Legislature(2019 - 2020)BARNES 124
03/20/2019 03:15 PM House LABOR & COMMERCE
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| Audio | Topic |
|---|---|
| Start | |
| HB79 | |
| HB44 | |
| HB48 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 79 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | HB 44 | TELECONFERENCED | |
| += | HB 48 | TELECONFERENCED | |
HB 79-PEACE OFFICER/FIREFIGHTER RETIRE BENEFITS
3:19:30 PM
CO-CHAIR WOOL announced that the first order of business would
be 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."
3:20:28 PM
REPRESENTATIVE CHUCK KOPP, Alaska State Legislature, introduced
HB 79, as prime sponsor. He stated that he served 23 years as a
police officer in Alaska, adding that the best and toughest
experiences of his life were on the job. On this job, he said,
you save peoples lives, you solve terrible crimes, you help
people put their lives back together, and, hopefully, you can
keep people's lives from ever coming apart. Police and
firefighters do all of this together, he noted. He reflected on
an experience he had, in which both police and firefighters
worked together to recover the body of an officer who was shot
and killed on the job. The job is harder now, he said, there is
less political support, less public support at times, and there
is heavy media scrutiny on the public safety profession.
There's increased liability for police officers and
firefighters, both personally and for their municipal state
employers. He explained that, currently, Alaska has one of the
greatest recruiting and retention challenges that the profession
has ever seen. Across the state, millions of dollars in
training are being lost every year when new officers and
firefighters leave shortly after being trained and certified to
other agencies that have a defined benefit and retirement
[plan]. He stated that HB 79 takes the lessons that were
learned from Tier 3, which was unfunded liability due to
unaffordable benefits, and Tier 4, losing employees to other
agencies, and it brings something brand new that avoids the
pitfalls of earlier plans. It provides a sure foundation for
employee retirement planning and employer cost stability into
the future.
3:24:31 PM
TOM WESCOTT, President, Alaska Professional Firefighters
Association, stated that the recruitment and retention problems
created by Tier 4 are one of the driving factors, as well as the
benefits provided under Tier 4, especially for the unique nature
of the public safety career. With these problems in mind, he
said, they set out to find a workable solution that took into
consideration the concerns of the state, other employers, and
the desire to provide benefits more in line with outside
agencies and what they're offering. To create a sustainable
plan and avoid repeating the mistakes of the past, it was
important to understand how the old system fell short and how
the most successful plans managed to stay well-funded. He
pointed out that it is a mistake to think that all defined
benefits (DB) plans are the same. He stated that they reviewed
what got them into trouble and what the best plans did and found
some common themes threaded through both reviews. The new plan
must be built off more conservative assumptions; have reasonable
costs; share risks between employers, employees and retirees;
offer conservative benefits and have steady, consistent funding.
He remarked that these traits were found in the all of the best
plans in the country and can also be found in HB 79. He
concluded by stating that they worked to incorporate the best
practices into a plan with reasonable costs and benefits. The
current plan also removes healthcare and replaced it with the
defined contribution healthcare from Tier 4, which is a Health
Retirement Account (HRA). The old systems, he said, had Pre-
Medicare coverage, while this plan does not. It is replaced
with the HRA. The employee's rates are adjustable between 8 and
10 percent and cannot go below 8 percent. They installed a
minimum age of 55 to begin collecting retirement, whereas the
old plan had a 20-year requirement. The inflation proofing
that's awarded to retirees is optional and the ARM board will
decide if they can afford it or not. If the funding were to
fall below 90 percent that would not be granted, he added that
it's another way to save money. He stated that the COLA
benefit, which is a 10 percent benefit that the old system
provided, was also removed. HB 79, he said, is the smart,
reasonable solution to Alaska's recruitment and retention
problems. The benefits have been reduced and tools to share
risk and deal with adverse experience have been added. He noted
that the current plan also allows Alaska's public safety
agencies to compete for those highly skilled and in demand
employees. In closing, he asked that as members weigh the
merits of this legislation, they also consider the risk of
maintaining the status quo as there has been an acceleration in
departures as the percentage of Tier 4 participants has grown.
3:29:28 PM
The committee took an at-ease from 3:29 to 3:31 p.m.
