of the bill. He stated that the bill allowed for products to be offered in regulation. He stressed that the bill provided the ability to list products available to retirees in regualtion. Commissioner Ridle agreed. She added that the bill mimicked what was currently done with the supplemental benefit system and deferred compensation; when a person retired, they had different options in regualtion for those plans. 9:40:29 AM Vice-Chair Bishop surmised that the bill would provide an additional tool for an employee participating in the state retirement plan. Ms. Ridle answered in the affirmative. Senator Stevens stated that many individuals had retired under the defined contribution plan and could not go back and renegotiate their retirement benefits under any new extended benefit plan. Ms. Lea stated that if an individual had removed their contributions from the plan, it would not be possible to renegotiate; however, if an individual's contributions were still in the plan, depending on the type of option the ARM board chose, they could be able to take advantage of the new options. 9:41:51 AM Ms. Lea addressed the Sectional Analysis (copy on file): Section 1: Amends AS 14.25.420(a) to allow for distribution options for participants in the Teachers' Retirement System (TRS) defined contribution plan to be authorized by regulation. Section 2: Amends AS 39.35.820(a) to allow for distribution options for participants in the Public Employees' Retirement System (PERS) defined contribution plan to be authorized by regulation. Section 3: Adds section to the uncodified law to allow the Department of Administration to adopt regulations as necessary to implement this legislation. Section 4: Establishes an immediate effective date. 9:43:00 AM Co-Chair MacKinnon asked whether the choosing of an immediate effective date would change the actuarial assumptions for any of the plans. Ms. Lea answered in the negative and reiterated that all the costs were borne by the participants; there would be no impact to the plan. Co-Chair MacKinnon asked whether there was a reason that a fiscal year was not chosen for implementation. Ms. Lea stated that the immediate effective date was chosen based on the deliberation schedule of the ARM board on what type of options could be chosen and whether the current options could be expanded. She added that regulations to add new options would not occur until the ARM board had gone through deliberations, had public hearings, and made decisions on which new options to provide. 9:44:11 AM Vice-Chair Bishop commented that even without knowing about the potential products, he considered that the change could help with employee retention. Co-Chair MacKinnon directed attention to the fiscal note. Vice-Chair Bishop addressed FN 2 from the Department of Administration, OMB Component 64. The fiscal note carried zero fiscal impact. He read from the analysis: This change will allow more flexibility to the Plan Administrator, with adoption by the Alaska Retirement Management Board, to add new options as they become available and are of benefit to participants. Future disbursement options will go through the regulatory process with public notice to all stakeholders and interested parties. This legislation will have no actuarial impact to the TRS or PERS since any costs incurred when electing a distribution option is borne by the participant. Therefore, the agency submits a zero-fiscal note. 9:45:49 AM Co-Chair MacKinnon OPENED public testimony. 9:46:21 AM ROB JOHNSON, CHAIR, ALASKA RETIREMENT MANAGEMENT BOARD, ANCHORAGE (via teleconference), thought that Vice-Chair Bishop had summarized the intent of the bill. He thought the bill would provide more tools and options for retirees. He pointed out that the bill would have no additional costs to the state. He noted that the ARM board had unanimously supported the expansion of options as outlined in the bill. Co-Chair MacKinnon reiterated her question concerning the immediate effective date. Mr. Johnson understood that the immediate effective date would not have an immediate effect. He explained that the effective date would allow for the process to begin immediately. CSHB 306(FIN) was HEARD and HELD in committee for further consideration. Co-Chair MacKinnon advised that proposed amendments were due the following day at noon. 9:49:16 AM