Legislature(2019 - 2020)ADAMS 519
02/27/2020 01:30 PM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| HB79 | |
| HB30 | |
| HB102 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 205 | TELECONFERENCED | |
| += | HB 206 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | HB 79 | TELECONFERENCED | |
| += | HB 30 | TELECONFERENCED | |
| += | HB 102 | TELECONFERENCED | |
HOUSE BILL NO. 79
"An Act relating to participation of certain peace
officers and firefighters in the defined benefit and
defined contribution plans of the Public Employees'
Retirement System of Alaska; relating to eligibility
of peace officers and firefighters for medical,
disability, and death benefits; relating to liability
of the Public Employees' Retirement System of Alaska;
and providing for an effective date."
2:09:27 PM
Co-Chair Foster MOVED to ADOPT proposed committee
substitute for HB 79, Work Draft 31-LS0462\O (Wayne,
02/27/20) (copy on file).
Co-Chair Johnston OBJECTED for discussion.
2:10:09 PM
REPRESENTATIVE CHUCK KOPP, BILL SPONSOR, reviewed the bill.
He indicated that HB 79 created a new tier retirement
system containing unique features and offered financial
sustainability. He characterized the proposed retirement
plan designed for peace officers and firefighters as a
hybrid between a defined benefit and the current Tier 4.
He delineated that the bill contained levers or adjustments
designed to keep the plan solvent that fell into 3
categories: cost saving features, plan asset enhancement
adjustments, and plan benefit reductions. He explained that
the cost saving features did not provide retirement medical
insurance. The medical benefit was the equivalent to
current Tier 4 benefits offering a Health Reimbursement
Arrangement (HRA) acting as bridge to Medicare. The fixed
age of retirement was 55 years with 20 years of service.
Retirement prior to the age of 55 with 20 years of service
was prohibited. The retirement benefits were calculated at
the average of the top earning 5 consecutive years of
employment rather than the highest 3. The plan did not
provide a cost of living adjustment. He reviewed the plan
asset enhancement adjustments. He reported that the
employee contribution rate could be increased based on
actuarial calculations to maintain solvency. The employer
contribution was 22 percent with 12 percent going to the
plan and 10 percent for the current unfunded liability. He
elucidated that the planned benefit reduction could
withhold the post retirement enhancement adjustment if the
plans funding was less than 90 percent. He restated that
the three features kept the plan financially sustainable.
2:14:21 PM
KEN TRUITT, STAFF, REPRESENTATIVE CHUCK KOPP, reviewed the
explanation of changes for the committee substitute. There
were no substantive changes to the bill. The representative
had met with the Division of Retirement and Benefits during
the interim to review the bill. The changes were merely
slight language changes making the bill clearer. The
sponsor provided a PowerPoint presentation titled HB 79
Explanation of Changes version U To version O. He began
with slide 2 portraying page 3 of the bill, lines 6 through
9, which dealt with the Alaska Retirement Management Board
(ARMB) as follows:
(C) an appropriate monthly employer contribution under
AS 39.35.255(i); and (D) appropriate adjustments, if
any, under (b)(5) and (b)(6)
Mr. Truitt indicated that the change provided instructions
for how the ARMB performed its evaluation of the plan,
specifically tracking the plans features as proposed in the
legislation. He moved to slide 3 that highlighted Section 2
of the bill [edited]:
Sec. 2. AS 37.10.220(b) is amended to read:
(b) The board may
(5) adjust the amount of the increase in benefits
payable to a peace officer or firefighter who first
becomes a member after June 30, 2006, as provided
under AS 39.35.475;
(6) adjust employee contribution rates under AS
39.35.160(e).
Mr. Truitt pointed to AS 37.10.220(b) which included more
of the ARMBs duties and functions which corresponded with
the boards new function outlined on lines 6 through 9. The
administration was backing away from the term "Tier." He
referred to Section 2, lines 23 and 24 and read the
language, to a peace officer or firefighter who first
becomes a member after June 30, 2006. He noted that the
word tier was not included in the language in the bill
rather, the language previously cited was used to refer to
the new tier 5.