3:32:06 PM
WILLIAM FORNIA, President/Consultant, Pension Trustee Advisers
(PTA), provided a PowerPoint presentation entitled, "Alaska
Public Safety Pension Fix; HB 79." Mr. Fornia informed the
committee of his credentials, adding that he has all the
appropriate qualifications for pensions. He stated that he is
very active in national organizations, a frequent author and
speaker on the subject, and a regular expert witness (slide 2).
He remarked that he was the corporate actuary for Boeing for 4
years and has had a decent history of work experience here in
Alaska. In 2005 he was hired for Alaska's first review actuary.
In 2009 he audited Alaska's Public Employees' Retirement System
(PERS)/TRS, and since 2011 he has worked for various labor
groups in Alaska on this very issue (slide 3). Mr. Fornia went
on to address why change is necessary, stating that Tier 3
provided adequate benefits while Tier 4 does not, which is why
retention of public safety workers has become an issue (slides 5
and 6).
3:37:03 PM
CO-CHAIR LEDOUX asked if firefighters in Alaska receive social
security.
3:37:36 PM
MR. FORNIA stated that firefighters do not receive social
security unless they held a different job in which they do
receive it from. However, if a firefighter is receiving social
security from another job it is reduced because they currently
have a job that qualifies for PERS. He explained that even if a
private sector employee, who has a similar earnings profile to
public safety employees, only paid their social security then
they would have a benefit almost as good as what public safety
workers receive from Tier 4. He asked Representative LeDoux if
this answered her question.
3:38:22 PM
CO-CHAIR LEDOUX answered yes.
3:38:34 PM
MR. FORNIA returned attention to key considerations with
Alaska's Public Safety Pension Fix (PSF). He pointed out that
Tier 3 is defined benefits (DB) and Tier 4 is Defined
Contributions (DC). He explained that DB plans are more cost
effective at providing retirement benefits; however, with DC
plans there is no risk of unfunded liabilities to the employer
(slide 7). For this reason, the goal was to design a DB plan
that doesn't have much likelihood of an unfunded liability that
grows. He added that he thinks they've done that with HB 79.
He further described how the current bill strikes a compromise
between a DB and a DC. It starts with a 12 percent fixed
employer contribution and manages the plan within that target
range. The benefits have been designed to be a slightly lower
than current level and adjustment mechanisms have been built in.
The current plan also utilizes a lower discount rate to provide
a cushion against adverse experience (slide 8). Changes from the
old DB system include removal of full medical coverage, the
funding level built on a more conservative 7 percent rate of
return versus the current 8 percent that the ARM board uses, the
employee contribution can adjust upward from 8 percent to 10
percent, the COLA benefit was eliminated, PPRA is not automatic
and can be withheld if the funding level is below 90 percent,
the retirement age is 55 years old, and the final average salary
is based on high 5 year instead of high 3 years (slides 9, 10,
and 11).
3:43:21 PM
MR. FORNIA turned attention to the way in which Tier 4 members
would transfer into the current plan without creating an
unfunded liability; the ARM board will create an actuarially
equivalent formula for purchasing time, the individual will have
90 days from implementation to decide on joining the plan and
can use their Tier 4 DC account to purchase service credit or
start from 0 (slide 12). He further described the safeguards
that were created to help prevent unfunded liabilities. The
first being lowered benefits in Tier 3 compared to tier 5. The
second safeguard is "actuarial methods," which involved building
a margin into actuarial assumptions and building reserves in
good times to provide added funding during bad times (slides 15,
16, and 17). The third and final safeguard is that the entire
plan was built using a reduced discount rate, otherwise known as
a reduced assumed rate of return, which is 7 percent rather than
8 percent. The idea is, going forward, to monitor the
experience and adjust the benefits and/or the contributions if
necessary (slide 18). Mr. Fornia highlighted a simulation that
analyzed an assumed investment return of 6.6 percent annually
for the next 10 years and 7.38 thereafter, which resulted in the
plan starting at 100 percent funded and gradually growing to 110
percent without ever decreasing (slide 19). More advanced
simulations are in the works that would better reflect reality,
which will inevitably have good years as well as bad ones (slide
20).
3:50:23 PM
CO-CHAIR LEDOUX asked why 6.6 percent was chosen for the first
10 years and 7.38 percent thereafter.
