Legislature(2025 - 2026)ADAMS 519
02/10/2025 01:30 PM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| HB78 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 78 | TELECONFERENCED | |
| + | TELECONFERENCED |
HOUSE BILL NO. 78
"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."
1:41:20 PM
Co-Chair Foster asked to hear from Representative Kopp and
his staff.
REPRESENTATIVE CHUCK KOPP, introduced himself. He was happy
to be having the conversation about the bill. He remarked
that the state had experienced a number of sober things
such as loss of life in various communities and things that
were shocking and deeply sad. However, the ties that bind
Alaska were substantial and residents all shared in the
risk together. He remarked it was a dangerous state to live
in, residents traveling on roads that were sketchy at times
and air travel was full of risk. He highlighted it was the
state's workforce and various entities that made Alaska
work and helped to get through tragedy. He was excited to
talk about a new retirement plan going forward. He
clarified that the proposed plan was very different from
the old pension system. He stated it would be like
comparing a rotten apple on an old tree to a robust pear on
a living tree. He informed the committee that the proposed
retirement plan was based on the best practices of other
states that were well funded, with the risks being shared
broadly between employees, employers, and retirees.
Representative Kopp introduced a PowerPoint presentation
titled "Strengthening Alaska's Public Workforce: House Bill
78 A Shared-Risk Retirement plan," dated February 10, 2025
(copy on file). He began on slide 2 and discussed that
Governor Dunleavy's FY 26 budget highlighted the ongoing
critical struggle of recruitment and retention in most of
the state's public service agencies. He stressed the
constant theme across departments of high turnover and
vacancies, loss of institutional knowledge, loss of
training dollars, and the inability to effectively deliver
services. He explained that departments were in a perpetual
training mode without peer-to-peer mentoring due to poor
employee retention. The slide showed work performed by
various departments including public safety agencies, the
Alaska Marine Highway System (AMHS), and the Department of
Transportation and Public Facilities (DOT). The state's
infrastructure was aging, and the state was not keeping up
with maintaining its maintenance stations. He elaborated
that DOT was so understaffed on the haul road that some
maintenance stations were unmanned. The slide also
reflected the Department of Education and Early Development
and service industry that permitted jobs and helped to grow
the economy. He referenced a recent Alaska Mining
Conference briefing for legislators where miners had
communicated their number one concern was necessary staff
at the Department of Natural Resources (DNR) to permit
jobs; it was not possible to grow the mining industry if
there were not enough staff to provide permits.
1:46:02 PM
Co-Chair Josephson acknowledged Representative Louise
Stutes in the room.
Representative Kopp moved to slide 3 titled "How Did We Get
Here?" He highlighted the importance of having a workforce
to fulfill needs for public safety, fast police and trooper
response, strong schools, and well-maintained roads. He
remarked that there was agreement the state could do
better. He agreed with the sentiment that the state
eventually found a way to do so. Prior to 2002, the defined
benefit (DB) system was well funded, there was no state
income tax or sales tax, and the state's public workforce
had been doing okay. However, between 2002 and 2004,
Mercer, the state's actuary at the time, had provided the
state with erroneous advice. He remarked that to say that
it compromised the DB system would be an understatement. He
elaborated that Mercer had told the state not to make any
employer contributions into the system during the specific
time period. He noted that the employer contributions were
$250 million or more per year. He stated that it had been
welcome advice to local governments; however, two
successive years of failing to put in $250 million meant a
total of $500 million. He believed the situation had
occurred for two to three consecutive years. He stressed
that $500 million in 24 years at 7.91 percent interest was
$3.1 billion. He noted the 40-year average in Public
Employees' Retirement System (PERS) was over 8 percent. He
added that Mercer had continued to conceal its error once
it had been discovered. He stressed that the situation had
cost the state and it had struggled mightily to dig out of
the hole. He relayed that the state had sued Mercer and had
recovered a pitiful amount. The state had won the suit, but
it had lost a strong retirement system. The state was now
tasked with finding a good, responsible way to be
competitive in the workplace.
1:49:01 PM
Representative Stapp asked if the situation with Mercer was
the first time the Alaska Retirement Management Board
(ARMB) had directed municipalities to stop or reduce their
contributions to the DB plans. Alternatively, he asked if
it happened previously throughout the 1990s or prior to
that.
Representative Kopp replied that he had been a police
officer in the 1990s and was not familiar with the
actuarial advice provided to state government during that
time. He relayed that to his knowledge, [the early 2000s]
was the only time the actuary told the state it did not
need to make contributions.
Representative Stapp asked if the actuarial error made by
Mercer was on the healthcare or pension liability side of
the system.
Representative Kopp responded that Mercer had made
incorrect assumptions about how long different employee
groups worked before quitting. Additionally, healthcare
values had been misjudged. He relayed that the errors
involved about four or five things. After the first year
Mercer told the state it did not have to contribute, Mercer
had discovered the error internally. However, the State of
Alaska only found it out through legal discovery during the
lawsuit. The actuary had decided not to tell the state
about the error and had told the state again to not make
any contributions in the second year. The alarm bells had
gone off in the third year and the state had been told it
had to contribute.
1:51:30 PM
Representative Stapp thought Representative Kopp had stated
that the errors resulted in the state losing around $3.1
billion. He asked for verification that the state would
have expected that level of return on the fund if it had
made the contributions.
Representative Kopp answered it was based on the simple
calculation for future value of money, which was standard
actuarial practice. He stated that $500 million at 7.91
percent interest over 22 to 24 years was $3.1 billion. He
remarked that the legislature would likely not be having
the conversation in the present day if the state had not
been lied to and had to go into litigation. He relayed that
it had really set the state back and the legislature had
been caught "flat-footed." The legislature and state had
done what they thought was the best thing at the time in
order to get back on their feet.
Representative Bynum understood it would be a process and
there would be many numbers to crunch in the committee. He
referenced Representative Kopp's discussion of the
calculation of the loss of $3 billion. He highlighted that
the current unfunded liability was over $6 billion. He
asked about the link between the $3 billion and $6 billion
and where the responsibility of the additional $3 billion
resided.
Representative Kopp replied that unfunded liability was
directly linked to performance of the pension funds during
each fiscal year. He recalled that in 2002, market returns
were so good that Governor Dunleavy had highlighted in his
state of the state address that the state's pension
liability gap was nearly closed and there was enough money
to redirect funds towards critical services like public
safety and education without imposing taxes. He elaborated
that a good year of market returns caused the unfunded
liability to close significantly, while a poor market year
caused the liability to grow. He referenced the $6 billion
and noted the amount could be dynamic depending on market
returns. He stated that it represented half [of the
figure]; it was a significant error the state was catching
up from because of the time value of money.
1:54:32 PM
Representative Bynum assumed the committee would have a
more robust conversation about how to prevent additional
liabilities to the state and employees and specifically
addressing the gap of $3 billion.
