Legislature(2025 - 2026)ADAMS 519
02/11/2025 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."
1:38:05 PM
Co-Chair Foster asked to hear from the Anchorage Police
Department (APD) chief of police.
1:38:26 PM
SEAN CASE, CHIEF, ANCHORAGE POLICE DEPARTMENT (via
teleconference), spoke in strong support of the bill and a
defined benefit system for police officers. He read from
prepared remarks:
House Bill 78 not only provides long term benefits to
our officers, but the entire state of Alaska by
accomplishing five things. The first ensures financial
security for our officers. A defined benefit
retirement system guarantees a predictable and stable
pension, which is essential for their peace of mind
after years of strenuous service.
Number two, it attracts and retains top talent. A
competitive retirement package makes Alaska a
desirable employer. It encourages experienced officers
to stay, reducing turnover and minimizing the
significant cost tied to recruiting, training, and
onboarding new officers.
Number three, it promotes long-term community
stability. Experienced officers build trust, they
understand local issues, and they form lasting
relationships with their community, ensuring public
safety is maintained by individuals who possess deep
knowledge of both the community and policing
practices.
Number four, it provides financial stability and
predictability. Our current system transfers risk to
the individual. Market volatility can jeopardize an
officer's retirement savings, leaving them vulnerable
in their later years. House Bill 78 offers financial
predictability and stability.
Finally, number five, it upholds our commitment to our
officers. House Bill 78 is a demonstration of our
commitment to the men and women who put their lives on
the line every day. Police officers dedicate their
lives to ensuring the safety and security of our
communities. Their jobs are fraught with risk and
challenges. By supporting this bill, we acknowledge
their sacrifices and ensure they have the support they
need after their service concludes. I urge the
committee to support police officers by supporting
House Bill 78. This approach not only honors their
dedication but strengthens our communities and upholds
our state commitment to those who protect and serve.
Thank you.
1:40:47 PM
Co-Chair Foster recognized Co-Chair Schrage online.
Representative Allard thanked Mr. Case for his service. She
heard some alarming news earlier in the day. She noted
there were three police officers in Eagle River/Chugiak and
one roaming officer. She was told that if the bill did not
pass, the police officers would be cut from her district.
She asked for verification that it was untrue.
Mr. Case replied that he had never heard any conversation
about that and passing a bill would not govern how APD
determined its staffing levels in any way.
Representative Allard highlighted that the bill pertained
to all state employees and was not limited to police
officers.
1:42:31 PM
Co-Chair Foster resumed the presentation from the prior
afternoon. He would take questions from committee members
every few slides. He listed others available in the room
and online.
REPRESENTATIVE CHUCK KOPP, addressed 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
18 and detailed that vesting under HB 78 would require five
years of service for the Public Employees' Retirement
System (PERS) and Teachers' Retirement System (TRS). He
detailed that the timeframe was consistent for PERS with
the previous defined benefit (DB) Tier 3 plan and would
align PERS and TRS.
Representative Kopp moved to the qualification for
retirement on slide 19:
Qualification for Retirement
TRS & PERS (non-public safety)
Age 60 w/5 years of service
or
30 years of service
PERS Public Safety
Age 50 w/25 years of service
or
Age 55 w/20 years of service
Representative Kopp noted that the prior DB pension system
starting with Tier 1 was 20 years of service. He detailed
that it included a full healthcare benefit. He highlighted
that HB 78 did not include a healthcare benefit. He
referenced a question from Representative Bynum the
previous day about the reason for not including a
healthcare benefit. He explained that health actuaries had
reported that a health benefit would cost about $125
million every five years; therefore, it had not been
included in the bill. The bill only included a health
savings account.
Representative Kopp turned to slide 20 titled "Retirees
Skin in the Game." He explained that the DB system in the
bill was a shared risk plan that was made of three groups
keeping the plan solvent. He moved to slide 21 and
explained that the bill would eliminate the Cost of Living
Allowance (COLA), which was a 10 percent, two-year base
pension beginning when a person turned 65 years old as long
as they remained in Alaska and met Permanent Fund Dividend
(PFD) eligibility as an Alaska resident. The bill proposed
removing the COLA as a way to remain solvent.
1:47:30 PM
Representative Kopp moved to slide 22 and discussed post-
retirement pension adjustments (PRPA), also known as
inflation protection. He explained that the provision aimed
to ensure the dollars an employee earned were inflation
proofed. Under the bill, the Alaska Retirement Management
Board (ARMB) may provide or withhold PRPA to retirees if
the DB Trust Fund valuation dropped below 90 percent. For
example, it was about 1.5 percent the previous year. He
elaborated that members generally annually could look at
.75 percent or .5 percent, which could be withheld entirely
if the plan dropped below 90 percent. He explained that it
would keep the plan solvent. He highlighted that the
aforementioned types of risk sharing were used by Wisconsin
and South Dakota and both plans were funded at 100 percent
for the past 10 years and 20 years respectively.
Representative Kopp moved to slide 23 showing examples of
states providing the PRPA contingent on fund performance.
He highlighted that South Dakota's plan was funded at 101
percent. He stated that fund valuations were dynamic
depending on the returns of any year. He pointed out that
all of the states listed on the slide [Louisiana, Maryland,
Nebraska, South Dakota, and Wisconsin] were doing better
than Alaska's PERS, which was about 68 percent funded (not
combined with healthcare). He noted that none of the plans
used all of the risk sharing included in HB 78, which
incorporated best practices from multiple states.
Representative Kopp addressed retirement medical coverage
on slide 24. The coverage was consistent with the current
Tier 4 defined contribution (DC) plan. Employees under the
DC plan had a health savings account (HSA) only. He
detailed that employers took 3 percent of the average wage
compensation in a job class from top to bottom. He detailed
that the health care cost was the same regardless of their
position with the state. The 3 percent was set aside for
employees in an HSA, which amounted to about $2,400 per
year. He elaborated that even after 25 to 30 years of
service with the state, it would not result in a
substantial amount of money that would have to bridge a
person to Medicare. He estimated the amount could be
between $75,000 and $100,000 depending on market returns.
The employer contribution for public safety employees was 4
percent. He detailed that public safety employees retired
earlier and had a longer wait to being Medicare-eligible.
He noted that the increase resulted in about $800 more per
year in an HSA. A Health Retirement Account (HRA) could be
used for any qualifying medical need or premium expenses.
The medical coverage provisions kept the plan solvent and
did not put the state on the hook for any healthcare aspect
of the plan.
1:51:15 PM
Representative Kopp advanced to slide 25 and explained that
under HB 78, any current DC employee had the option to
remain in the DC plan or move to the proposed DB plan
within 180 days. He detailed that employees would have time
to review the actuarial projections and determine which
plan would be to their benefit. Under the bill, new
employees would be enrolled in the DB plan. He explained
that the larger the pension pool, the stronger the lifetime
fiscal security of the plan and for pensioners who had paid
into the plan.
1:52:19 PM
Representative Stapp asked about the material difference
between PRPA and COLA. He understood that COLA only applied
to Alaska and on the federal level it was typically the
state's inflation adjusted payment.
Representative Kopp replied that COLA stood for cost of
living allowance and was different than inflation proofing.
He detailed that COLA was provided by the state in Tiers 1,
2, and 3. He elaborated that a COLA in the amount of 10
percent of a retiree's pension was provided to individuals
who were 65 and older who remained in Alaska. He shared
that the decision to remove it from the bill had not
necessarily been popular, but it was a policy call to
reduce the cost of the bill. The PRPA was inflation
proofing to protect the value of the dollar from eroding.