MR. FORNIA explained that those numbers were chosen to be
conservative as well as consistent with what other consultants
believe. He pointed out that they were reasonable based on the
current bond market.
3:53:19 PM
REPRESENTATIVE HANNAN referenced Mr. Fornia's work history in
2006, asking how, if at all, he was involved with the decision
to do away with the public employees DB retirement system and
if, at the time, he supported the decision to switch to a DC
system without social security backup.
3:53:58 PM
MR. FORNIA replied that he was not involved with the decision to
switch plans and he was pleased that they were coming up with a
compromise program that provides reasonable levels of benefits
with a low risk of unfunded liabilities. He also pointed out
that, although Alaska may have lost some good workers because
they wanted to move to a state with a pension, it's not too late
to fix the benefits program.
3:55:37 PM
REPRESENTATIVE HANNAN asked whether the entirety of the
contributions made to HRA are accrued during the working years
of the employee or if they are annually contributed to during
retirement.
3:56:00 PM
MR. FORNIA explained that it is accrued while working and then,
while in retirement, individuals use that account to pay the
premiums for their pre-65 healthcare.
3:56:16 PM
REPRESENTATIVE HANNAN established a scenario in which a public
safety worker has worked for 20 years and wants to retire at age
45. She inquired as to whether that individual would have to
wait for their HRA to be available to them at age 55 and what
they might do for healthcare during that 10-year gap.
3:57:01 PM
REPRESENTATIVE KOPP acknowledged that, under that scenario,
public safety workers would need to find an alternative
healthcare plan during the gap years.
MR. WESCOTT offered his understanding that if an individual is
invested in the HRA there may not be an age limit to use it,
whereas one must be 55 years old to draw the pension. He added
that it would be ideal to have a system that could provide for
anyone who put in their 20 years, but due to cost and risk
associated with the plans adding the 55-year age requirement
made sense. He noted that 55 was a common age requirement for
public safety retirement plans and that it would be unusual to
see an individual retire at age 45 without finding other
employment thereafter.
REPRESENTATIVE HANNAN stated that she is a strong advocate for
all public employees having a defined benefits system, noting
that she herself is a retiree with that benefit. She asked
about a scenario in which a firefighter retires at age 45
because their knees gave out and, therefore, would not be able
to use their health retirement account for another 10 years.
That individual would not be eligible for public support for a
private sector health contribution unless they don't have any
assets; however, they have spent the last 20 years saving their
assets in order to have a health retirement account that they
would be able to access at age 55. She expressed concern that
many public service employees are forced to retire because their
bodies give out and, under the current bill, would have to wait
in pain for 10 years until they could access their benefits.
4:00:18 PM
REPRESENTATIVE KOPP expressed his appreciation for
Representative Hannan's passion regarding healthcare. He
acknowledged that public service is "a young person's game,"
explaining that the work is physically demanding.
4:01:08 PM
MR. WESCOTT agreed that the issues being discussed are
legitimate ones. He opined that the HRA will not be sufficient,
in that the amount an individual acquires throughout their
career will only provide minimal coverage during their
retirement. The expense of healthcare and what it's done to
pension systems, because it's grown at such a rate that has
outpaced inflation, has caused problems for pension systems to
keep up with that growth. Therefore, while finding a solution
to this issue would be ideal, the priority is to avoid a plan
that establishes another unfunded liability.
CO-CHAIR WOOL noted that healthcare is a big driver for many of
these discussions, especially when it comes to retirement.
4:02:59 PM
REPRESENTATIVE FIELDS asked the actuary if he could address
whether relationship exists between the size of the group being
covered and the stability of the plan.
4:03:22 PM
MR. FORNIA replied that a bigger group is more stable, however
the current group of several thousand is large enough.
4:03:57 PM
REPRESENTATIVE FIELDS asked why it is that a larger pool better.
4:04:10 PM
MR. FORNIA replied that there are two major reasons; one being
that the actuaries have a very good idea of how long a group of
1,000 retirees will live versus one single person with a 401k.
The second reason is that, on the investment side, a larger pool
of assets has lower fees.
4:05:06 PM
CO-CHAIR WOOL asked if it was fair to say that by combining with
the ARM board funds that it would reach that threshold of a
large enough fund to get a good deal on fees.