Representative Kopp responded that Mercer had been the
state's only actuary at the time [the problem occurred].
One of the things the state had done to ensure the
situation never happened again was to require ARMB to have
its own independent actuary to check the contract actuary.
Additionally, there was a third actuary checking both of
the others. The state had reacted well in the situation to
ensure a single actuary could never put the state in a hole
again.
Representative Kopp turned to a bar chart on slide 4 titled
"DB System Funded Ratio History." He was present to talk
less about the old system and more about a new and
different plan going forward. He stated the proposed plan
would contain only a fraction of the risk of the old plan.
The slide showed what had occurred when Mercer had told the
state it did not have to make any contributions to the DB
system from 2002 to 2004. He pointed out that when the
error was discovered, the system was underfunded.
Additionally, there had been a hit to the stock market and
healthcare costs skyrocketed. He noted that the valuation
assets reflected in the graph included the health trust
fund and pension trust fund combined. He relayed that
serious progress had been made and the funded ratio had
increased from [its low point of] 61 percent to 86 percent
for PERS. He lauded the Department of Revenue (DOR) for its
9.1 percent returns in the past year, which beat the
benchmark and was significantly better than the 7.25
percent projected return. He remarked that the state had
good asset managers and he was confident in the state's
ability to manage its funds.
1:57:25 PM
Representative Stapp remarked that the funds were broken
out in two separate trusts and seeing the data combined was
a bit difficult. He referenced the substantial drop that
occurred after the actuarial error. He remarked that the
state had made over $7 billion in additional contributions
primarily to the pension fund. He noted that very little of
the contributions had gone to the healthcare portion of the
fund, which was actuarially overfunded. He wondered how the
plan was still not funded if the actuarial error cost the
state $3 billion and an additional $7 billion in
contributions had been made.
Representative Kopp pointed to 2014 [on slide 4] where the
legislature had made a $3 billion cash infusion to the
retirement system liability. He stated that the year-to-
year market returns impacted how the fund was doing
overall, more so than the cash infusion. He stated there
could be a very high performing year that would move the
funding value needle 4 to 6 points, while perhaps the
following year a cash infusion of $1 billion would only
move the value up 1 point because of poor returns that
year. He relayed it was more about how the market was
performing and looking at long-term trends. Over 40 years,
PERS returned 8.1 percent and in the past 10 years the
return had been 7.91 percent.
Representative Stapp asked for verification that the state
should take a long-term view of 30 to 40 years to avoid
being subject to swings of a couple hundred basis points
year-to-year.
Representative Kopp agreed. The actuaries took a 25-year
view, which he believed was required by law.
2:00:07 PM
Representative Allard asked if it was possible to receive a
breakdown of the healthcare and pension portion of the DB
system information shown on slide 4. She requested seeing
the information in committee in order for the public to see
it as well.
Representative Kopp replied affirmatively. He noted that
DOR and the Division of Retirement and Benefits had done a
good job showing the information in the past several years.
He relayed that the health trust and pension trust were
separately funded. The health trusts were 150 percent
funded and the pensions were 67 to 77 percent funded
depending on whether it was PERS or TRS. The departments
also showed the combined information.
Representative Allard believed breaking the information out
would show the pension as underfunded. She requested to see
it in committee.
Representative Kopp responded that every pension had a
health trust and a pension trust. He explained that the
reason for showing a combined ratio was because it was how
debt rating agencies viewed the data to determine whether
Alaska was financially stable and what rating to give the
state.
2:01:33 PM
Representative Kopp moved to slide 5 and provided a DOR
Treasury investment result summary. The department had
obtained a 9.1 percent overall return for calendar year
2024, exceeding benchmarks. He elaborated that the legacy
DB plan performed in the top one-third of peer public
pensions. The plan had earned $2 billion in excess returns
over the past ten years and nominal gains for 2024 were
$2.7 billion. He clarified that nominal gains did not
include taxes, fees, and inflation proofing.
2:02:07 PM
Representative Kopp moved to slide 6 titled "Past Service
Cost is Well Funded." He relayed that the state's debt
service manager Fadil Limani had told the House Finance
Committee the previous February that PERS was 86 percent
funded and TRS was 92 percent funded. He relayed that debt
service agencies looked at the numbers positively. Mr.
Limani had told the committee the state's pension funds
were well funded from the perspective of credit rating
agencies.
Representative Bynum asked if debt rating agencies also
looked at the fiscal health of the municipal governments
participating in the plans. Alternatively, he asked if
rating agencies only looked at the combined funded ratio of
the retirement and healthcare portions of the pension
system.
Representative Kopp replied that the state debt manager
report addressed how credit rating agencies looked at the
State of Alaska as a risk investment and not local
government units. In other words, what kind of rating the
agencies would give the state if it put out a general
obligation bond as a state. There were other entities that
looked at local government.
Representative Bynum stated that many of the liability
issues in the past plan evolved around the municipal
governments' ability to participate and pay for the plan.
He explained that a lot of negotiations occurred, and some
agreements had been reached with municipal governments and
what they would pay. He explained it was the reason he was
asking whether rating agencies looked at the health of some
of the major contributors and some of the issues the state
had in the past with funding the program.
Representative Kopp replied that as far as he knew, rating
agencies did not look at local government units. He
elaborated that the agencies looked at actions the state
was taking that limited volatility. He relayed that when
the legislature passed the 5% percent of market value
(POMV) from the Permanent Fund it had significantly
increased the state's credit rating because it limited the
state's spending on services and Permanent Fund Dividends
(PFDs). He noted that DOR Commissioner Crum had reported in
2024 that from the perspective of the rating agencies it
was the most fiscally stabilizing action the state had
taken. He explained that a responsible retirement plan and
spending plan were state actions that largely the
legislature would be involved in.
2:05:38 PM
Representative Johnson shared that she had been the
president of the Conference of Mayors and mayor of Palmer
when the additional deposit had been made to PERS and TRS.
She detailed that the state had told Palmer officials the
city had to pay immediately, and Palmer had responded that
it was the state that had told the city it did not have to
pay the contribution. She relayed that Palmer was a
reasonably well funded city with good management, but there
was no way the city could come up with the money the state
asked for. She had been part of the negotiations that
resulted in the 22 percent contribution for municipal
government. She highlighted it was a lot of money for small
municipal governments. She did not know whether there would
be discussion about changing the rate, but she wanted to
hear from municipalities before getting too far along.
Representative Kopp replied that he had a background in
local government as well and had been the acting city
manager in Kenai when the 22 percent had been negotiated.
He noted that Senate Bill 124 had put the 22 percent into
law. He thanked Representative Johnson for her work on the
issue. He elaborated that the 22 percent limited on the
PERS side the amount that would be put into the various
trusts that comprised the entire program. He stated it
would cover the employer's contribution to the program and
other various benefits. Prior to the cap, the contribution
for municipalities varied from year-to-year. He elaborated
that PERS had been capped at 22 percent and TRS was capped
at 12.56 percent. When the defined contribution (DC) plan
was adopted in 2006, the cap was maintained for the new
system.