For example, if a retiree received $1,100 or $1,500 per
month in their pension, a standard PRPA may be a 1.5
percent increase on July 1 of each year. He noted that
under the bill, the PRPA could be withheld if the plan's
funded ratio dropped below 90 percent.
Representative Stapp surmised that the PRPA was basically a
COLA due to inflation. He asked if PRPA was considered an
accrued benefit.
Representative Kopp answered that the PRPA was a benefit
that only came in post-retirement. He explained that it was
a built-in plan benefit that the plan lever would either
give or take away depending on the funding level.
1:55:07 PM
Representative Stapp stated it was one of the pillars of
the bill that he struggled with. He cited language in
Article 12, Section 7 of the Alaska Constitution specifying
that accrued benefits from public employees' retirements
cannot be diminished by the state. He asked how it would
not be considered a reduction in a retiree's accrued
benefit if the PRPA was considered a part of the base plan
and the ARMB was able to reduce it.
Representative Kopp answered that Alaska's courts did not
view it as a reduction of retirement benefits because the
employees would be aware of the possibility going into the
plan. He explained that the state could not surprise
employees with a reduction after they were enrolled in a
plan, but it was different if they knew ahead of time that
the retirement system was a dynamic model designed to
adjust to the market to keep it solvent. He elaborated that
it would be a contractual relationship individuals signed
up for and it would not be considered a diminishment, but
something that was considered necessary to the plan's
ongoing viability.
Representative Stapp hoped it would be true, but he had not
seen a legal memo stating it was the case. He stated that
if he had worked for the state for 30 years and ARMB
informed him that he would not be receiving his PRPA, he
would sue the state. He referenced the recent Metcalfe v.
State of Alaska case where the Alaska Supreme Court ruled
an individual who cashed out of a Tier 2 pension could go
back and accrue benefits when they were enrolled in Tier 4.
He asked if there was anything Representative Kopp could
provide the committee that would make the interpretation
"iron clad."
1:57:22 PM
Representative Kopp answered that it was a matter of well-
settled law. He suggested that the Division of Retirement
and Benefits (DRB) could answer the question best. The
Department of Law could also answer the question. He
explained that any retirement plan was a contractual
relationship and the key was that an employee needed to
understand what they were signing up for when entering the
plan.
Co-Chair Foster stated that his intent was to have a wrap
up meeting on the bill at some point addressing some of the
questions that had come up and tying up loose ends. He
highlighted questions related to exit surveys of Alaska
State Troopers as an example.
Representative Stapp referenced the HRA and noted that
currently when an employee retired, especially a public
safety employee, it was a lot of years for them to get to
Medicare or Medicaid. He asked what was known about how
retirees used HRA funds. He knew HRA funds could be used to
pay for premiums through the marketplace. He noted that the
problem was it negated any type of subsidy for the plan
though an ICHRA [Individual Coverage Health Reimbursement
Arrangement] or small employer self-funded HRA. He asked
employees currently struggled with HRA funds being
sufficient to bridge them to Medicare.
Representative Kopp answered that the HRA would pay for any
qualifying medical need or premium expense and it did not
limit an individual to a directed state insurance plan. He
explained that it was the individual's HRA and the
individual was responsible for bridging themselves to
Medicare in any way they could manage. The state did not
tell individuals how to use the account.
Representative Stapp relayed that when an individual filled
out an application for the marketplace insurance, one of
the questions was whether the individual had access to an
HRA for the purpose of using the funds to fund the
premiums. He explained that typically if the applicant
answered yes to the question they lost out in a dollar-for-
dollar matching amount on the entirety of whatever type of
income-related federal subsidy they would have for their
premiums. He elaborated that for a plan on the marketplace,
a subsidy would normally cost the individual around $200
per month, but without it the cost was in the thousands of
dollars per month. He explained that if the individual had
to pay the full cost of their HRA funds they would exhaust
their ability to fund their insurance relatively quickly.
He wondered about other mechanisms to mitigate the issue.
2:01:08 PM
Representative Kopp answered that the marketplace had
distinctives that could make it difficult for state
employees to maximize the benefit of their premium
available money. He did not know the specific situation
Representative Stapp was referring to. He remarked that it
was important to think about whatever the state could be
doing to help bridge employees to Medicare.
Representative Stapp referenced 180-day window for
individuals to opt into the plan. He asked for the
rationale behind the specific timeframe.
Representative Kopp answered that the timeframe had evolved
over time. He explained that the idea was to give employees
enough time to avoid a rushed decision on the issue. He
detailed that perhaps some employees only intended to work
three to five years and they were unsure whether a DB plan
was right for them. He noted there may be a number of
financial aspects an individual needed to work through to
make the decision with DRB. A 90-day window had been
contemplated initially and there had been immediate
pushback from people requesting more time to make the
decision. He recognized the decision was consequential
because it was irrevocable. The bill ultimately landed on a
six-month window as a good window for every employee to be
able to make the best decision for themselves.
Representative Stapp agreed that the decision was large and
irrevocable. He provided a scenario where an employee
enrolled in the DB plan and left work with the state after
vesting in five years. He asked what happened to the
individual's accrued benefit.
Representative Kopp answered unless the employee cashed out
the benefit, the individual would receive a small pension
at 60 years of age.
Representative Stapp continued with the same scenario and
asked if the person would still get the PRPA under the
situation at the time of retirement.
2:04:06 PM
Representative Kopp answered affirmatively, as long as a
person met retirement eligibility with five years of
service and 60 years of age. The individual would be
eligible for the PRPA. He noted that it would not happen
immediately, but it would happen after the next valuation
period by ARMB.
Representative Stapp provided a hypothetical situation
where a 19 year old went to work for the Division of Public
Assistance. He remarked that most 19 year olds did not
think about insurance or pensions. He considered the 19
year old being told they had 180 days to decide whether to
opt into the DB plan. He left the idea of leaving the
ability for someone to go into a DC plan on the table
because he was not certain the younger generation of
employees would want to think about the implications of the
decision. He asked if there was a reason not to consider
leaving the DC plan open to provide individuals with the
option.
Representative Kopp answered it was a policy call. He
believed Representative Bynum had asked whether there
should be a choice between a DB and DC plan coming for new
employees. The policy call chosen for the bill was that new
employees would be enrolled in the DB plan. He asked if
Representative Stapp was asking how DB employees could
choose to be in the DC plan instead.
Representative Stapp clarified his question. He considered
a scenario where a 19 year old was newly employed with the
state and did not know whether they wanted to be a state
employee for the rest of their life. He asked if there was
a reason not to have a parallel DC plan open alongside a DB
plan. He wondered if there was a drawback to having both
options.
Representative Kopp replied that it was a better question
for DRB. There were rare cases where the state had dual
plan members, but that was carryover from the previous
PERS/TRS where people had worked in schools (as PERS
employees) who were not teachers who then became certified
teachers and TRS plan members. The bill covered the
situation and allowed the individuals to consolidate into
one plan. He relayed that starting off with a dual plan
option had not been considered in the bill. He did not know
whether it would be possible. He deferred to DRB.
Co-Chair Foster directed the question to DRB.
KATHY LEA, DIRECTOR, DIVISION OF RETIREMENT AND BENEFITS,
DEPARTMENT OF ADMINISTRATION (via teleconference), answered
that per Internal Revenue Service (IRS) rules a person
could only be in one plan at a time. There were some
situations where people came into school districts as PERS
employees and later became certified teachers and moved
into TRS. She clarified that the individuals could not be
enrolled in both plans simultaneously.
2:08:46 PM
Co-Chair Foster clarified that Representative Stapp was
asking why employees could not have the option to choose a
DB or DC plan.
