Legislature(2021 - 2022)ADAMS 519
05/10/2022 09:00 AM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| SB204 | |
| HB220 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | SB 204 | TELECONFERENCED | |
| + | HB 66 | TELECONFERENCED | |
| + | SB 111 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | HB 220 | TELECONFERENCED | |
HOUSE BILL NO. 220
"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."
9:26:02 AM
Co-Chair Merrick reported that the bill had been returned
back to the committee from the Rules Committee to approve
of a new fiscal note.
9:26:10 AM
DAVID KERSHNER, CONSULTING ACTUARY PRINCIPAL, BUCK GLOBAL
LLC, FLORIDA (via teleconference), reviewed the new fiscal
impact note from the Department of Administration with
control code szCfR. He indicated that the original fiscal
note was dated March 24, 2022. The revised fiscal note
reflected changes made in Version B of the committee
substitute (CS). The CS changed the following: the normal
retirement eligibility requirements for employees under the
Public Employees' Retirement System (PERS) and Teachers'
Retirement System (TRS), the average compensation for
teachers changed from three years to five years, the member
contribution rate for public employees other than police
and firefighters [PERS Other] increased from six percent to
eight percent, and all employees would be required to
retire from active service in order to qualify for
retirement benefits.
9:30:25 AM
Vice-Chair Ortiz asked how requiring employees to retire
from active service to qualify for benefits would affect
potential retirees.
Mr. Kershner responded that if an employee ended their
employment before retirement and ultimately retired later
on, they would still receive retirement benefits upon
retiring under the original version of HB 220. The language
in the committee substitute [version B] reverted back to
statutory language that required an employee to retire from
active service to receive benefits. The healthcare
liabilities would increase if a higher population of people
were eligible for benefits, which is why the liabilities
decreased under version B.
Co-Chair Merrick invited the bill sponsor to the table for
questions.
9:33:50 AM
Representative Josephson asked Mr. Kershner about page 2 of
the fiscal note (copy on file) that showed a savings to
PERS and TRS of $28.5 million in FY 24. However, the
savings in FY 28 would be about a fifth of the savings in
FY 24. He wondered why the savings decreased over time.
Mr. Kershner responded that currently, the defined benefit
plans were closed to new entrants. It was assumed that
anyone hired on or after July 1 of 2006 would be entered
into the defined contribution plan. As the system currently
stood, it was projected that as the number of employees
covered by defined benefit plans decreased over time and
employees entering into defined contribution plans
increased, contributions from employers into the defined
contribution plans would increase. However, if HB 220 were
to pass, current members of the defined contribution plans
would be given a choice between remaining in a defined
contribution plan or transferring to a defined benefit
plan. All future hires would be given the choice between a
defined contribution plan and a defined benefit plan. For
the purpose of the fiscal note, Buck had assumed that all
current members of the defined contribution retirement plan
would elect to transfer to the defined benefit plan. It was
also assumed that all future hires would enter the defined
benefit plan. As a result, there would be a shift in
employer contributions between the two plan types as the
defined benefit plan membership increased over time.
9:37:22 AM
Representative Josephson suggested that the legislature's
aggressive pay down of the unfunded liability had been
helpful. He wondered if the state would have realized
additional savings if the plan had been implemented
earlier.
Mr. Kershner responded that it was hard to answer the
question definitively. The total contribution rates as
proposed in the CS were about the same as they were in the
current system. Employers would continue to contribute the
same amount, which was 22 percent of pay for PERS and 12.56
percent of pay for TRS. The difference proposed by the bill
was an increase in employer contributions into the defined
benefit plans rather than the defined contribution plans.
It was a shuffling of funds. The shift would mean that the
state would have to make up a smaller difference, which
would lead to a decrease in state contributions. When
defined benefit plans were closed to new entrants in 2006,
it reduced the risk to the state of unfunded liabilities
and therefore higher contributions. Re-opening defined
benefit plans would mean that the state would reassume some
of the previously prevented risk and would likely have to
contribute at a higher rate. It was important to note that
if asset returns were lower than Buck's projections,
contributions to the state would be higher. Conversely, if
the returns were more favorable than projected, the state
contributions would be reduced.