2:08:58 PM
Representative Kopp turned to slide 7 titled "Recruitment
and Retention Crisis is 'The Cost of Doing Nothing.'" He
stated that failing to address recruitment and retention
was part of the cost of doing nothing. He moved to slide 8
titled "Alaska Retirement Management Board." The slide
included information from the ARMB report ending June 20,
2023. He detailed that for the 12-month period, the PERS
and TRS withdrawals from the DC plan exceeded $145 million.
He elaborated that when including the Supplemental Annuity
and the Deferred Compensation Plan for the DC plan the
total withdrawals that year were nearly $500 million. He
relayed that 90 percent of the withdrawals came after five
years of service or 100 percent vested. He explained that
employees were cashing out and moving on once they could
get their employer contributions and all of their employee
contributions. The ARMB brought the issue to the
legislature's attention and communicated that the state had
created a system that pointed to a value of leaving at five
years. There was no value for retaining employees beyond
that timeframe.
2:10:31 PM
Representative Stapp was glad to see the information on
slide 8. He asked what happened when an employee tried to
cash out their DC plan prior to five years of service.
Representative Kopp replied that an employee would get
their contributions. He elaborated that at two years of
service an employee would receive 25 percent of the
employer contribution, at three years they would receive 50
percent, at four years they would receive 80 percent, and
at five years they received 100 percent.
Representative Stapp thought it said more about the period
of vesting than it did about the retirement plan. He stated
it was his third year in the legislature and he would need
to run for reelection to be able to receive the full
funding.
Representative Kopp responded that extending an investment
period (e.g., to seven or eight years) was a great policy
question. He noted that the bill made an adjustment to the
vesting period for TRS.
Representative Allard referenced overtime, retention, and
recruitment. She provided an example of a police officer
working with the Anchorage Police Department (APD) making
$170,000 per year due to overtime. She thought it would
impact the rookies. She asked if an employee was considered
a rooky for their first five years of employment.
Representative Kopp replied that generally until a person
had been on the job two years, they required quite a bit of
supervision.
Representative Allard remarked that the scenario she
provided about the APD officer making $170,000 was real.
She thought it was reason for young officers to leave when
they were not getting overtime because it all went to
senior officers.
Representative Kopp answered that the scenario included an
assumption that there was selective overtime versus forced
overtime. In other words, some people were getting a choice
[to accrue overtime] and making more and new people were
being deprived.
Representative Allard agreed.
Representative Kopp was very familiar with APD. He stated
there was a tremendous amount of overtime at APD because
they were shorthanded. The normal shifts were rarely 4/10s;
officers were called in all of the time because they were
either training new people or officers had to cover normal
patrol shifts when other officers were called out on the
SWAT team. He continued that the vacancies currently varied
between 60 and 70. He explained that currently there was
more forced overtime versus people not being allowed to
work overtime. He noted that the selection could become on
a preferred detail. For example, a person could request
overtime on a specific detail (e.g., parking detail)
because it was less stressful.
2:14:17 PM
Representative Allard believed "it" was about 18 percent
nationwide. She stated that Alaska was right in line with
the rest of the country. She wondered where the proof was
showing that an absence of a DB plan was the reason for
recruitment and retention issues.
Representative Kopp answered that the state's actuary, Buck
Consulting, and independent actuaries Gene Kalwarski and
Flick Fornia had evaluated the bill and were collectively
responsible for more than 2,500 counties and units of
government nationwide. The three actuaries all stated that
invariably a pension filled positions and kept people
throughout a career. He explained that it was the
actuaries' job to be fiscally conservative and tell
governments what would happen. The actuaries reported that
a pension filled vacancies because it incentivized time and
service. He elaborated that people would stay in a position
because they were accruing 2.5 percent of their base salary
for every year of service up until 20 or 25 years, whereas
a DC plan gave an option to cash out at five years. He
relayed that a senior police officer did not benefit any
more than a new police officer; there was no time in
service incentive for a highly trained officer under the DC
plan. He stated that the retirement plan signaled to
employees how much an employer valued them. He relayed that
a time and service commitment signaled loyalty and employee
buy-in, whereas a DC plan did not give any incentive to
stay beyond a certain date, meaning a person could cash out
and go.
Representative Allard clarified that the State of Alaska
had a retirement plan in place, it was just not the
specific one contemplated in HB 78. She stated that the DC
plan enabled individuals to leave and cash out, whereas
they would be locked in under the DB plan and unable to
leave. She thought they would almost be handcuffed to the
DB plan even if the situation was not working for a family.
She did not think she had seen the true facts. She did not
see anything in writing detailing the specifics
Representative Kopp was referring to from the actuaries.
She stated that "we're still looking at 18 percent across
the country where the defined benefits doesn't stop people
from moving around." She wanted to see statistics showing
what Representative Kopp had stated.
Representative Kopp replied that those things reported from
the actuary were in the fiscal notes. He added there would
be new fiscal notes for the bill, but the actuaries would
say the same thing. He relayed that members' bill packets
contained a consulting fiscal note, where the actuary
specified that the bill would fill positions, increase
recruitment and retention, and increase payroll because
people would be hired.
2:18:29 PM
Representative Allard stated that it was an opinion that
she did not believe was based on fact. She wanted to see
fact. She wanted to see exit surveys that said individuals
left Alaska because they did not receive defined benefits,
"not because the education system's horrible." She had not
seen the proof anywhere.
Representative Kopp relayed that members' bill packets
included the Alaska State Trooper 2017 through 2023
recruitment and retention survey. He noted it was a 15-page
report and a DB retirement was identified by the survey as
one of the top needs for the vacancy crisis. The troopers
referred to the inability to fill positions as a crisis.
Co-Chair Foster asked Representative Kopp to flag the 15-
page document for committee members to discuss during a
subsequent meeting.
Representative Kopp responded affirmatively.
Representative Bynum looked at the issue from the
perspective of an employer. He had been an employer and
over the years when an employee left employment, he had
conversations with them about what was driving them to
leave. He stated there was no doubt that retirement was
part of the conversation about why a person took employment
or was leaving, but it was not the primary factor. In his
experience, the biggest factor that drove employees away
was the cost of living including being able to afford their
home and ensuring their kids had a school to go to that was
taken care of. Additionally, it had been about the
remoteness of living in Alaska away from family in other
places. He believed that it was important to have a robust
discussion about how the proposed program would impact
individuals' desire to stay in communities. Health
insurance was another important item to employees (being
able to take care of their families when they retired). He
stated that the health insurance component was more
important to employees he had employed than what their
paycheck would be in retirement. He stressed it was the
most important thing to them. He added that many of the
individuals continued to work beyond retirement because of
the health insurance component. He asked if during the bill
discussion there would be a robust conversation about the
impacts of the proposed retirement program and the desires
and needs for current and future employees.