Representative Stapp agreed. He explained that if a person
was brand new in the workforce they may be scared of making
the commitment of working in their first job for life. He
asked if there was any drawback to leaving the DC plan
option open in the event an individual was uncertain they
wanted to work for the state their entire career.
Co-Chair Foster clarified the question. He asked if there
was anything preventing the state from doing so in law.
Ms. Lea responded there was an IRS requirement requiring
employees to choose one plan within a certain amount of
time of their hire date.
Co-Chair Foster clarified the question.
Representative Kopp stated that the situation described by
Representative Stapp was possible. The employee would have
to separate employment from the state as a DB member and
get rehired into the DC plan. He did not know exactly how
long the separation would have to be. He asked Ms. Lea to
confirm his statement.
Ms. Lea answered that once a person chose and enrolled in
their plan, even under a separation of service they would
still come back to the plan they had originally been
assigned to. She explained that an individual's plan and
tier were established at the date of entry into the plan.
Representative Kopp disagreed with the statement by Ms.
Lea. He explained that the bill was specifically written to
allow former PERS Tier 4 DC employees who had separated to
come back into the plan. He would talk to Ms. Lea offline
and if he was mistaken he would correct his statement on
the record. He noted that the topic had arisen in the
Senate and he wanted to ensure that if something in the
bill needed to be corrected that it would be done in the
House Finance Committee. He wanted to specifically allow
members who had left the DC plan to have a path into DB. He
noted that Representative Stapp was merely talking about
the reverse. He stated that the whole point was flexibility
for employee choice. He stated that Representative Stapp's
question about a brand new employee just figuring out the
job. He relayed that if it was not in the bill, he would
like to look at it.
Co-Chair Foster remarked that the issue would be discussed
offline.
2:13:02 PM
Co-Chair Foster recognized Representative Bill Elam in the
audience.
Representative Bynum referenced a brief conversation about
COLA, which was intended to help retirees be able to stay
in Alaska. He understood that through much discussion the
provision had been removed from the bill. He highlighted
the bill's goal of ensuring a workforce remained in Alaska.
He thought it was just as important for retirees to be able
to stay in Alaska. He noted the biggest cost issues for
attracting employees was the overall affordability of
housing, transportation, and energy. He asked about being
able to maintain the state's retired workforce in its
communities as part of the plan.
Representative Kopp remarked on the importance of the
question. He stressed that retiree dollars circulating in
communities were powerful economic drivers. He highlighted
retired teachers, truck drivers, and police officers as
examples. He underscored the intergenerational stability
reasons for keeping retired individuals in Alaska's
communities. He stated the issue came down to how fiscally
stringent and conservative the plan could be in order to
make it affordable. He noted that whether it was the right
policy call was up to the legislature as a whole. He
recognized that COLA was a real concern for seniors because
they were financially at their lowest cashflow and facing
the highest costs where any amount of adjustment to their
income had a long-term impact. He noted that it was not a
decision that had been made lightly. He remarked that it
emphasized how unfriendly the bill was to employees and
retirees. He stated that for anyone who thought it was a
transformative new plan going forward, he did not know
whether the bill got it right. He explained that the goal
was to keep the plan as fiscally conservative as possible.
Co-Chair Foster recognized Speaker Bryce Edgmon in the
committee room.
Representative Bynum responded that it was definitely
something for the legislature to continue to consider. He
remarked that keeping retirees in Alaska's communities was
vital to the communities. He was uncertain how the policy
call would be made and by whom, but he intended to ask the
co-chairs about it before the meeting ended. He looked at
slide 18 related to the vesting period. He understood the
bill proposed a new plan and considerations included how to
make it affordable over time, how to make it fit the
current workforce and next generation, and the expectations
for the health of communities and employees. He asked why a
longer vesting time had not been considered if the bill was
about employee retention. He suggested a longer vesting
time of 10 to 15 years. He noted that in a previous meeting
Representative Kopp had indicated that current DC plan
members were potentially leaving employment and the state
after about five years. He asserted that part of the issue
was related to the cost and affordability of being in
Alaska's communities.
2:17:58 PM
Representative Kopp replied that the five-year vesting
period was standard from state to state. He noted that
Alaska was the only state that got out of any form of a
pension. One of the reasons for not having a longer vesting
period was that the five-year cashouts did not occur in a
DB plan like they did in DC plans. He explained that a
pension incentivized time and service where an employee
accumulated 2 percent of their base salary every year for
ten years, 2.25 percent for the next ten years, and maybe
2.5 percent after that. The incentive was always there for
an employee to build their knowledge, investment, skillset
in the community, and buy-in to an employer's mission. He
noted that it was difficult to get people to buy into an
employer's mission when they knew they would be cashing
out. The pension always had that and there had not been the
reason to hold people there because of vesting because
there were other things with a pension structure that
incentivized people to hang in with their community and
employer.
Representative Bynum stated there was no requirement for
someone leaving employment to cash out their plan. He noted
an individual could hold onto their plan and go to another
city or employer with better pay or lower cost of living.
Representative Kopp agreed and elaborated that if someone
worked for the City of Sitka and left at five years, they
could go to the City of Ketchikan and pick up their time
and service where they left off under the same system. The
vesting period in a DB plan did not incentivize a cash out
like a DC plan did, which did not reward any time and
service beyond five years. He believed it would be a fair
question if the incentive for vesting helped in a DB plan.
He believed experts would say that the vesting period would
have little effect on employee behavior and commitment
because the structure of a DB plan was so different from a
DC plan.
Representative Bynum asked for verification there was no
requirement that a person from holding their earned benefit
for retirement at the age of 60 if a person vested as an
employee working in Sitka moved to Ketchikan to work in the
private sector for better pay and perhaps a lower cost of
living.
Representative Kopp agreed that the individual could leave
their DB earned that was currently vested. The individual
would have whatever they accrued in their HSA and toward
their pension.
2:21:30 PM
Co-Chair Foster planned to hear from testifiers at 3:00
p.m.
Representative Bynum looked at the age requirement on slide
19. He noted that because it led to the viability of the
longevity of the plan, he asked if there was a
consideration to move the age up for the public safety
component. For example, he asked about moving the age to 55
for 25 years of service or 60 for 20 years of service. He
highlighted advances in technology, training, and equipment
available to public safety employees. He asked if making
the change had been evaluated and what kind of impact it
would have on the cost of the plan. He shared that in his
community and in his communications with troopers he had
learned there had been a lot of retirees from the Lower 48
coming to Alaska for employment after they had retired. He
knew they were very capable, knowledgeable, and able to
perform in the job for five to seven more years.
Representative Kopp answered that the public safety
structure was based on best practices across the nation for
time in service and retirement timeline actuarial averages.
He agreed there were public safety employees who could
return to work after a career, but he would not encourage a
50 year old police officer or firefighter to go to work for
a busy department where they were expected to field routine
calls with several per day involving violence. He noted
that a person's decision making ability likely peaked in
their 30s and 40s. He stated that people needed to be on
their "A game," which was the reason for the desire to have
young people in the jobs. He referenced the grind in a high
demand department and recognized it could be different in a
smaller department and quieter area. He stated there was
not a single ideal for every community. He reiterated that
the bill included an average representing a best practice.
He used an example of an officer or firefighter who started
working at 21 and worked 25 years until they were 46 years
old. He pointed out that the individual would still have to
wait four years before receiving any pension benefits and
would have to wait until Medicare age. He explained that
they would need to get another job to get healthcare and to
support themselves because their pension benefit was not
significant. If the individual was 55 years old with 20
years of service, they would still need to wait 10 years
until being Medicare eligible and likely 10 years before
drawing social security. He explained that by pushing the
timeline out it would require people to do a stressful,
high demand job at a much older age. He pointed out that
when public safety employees took an oath of office, they
promised to always do whatever it took because there was no
path of safety except that of duty. He was very reticent to
make people do that at an older age.