4:05:21 PM
MR. FORNIA answered yes.
4:05:41 PM
CO-CHAIR LEDOUX asked for clarification on whether the problem
that was articulate by Representative Hannan exists in both the
present system and the current bill's plan.
4:06:00 PM
REPRESENTATIVE KOPP answered yes, adding that the current bill
makes no changes to the present system's Tier 4 health
retirement account system. He offered his belief that the
average public safety worker would be looking at a 5-year gap
between retirement and when they would be eligible to draw their
health and cash benefit. That 5-year window, he said,
incentives employees to plan ahead and prepare to take advantage
of other options offered by the state and local municipalities
during that window of time.
4:07:11 PM
CO-CHAIR LEDOUX questioned whether individuals use their HRA to
pay medical bills or fund insurance.
4:07:27 PM
MR. WESCOTT offered his belief that it can be used for an IRS
qualifying medical expense, for example a premium payment for
insurance or a medical bill from a doctor's appointment; it can
be used for either.
4:08:04 PM
REPRESENTATIVE HANNAN inquired as to how many people are
predicted to be in the size of the group covered by the bill as
it's currently constructed.
4:08:18 PM
MR. WESCOTT replied that it should start at around 1,800 people.
4:08:56 PM
REPRESENTATIVE HANNAN sought clarification as to whether the
current bill was written to include all municipal fire
departments, police departments, state troopers, and wildland
firefighters.
4:09:16 PM
REPRESENTATIVE KOPP replied that wildland firefighters would
only be covered if they worked fulltime. He mentioned that the
current bill also includes police and fire for the Anchorage and
Fairbanks airport systems.
4:10:12 PM
MR. FORNIA returned attention to the presentation, discussing
other states that have operated with similar public safety
workers' retirement and benefit plans. Wisconsin has a well-
funded plan that is similar in terms of the Cost of Living
Adjustment (page 22). Colorado Fire and Police Pension
Association created a new statewide plan in 1980 with fixed
contributions that are sufficient for a core DB plan and board
discretion over COLA (page 23). Very similarly, South Dakota
has triggers that require corrective actions in terms of COLA
(page 24). Ohio, like Alaska, includes retiree healthcare as
part of the pension fund (page 25). He concluded by reminding
the committee that Alaska is largely concerned with potential
future unfunded liabilities and that HB 79 is a solid potential
solution (page 27).
4:12:57 PM
REPRESENTATIVE FIELDS asked if there was any reason why a hybrid
plan of this structure wouldn't be a sound approach for a
broader group of employees beyond public safety employees. He
further noted that he was in full support of the current bill,
adding that "we have to start somewhere."
4:13:17 PM
MR. FORNIA stated that the approach would need to be finetuned
as there were very specific public safety features that were
modified such as the "25 year with no age requirement." He
suggested that it could work by adding a new Tier for teachers
or other PERS that's not as good as the old DB Tier and has
similar triggers and safeguards.
4:13:48 PM
CO-CHAIR WOOL observed that the proposed plan eliminates risk by
increasing employee contributions if returns are less than
expected; accordingly, he asked if there is a mechanism in the
current bill that increases benefits if returns are better than
expected.
4:14:28 PM
MR. FORNIA explained that the increased employee contributions
would be reversed. If returns are low the employee
contributions would go up from 8 to 9 percent, whereas if
several years later returns are better than expected the
contributions would go back down to 8 percent. He further noted
that there is no mechanism that retroactively restores the
suspended COLA. He cautioned the legislature from restoring
features 15 years later even if returns were prosperous,
referencing California in particular, who made excessive
increases to their police and fire plans while increases were
"booming" in the late 1990s and are still paying for it today.
4:15:45 PM
REPRESENTATIVE HANNAN shared her understanding that most pension
plans fund at 80 to 85 percent, which is the "industry norm."
She asked if this was true, and if so, why the proposed plan
seeks to be 100 to 110 percent funded.
4:16:28 PM
MR. FORNIA explained that all plans target 100 percent because
that means taxpayers are paying the current cost of the plan.
The goal, he said, is to be 100 percent funded so that the cost
is not being transferred to future generations. He added that,
although many plans are only 80 percent funded, very few
actuaries would call that sufficient because at that percentage
costs are continually being shifted to future generations.