2:22:33 PM
Representative Kopp answered that every job class was
different. He surmised that Representative Bynum had
probably been dealing with people in the utility industry.
He stated that people were unique and job classes were
unique in terms of primary motivating forces. For high
public trust, complex learning jobs, the state did not
benefit from high turnover. He believed a utility company
did not benefit from high turnover either because of the
skilled jobs. He asked Representative Bynum if the utility
was public or private.
Representative Bynum shared that he had been a municipal
utility employer and he had also been on a borough assembly
for four years doing borough government. His experience was
with borough government and a municipal utility, which was
also tied to a municipal government.
Representative Kopp replied that Alaska was the only state
that did not have a pension for public safety officers or
teachers. There were a number of states that did not have a
pension for other job classes, but they all had a pension
for public safety and teachers because those job classes
were extremely difficult to fill and retain. When complex
learning was involved, peak productivity did not happen for
teachers until later on. He stressed that 15 to 20-year
teachers were phenomenal and had honed a highly productive
skill. He noted that some school districts in Alaska had a
31 percent turnover rate. He remarked that some students
had two teachers in one year and people wondered why test
scores were sometimes not great. He stated that it took two
years of real training in the police force before a police
officer offered a real contribution to the police force. He
relayed that by five years on the force an officer was
becoming very valuable. He remarked that it was a challenge
when the five-year individuals were going to one of the
other 49 states with a more competitive retirement program.
He remarked that the committee would hear from testimony
that it was the case. He stated that Alaska was so
geographically isolated from the rest of the nation that
its cost of relocation to Alaska was also a major factor.
He explained that it had devolved into an arms race between
the Anchorage, Juneau, Fairbanks, and Kenai police
departments; the departments were all stealing officers
from one another. They could not find Alaskans who wanted
to do the job, it was difficult, and the civil liability,
legal exposure, and risk to families was so great that
troopers were hitting the ten-year mark and deciding to
leave. He stated it was necessary to do things to move a
strategic wage compensation package for job classes to
incentivize staying. He did not mean to indicate that all
employees were the same. He clarified it was necessary to
consider what could be done to stop the churn. He
reiterated that the state's geographic location and
remoteness was part of the challenge.
2:26:55 PM
Representative Bynum referenced Representative Kopp's
mention that turnover in any business (e.g., utilities,
transportation, etcetera) was costly and it hurt the
ability to deliver services. He wanted to be able to get to
the bottom of how to keep a stable workforce. He believed
cost of living was a primary factor as well as pension or
retirement reform.
Representative Kopp thought it was an excellent question.
He referenced the lost dollars in training. He highlighted
that the Department of Corrections (DOC) reported a 6
percent non-retirement separation. He clarified that the
number pertained to individuals leaving a job but not for
retirement reasons. The figure for the Department of Public
Safety (DPS) was closer to 4 percent. He noted that the
report in members' packets showed that the cost of two
years training for a trooper was close to $500,000 and when
a trooper left in their third year it was devastating. He
relayed that the committee would hear from economists that
the lost training dollars to the state eclipsed the cost of
the bill. He noted that when the committee heard about
costs of the bill it would hear from the actuaries.
2:28:51 PM
Co-Chair Foster noted that there were five invited
testifiers. He recognized the complexity of the topic and
noted the committee would take as much time and as many
questions from members as needed.
Representative Stapp remarked that the fiscal note of the
actuarial analysis from Buck or Cheiron was not on BASIS.
He thought it was where some of the confusion resided
because members had not seen those documents. He remarked
that typically bills went through lower committees and the
fiscal note information was available once a bill reached
the finance committee. He addressed employee retention and
the new concept of the return to a DB system. He stated
that the real problem was they were using current dollars
for yesterday's employees. He stated that if that were not
the case, 22 percent of contribution for a retirement plan
was a massive amount of money for a DB or DC plan. He
stated the reason the number was so high was because the
state got into trouble meeting obligations for past
employees. He hoped the committee could discuss that if it
were to "do something like this again" the state would not
be in a situation in 30 years where it was spending today's
dollars on yesterday's employees.
Representative Kopp emphasized that the bill did not
reflect a return to the old DB plan. He stressed that the
bill was structurally very different. The committee would
hear from actuaries and people who managed similar plans
and would see what the valuations were in other states with
similar plans. He underscored it was a totally different
animal and reflected a new plan going forward with shared
risk between employees, employers, and retirees. He pointed
out that the 20 percent was not the employees' fault. He
stated that the 20 percent was largely where the state had
to land covering from catastrophic actuarial advice. He
remarked that the state had been on the path to recovery,
and he believed DOR was doing a great job managing the
funds. He highlighted that the state was in the top one-
third for performance in terms of climbing out of the hole.
Co-Chair Foster recognized Representative Mia Costello in
the room.
Representative Johnson wanted to see some fiscal notes. She
believed the bill went through the Senate the prior year
and she did not know if there were fiscal notes attached.
She stated it was hard to have a conversation without
referring to fiscal notes. She stated that the 22 percent
was not enough. She believed the state was currently
picking up an additional 6 percent to make municipalities
whole. She remarked that there had been many attempts to do
retirement plans. She observed that it was possible to look
at each of the current [four] tiers to see that someone had
a great idea but did not think it through that well. She
asked how much the actuary said the return on the previous
plan should be to make it whole. She recalled a bill from a
couple of years back with a baseline number of 7.38
percent. She did not know what the return on the fund
should have been to pay the current liability off. She was
trying to get a sense of what the return was supposed to be
over 30 years for all of the different plans. She reasoned
that at some point the things intersected and there should
be some commonality.
2:34:37 PM
Representative Kopp answered that the actuaries were
required to project a rate of return that would result in a
full amortization of the unfunded liability by a date
certain. The number was currently 7.25 percent through 2039
when all of the unfunded liability of the old system would
be paid off. Actuaries had looked at the version of the
bill in 2024 and had considered how much additional cost it
would bring in while keeping it all paid off by 2039. He
relayed that any new plan was required by law to start out
100 percent funded. He explained that because no one would
be retired under the new plan at the start, no benefits
would be paid and investment returns from employee and
employer contributions would go into the system. He thought
the actuaries would do a refresh on the payoff day and
would likely look at 2040. He reiterated his earlier
statement that the return had been 9.1 percent in the past
year. Treasury was hitting its benchmarks.
Co-Chair Josephson considered the subject of reasons for
departures or withdrawals from the system. He stated it was
about the 15th year that a legislator had looked at
bringing back defined benefits. Legislators who had
proposed the idea included former Representative Lindsay
Holmes, former Representative Charisse Millet,
Representative Kopp, the late Senator Dennis Egan, Senator
Cathy Giessel, and himself. He remarked that the situation
was beyond anecdotal information that people were departing
due to the lack of a defined benefit. He highlighted that
the state knew that people in the Lower 48 people were
actively poaching and recruiting Alaska's employees. He
asked if his statements were accurate.