2:26:13 PM
Representative Bynum knew the employees in the Ketchikan
fire and police departments were high speed into their 60s.
He would put them up against anyone in the state. He
thought the proposed plan would require individuals to go
find additional employment because there was no ability for
them to carry health insurance without paying it out of
pocket (or finding an employer or spouse to carry the
insurance), which diminished their retirement capability.
Representative Allard looked at the ages on slide 19 and
the DB and DC plans. She stated that for public employees
who worked less than 25 years in PERS, the DC plan would
provide a better pension benefit than the DB plan. She
asked if there was a slide in the presentation representing
the comparisons. She asked if public employees understood
they would have a better retirement under the DC plan
Representative Kopp answered that a better retirement plan
was employee specific.
Representative Allard clarified she was asking about a
pension benefit.
Representative Kopp replied that the previous year in the
Senate and House Finance Committees, the Department of
Administration showed a 17-year side by side comparison of
DB and DC employee in the same job class. He reported that
every year the salary replacement ratio was significantly
higher under a DB plan shown by the current administration.
He elaborated that the numbers included averages and actual
employee time and service accounts. He stated the message
was clear that a DB plan outperformed a DC plan.
Representative Allard disagreed. She believed the DC plan
provided a better benefit for teachers working less than 30
years under TRS.
Representative Kopp replied that teachers in the DC plan
vested at five years and could cash out any time after five
years. He explained that a pension had set times a person
was able to receive retirement benefits. He stated that DB
and DC plans were "two very different animals." He
explained that under a DC plan it was possible to turn
accumulated funds into an annuity. For example, an
insurance company may guarantee a person $800 per month for
the rest of a person's life if they had a balance of
$70,000. He noted that example was likely a very high
figure. He stated that under a pension, it was necessary to
serve a certain number of years before being qualified to
draw funds. The plan included in the bill required five
years of service access to the pension at the age of 60. He
clarified that a teacher who taught for 30 years could draw
their pension and HRA account at any time. A [DB] pension
was time and service eligibility and a DC plan did not
incentivize time and service. Under a DC plan an individual
could take their funds anytime after five years to buy an
annuity, a truck, or whatever they wanted.
2:30:51 PM
Representative Allard referenced Representative Kopp's
earlier statement that he wanted public safety officers to
be on their "A game." She asked about the oldest age a
person could be recruited into the APD.
Representative Kopp answered that he did not know the age
for APD. He believed it was 35 or 36 years of age for
federal service.
Representative Allard used an example where 35 years of age
was the recruitment cap. She considered a public safety
officer at the age of 60 with 25 years of service. She
viewed individuals under the DB plan as locked into the
particular plan under a position they may hate. She noted
that nationwide the average time a person moved from one
position to another was 6.3 years. She asked if the state
was looking to have individuals who did not like their job
but were forced to stay because they were in a certain
plan.
Representative Kopp replied that he could see how one may
think that; however, employee behavior showed otherwise. He
had an upcoming slide showing a current internal Department
of Public Safety (DPS) employee survey that asked employees
for their preference between DB and DC plans. He explained
that it helped to show what real public safety employees
wanted.
Representative Allard stated that from 2011 to 2023 there
had been a steep decline in public safety officers wanting
to remain in their positions. She argued that the numbers
mentioned by Representative Kopp were likely not as correct
as the numbers and statistics she had. She wanted to
compare them.
2:33:06 PM
Co-Chair Josephson thought Representative Kopp's earlier
statement that the bill was not very employee friendly was
said somewhat tongue-in-cheek. He asked for verification
that the goal of the bill was to be friendlier to
employees.
Representative Kopp agreed.
Co-Chair Josephson thought Representative Kopp meant that
the plan under the bill was not as gold plated as legacy
programs and did not include the full defined health
benefit or COLA. He stated his understanding that the
decisions had been made by the bill drafters because it was
a balancing effort to provide pensions people could live on
when working their years in Alaska to help its industries,
school systems, and private industries, while finding
something that would be in the 90 percent plus range and
fully solvent. He asked for verification that some of the
"frills" had been pulled from the legacy system to find a
better balance.
Representative Kopp replied affirmatively. He underscored
that the bill shared the risk between employees, employers,
and retirees. He explained his earlier statement that the
bill was not employee friendly. He detailed that the risk
used to be entirely on the employer and the bill put the
risk on employees and retirees as well. He detailed that
the bill did not include COLA, had shared risk, the ability
to lose inflation proofing, and no healthcare (employees
would have an HSA only). He explained that the current plan
was so underperforming what employees needed that they
overwhelmingly supported the bill because it was a step
forward.
Co-Chair Josephson referenced Representative Bynum's
statement that there were some first responders who were
coming to Alaska in their older years. He thought they were
likely coming to Alaska with a fully vested DB plan from
another state. He elaborated that the individuals had
satisfied an important retirement planning option in a
Lower 48 state and they were likely adding to the
retirement benefits by working in Alaska. He asked if the
scenario was likely what was taking place.
2:36:18 PM
Representative Kopp agreed. Alaska was the only state that
did not provide a pension for teachers and public safety
employees. He agreed that if the individual had retired in
another state, they would have a base level of income
secured.
Representative Bynum appreciated seeing a full room of
people. He asked about slide 24 specifically related to the
lack of a healthcare component in the bill. He asked if an
evaluation had been done to determine what the actual cost
of bridging healthcare may be for non-public safety
employee who had worked for the state for 30 years and
retired at or before the age of 60. He noted there was
potentially a 15-year gap between retirement for a public
safety employee. He asked if there had been a fiscal
evaluation of what the cost would be for the retiree to
bridge their healthcare with the current proposed plan.
Representative Kopp replied, "No." The only known
information was the average premium currently in the
marketplace depending on the desired level of coverage. He
stated that everyone wanted a level of coverage that would
keep them out of the Obamacare fines. He detailed that the
amounts varied by state, and he had seen premiums as low as
$900 to $1,000 for individual full coverage all the way up
to costs seen in Alaska of $1,600 to $1,700 and as high as
$2,200 per month. Consideration had been given to what it
would cost to include healthcare rather than an employee
risk only account. The cost was around $125 million every
five years to the state; therefore, it had not been
included.
Representative Bynum asked if the cost was for bridging to
Medicare or to Medicare and providing supplemental coverage
alongside Medicare to cover additional cost.
Representative Kopp responded that the additional $125
million would be the cost baked into the plan that the
state would pay for someone with a traditional DB plan
including healthcare. Under that scenario, when a person
reached retirement eligibility they would have a fully paid
premium. He addressed Representative Bynum's question about
what it would cost out of a health savings account to
bridge an individual to healthcare. He stated that the
amount the individual would end up with would not be
competitive and they would need to get another job. He
elaborated that if a person ended up with $70,000 to
$100,000 after a career of service, they would need at
least that amount to bridge them and likely quite a bit
more.
Representative Bynum asked if the fiscal evaluation on the
cost was readily available for members to evaluate. He
wondered what actual healthcare was being used as the
metric. For example, a Tier 1 versus Tier 3 plan. He was
interested in how the plans covered, who they covered, and
for how long.
