01/26/2022 05:15 PM House LABOR & COMMERCE

        HB 220-RETIREMENT SYSTEMS; DEFINED BENEFIT OPT.                                                                     
                                                                                                                                
5:20:28 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  SPOHNHOLZ announced  that the  first order  of business                                                               
would  be 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."                                                                                                                          
                                                                                                                                
5:21:16 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HOPKINS, Alaska  State Legislature, commented that                                                               
the   bill  represents   an  option   and  would   simply  impact                                                               
individuals who  became a member of  Public Employees' Retirement                                                               
System (PERS) Tier III or  Teachers' Retirement System (TRS) Tier                                                               
IV from 2006 on.  He said that  the structure is said to be cost-                                                               
neutral to the state.                                                                                                           
                                                                                                                                
5:22:43 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE KAUFMAN shared his  understanding that the premise                                                               
of HB 220  is to respond to  a "gap" that was created.   He asked                                                               
Representative  Hopkins whether  this legislation  aims to  close                                                               
the gap in terms of retirements  plans to ensure that workers are                                                               
"made whole."                                                                                                                   
                                                                                                                                
REPRESENTATIVE  HOPKINS  responded  that,  if  a  member  of  the                                                               
PERS/TRS   system  doesn't   want  to   switch  from   a  defined                                                               
contribution to  a defined benefit  system, there is  language in                                                               
the legislation  that would allow  those individuals to  cash out                                                               
their 401k  and purchase their  time to  "be made whole"  in that                                                               
sense.   He  shared  that there  is a  calculator  being made  to                                                               
better look at those numbers.   He said that the more significant                                                               
gap that  the legislation  looks to  fill is  the growing  gap in                                                               
retention and recruitment  of public safety and  educators in the                                                               
state.   He relayed feedback that  the lack of a  defined benefit                                                               
system is responsible for this gap.                                                                                             
                                                                                                                                
REPRESENTATIVE  KAUFMAN  asked  whether there's  a  comprehensive                                                               
survey to determine what might be causing the retention issue.                                                                  
                                                                                                                                
REPRESENTATIVE HOPKINS  responded yes,  in May [2021],  there was                                                               
an educator retention and recruitment  study done by the State of                                                               
Alaska  Governor   Mike  Dunleavy  Administration,   and  there's                                                               
another  one  ongoing,  both  looking at  the  reason  for  these                                                               
issues.   He relayed that  the lack  of defined benefits  was the                                                               
number three reason,  preceded by salary and  benefits, which are                                                               
locally negotiated and not a statewide issue.                                                                                   
                                                                                                                                
REPRESENTATIVE  KAUFMAN asked  Representative Hopkins  whether he                                                               
has received the fiscal analysis yet for the bill.                                                                              
                                                                                                                                
5:26:39 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  SPOHNHOLZ responded  that the  House Finance  Committee                                                               
would be responsible for that information.                                                                                      
                                                                                                                                
REPRESENTATIVE HOPKINS  agreed, and  said that  there is  a group                                                               
putting together funding that is  going to run an actuarial study                                                               
for the House  Finance Committee to ensure that  the structure is                                                               
cost-neutral to the state.  He  added that, while the fiscal note                                                               
is  indeterminate,  the  largest   impact  would  be  paying  the                                                               
salaries for employees  to answer the phones  to answer questions                                                               
from individuals who would like  to switch from a defined benefit                                                               
to defined contribution plan.                                                                                                   
                                                                                                                                
5:27:34 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SPOHNHOLZ  added that the aforementioned  survey results                                                               
found  that the  first reason  was cost  of living,  then salary,                                                               
then retirement.                                                                                                                
                                                                                                                                
5:27:58 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  MCCARTY,  regarding   the  potential  retroactive                                                               
component of  the bill, asked  Representative Hopkins  to clarify                                                               
whether there would not be backpay from 2006 on.                                                                                
                                                                                                                                
REPRESENTATIVE HOPKINS responded  that 2006 is when  the Tier III                                                               
PERS and Tier IV TRS systems  were established.  He said that the                                                               
bill would only impact employees from  2006 on, which is why that                                                               
year is in the bill.                                                                                                            
                                                                                                                                
REPRESENTATIVE  MCCARTY asked  whether a  Tier IV  employee could                                                               
cash  in Tier  IV benefits  and transition  to a  defined benefit                                                               
system.                                                                                                                         
                                                                                                                                
REPRESENTATIVE HOPKINS responded, "More or less, yes."                                                                          
                                                                                                                                
REPRESENTATIVE  MCCARTY shared  his understanding  that there  is                                                               
language that  implies an insurance  format plan that  would make                                                               
it so  that an  employee's dependents would  be able  to continue                                                               
getting  benefits  should  the  employee pass  away.    He  asked                                                               
whether this is accurate.                                                                                                       
                                                                                                                                
REPRESENTATIVE  HOPKINS responded  that  it is  not an  insurance                                                               
policy.   He agreed that currently,  if a person passes  away and                                                               
has a 401k, the spouse would receive  the 401k.  He said that the                                                               
surviving  spouse  would  get both  the  contributions  from  the                                                               
employer and from the employee.   He shared that he made a policy                                                               
decision in  crafting the bill to  use that same structure  in HB
.                                                                                                                            
                                                                                                                                
5:31:53 PM                                                                                                                    
                                                                                                                                
CO-CHAIR   FIELDS,  in   response  to   Representative  Kaufman's                                                               
questions, explained  that the lack  of defined benefits  also is                                                               
the  number  one  issue  responsible  for  Alaska  State  Trooper                                                               
retention  as  well.     He  shared  his understanding  that  due                                                               
diligence has  been done and will  continue to be done  to ensure                                                               
that the bill is cost neutral.                                                                                                  
                                                                                                                                
