Legislature(2025 - 2026)BELTZ 105 (TSBldg)
03/21/2025 01:30 PM Senate LABOR & COMMERCE
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| Audio | Topic |
|---|---|
| Start | |
| SB28 | |
| SB4 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | SB 28 | TELECONFERENCED | |
| *+ | SB 4 | TELECONFERENCED | |
SB 28-RETIREMENT SYSTEMS; DEFINED BENEFIT OPT.
1:32:55 PM
CHAIR BJORKMAN announced the consideration of SENATE BILL NO. 28
"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."
1:33:10 PM
SENATOR CATHY GIESSEL, District E, Alaska State Legislature,
Juneau, Alaska, as sponsor of SB 28 she provided a presentation
and moved to slides 2-4. She stated that the bill establishes a
shared-risk public employee retirement plan developed over more
than ten years with extensive stakeholder input. SB 28 addresses
long-standing workforce shortages across public sectorssuch as
education, public defense, assisted living, and state services
caused in part by the lack of a strong retirement system to
support recruitment and retention. The proposal does not return
to the former defined benefit plan but instead creates a new
system based on shared risk to help retain employees and
strengthen public service delivery.
1:35:15 PM
SENATOR GIESSEL moved to slide 5, Vacancy Rates, and referenced
a graph that shows full-time positions filled, which dropped
from about 89 percent in July 2017 to 82 percent in 2024, with
only a slight 2 percent recent increase. She said much of this
growth is due to more out-of-state hires of about 7 percent of
government employees and 22.5 percent of the overall workforce.
She stated that to fill vacancies, the state has offered large
but unsustainable hiring bonuses and temporary pay increases.
This approach leads to the loss of experienced workers whose
skills and efficiency grow with time, such as teachers and
nurses, making retention of seasoned employees essential to
maintaining service quality.
1:39:29 PM
SENATOR GIESSEL moved to slides 6-7, DB vs DC Comparison, and
referenced charts that compared the former defined benefit (DB)
plan to the current defined contribution (DC) plan. Using the
position of peace officer as an example, the analysis showed
that under a defined benefit plan, an employee with 12 years of
service would earn about 24 percent salary replacement at
retirement, compared to only 16 percent under a defined
contribution plan, even assuming a 7 percent investment return.
She said real data confirmed this gap: most defined contribution
members earned significantly lower replacement rates than they
would have under a defined benefit plan, with only a few
achieving higher returns through active investment management.
Overall, the defined benefit system provides substantially
greater and more reliable retirement income than the defined
contribution plan.
1:45:14 PM
SENATOR YUNDT noted the defined contribution plan assumes a 7
percent projected rate of return and asked what the projected
rate of return would be under the defined benefit plan.
1:45:34 PM
SENATOR GIESSEL replied that the Alaska Retirement Management
(ARM) Board sets the target rate of return for the defined
benefit plan. She stated her belief that currently the return
rate is 7.5 percent and has been successfully achieving strong
returns.
1:46:00 PM
SENATOR YUNDT suggested that the charts be revised in the future
so both plans use the same projected rate of return, such as 7
percent or 7.5 percent, for clearer comparison.
1:46:14 PM
SENATOR GIESSEL replied that this information came from the
Division of Retirement and Benefits, and any changes should be
coordinated with them.
1:46:29 PM
SENATOR GIESSEL moved to slide 8, Cause and History, and
referenced a timeline of how Alaska went from a valuable
retirement system to the defined contribution plan.
1:46:50 PM
SENATOR GIESSEL moved to slide 9, DB System Funded Ratio
History, and referenced a chart that shows the funding history
of the legacy defined benefit system. Funding rose steadily from
68 percent in 1979 to over 100 percent between 1997 and 2001 but
dropped sharply to 75 percent in 2002 due to rising healthcare
costs, a recession, and major actuarial errors by Mercer, the
state's actuary at the time. Mercer mistakenly advised the
legislature that no contributions were needed for two years,
causing severe underfunding. Another firm, Milliman, later
uncovered the error, leading to a lawsuit that recovered only a
small portion of the losses. She said the funding decline
prompted the 20052006 shift to a defined contribution system.
The state continues to pay down the legacy system's debt and
make consistent contributions, gradually improving its funding
level.
1:50:38 PM
SENATOR GIESSEL moved to slide 10. Will This Happen Again, and
spoke to the following:
[Original punctuation provided.]
Triple Safeguards Since 2006
1. Gallagher (formerly Buck Consulting), State
Actuary, provides annual review of pension assets and
liabilities
2. ARM Board Actuary reviews Gallagher work every year
3. Every 4th year a third Actuary reviews ARMB and
Gallagher actuarial reports.
SENATOR GIESSEL stated that it's not likely there will be
another similar 2022 Mercer mistake.