2:40:26 PM
Representative Kopp answered that the previous DB plan,
healthcare was fully covered for every participant, just
like a full coverage plan would be for a legislator. He
suggested that he could ask DRB to provide some numbers
showing the cost to the state. He noted the numbers would
make it very clear why it had not been included in the
proposed plan. He relayed that it would be easier and more
straightforward to provide the contribution to an HRA per
year at a 3 to 4 percent (what the state was putting in for
employees and leaving the onus on employees to buy their
insurance). Under the previous plans, the healthcare that
covered everyone for every health issue was very expensive.
Representative Bynum remarked that in his experience
evaluating employees and looking into the market for
research, employees found healthcare to be a very important
aspect of retirement. He knew that many people delayed
retirement because of the specific issue. He asked if there
had been a fiscal evaluation done to determine if there was
any cost saving offset by having a long-term, 30-year
employee staying on because they needed healthcare versus
retiring and having healthcare available and the cost
savings that may be passed along to the state because the
employee was earning a higher wage and continuing to build
into the DB program. Effectively, if an employee retired
earlier, it provided an opportunity to move up the ladder
of employment and potential cost savings. He asked if an
evaluation had been done to determine whether there would
be a potential cost saving offset for having employees be
able to retire with the security of health insurance.
Representative Kopp answered no. He elaborated that the
bill required five years of service, or 60 years of age, or
30 years of service to collect benefits. If a person left
employment after 20 years, they would have to wait until
the age of 60 to receive a pension benefit. He thought
Representative Bynum was asking if it was possible to
incentivize anything more than an HRA at 20 years of
service.
Representative Bynum considered individuals who started
employment with the state or municipality at the young age
of 18 to 20. He detailed that at 48 they had worked for 30
years and had the opportunity to do something different. He
explained that healthcare was a big concern when they
reached retirement eligibility, especially if they had a
family. He explained that many individuals would remain
employed and had moved up the ladder and were likely in a
leadership position with a higher wage. When the individual
retired, someone would move up the ladder to fill the
position and there would be a difference of cost to the
employer. He asked if an evaluation had been done to
determine if the cost to the employer would offset some of
the costs for the employee to want to retire sooner.
Representative Kopp responded that there was not.
Representative Bynum asked if there had been an evaluation
done to look at the workforce as a whole and the movement
from preferences of the workforce (i.e., time and service
in a position, how often an individual moved from one job
to the next, whether a person was moving into or out of the
state) to a transient employment, which was more common in
younger generations. He asked if there was an evaluation to
determine whether the proposed DB plan would detract those
individuals from working for the state.
2:45:53 PM
Representative Kopp responded that the presentation
highlighted internal State of Alaska surveys showing that
the new generation of employees wanted the plan. Every
year, the state did a workforce profile - historical
records for the past 20 years were on the Department of
Labor and Workforce Development (DLWD) website - that
showed the time in service for every job class by gender
and department. He explained that DLWD did an exhaustive
workforce profile that looked at the issues every year.
Representative Bynum had heard through the presentation
from the presenter that "that's a policy call." He remarked
that the bill had not been put through a committee process
outside of finance. He asked if there were changes that
would occur and whether the bill could be improved to help
employees. He asked if the policy calls would happen in the
House and when they would occur. He wondered if other
committees that would have a better ability to answer some
of the legal questions such as the Labor and Commerce
Committee would have an opportunity to weigh in on how the
bill would impact Alaska.
Co-Chair Foster answered that there would be an amendment
process for the bill in the House Finance Committee. He
thought it was unlikely the bill would go back to other
committees. He relayed that any member of the Labor and
Commerce Committee could work with finance members to put
amendments forward. The formal process would be the
amendment process.
Co-Chair Josephson also responded to Representative Bynum.
He stated it begged the question about the role of the
finance committee. He highlighted that the committee did
not just look at numbers, it looked at policy. He relayed
that, for example, if a person wanted the bill to include
COLA, it could be introduced as an amendment.
2:49:32 PM
Co-Chair Foster clarified that the intent was not to rush
the bill, and he wanted the process to be deliberative
where all of the issues were discussed. He noted that
Representative Bynum was asking many great questions and
clearly had experience with the topic. He wanted to put
everything on the table to come up with the best path
forward.
Representative Galvin understood that the goal was
recruitment and retention. She did not have time to look
through all of the documents from SB 88, which she
understood was a thoroughly vetted process in the Senate.
She was missing the piece on recruitment related to HB 78.
She understood that current state employees were asked
whether the idea was meaningful. She highlighted the desire
to recruit teachers, public safety officers, and other
employees from outside of Alaska. She asked how Alaska was
compared with other states. She referenced statements by
Representative Kopp that the plan in the bill was not a
Cadillac plan, there was no COLA, it was not portable. She
noted other statements about the PRPA and HRA. She asked
for context and assurance that the bill would meet some of
the goals. She understood it may not meet all of the goals.
She considered that if no one was completely happy, the
right balance had likely been struck. She asked about the
retention component.
2:52:10 PM
Representative Kopp answered that in 2022, Governor Mike
Dunleavy's administration commissioned a teacher
recruitment and retention report to determine how to
address the high teacher turnover in Alaska. He noted that
the statewide team met for 18 months. One of the top
findings was a return to a DB system to keep teachers in
the classroom year over year. He would provide the report
to the committee. Additionally, the DPS 2017 through 2023
plan report was already in members' bill packets and
identified the return to a DB system for troopers as one of
the department's top concerns to recruit and retain
employees. There was also a recent internal survey by DPS
shown on an upcoming slide.
Representative Galvin would appreciate seeing the teacher
recruitment [report] showing [a DB plan] would make Alaska
attractive.
Representative Stapp referenced Representative Kopp's
mention of the popularity of returning to a pension. He
remarked that most of the public employees he talked with
wanted a pension. He wanted a pension too and did not have
one. He was not certain most people understood the
mechanisms the committee was talking about. He stated that
taking COLA away was basically a 20 percent reduction in
benefit from Tier 3. He thought ratcheting down the PRPA
became a scary concept as a retiree to think individuals
would not get an inflation adjusted benefit. He referenced
Representative Kopp's discussion on polls related to the
plan. He asked if people understood there was a potential
that ARMB would reduce their PRPA benefit. He explained
that one of the most important polls he had seen on the
topic was from Dittman and it was a statewide poll showing
a 50/50 split over the return to a DB plan. He elaborated
that the survey had also asked people whether they thought
the legislature would "screw it up" and 90 percent
responded affirmatively. He considered a scenario where
ARMB had to decide whether to raise existing employee
contributions or reduce employee retirement benefits. He
asked how ARMB would make the decision.
Representative Kopp responded that ARMB would make the
decision based on the plan being 90 percent funded or not.
He elaborated that when the plan was 90 percent funded or
more, plan participants would receive the PRPA. He noted
that employer and employee contributions could be lowered.
If the funded ratio dropped below [90 percent]
contributions would increase.
Representative Stapp understood what they could do. He
believed the composition of the ARMB mattered in terms of
what the board would actually do. He considered a scenario
where an ARMB member was an active employee. He provided a
hypothetical example where he was an active employee and
Speaker Bryce Edgmon was a retired employee. As a board
member, he would almost certainly make the decision to
reduce the retiree benefit instead of paying more money and
he assumed the retiree board member would make certain the
state paid more money and did not reduce the retiree
benefit. He asked how ARMB would discern which lever to
pull.