2:18:35 PM
Mr. Truitt continued to the following change on page 10,
Section 15 of the bill shown on Slide 4. He delineated that
the language differed from the prior version only in the
manner the provision proposed to ensure that the new tier
contributed to the past service liability of the Public
Employees Retirement System (PERS) and maintained the
employee contribution at 22 percent. He commented that
Section 15 amended AS 39.35.255(a):
Sec. 15. AS 39.35.255(a) is amended to read:
(a) Except as required by (i) of this section, an
[EACH] employer shall contribute to the system every
payroll period an amount calculated by applying a rate
of 22 percent of the greater of the total of all base
salaries
Mr. Truitt moved to Section 18 which proposed a new
subsection to AS 39.35.255:
Sec. 18. AS 39.35.255 is amended by adding new
subsections to read:
(i) An employer that employs a peace officer or
firefighter who first participates in the plan after
June 30, 2006, shall contribute to the system every
payroll period an amount equal to the sum of
(1) a per capita amount that is calculated by
applying a rate, determined by the board, of not
less than 12 percent of the total monthly
compensation the employer pays to all peace
officers and firefighters who first became
members of the plan after June 30, 2006; and
(2) an amount, determined by the board, that is
equal to the difference between the per capita
amount determined under (1) of this subsection
and the amount calculated under (a) of this
section.
Mr. Truitt reported that the new subsection (i) sets the
employer contribution for the employee's retirement benefit
at 12 percent under paragraph (1). Paragraph (2) specified
that the remainder was applied to the unfunded liability of
the existing PERS plan. The 12 percent contribution rate
was greater than the contribution rate found in Tier 4. The
language was clearer in the current version of the bill,
but the concept remained the same as the original version.
He discussed the final change in Section 25, page 13 of the
bill depicted on Slide 5:
Sec. 25. AS 39.35.475 is amended by adding new
subsections to read:
(g) A person who receives a benefit under AS
39.35.370(l) is eligible to receive an increase in
benefits under this section.
(h) If the board determines that the portion of the
unfunded liability of the plan that is attributable to
all peace officers and firefighters who first become
members of the plan after June 30, 2006, is greater
than 10 percent, the board may reduce the amount of
the increase under (b) of this section that is payable
to a peace officer or firefighter who first becomes a
member after June 30, 2006. At any time, the board
may terminate a reduction made under this subsection.
Mr. Truitt reported that the administration had flagged the
section that pertained to the post-retirement pension
adjustment (PRPA) benefit reduction. He explained that the
section had intended to allow the ARM board to reduce the
plans benefit when necessary to keep the new tier
financially viable. However, the administration discovered
that the prior version of the bill referred to the PERS
unfunded liability as a whole and the HB 79 plan benefit
would always be reduced until the unfunded liability was
paid. The change included the following specific language,
the plan that is attributable to all peace officers and
firefighters who first become as a corrective measure.
Co-Chair Foster WITHDREW his OBJECTION.
Representative Carpenter OBJECTED.
Representative Carpenter spoke to his objection. He asked
for clarification regarding the word attributable. Mr.
Truitt responded that if the language in the CS was not
included the post-retirement pension adjustment benefit
would always be reduced and the members would never receive
it. He clarified that the new language allowed for the
benefit if the plan was found to be solvent and funded at
90 percent or more.
2:25:10 PM
Representative Carpenter surmised that there was a certain
level of risk with the proposed plan and if it was not
solvent the benefit was not distributed. He asked whether
he was correct. Mr. Truitt answered in the affirmative. He
added that all the features in the bill were included to
plan for uncertainty in the future. Representative
Carpenter thought it was worrying that a peace officer
would participate in a retirement plan with a risk of not
receiving benefits in the future.
Representative Kopp remarked that Representative
Carpenters statement was oversimplified. He explained that
there was a lack of certainty in a future benefit because
the plans levers kept it reactive to market conditions.