5:32:50 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  MCCARTY asked  Representative  Hopkins about  the                                                               
difference  in  contribution   percentage  levels  for  different                                                               
individuals.  He asked for the reason for these differences.                                                                    
                                                                                                                                
REPRESENTATIVE HOPKINS responded that  the percentages differ due                                                               
to age.   He said that  public employees are required  to have 30                                                               
years of  service or be 60  years of age, which  means that these                                                               
employees are working  longer than teachers and need to  put in a                                                               
smaller percentage  of their salary  to reach the same  amount of                                                               
invested money.   He added that teachers need to  put in more per                                                               
paycheck because  teachers are able  to retire after 25  years of                                                               
service, or at age 55.                                                                                                          
                                                                                                                                
5:34:45 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   KAUFMAN  shared   his  understanding   that  the                                                               
aforementioned survey shows that a  defined benefit plan would be                                                               
preferred.  He  asked Representative Hopkins why the  focus is on                                                               
benefits rather  than teachers' pay  considering that  the survey                                                               
found that  pay was a  more significant reason for  difficulty in                                                               
recruitment and retention.                                                                                                      
                                                                                                                                
REPRESENTATIVE HOPKINS  responded that  there was a  study funded                                                               
by  the legislature  in  2016  that looked  at  what a  statewide                                                               
salary schedule would look like for  teachers.  He said that some                                                               
of those salaries would have  been double or triple what teachers                                                               
are currently  being paid, particularly  in remote villages.   He                                                               
said some salaries  would've been around $200,000.   He said that                                                               
was  seen by  the  legislature  as generally  not  feasible.   He                                                               
explained  that  that is  why  he  did  not look  at  legislating                                                               
statewide salary  schedules for  teachers, because it  would have                                                               
been untenable to  make it commensurate to hire  someone in rural                                                               
villages at the same level as individuals in larger cities.                                                                     
                                                                                                                                
REPRESENTATIVE KAUFMAN shared  his concern that there  has been a                                                               
high failure rate for defined  benefit plans due to the perceived                                                               
future  obligation  placed upon  the  state.   He  asked  whether                                                               
Representative   Hopkins feels that  HB 220 proposes  a different                                                               
system from the ones that have failed.                                                                                          
                                                                                                                                
REPRESENTATIVE HOPKINS  responded yes,  and added that  Alaska is                                                               
the only state that doesn't have  an option for a defined benefit                                                               
plan.   He  said  that  the biggest  reason  the defined  benefit                                                               
program  got "out  of control"  is not  included in  the proposed                                                               
legislation, and that that is what  has been done in an effort to                                                               
not make future Alaskans responsible for unsustainable funds.                                                                   
                                                                                                                                
5:38:40 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  NELSON asked  Representative  Hopkins whether  he                                                               
expects the  state to run into  the same problems in  the future,                                                               
should this bill pass.                                                                                                          
                                                                                                                                
REPRESENTATIVE HOPKINS  responded no  because he hopes  the state                                                               
learned its lesson with the actuaries.   He added that since it's                                                               
been over  40 years since  Alaska established the Tier  I system,                                                               
there have been four iterations of  the system, and this would be                                                               
the fifth.   He noted that the majority of  PERS and TRS payments                                                               
that  are required  for employees  are for  the people  that have                                                               
already retired.   He said  that the  state has a  closed system,                                                               
which means  there will be  no additional people  contributing to                                                               
the pension fund.                                                                                                               
                                                                                                                                
5:40:26 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  SPOHNHOLZ commented  that  there are  a few  provisions                                                               
that prevent  the same problems  as the state experienced  in the                                                               
past  with  obligations  that were  beyond  affordability.    She                                                               
shared her understanding  that that had to do  with bad actuarial                                                               
analysis.   She shared  her understanding  that the  structure of                                                               
the bill  had been changed to  ensure that if a  person's pension                                                               
was  underfunded, then  the obligation  to  pay increases  moving                                                               
forward.   She noted  that public employees are "hemorrhaging" in                                                               
a way that's dangerous to the  state.  She relayed that there are                                                               
divisions  in the  state  with  20 percent  vacancy  rates.   She                                                               
highlighted  that it's  important  to attract  and retain  public                                                               
employees for the health of the state.                                                                                          
                                                                                                                                
5:42:04 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE MCCARTY  asked if this  could become similar  to a                                                               
life or  health insurance  program if there  was a  disability or                                                               
death.   He asked what  kind of responsibility an  individual has                                                               
on the job.                                                                                                                     
                                                                                                                                
REPRESENTATIVE  HOPKINS  responded  that  the  responsibility  of                                                               
employees is to maintain their jobs.   He clarified that a person                                                               
wouldn't get  30 years credit in  a position if that  person only                                                               
worked  for 15  years.   He explained  that the  surviving spouse                                                               
wouldn't  be overdrawing  from the  fund  for work  that did  not                                                               
occur.    He  added that  the fund would  remain solvent  for the                                                               
amount of time  worked.  He said  that he doesn't see  it as life                                                               
insurance, but as retirement.                                                                                                   
                                                                                                                                
5:44:59 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  FIELDS moved  to report  HB 220  out of  committee with                                                               
individual  recommendations and  the  accompanying fiscal  notes.                                                               
There  being no  objection, HB  220 was  reported from  the House                                                               
Labor and Commerce Standing Committee.