2:56:36 PM
Representative Kopp replied that the ARMB was checked three
ways. It had its own actuary, a second independent actuary,
and a third actuary double checking the first two. The
actuaries were all required to report on the validity of
the valuation of the plan. The state had learned the lesson
from the Mercer incident [ARMB sued its former actuarial
firm Mercer in 2007 for negligence]. He explained there was
no way some board members could "screw around with that and
make decisions that are going to be outside." He explained
that the actuaries would "tell us if they're doing a good
job or not." He pointed out that a testifier had traveled
from the East Coast to present to the committee and he
would like to get to their testimony. He was personally
available to answer questions and discuss the bill for the
rest of the year. He requested moving on.
Representative Stapp stated that ARMB was given the ability
to pull levers. He asked what lever the ARMB pulled when it
had to make a choice. He wondered how ARMB would choose
between increased employee contributions or reducing the
PRPA. He asked if both would be done simultaneously.
Representative Kopp replied that the two things would
happen together if the plan dropped below 90 percent. He
requested to finish the slides.
Representative Allard remarked that if the bill had gone
through the regular committee process with hearings in the
House Labor and Commerce Committee, there could have been
much more public testimony.
Co-Chair Foster noted that it was not his intent to push
the bill through the committee. The issue was complex and
there would be time to understand and digest it. He asked
Representative Kopp to finish the presentation, which would
be followed by testifiers.
Representative Kopp moved to slides 26 and 27 and relayed
that a statewide survey indicated Alaskans were in strong
support of pension reform, recognizing there was a problem
with recruitment and retention. He highlighted a recent
survey by Patinkin Research Surveys showing that nearly
seven in ten Alaskans across all demographics recognize
there was an issue, and they were in favor, to some degree,
of looking at how the current retirement plan could be
reformed into a more competitive and attractive plan. He
turned to slide 28 and reported that the proposal appealed
across demographics including the Interior, Southeast,
Kenai, Anchorage, Fairbanks, and Mat-Su. People around the
state recognized that Alaska was not a competitive employer
and it was necessary to look at "this benefit" as a piece
of the puzzle.
Representative Kopp addressed the DPS survey of 468
employees on slide 29. He detailed that 96.69 percent of
employees in the Tier 1, 2, and 3 plans wanted to keep
their current DB plan. He relayed that 3.31 percent of
individuals in the DB plan would prefer a DC plan. He
elaborated that 75.73 percent of Tier 4 DC employees would
prefer the DB plan and 22.98 percent preferred the DC plan.
He noted that 1.29 percent did not respond. Slide 30 showed
that 82.61 percent of the 458 DPS employees preferred a DB
pension.
Representative Kopp turned to slide 31 and explained that
the investment was an investment in Alaska's economy to
make Alaska attractive, orderly, and safe, producing a
strong education and public safety infrastructure, which
would attract private investment and families back to
Alaska. Slide 32 showed the cost through 2039, which he
noted was for the previous version of the bill, SB 88. The
graph was put together by the state's actuary Buck
Consultants, and the cost breakdown was done by the
independent actuary Flick Fornia. Mr. Fornia had used the
increase that Buck had come up with. The pension impact was
$275 million, the healthcare impact was $179 million, and
the payroll impact was $617 million. Buck Consultants
projected the numbers to be the total increase from 2026
through 2039, a period of 14 years. The projection included
the nominal increase. The present value cost of the plan
was just over $600 million, reflecting a present value per
year cost between $42 million and $45 million. Currently,
the legislature was running recruitment and retention bonus
bills for teachers only that approached $60 million per
year ($15 million per year or more than the projected cost
of the proposed plan). The blue line representing the
payroll impact showed that most of the cost of the bill was
due to a higher number of future employees. The increase in
payroll and healthcare showed the bill was projected to do
as intended by filling empty positions. He noted that the
pension was the smallest portion of the cost at 25 percent.
3:04:02 PM
Representative Kopp provided wrap up on slide 33 with the
economic benefits of HB 78. He emphasized that the savings
alone eclipsed the cost of the plan per year. He noted that
was not considering the ARMB using the 90 percent lever or
the assumption made by the actuary that 100 percent of
employees would leave the DC plan for the DB plan. He
relayed that the actuary had stated that it would not
happen. He stated, "our job is to give you the worst case
scenario." He explained that there would be savings. There
was a 90 percent lever that would make the pension cost
much less. Additionally, employees would not all opt into
the plan. He relayed that the recruitment and retention
effort would improve the current environment and would save
training cost and lost workforce hours and restore Alaska's
ability to provide critically needed services. He concluded
on slide 34 and stated that the bill provided a
comprehensive new plan that reflected a strategic
investment in Alaska's workforce, economy, and future,
which would directly address high turnover at a reasonable
cost offering a responsible retirement plan. He thanked the
committee.
3:05:24 PM
Co-Chair Foster noted there were questions from members. He
intended to move to testimony first.
Representative Kopp requested to hear from Dr. Ghilarducci
followed by Lon Garrison.
Co-Chair Foster invited the first speaker to address the
committee.
3:07:39 PM
TERESA GHILARDUCCI, DIRECTOR, SCHWARTZ CENTER FOR ECONOMIC
POLICY ANALYSIS, noted that in the interest of time she
would not go through her PowerPoint titled How Pension
Reform Affects Alaska's Economic Performance" (copy on
file). She was present to answer four questions. The first
question was why the legislature needed a labor and pension
economist like herself to evaluate the bill. The second
question was how much the bill cost. She noted that the
cost information was shown on slide 33 of the presentation
provided by Representative Kopp. She thought committee
members may have questions about how she had come up with
the cost savings from the bill. The third question was how
the bill would impact Alaska's economy, particularly
business investment. She explained that another way to
phrase the question was "what is the private business case
for the bill?" The fourth question, which she had expertise
in, was how DB plans versus DC plans impacted the well-
being, health, morbidity, and mortality of retirees. There
was a lot of data because the 401K design had been
experimented with in the U.S. for 40 years to know the
impact on people as they aged. She noted the work was
fascinating, involving brain scans and measurements of
cortisol, serotonin, and dopamine levels. She also had
expertise in looking at the desires of workers at education
and age levels in terms of the composition of compensation.
She intended to answer the question about what workers
wanted.
3:09:38 PM
Dr. Ghilarducci addressed why an economist was needed to
evaluate the bill. She explained that actuaries the
legislature hired to evaluate the bill had an important but
narrow role. She detailed that actuaries' professional
standards required them to look at past experience to make
forecasts about what the plan design combined with the
workforce would cost. Actuaries did not have the expertise
to evaluate what it would mean in terms of employee
behavior, employer behavior, or the effect on the whole
economy. She was present to answer any of those questions
that a policymaker would have. She stated that the answer
was embedded in her evaluation of the cost of the proposed
plan.
Ms. Ghilarducci shared that the previous year she had
testified to the Senate Finance Committee that the bill
would save $76 million per year. She stated it was composed
of two major costs. The first was $62 million in savings on
training, onboarding, and recruitment costs. She remarked
that it was amazingly high, but not a surprise to
employers. She explained that when employers lost an
employee, they had to go through recruitment costs. She
remarked that onboarding was one kind of training, but the
ongoing training that went with knowledge and experience
could last years depending on the occupation (e.g., public
safety, teaching). She stated that it took a lot of time to
get wise in those occupations. She elaborated that when an
employer lost a midcareer employee, they lost the ability
to do on-the-job training for people below that position.
She relayed that literature in labor and economics showed
that the morale of incoming employees was impacted when
they saw there was no path for them, that there was not an
ecology of commitment signaled through compensation and
behavior of the career. After five years of employment, the
turnover required employees to make a life decision about
whether they would stay or take their money and use it as a
lump sum to move. She stated that with compensation like
that, it was a signal that an employer wanted people to
consider leaving after five years. Therefore, it made sense
that the savings in turnover and training was $62 million.