He recounted that the committee heard testimony in the
prior session from an actuary in the state of Washington in
charge of a similar plan. He reported that the plan was
consistently funded at over 100 percent as well as a
similar plan in Colorado. The model was proven to perform
reliably in other states. The proposed plan will be tracked
separately from other PERS participants to determine the
funding level of the plan. The new language in the bill was
necessary to target the plans members apart from the
larger PERS group to allow calculation of the post-
retirement pension adjustment. He reminded the committee
that the adjustment was eliminated when the plan was funded
under 90 percent and that maintaining a funding level of 90
percent was the gold standard for retirement plans.
Representative Carpenter understood but was uncertain a
peace officer or firefighter would find comfort in the
plan.
2:29:13 PM
Representative Josephson inquired whether only the PRPA
could be suspended and not the bulk of the pension benefit.
Representative Kopp responded in the affirmative.
Representative Josephson surmised that the tier 5
participant would have 90 percent confidence in their
retirement benefit amount. Representative Kopp answered in
the affirmative. He voiced that there was a high degree of
confidence in the overall plan but the lever to suspend
the PRPA benefit was available to the actuary. He reminded
the committee of Deven Mitchells [Executive Director,
Alaska Municipal Bond Bank Authority, Department of
Revenue] prior testimony regarding Tier 4 models showing
that within 10 years Tier 4 was only performing slightly
better than social security alone. He offered that while
the HB 79 plan was very conservative, there was greater
surety for peace officers and firefighters than Tier 4.
Representative Josephson wondered about the difference
between a Cost of Living Adjustment (COLA) and a PRPA.
2:31:29 PM
TOM WESCOTT, PRESIDENT, ALASKA PROFESSIONAL FIREFIGHTERS,
responded that a COLA was awarded under the legacy Defined
Benefit plans (DB). He furthered that in other states the
COLA was an inflation proofing adjustment, but in Alaska it
was awarded for remaining in the state. The COLA was
eliminated in HB 79. Representative Josephson deduced that
the lack of a COLA disincentivized elderly retirees to
remain in the state. Mr. Wescott agreed that the COLA
benefit had been stripped out. He suggested that the
expensive nature of living in Alaska should be
compensated for in employees pay throughout their career.
2:33:08 PM
Representative LeBon asked about the 5 year average the
retirement benefit was built upon. He wondered whether the
5 year average included annual overtime pay. Representative
Kopp replied in the affirmative.
Representative Carpenter WITHDREW his OBJECTION.
There being NO OBJECTION, it was so ordered. The proposed
CS was ADOPTED.
Co-Chair Johnston asked for a brief introduction to the
bill.
Representative Kopp indicated that the bill was in response
to recruitment and retention issues related to peace
officers and fire fighters. He detailed that only the older
experienced employees in DB plans and younger, less
experienced new recruits were retained. The middle class of
managers, sergeants, lieutenants, and battalion chiefs were
leaving the state for defined benefits. Many positions had
been left open because of a lack of interest due to a lack
of surety in benefits. The scenario resulted in proposing a
very conservative hybrid plan. The idea behind HB 79 was to
retain employees and address unmet needs. The medical cost
savings feature was a very significant part of the plan.
The feature would allow a person to purchase the best plan
possible after retirement until Medicare. He acknowledged
that the fixed age of retirement at 55 was an unpopular
part of the plan. He shared that he retired from policing
at the age of 44 and felt it was a more appropriate age
considering the physical demands of the job. However, the
older retirement age was a necessary feature of the plan.
He listed the remaining cost saving features: high 5 year-
average retirement income calculation, lack of a COLA,
employee contribution rate increase option, and suspended
PRPA. He noted the public safety communitys support for
the bill despite its limitations when compared to the
current plan.
2:37:25 PM
Representative Sullivan-Leonard asked whether an actuarial
fiscal analysis would be provided. Representative Kopp
reported that he had been working with the administration
to obtain the actuarial analysis. He thought that the
information would be forthcoming shortly.
Vice-Chair Ortiz asked if it was common to begin receiving
retirement benefits at age 55 in other states.