Representative Kopp agreed. He relayed that the committee
would hear from the heads of Alaska's public safety
agencies and other agencies, and they would report that it
was exactly what was happening.
Representative Allard remarked that Alaska had the highest
private sector turnover. She highlighted that Alaska was a
bit of a tough state that was isolated, and the weather was
not always ideal. Part of her concern was the idea of
locking employees into a system where they could not cash
out their retirement funds as an alternative. She thought
some people may decide not to come to Alaska if they were
locked into a defined benefit system and could not leave
and take their money. She wondered why it would not be
possible to have a DB and DC system to give the option. She
stated that the bill had not been heard in another
committee prior to being introduced in House Finance and
she thought it had not gone through a proper process. She
thought she would likely be more informed if the bill had
been heard in another committee first.
2:38:29 PM
Representative Kopp answered that he had fought for two
years to get the bill heard in the House but had been
unable to do so in the past. He relayed that Representative
Allard's question was a policy call. He stated that under
the bill any current employee could choose to remain in the
DC plan, or they could choose to go into a DB pension.
Employees would be able to look at the actuarial calculator
to determine whether one year of DC would equal one year of
DB. Individuals would also look at the annual salary ratio
in a DB system. He detailed that in 2024, DOR showed that
in a DB system, employees were earning about 5 to 10
percent more than under a DC system. The difference was
because in a pension pool there were 10,000 to 20,000
employees, meaning there was risk management, whereas a DC
plan was individually run. He explained that if a person
was a good money manager, they could make the DC plan
perform, but it was only the top percentile that met
benchmarks. Under the bill's current structure, everyone
would go into a shared risk pension. He agreed that whether
there should be an option [for employees to choose between
a DB or DC plan] was a fair question.
Representative Bynum referenced Representative Kopp's
statements that the proposed new plan was not the old plan.
He hoped to see a simplified comparison between the
previous plan, the current plan, and the proposed plan
showing the actual cost and to whom. He stated that
investing in a retirement program came down to dollars
being invested by somebody. The big question people would
ask was, "Who is that somebody and how much are those
dollars?" He stated that if under a DC plan, employees were
getting 22 percent paid by employers the current bill would
not be under consideration because employees would be very
happy with the generous scenario. Employees were not
receiving that amount due to the past liability being paid
for by the employers at the cost of current employees.
Representative Kopp noted that the information was included
on the upcoming slides. He moved to slide 9 titled "Alaska
Workforce Profile 2024." The pie chart showed that most of
the state's workforce was five years or less. There was a
churn after five years and it started to taper off, with
the exception of senior employees with a different
retirement plan or lifelong Alaskans who were committed to
staying in a local community. He turned to images of
various statewide headlines on slide 10 indicating Alaska's
law enforcement crisis and teacher shortages. He elaborated
that Alaska had a substantial number of foreign teachers on
J-4 visas in rural Alaska mostly from the Philipeans or
other countries. He elaborated that districts could not
find local homegrown talent to fill teacher positions.
Additionally, there were unprecedented public assistance
backlogs and taking care of vulnerable populations, school
districts starting late due to a lack of teachers,
shortages in police department staffing. He highlighted a
quote on the slide from the DPS Commissioner James
Cockrell: '"We're sending Troopers to domestic violence by
themselves. Bad things happen. Either we end up hurting the
person? or a Trooper gets assaulted and gets hurt. I mean
this is ridiculous, really, when you think about it."' He
stated that Commissioner Cockrell was referring to the
department's inability to recruit troopers. The department
reported that it could not find people who wanted to do the
job anymore; it was too much risk. He highlighted that on
May 1, 2014, two officers were shot and killed on a
domestic violence call in Tanana. He stressed that the jobs
were risky. He elaborated that public service was a
commitment to put oneself on the line with included giving
one's life if that was what one was called to do. He stated
that in many of Alaska's rural communities public service
members were just one plane crash away from a fatal
accident. He elaborated that a court services officer had
been gored to death by a musk ox in Nome. People out on the
front lines were struggling to have enough support in their
job classes to effectively do the job safely. He noted that
the bill aimed to provide part of the solution. He added
that he was not suggesting it was a silver bullet.
2:44:58 PM
Representative Kopp turned to slide 11 and discussed
department vacancy rates. He pointed out that the vacancy
rates had not been doing well for some time, but they had
bumped up 1.5 to 2 points more recently. He relayed that
agencies had been doing letters of agreement where they
were bringing in employees at the pay of four to five job
classes higher. Departments were doing big salary increases
and bonuses, which had helped turn the corner. The
governor's proposal in 2024 to provide teacher recruitment
incentive bonuses was about $58 million. The cost for the
proposal was about $60 million in the current year. He
pointed out the proposal only pertained to teachers. The
state realized it had to do things to move the needle on
vacancies.
Representative Kopp moved to slide 12 titled "Do We Want
Alaska to be Competitive again?" He considered whether a
goal was for Alaska to be competitive again in the
marketplace for a workforce that would directly contribute
to private sector stability, strong schools, strong public
safety, strong transportation infrastructure, and an
environment where business and families wanted to come to
Alaska to invest.
Representative Kopp advanced to slide 13 showing a proposed
solution in HB 78. He reviewed the slide and relayed that
the proposed solution in HB 78 was a new competitive and
responsible retirement plan that shared risk with
safeguards to prevent underfunding and was a strategic
investment and a wage compensation package that would make
Alaska attractive in the marketplace again. He turned to
slide 14 and discussed the bill's structural features. The
bill built on the best practices of other states that were
thst
funded very well, many of them in the 90 up to 101
percentile. The proposal shared risk between employees,
employers, and retirees. He stated that retirees had skin
in the game and had to give if the plan was not doing well.
The proposal also ensured the system would remain solvent.
2:47:00 PM
Representative Kopp turned to the bill structure on slide
15 beginning with employee contribution. The employee
contribution began at a floor of 8 percent, but it could be
adjusted up to 12 percent of their pay. The employee
contribution was adjustable by ARMB based on a 90 percent
trust fund valuation. The funds had to be evaluated
annually by the state's actuary. The employees shared the
risk contributing more during poor market returns. He noted
that the yellow font [at the bottom of the slide] reflected
where the provision could be found in the bill.
Representative Stapp looked at the bullet point on slide 14
that the proposal ensured the system would remain solvent.
He remarked that the bill specified that ARMB would adjust
the employee/employer contribution rates in the event the
plan was not at 90 percent. He asked what compelled ARMB to
make an adjustment.
Representative Kopp answered that ARMB followed law set by
the legislature. He stated that if there was a desire to be
more prescriptive, it could be made iron clad. He detailed
that ARMB looked at numerous variables including a five-
year smoothing of returns. The bill could direct ARMB to
act at a certain point or it could advise ARMB to act.