Ms. Ghilarducci relayed that the second source of savings
came from the system design. She explained that in a 401k
or DC plan, the dollar went directly to the employee, and
the employee was their own investment manager. They had to
figure out the portfolio that would optimize the funding of
their long-term liability. She detailed that most people
did not have that ability and it was a tricky problem to
determine what their portfolio should look like. She
expounded that the employees were also buying retail
products or assets at the highest price with no bargaining
power to lower the fees. The structure of the assets were
marked to market and fully liquid, but it was an
inappropriate match between the long-term liability an
employee was funding for their own financial future. She
stated that the 401k plan distorted the asset liability
matching. She explained that DB plans were invested by
professionals who could optimize a portfolio. Additionally,
DB plans had substantial clout, which meant fees could be
reduced. Defined benefit plans pooled the financial risk of
a situation where a person turned 50 on the year of a
financial crash. She shared that she researched what
happened to 50 year olds in the 2008 crash and they had
never recovered. She remarked that there were many risks
that the employee could not mitigate such as living too
long. She elaborated there was a tail risk that a person
would live into their 90s. Individuals with a DB plan could
pool the risk whereas individuals with a DC plan had to
fund the risk. She explained there were many people who
would die in their 80s, but they had to put aside 25
percent more just for the tail risk that they would live
longer.
3:15:07 PM
Dr. Ghilarducci stated that the $14 million in savings
primarily came from fees and having a more efficient
portfolio. The third issue was a calculation she made in
the current year showing the impact the bill would have on
the Alaskan economy. She referenced her written testimony
(copy on file) and explained that the first couple of pages
compared the Alaska economy to similar economies in South
Dakota and Wyoming (given the sectors the economies were
based on). She found that Alaska had tracked Wyoming and
South Dakota for many years with the exception of the past
ten years in terms of population decline and gross domestic
product (GDP). She was surprised by the business formation
indicator. She explained that Alaska was trending below its
peers in business formation. She considered what was
happening in Wyoming that did not have a business friendly
environment. She explained that Wyoming had always been a
conservative state that did not have high taxes and viewed
itself as business friendly. She highlighted Virginia as a
fairly high tax state, which ranked number one in
attracting businesses. She offered a quote from Virginia's
Governor Glenn Youngkin, "A state that can quickly deliver
what companies require to make investment decisions is a
state that provides to businesses, permitting confidence,
workforce development, utilities, and ancillary factors
that enable companies to meet their schedules for becoming
operational." She explained that businesses came when they
knew they could get a license, a business permit, and when
there was reliable physical and human infrastructure. The
workforce development was expected to be done by the state,
so the business did not have to provide the cost. She noted
it was one of the most important aspects as well as the
physical infrastructure that included two things:
transportation and communication.
3:18:06 PM
Dr. Ghilarducci had asked an economist to provide her with
his input/output model for Alaska. She explained that the
model came from Inplan Consulting Services, which sold its
services to states and municipalities in order to run a
dynamic model of the economy. She noted that he had given
her the information for free and they spent three hours
looking at the analysis; they both found the results
surprising. They discovered that it was an extractive
economy, but there were complimentary businesses needed in
order to extract efficiently. She detailed that if
extraction went up in Alaska, the demand for computer and
high-tech services increased because extraction was
becoming more high-tech and efficient. Consequently, Alaska
needed a workforce to fill the demand. She suspected it was
inhibiting business formation. She detailed that a
reputation was built over many years and it could be lost
within a couple of years. She believed it explained the
data she found on slide 3 that business formation was
declining.
3:19:32 PM
Dr. Ghilarducci addressed the effect on the health and
wellbeing of retirees at the age of 58 or 65 when they had
a lump sum (e.g., $250,000) or the equivalent of a stream
of income worth $250,000. She stated the difference between
the two situations was palpable. The reported levels of
depression and anxiety were much higher among retirees with
a DC plan. She stated that it made sense because they were
asked at an older age to optimize their money to last their
whole life and to add in all of the anticipated long-term
costs. She remarked that it was a very difficult
calculation made at a time when a person likely had the
least ability to do it. She pointed out that it meant
individuals were prey to a lot of financial predators who
took advantage of 75 year olds with $100,000 in the bank.
Individuals were bombarded daily with people wanting to
separate them from their money. She noted elders were not
stupid, but they needed to have their antennae up for
predation. She remarked that after the recent abolishment
of the Consumer Financial Protection Bureau at the national
level, the protection against predation was even less.
Dr. Ghilarducci stated that a DB recipient had other kinds
of anxieties, but the report was much lower because they
knew the money was a steady stream of income for the rest
of their life. She reported that physical data of brain
waves and blood samples showed a DC participant had higher
levels of cortisol associated with heart attacks and other
cardiovascular disease and lower levels of serotonin (the
brain chemical giving people a sense of well-being).
Another reason the level of depression and anxiety was high
for DC annuitants was due to a sense of shame in not having
enough money. She explained that DC plans were "do it
yourself" systems where the participant was responsible and
if it did not turn out, they blamed themselves. She could
answer questions pertaining to the four areas and what
other countries and states were doing in terms of pension
reform that prevented the surprise billing Alaska had in
2006 when the Mercer error was uncovered.
3:23:24 PM
Representative Stapp held up a document authored by Dr.
Ghilarducci with the New School for Social Research and
asked for verification it was the document she was
referencing when talking about the work she did for Alaska
[the document was a memorandum addressed to the Senate
Finance Committee dated January 16, 2024] (copy on file).
Dr. Ghilarducci responded affirmatively.
Representative Stapp noted that he had read Dr.
Ghilarducci's book over the weekend. He stated that she
referenced the Center for Retirement Research throughout
her work. He asked if it was a place he should go to look
at the studies.
Dr. Ghilarducci responded that she hoped she thoroughly
referenced every point. She suggested looking at some of
the economic studies that emphasized Governor Youngkin's
point about what determined business location decisions.
She explained that it concluded that a robust public sector
(i.e., a developmental state) was needed instead of a cheap
public sector. The Center for Retirement Research had been
in the business for 25 years and answered many of the
questions. She also directed members to the New School for
Social Research website.
Representative Stapp asked about the $76 million in cost
savings projected by Dr. Ghilarducci. He looked at page 13
of a packet submitted by Dr. Ghilarducci pertaining to the
savings associated with turnover in public safety pensions.
He looked at the information specifying a 1 percent
turnover rate due to low pay in pensions was over $4
million. The information was followed by a note reading "I
need the citation for this fact." He asked for the citation
to help understand how the number had been derived.
Mr. Therriault replied that she would follow up with the
information.
Representative Stapp referenced a study [from the Center
for Retirement Research] that concluded on the aggregate DB
plans had a better rate of return than DC plans at about 70
basis points better over time. He relayed that the Alaska
Treasury Division [within the Department of Revenue] told
him the DC investments had been performing better than DB
investments in terms of rate of return. He asked if he
should be more concerned long term about what the aggregate
data showed or if he should look to his own individual
plans.
3:27:18 PM
Dr. Ghilarducci answered that the study done by her
competitor, The Center for Retirement Research, was very
good. She noted they had a big portfolio on public pension
plans and the information was a good resource. She
emphasized that the differences accumulated over time and
could lead to a 25 percent difference in pay. She was
interested in seeing the information referenced by
Representative Stapp that the DC plan in Alaska
outperformed the DB plan because she almost did not believe
it. She added it was necessary to adjust the rate of return
for risk. The most important thing to any investor was to
adjust the return for the risk being taken and to make sure
the risk adjusted return was maximized.