4:18:02 PM
CO-CHAIR WOOL announced that HB 79 was held over.
4:18:25 PM
The committee took an at-ease from 4:18 p.m. to 4:20 p.m.
[During the at-ease, Co-Chair Wool handed the gavel to Co-Chair
LeDoux.]
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB79 version U.pdf |
HL&C 3/20/2019 3:15:00 PM HL&C 3/22/2019 3:15:00 PM HL&C 3/25/2019 3:15:00 PM HL&C 4/1/2019 3:15:00 PM |
HB 79 |
| HB79 Sponser Statement ver U.pdf |
HL&C 3/20/2019 3:15:00 PM HL&C 3/22/2019 3:15:00 PM HL&C 3/25/2019 3:15:00 PM |
HB 79 |
| HB79 Sectional Analysis ver U 3.12.2019.pdf |
HL&C 3/20/2019 3:15:00 PM HL&C 3/22/2019 3:15:00 PM HL&C 3/25/2019 3:15:00 PM HL&C 4/1/2019 3:15:00 PM |
HB 79 |
| HB79 Additional Information APFO Recruitment Retention Report 3.11.2019.pdf |
HL&C 3/20/2019 3:15:00 PM HL&C 3/22/2019 3:15:00 PM HL&C 3/25/2019 3:15:00 PM |
HB 79 |
| HB79 Additional Information DPS Commissioned Employee Engagement Survey Results Overview December 2017 3.11.2019.pdf |
HL&C 3/20/2019 3:15:00 PM HL&C 3/22/2019 3:15:00 PM HL&C 3/25/2019 3:15:00 PM HL&C 4/1/2019 3:15:00 PM |
HB 79 |
| HB79 PERS Tier Comparisons for Bill 3.18.2019.pdf |
HL&C 3/20/2019 3:15:00 PM HL&C 3/22/2019 3:15:00 PM HL&C 3/25/2019 3:15:00 PM HL&C 4/1/2019 3:15:00 PM |
HB 79 |
| HB 79. Backup. Letter of Opposition.pdf |
HL&C 3/20/2019 3:15:00 PM HL&C 3/22/2019 3:15:00 PM HL&C 3/25/2019 3:15:00 PM HL&C 4/1/2019 3:15:00 PM |
HB 79 |
| HB 79. Backup. Letters of Support.pdf |
HL&C 3/20/2019 3:15:00 PM HL&C 3/22/2019 3:15:00 PM HL&C 3/25/2019 3:15:00 PM |
HB 79 |
| HB79 Additional Information DPS Recruitment-Retention Plan Overview 3.11.2019.pdf |
HL&C 3/20/2019 3:15:00 PM HL&C 3/22/2019 3:15:00 PM |
HB 79 |
| HB79 W.Fornia PSF-Presentation to House LaborCommerce 3.18.2019.pptx |
HL&C 3/20/2019 3:15:00 PM |
HB 79 |
| HB79 L&C Rep Kopp Introduction Presentation 3.18.2019.pptx |
HL&C 3/20/2019 3:15:00 PM |
HB 79 |
| HB044 Sectional Analysis 2.26.19.pdf |
HL&C 3/18/2019 3:15:00 PM HL&C 3/20/2019 3:15:00 PM |
HB 44 |
| HB044 Supporting Document-Support Letter National ATM Council 3.15.19.pdf |
HL&C 3/18/2019 3:15:00 PM HL&C 3/20/2019 3:15:00 PM |
HB 44 |
| HB044 Supporting Document-Support Letters 2.26.19.pdf |
HL&C 3/18/2019 3:15:00 PM HL&C 3/20/2019 3:15:00 PM |
HB 44 |
| 2019.HB 44.Backup Support Letters.pdf |
HL&C 3/18/2019 3:15:00 PM HL&C 3/20/2019 3:15:00 PM |
HB 44 |
| 2019.HB 48.Sponsor Statement.pdf |
HL&C 3/20/2019 3:15:00 PM |
HB 48 |
| 2019.HB 48.Bill Version M.PDF |
HL&C 3/20/2019 3:15:00 PM |
HB 48 |
| HB 48 Fiscal Note.pdf |
HL&C 3/18/2019 3:15:00 PM HL&C 3/20/2019 3:15:00 PM |
HB 48 |