Representative Kopp indicated that in the states with
similar plans age 55 was a common retirement age. A
couple states lowered the age to 51. He added that in
most states with DB plans retirement was based on 20 to 25
years of service. However, they were considered high
liability plans. The delayed retirement helped make the
hybrid plan affordable.
Vice-Chair Ortiz asked whether adopting the plan would
significantly help accomplish the goal of retention. He
believed that if the plan did the job of retaining enough
employees, other savings would be realized in areas like
recruitment. Mr. Wescott replied in the affirmative. He
accentuated that the plan would absolutely assist with
recruitment and retention. He noted that one of the
characteristics of a DB plan was that the employee was
required to invest time, which was a deterrent to leaving
the position as the years built up. He performed some rough
estimates and determined that the state saved $4 million
per year by retaining one percent of the public safety
workforce at $120 thousand per employee in training costs.
He ascertained that completely solving the problem was not
required to pay for the new plan.
Representative Wool asked Representative Kopp to review
what was available to help the retiree fill the medical
gap; the period between 55 and the eligibility age for
Medicare. He asked whether there was an associated plan.
Representative Kopp replied that the health reimbursement
arrangement was a cash pool that built up through
contributions and was available for any market based plan
the employee chose as a bridge to Medicare. Some agencies
had affiliations with certain plan participants. He
deferred further answer to Mr. Westcott.
Mr. Westcott agreed that the gap was significant and
tough to deal with. He commented that it could be
addressed in the future. He expounded that when medical
benefits were attached to a pension plan it added an
unknown cost that historically grew quickly. He reported
that he had analyzed other pension plans and discovered
that the medical benefits were typically problematic
because they grew rapidly adding significant costs.
2:43:56 PM
Representative Wool wondered what happened to an employee's
contributions if they had to leave the state prior to
retirement. Representative Kopp responded that once a
participant met the vestment period, an individual could
withdraw the benefit once they reached retirement age.
Representative LeBon had heard that one problematic reason
for the liability in the Teachers' Retirement System (TRS)
and PERS was due to employees accepting positions in remote
locations or working extra overtime during their last three
years to build up the retirement benefit. He wondered
whether the practices affected the liability the state was
currently paying. Representative Kopp reported that most of
the states public safety employees worked in
municipalities and were not entitled to a geographic
differential. He stated that few state troopers chose to
work remotely for a period of time, preferring life on the
road system. He did not believe that the practice affected
the current liability issues. He elucidated that the state
received poor actuarial advice, which caused the state to
underpay over many years. In fact, many municipalities did
not pay an employer contribution based on erroneous
actuarial advice.
2:46:58 PM
Representative LeBon assumed that a trooper working in a
remote area receiving differential pay would likely leave
the area upon retirement. He wondered why the retirement
benefit was built upon the location differential and if
eliminating overtime and location differential would help
protect the plan. Mr. Westcott replied that the practice
Representative LeBon described was known as spiking. He
noted that the highest five years was identified in the
Washington state plan as a best practice that prevented
spiking and was more representative of a career. He
indicated that a state trooper had to work 50 percent of
their career in the remote location to receive a location
differential. Representative LeBon was glad to hear the
issue was addressed in the bill. He reported knowing state
workers that moved to a remote location to get their 3
highest years.
2:49:36 PM
Representative Carpenter voiced that just the fact that
spiking was an established term meant the issue needed
combating. He suggested inserting language that prevented
spiking rather than using the 5 year average. He felt that
a prohibition in statue was a better solution.
Representative Kopp replied that when a person earned more,
they also contributed more to the plan. He spoke about
peace officers aversion to forced overtime and
experiencing burnt-out. He indicated that municipal police
departments forced overtime due to staff shortages and
burn-out was affecting officers. He acknowledged that
working extra overtime at the end of a career to enhance
retirement happened, but it was not currently the problem.
He identified the lack of recruitment, forced overtime, and
burnout as the problem. He assured that by spreading out
the retirement average over 5 years a person would burnout
making spiking almost impossible. He was unsure how to
nuance the bill to prohibit spiking.
Co-Chair Johnston indicated the committee would set the
bill aside.
HB 79 was HEARD and HELD in committee for further
consideration.