Vice-Chair Ortiz suggested that the passage of the
legislation would result in a savings to the state.
Mr. Kershner responded in the affirmative as long as the
state's future experiences under the plan were not lower
than projected.
9:43:32 AM
REPRESENTATIVE GRIER HOPKINS, SPONSOR, responded the
committee had been previously presented with the Monte
Carlo analysis done by actuaries from Cheiron that looked
at risk analysis. There was a strong level of confidence in
the legislation's ability to uphold the projections. There
was a variable employee contribution rate built into the
bill, which mean that there was risk sharing with the
employee. If there were adverse market returns, the
employee contribution rate could be increased to compensate
for the lower returns. A one percent increase in employee
salary contributions would result in a $200 million
additional investment into the pension fund. He referred to
the Buck actuarial analysis (copy on file) on page 3, line
7. He highlighted the state's contribution percent
decreasing over the lifetime of the legislation.
9:46:39 AM
Representative LeBon asked about the assumed rate of
return, which he thought was about 7.8 percent. He asked
what the impact on the plan would be if a return of 6.5
percent was assumed instead.
Representative Hopkins responded that the specific
hypothetical scenario was discussed by Cheiron at a
previous hearing. He thought that Cheiron had considered
6.75 percent, but he would have to look at the analysis for
the exact figures. The unfunded liability that was
currently being whittled down due to the closure of the
system in 2006 would not be the responsibility of current
employees. The state would experience reduced costs as a
result of reopening the system in order for new employees
to participate.
Representative LeBon asked if the formula for contribution
percentages was defined in the bill. He suggested that once
the formula was enacted, the minimum retirement benefit
contribution would be established. He wondered if there was
a provision to increase the benefit in any way if the fund
became more successful than projected.
Representative Hopkins replied in the negative. He
explained that the post-retirement pension adjustment was
the only thing that could be changed. Additionally, if the
pension fund was more than 90 percent funded, a 10 percent
increase would be allocated to retirees. However, there
would not be a reduction below the eight percent employee
contribution minimum. A future piece of legislation could
accomplish a reduction, but HB 220 would not.
9:51:32 AM
Co-Chair Foster MOVED to report CSHB 220(FIN) out of
Committee with individual recommendations and the
accompanying fiscal note.
There being NO OBJECTION, it was so ordered.
CSHB 220(FIN) was REPORTED out of committee with four "do
pass" recommendations and three "no recommendation"
recommendations and with one new fiscal impact note by the
Department of Administration.
Co-Chair Merrick reviewed the agenda for the following
meeting.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SB 204 Explanation of Changes 3.29.22.pdf |
HFIN 5/10/2022 9:00:00 AM |
SB 204 |
| SB 204 Sponsor Statement Version W 3.29.22.pdf |
HFIN 5/10/2022 9:00:00 AM |
SB 204 |
| SB 204 Sectional Analysis Version W 3.29.22.pdf |
HFIN 5/10/2022 9:00:00 AM |
SB 204 |
| SB 204 Supporting Document Action-Raffle Revenue by Year 2.28.22.pdf |
HFIN 5/10/2022 9:00:00 AM |
SB 204 |
| SB 204 Testimony APHA 3.2.22.pdf |
HFIN 5/10/2022 9:00:00 AM |
SB 204 |
| SB 204 Testimony DF&G 4.28.22.pdf |
HFIN 5/10/2022 9:00:00 AM |
SB 204 |
| SB 204 Testimony RHAK 2.14.22.pdf |
HFIN 5/10/2022 9:00:00 AM |
SB 204 |
| SB 204 Testimony SCI-AK 3.1.22.pdf |
HFIN 5/10/2022 9:00:00 AM |
SB 204 |
| HB220 - AK Stress Test Memo Cheiron 051222.pdf |
HFIN 5/10/2022 9:00:00 AM |
HB 220 |