Representative Stapp considered a scenario where the state
was telling an employee ten years from now that the state
had to take 9 percent of their paycheck instead of 8
percent due to the unfunded liability. He remarked that
ARMB trustees were appointees; therefore, he characterized
it as a political decision at the time. He elaborated that
it would be a hard decision to make if the state had to
tell employees it was going to take more money out of their
paychecks. He thought it sounded like Representative Kopp
would be open to mechanisms that made sure ARMB would be
directed to make a change to the employee contribution if
the plan dropped to 80 percent.
Representative Kopp answered that it would be good to have
someone from ARMB talk about the issue. He relayed that he
was not an actuary or ARMB expert, but he knew they
considered a number of factors. He had heard from actuaries
that making a small increment change such as moving from 8
to 8.1 percent would result in a significant strengthening
of the system. He added that it was a shared risk, meaning
that if employees were doing it, employers would also
contribute another 0.1 percent.
2:50:49 PM
Representative Allard remarked that the bill pertained to
PERS and TRS statewide, but it seemed Representative Kopp
was talking a lot about public safety. She shared that when
she was growing up in the Lower 48, many of her friends
moms were teachers in the 1970s and 1980s so they could
teach while their kids were in school and stay home with
them in the summer. She stated they did not do that
anymore; teaching had changed completely and included
homeschooling, correspondence, and other forms. She
wondered why the bill was not specifically a public safety
bill instead of a DB plan for all public employees. She
asked if Representative Kopp felt the recruitment for state
employees was not happening.
Representative Kopp answered that the department directors
had all communicated that they were having substantial
trouble with staffing. He did not believe they were making
it up. He thought it was a crisis for teachers and he did
not believe any school district had indicated it was doing
well. He had seen a letter from the Mat-
Su School District highlighting that recruitment and
retention was a real issue. He pointed out that he came
from a public safety background, which informed examples
and stories he shared. He believed the plan should cover
all employee classes.
2:52:34 PM
Representative Bynum referenced the sliding scale of 8 to
12 percent [for employee contributions] that could be
adjusted by ARMB based on a 90 percent trust fund valuation
[slide 15]. He asked what happened if there was a need for
more than 12 percent.
Representative Kopp answered that actuaries would say that
the scenario was almost impossible to occur. He relayed
that even a small decrement of a 0.1 percent had a
significant input into the system, especially when shared
with employers bumping up by 0.1 percent. He informed the
committee that an 8 to 12 percent range would be the
largest contribution range nationwide. There were some
states that had ranges of 8 to 10 percent and they were
funded in the high 90s to 100 percent. The range included
in the bill provided larger room for error if there was a
catastrophic year-over-year fail to return. He deferred the
scenario provided by Representative Bynum to actuaries, but
he stated they would say it was very unlikely to occur.
Representative Bynum asked why they would not eliminate the
restriction on the cap if the scenario was unlikely to ever
happen.
Representative Kopp answered that it was a policy call. He
believed that to signal certainty to employees. He believed
a good reason to include a cap was that the actuary said
the scenario of having to fund at that level was almost
unthinkable. He provided a hypothetical scenario where 30
percent of the workforce was wiped out in a catastrophic
accident and the rest of the workforce was carrying the
load. He stated it would take something remarkable like the
hypothetical scenario to occur. He deferred to actuaries to
provide better advice on the policy call.
2:54:44 PM
Representative Bynum asked about defining the risk to the
employer. He referenced conversation about keeping a stable
workforce. He provided a hypothetical scenario where an
employee was working and all of a sudden the cost out of
their paycheck was potentially a 4 percent jump. He asked
how to deal with the potential situation in a market with
high costs. He reasoned there could be the same scenario as
in recent years going from COVID to the current time where
costs had suddenly gone out of control. He asked if the
risk had been considered.
Representative Kopp answered that the proposal in HB 78 was
a shared risk plan. He believed any employee who chose the
voluntary plan (employees could opt to remain in their
current plan or go into a DB shared risk pension) needed to
understand that the plan was structured as shared risk. He
liked how Representative Bynum had looked at the issue from
the perspective of the employee and the employer. He
believed the bill provided a balance.
2:56:30 PM
Co-Chair Josephson recalled that the 12 percent had been an
amendment offered by former Representative Bart LeBon who
was known for his fiscal conservatism and as a career
banker. The number had been 8 to 10 percent as noted by
Representative Kopp. He stated that HB 78 was a more
cautious bill.
Representative Kopp agreed.
Representative Allard remarked that the bill had not come
from the executive branch. She referenced a statement from
Representative Kopp that he had been hearing "this" from
directors. She wondered apart from DPS which commissioners
and directors were requesting a DB bill.
Representative Kopp answered that pertaining to the
governor's FY 26 budget rollout, many directors cited the
challenges related to recruitment and retention, high
turnover, loss of institutional knowledge, and loss of
ability to train incoming employees because they were
losing trainers. He stated that agency after agency it was
a top concern listed in their budget books.
Representative Allard commented that the individuals were
not actually requesting a DB plan because departments were
losing employees. She thought the population in Alaska had
remained steady. She was concerned about the implication
that executive branch employees were asking for the plan.
Representative Kopp clarified that he was not saying that.
He was saying the individuals were recognizing there was a
problem and steps needed to be taken to turn it around. The
bill was a proposed solution to implement a shared risk
retirement plan going forward. He elaborated that directors
were merely talking about the current situation and were
not coming forward with a policy call.
Representative Allard thought it was possible to limit the
bill to public safety only to give first responders the
option to cash out and go [under a DC plan] or remain with
the state under a DB plan.
Representative Kopp stated that the legislature could do
whatever it wanted. He noted it was not the intent of the
finance committee.
Representative Allard agreed. She stated that if the bill
had gone through the House Labor and Commerce Committee
maybe the questions could have been asked.
Representative Kopp stated that he was glad for the
questions.
2:59:55 PM
Representative Stapp referenced Representative Kopp's
statements that 12 percent would never happen. He stated
there were police and fire departments that already had 12
percent contributions including the Colorado Public Fire
and Safety, City of Denver, and Ohio. He guessed that
employees in Denver had likely been told 20 years ago they
would never have to contribute 12 percent. He agreed that
he did not see the possibility [of a 12 percent employee
contribution] happen when looking at actuarial studies;
however, the heartburn on the risk to pay today's dollars
for yesterday's employees was mitigated significantly by
tweaking the percentages. He knew it was challenging
because they did not want employees to pay 90 percent of
their salary to have a pension because it would defeat the
purpose of having a pension. He asked if the bill sponsor
was willing to look at tweaking the number from the
perspective of a more risk averse option.
Representative Kopp clarified that HB 78 was a House
Finance Committee bill and the committee would have to
discuss that. He pointed out that if employees were at 12
percent the employers were also at 12 percent. He stated
there were very few other entities sharing the risk in that
way. He stated that due to the shared risk it was even less
likely the scenario would occur.