Representative Stapp shared that he had staff check with
Treasury and he thought they would likely testify to the
committee. He referenced the research by The Center for
Retirement Research specifying that of all the aggregate
plans, the difference in the rate of return was about 70
basis points (7 percent). He noted the research also
specified that of the average rate of return of all the DB
plans, though higher than the DC plans on aggregate, the
rate of return was 6.6 percent. He asked if Dr. Ghilarducci
thought it was a good indicator to use for what to expect
the rate of return to be.
Dr. Ghilarducci replied that she was a trustee of very
large plans, and her plans had been ratcheting down their
assumed assumption. Her plans were assuming a rate of
return a little higher than 6.8 percent, but to be
conservative, 6.2 percent was good assumption.
Representative Stapp was intrigued by the concepts of GRAs
[guaranteed retirement account]. He asked about Dr.
Ghilarducci's long-term vision about the public retirement
crisis nationwide. He asked her to talk to committee
members about how Alaska could take steps to implement the
vision.
Dr. Ghilarducci answered that she had been working on the
topic for 42 years and there was a bill currently in
Congress to finally implement the plan. She explained it
would bring the U.S. to a more optimal plan in order to get
a higher grade. She explained that international studies
always ranked the U.S. at a C+ or D because it had such a
DC heavy benefit. She elaborated that because universal
coverage was needed and everyone deserved to start saving
for their retirement from the moment they begin working,
the money needed to be invested wisely at the lowest risk
and fees and it needed to have an option of lifetime
annuity. She explained that it did not absolve an employee
from putting in the money and if Alaska moved to the
pension reform [in the bill] with a hybrid plan, it would
get closer to her vision of what all Americans needed.
Representative Stapp stated, "Which is guaranteed
retirement accounts."
Ms. Ghilarducci thanked Representative Stapp for putting
the statement on the record.
Representative Stapp suggested that DOR could likely talk
about the rates of return. He would like to have Dr.
Ghilarducci hear the information directly from the Treasury
Division.
Co-Chair Foster noted that DOR was not online.
3:31:55 PM
Representative Bynum referenced Dr. Ghilarducci's role as
an economist and her discussion about looking at impacts to
communities and the importance of a retirement benefit for
economic health. He wondered if she had weighed other
factors including the cost of housing, schools, energy
costs, transportation, actual pay, health insurance, the
quality of community services (i.e., healthcare and
childcare), workplace culture, and retirement. He asked how
to rank the items and what ranked as priority to a working
class person.
Dr. Ghilarducci answered that labor economists had been
asking workers what they wanted since the post war period.
She stated that the items could be ranked by employees. She
noted that pay came first, family leave typically ranked
last, and career development, respect, and dignity
typically ranked in the middle. Economists realized that it
was not merely one factor, it was an ecology of
compensation that signaled what kind of an employer the
employer was and economists then ranked employers and
compensation packages to high commitment and low
commitment. She relayed that retirement came in after pay
and health benefits and often other issues such as housing
became very important as seen in California and areas of
New York where people were migrating due to housing.
Co-Chair Foster thanked Dr. Ghilarducci. He noted that the
committee had run out of time, and another meeting would be
scheduled to address the remaining testifiers.
3:35:00 PM
Representative Tomaszewski noted there was currently only
one fiscal note. He wondered when members would see the
fiscal note showing what the bill would cost. He remarked
that there were typically fiscal notes attached to bills.
Co-Chair Foster asked his staff and Representative Kopp to
come to the table.
BRODIE ANDERSON, STAFF, REPRESENTATIVE NEAL FOSTER,
answered that Co-Chair Foster's office had been working
with the Department of Administration to request the
actuarial report. The report would take about four to six
weeks. He explained that ARMB came out with a new set of
assumptions and a new actuarial would be required. They
would continue to meet over the time period until the
actuarial report was provided. Once the actuarial was
available it would be presented to the committee, and
further discussion would take place.
Representative Kopp clarified that under state law only the
House Finance Committee could order an actuarial evaluation
of a pension plan. He elaborated that the report could not
be ordered from any other committee. He noted it would be
done as quickly as possible.
Representative Tomaszewski asked if the bill would sit in
committee until the actuarial report was received.
Representative Kopp answered that it was up to the chair to
make the decision, but law required that the bill could not
be reported to the Rules Committee without the fiscal note.
Representative Tomaszewski remarked that he had asked the
question because it was standard procedure.
Representative Kopp answered that it was the law.
Representative Allard stated that she had never seen a bill
come before the committee without a fiscal note. She asked
if the committee would proceed prior to receiving it.
Co-Chair Foster answered that due the complexity of the
topic, the bill concepts and structure were being presented
to the committee. He remarked that because the topic had
been heard in the past, the committee could hear the core
of the bill. Once the actuarial review was received, the
finer points could be ironed out.
Representative Allard stated that she hoped the co-chair
made exceptions for that for all the bills.
Co-Chair Foster pointed out that there was a fiscal note in
the bill packet.
3:39:01 PM
Representative Kopp clarified that any bill that had to do
with a retirement system could only have a fiscal note
ordered by the House Finance Committee when the bill was in
committee; therefore, it could not show up to the committee
with a fiscal note.
Representative Stapp noted that the committee had heard
from Dr. Ghilarducci about rates of return. He thought it
would save time to ensure the rates of return discussed by
Dr. Ghilarducci would be considered in the actuarial
report. He noted that previous actuarials from Cherion,
Segal, or Buck included rates of return that were "all over
the place." He suggested that the actuarial could include a
bugle chart of different scenarios of what the plan would
look like at 7.5, 6.5, or 8 percent.
Mr. Anderson answered it was early enough that the request
could be added for inclusion in the report. He noted that
Dr. Ghilarducci had mentioned some additional items that
may help with the process, which would also be included.
Representative Bynum asked if the fiscal note would only
cover the cost to the state and not the cost to all of the
employers and potential cost to employees.
Co-Chair Foster deferred the question to Representative
Kopp.
Representative Kopp replied that the fiscal note would show
the cost to employers. He explained that for any estimated
cost above what local government paid, there would be an
additional cost to the state. The information would be
broken down by what local governments would pay. He
clarified that any additional projected cost would be a
cost to the state. The state only paid the full cost for
state employees, and it paid the additional cost above the
22 percent for local government.
Representative Bynum asked if the cost to employers would
be based on a full count of full staffing and not the
current enrollment.
Representative Kopp answered that the actuary would look at
existing state staffing. He expounded that either
Representative Tomaszewski or Representative Stapp had
requested Monte Carlo modeling where various rates of
return would be provided. The actuary could provide one
version where the bill had the desired goal of filling
positions and they could provide a version where no
additional hires were made, meaning the additional payroll
and healthcare would not be built in. He explained that it
would isolate the cost of the pension. He noted that the
previous actuary report included various models.
Representative Bynum asked for verification that the fiscal
note would include all of the information.
Representative Kopp clarified that the actuarial report
would include the modeling of multiple scenarios. The
fiscal note was different and would include a single
scenario, which was generally the most conservative one.
Co-Chair Foster clarified that the bill had one fiscal note
already. The Department of Administration had told his
office that it was hesitant to commission an actuarial
report without knowing for certain that the bill would go
somewhere because actuarial reports were expensive. For
example, a PERS/TRS bill could be put forward without going
anywhere. The department preferred the committee hear the
bill prior to ordering the actuary report.
HB 78 was HEARD and HELD in committee for further
consideration.
Co-Chair Foster reviewed the schedule for the following
morning.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 78 Teresa Ghilarducci Presentation 02.11.25.pdf |
HFIN 2/11/2025 1:30:00 PM |
HB 78 |