Representative Stapp redirected his question to the
committee.
Co-Chair Foster answered that the bill had not yet been
fully vetted and he wanted to ensure committee members had
a comfort level with the information. He wanted to get
through the presentation and hear from testifiers. After
that point he suggested they could begin to talk about the
idea.
3:02:18 PM
Representative Kopp moved to slide 16 and highlighted
states that used a variable employee contribution rate
including Idaho, Iowa, Maine, Montana, Nevada, Wisconsin,
and Arizona. He relayed that the aforementioned states were
performing strongly, all better than Alaska. He noted that
Wisconsin was funded at 99 or 100 percent and several other
states were in the 90s. The bill borrowed a best practice
from other states and had a larger contribution rate
possible. He highlighted that ARMB could ratchet the rates
back down to the floor for employees and employers if the
plan year-over-year was above 90 percent.
Representative Kopp addressed the employer contribution on
slide 17. He relayed that the bill allowed the 22 percent
rate [for PERS] to be reduced down to 12 percent. He
referenced the bill's structural improvements and looked at
states with similar plans that were well funded. He stated
there was no reason to have a plan that was over funded. He
relayed that the employer contribution range in the bill
was 12 to 22 percent for PERS, and the rate could be
adjusted by ARMB. The floor was to ensure the state never
had another 2001/2002 Mercer situation where it did not
contribute to its employee plans because they were 101
percent funded. Actuaries would speak more to the 12
percent floor. The bill allowed the 12.56 percent employer
contribution rate for TRS to be lowered to 12 percent.
Under the bill, the state would maintain the existing
liability toward past service cost above the 22 percent.
The additional 3.1 or 4.1 percent of additional state
contributions per year (whatever was necessary) would not
be put off on municipalities. He underscored that the
employer and employee contributions were synced; if a rate
was increased or reduced the employer and employee would
share in the risk or reward.
3:05:01 PM
Representative Tomaszewski referenced Representative Kopp's
statements that other states were very well funded. He
looked at the list of states on slide 16 and asked if they
were the states Representative Kopp considered to be very
well funded in their plans. He asked if there were others.
Representative Kopp answered that the state's listed had a
shared risk mechanism. He had specifically highlighted a
couple that were doing very well. He believed all of the
states listed were doing better than Alaska, but he would
have to double check.
Representative Tomaszewski thought there must be other
states that were very well funded as Representative Kopp
had made the remark a couple of times.
Representative Kopp responded that he would address the
topic in more detail on upcoming slides. The bill borrowed
several practices from other states to create a unique plan
and the most risk averse shared risk pension system in the
country. He would highlight the states that were well
funded further on in the presentation.
Representative Bynum remarked on the statements that the
plan was new and nothing like the old plans. He discussed
that PERS and TRS were currently separated as opposed to a
combined pool. Additionally, there were different
percentages proposed in the bill that could put different
risk on the PERS and TRS employers. He addressed the idea
of maintaining the 22 percent [PERS employer contribution].
He highlighted that in the current DC plan there was a
defined cost of about 9.5 percent to the employer. He noted
the amount varied, but the employer was giving about 5
percent for most PERS he thought the employer/employee
contribution for DPS was a bit different additionally
there was a health component resulting in a total cost of
about 9.5 percent to the employer. There was also about
12.5 percent cost to the employer (the municipality) up to
the 22 percent cap. There was an additional cost that went
to the state that he referred to as the "on behalf" part.
He heard Representative Kopp saying that if liability
increased, the employer contribution went from 12 to 22
percent. He pointed out that employers were already paying
12.5 percent for past liability. He asked if the percentage
in the bill would be added on top of the existing 12.5
percent.
Representative Kopp answered that in a 22 percent PERS
contribution there were two classes of retirement including
the old DB pension and the current DC plan. The existing 22
percent was broken out between the two trusts. He believed
12 percent went into the DB plan and 10 percent went to the
DC plan. He explained that the percentages included cost
for health and occupational and disability/death benefits.
The bill specified that if a new system was above the 90
percent funding profile, ARMB had the option of lowering
the required contribution for municipalities to something
less than 22 percent. Local governments had been asking for
the rate to be lowered for a long time. He noted that the
Alaska Municipal League had said that eventually things
would be doing okay, and the state would catch up on the
old liability. He stated based on paying the past service
cost that the bill proposal would allow dropping the cost
to 12 percent as long as the plan was funded at 90 percent
or above.
3:10:12 PM
Representative Bynum remarked that there were multiple
classes of employees under tiers II and III [in the DB
plan] and under Tier IV in the DC plan. As an employer,
there was a cost associated with each employee. He was
specifically focusing on the cost of a tier IV employee. He
believed the cost under the tiers II and III was about 22
percent from the employer plus an additional 6 percent from
the state for a total 28 percent. Under tier IV there was a
DC component from the employer and a past liability cost of
a new employee. For example, under tier IV an employer paid
12.5 percent for a new employee to cover someone who was
retired. He was tying to figure out how the shared cost
component would not cost the employer more money.
Representative Kopp responded that he could best explain
the system through a chart showing how the 22 percent was
broken down between the DC and DB systems. He explained
that the employers did not pay anything above the 22
percent cap. Any additional cost was paid by the state. He
noted that if the state was the employer, it was
responsible for the entire amount. Local government was
capped at 22 percent with about 12 percent to DB and 10
percent to DC. He had a chart showing all of the benefits
and how they comprised the 22 percent. He relayed that the
12.56 percent for TRS was broken down into a percentage for
DB and DC as well.
Representative Bynum was interested in seeing the
percentages broken down for the average observer to see the
benefits, cost, and who was paying.
3:13:15 PM
Representative Stapp referenced that under the bill the
employee contribution started at 8 percent and the employer
contribution started at 12 percent. He provided a scenario
where ARMB increased the employee contribution to 9
percent. He asked if under the scenario the employer
contribution would be raised to 13 percent.
Representative Kopp responded that the 22 percent [employer
contribution] cap for PERS and 12.56 percent cap for TRS
was still a cap under the legislation. The bill provided
the ability for the contribution rate to be reduced. The
employer and employee contribution were variable. The bill
was structured so that the 22 percent maintained the entire
cost. He relayed that someone from the Division of
Retirement and Benefits would have to discuss how the
division would maintain the current cap. He could follow up
with the information.
Representative Stapp stated that many municipalities had
discussed how they were looking forward to being able to
clear the unfunded liability. He highlighted that the state
paid more money for yesterday's employees than it was
contributing for current employees. The municipalities were
looking to see the liability paid off so they could use the
money for other things. He viewed the bill to mean that the
best case scenario meant the employer contribution could be
decreased as low as 12 percent, but the 22 percent would
carry forward in the bill. He asked if it was the intent to
say that the limit of risk for the employer contribution
was 22 percent in perpetuity.
Representative Kopp answered that it was the case until the
law was changed. There was a state law that capped the
contribution rate at 22 percent. The variables could move
up and down within the structure. He considered whether it
would result in the state paying a higher "on behalf of"
amount (the state paid anything above 22 percent). He
reasoned that if the [employee and employer contribution]
percentage was bumped up 0.1 percent it would likely mean
the state's contribution would increase by the same amount.
Unless the legislature changed the law, the local
government contribution cap would remain at 22 percent.
Representative Stapp asked why the legislature chose to
have school districts absorb less of the risk as opposed to
municipalities.
Representative Kopp answered that he was not the TRS
expert. He relayed that local property taxpayers in most
districts contributed heavily to the amount. He thought it
may have been a reason for the reduced amount. He clarified
that he was not the authority on the specific topic.
Representative Allard considered a scenario where there was
a DB and DC option for employees. She asked Representative
Kopp for his opinion on a system where DB participants
could not access their retirement pension until the age of
62. She stated that people double and triple dipped. She
remarked that it would save the state money. She noted that
the Alaska National Guard used that method.
3:17:44 PM
Representative Kopp responded that he was not familiar with
the scenario. He explained that the bill was structured so
a PERS employee could retire at the age of 60 with a
minimum of five years' service. He detailed that even if a
person only worked for five years, they had to wait to
withdraw anything until they turned 60. He added that they
only received credit for the five years they worked. Or a
person could take retirement after working 30 years'
service. The only exception was for public safety where an
individual could work for 25 years and draw their pension
at the age of 50 or work for 20 years and draw their
pension at the age of 55. Under the legislation, the health
portion was a health savings account and was unchanged from
the current DC plan.
Representative Allard stated her understanding of the
length of time a police officer had to work in order to
retire and draw on their retirement funds.
Representative Kopp answered that if a [police officer]
served 25 years they could draw on their pension as early
as 50 years of age.
Representative Allard stated the person could technically
double dip. She reasoned that the person could draw their
retirement pension at the age of 50 and go work for the
airport police to receive a paycheck.
Representative Kopp clarified that was not the case. He
explained that airport police were also in the police fire
system. An individual could not double dip on their pension
in that way. He explained that if a person was already
retired under PERS public safety they would have to stop
taking their retirement to reenter the system as an
employee to start building credit again.
Representative Allard thought an individual could go into
any other line of work and double dip by continuing to
receive their retirement as long as the work was not within
state government. She thought the individual could become a
security guard and continue to receive their pension.
Representative Kopp answered that anyone who retired at the
age of 50 or 55 would likely still be working until the age
of 70. He noted that Medicare did not start until the age
of 65 and a full social security withdrawal was possible at
the age of 67. He explained that even a public safety
employee who retired at the age of 50 or 55 would be
working until Medicare. He highlighted that the average
pension in Alaska was modest at about $28,000 per year.
Representative Allard thought it was possible to include an
amendment where individuals could not access their pension
until 62 years of age.
Representative Kopp stated they were policy calls. He
addressed the idea of requiring an individual to wait to
receive their pension another 12 to 14 years after
retiring. He explained that whether a person was a teacher,
a diesel mechanic, police officer, or plow driver, once a
person had done a job for 25 years 30 years, many people
physically were not in a position to get a well paying job
after that time. He considered the abuse a body was put
through on the job or narrowly confined job skills [that
may limit a person's ability to find a well-paying job
after retiring]. He reminded the committee that Alaska did
not pay into social security; therefore, individuals with a
career in public service were not looking forward to a
social security benefit. He explained that individuals
really needed the pension. He remarked that the pension was
modest. He agreed the time period could be extended to make
retirees wait to receive their pension; it was all a policy
call.
3:22:46 PM
Representative Allard commented that all state employees
currently received retirement. She remarked that
Representative Kopp had stated that the retirement was not
for an individual to necessarily retire at the young age of
50 or 55. She noted that he had also stated that an
individual may be hurt and could not go back to work [after
retiring at age 50 or 55]. She thought it did not make
sense. She argued that a diesel mechanic would not work for
the state and would not receive state retirement.
Representative Kopp answered that in some job classes after
a person worked 25 to 30 years, individuals spent a lot of
time in occupational therapy. He elaborated that an
individual would not go out to be a police officer again
and would not want to wrestle 21-year-olds to the ground
any longer because it was dangerous. He agreed that an
individual could likely get a security officer job in the
private sector, but they would not likely be doing a high
paying job of any kind in the job class they had left
unless it was an administrative office job.
Representative Allard agreed. She stated that being in the
military she understood, and her husband was retired
special forces and was a little bit broken; however, her
husband made quite a bit of money as an engineer currently
and it was not in the same line of work. She thought it was
necessary to acknowledge there was currently a retirement
plan. She thought if the bill moved forward, it would be
necessary to increase the age a person could collect on
their pension.
3:24:42 PM
Representative Bynum clarified that the bill was only a
money bill and did not provide an extended healthcare
benefit in retirement. He noted the previous scenario
provided where a police officer retired at the age of 50.
He thought it was likely the individual would have to find
employment because they would need to carry health
insurance for themselves and their family. He stated that
the bill would not bridge the gap to Medicaid or Medicare.
He asked for verification that the bill was purely a
pension system and not healthcare.
Representative Kopp agreed. The bill gave an employee a
health savings account and it was their responsibility to
manage their insurance the best they could and bridge them
to Medicare. He confirmed there was no included healthcare
component like the previous DB system, which was one of the
key things that kept the cost down. There was not a
healthcare component risk to the state; it all resided with
the employee.
Representative Bynum asked if the creators of the bill had
considered providing a medical benefit to retiring
employees as opposed to a continued monetary benefit. Based
on his experience talking with individuals, one of the
biggest issues they faced at retirement was how they would
bridge healthcare and not whether they would have money
coming in via a pension check. He stated that individuals
continued working because they could not stop working. He
highlighted that the current health fund was doing very
well.
Representative Kopp responded that including a traditional
DB healthcare component made the bill too expensive. He
shared that there had been substantial pushback from
employees for the reasons pointed out by Representative
Bynum, it was not employee friendly. The number one thing
that kept people in a job too long was trying to survive
until they received their insurance. He stated that the
actuaries reported it drove up the cost of the plan;
therefore, the best the bill could include was a good
health savings account. He believed it was what the private
sector did and what the state would do. He thought
Representative Bynum was asking whether a bill could
consider offering a healthcare benefit in lieu of a pension
benefit. He had not considered the idea and had not been
asked to do so. He had been asked to think about the
reliability of some base level of income. He understood
that health insurance was incredibly important and was one
of the top concerns of every American worker.
Co-Chair Foster noted that the committee had come to the
end of its allotted time. He stated the committee would
take its time with the bill. He apologized to individuals
who had waited online to testify. He noted there were two
meetings the following day. He relayed that the invited
testifiers could call into the meeting the following
afternoon.
HB 78 was HEARD and HELD in committee for further
consideration.