1:51:26 PM
SENATOR GIESSEL moved to slide 11. She said the defined
contribution system's lower retirement returns have become a
major obstacle to recruiting and retaining employees. Without a
strong retirement plan, it is difficult for the state to keep
workers beyond their five-year vesting period. She stated the
state is already unable to match private-sector wages.
1:52:18 PM
SENATOR GIESSEL moved to slide 12, Structural Features of SB 28,
and read the following:
[Original punctuation provided.]
• Builds on best practices of other states
• Shares risk between employees, employers, and
retirees
• Ensures system will remain solvent
1:52:35 PM
SENATOR GIESSEL moved to slides 13-15, Employee Contribution,
and stated that under the new system, employees will contribute
8 percent of their wages to retirement. The Alaska Retirement
Management (ARM) Board can adjust this rate if the fund's status
drops below the goal of 90 percent, as seen on slide 9, by
increasing employee contributions as needed based on annual
investment reviews. She said several other states use variable
contribution rates, so this approach is not new. Currently,
employer contributions are fixed at 22 percent for public
employees, a rate established after the earlier funding crisis,
but under this proposal, the rate could decrease if the fund
exceeds 95 percent to 100 percent funding, potentially saving
employers money. She stated that for teachers, the contribution
rate is 12.56 percent, with a minimum floor of 12 percent. These
rates are consistent with those used in both the current defined
benefit and defined contribution systems.
1:55:09 PM
SENATOR GIESSEL moved to slide 16, 2024 Actual Employer
Contribution Rates, and referenced a chart that sourced from the
state actuary Gallagher's September 2024 presentation to the ARM
Board. She said the chart compares the normal costs of the two
retirement systems. The defined benefit (DB) pension plan has a
normal cost of 2.14 percent, and its health plan currently has
no cost because it is fully funded. In contrast, the defined
contribution (DC) plan has a normal cost of 6.9 percent. She
said this demonstrates that the defined benefit system, through
pooled resources and professional management, operates at a
lower cost than the defined contribution system.
1:56:47 PM
SENATOR GIESSEL moved to slide 17 and stated that SB 28 also
addresses an issue affecting small public employers that
struggled to meet retirement contribution requirements under the
legacy system. She said currently, these communities are charged
a penalty rate of 1.5 times the normal interest rate for late
payments. SB 28 reduces that penalty to the standard interest
rate of about 2 percent, providing financial relief and lowering
costs for local employers that fall behind on contributions.
1:57:56 PM
SENATOR GIESSEL moved to slide 18, Vesting PERS and TRS, and
stated that vesting means the employee has worked for the state
or other agency for a minimum number of years to qualify for
retirement. She said teachers vesting period used to be 8 years
but that will change with SB 28.
[Original punctuation provided.]
• Vested at 5 years for both PERS and TRS
• PERS is consistent with prior Defined Benefits
(DB) plan
• Aligns TRS with PERS vesting period
1:58:34 PM
SENATOR GIESSEL moved to slide 19, Qualification for Retirement,
and stated that retirement qualifications vary by employee
group. For PERS, public safety only workers, eligibility starts
at age 50 with 25 years of service or age 55 with 20 years. She
said this structure recognizes that many, such as state
troopers, begin their careers young, while others like
firefighters or correctional officers start later. SB 28 allows
public safety employees to retire before age 60 due to the
physically demanding nature of their work.
2:00:07 PM
SENATOR GIESSEL moved to slide 20, Qualification for Retirement,
and spoke to the following:
[Original punctuation provided.]
PERS (Non-Public Safety)
TRS (Teachers)
• 60 years of age OR 30 years of service
• Aligns TRS with PERS qualification for
retirement.
2:00:30 PM
SENATOR GIESSEL moved to slide 21, Benefit Calculation Formula,
and stated that the formula determines how much retirement the
worker will receive each year. She spoke to the following:
[Original punctuation provided.]
PERS (Public Safety only)
• 2.00 percent first 10 years
• 2.50 percent thereafter
• New plan is consistent with PS PERS Tier III
2:00:59 PM
SENATOR GIESSEL moved to slide 22, Benefit Calculation Formula,
and stated that for PERS (non-public safety) employees and
teachers, the benefit structure provides 2 percent for the first
two years of service, 2.25 percent for the next ten years, and
2.5 percent for subsequent years. This aligns the teachers' and
regular PERS systems and remains consistent with previous
retirement structures.
2:01:25 PM
SENATOR GIESSEL moved to slide 23, Final Average Salary, and
stated that for public safety employees, retirement benefits are
based on the highest five consecutive years of salary, while for
teachers, they are based on the highest five non-consecutive or
contract years. She said this flexibility accounts for teachers
who may work in other state roles, private sector jobs, or rural
Alaska where pay is higher but service may be intermittent. She
said this allows their benefits to reflect their highest-earning
years.
2:02:39 PM
SENATOR GIESSEL moved to slide 24, Alaska Cost of Living
Adjustment (COLA) PERS and TRS, and stated that the proposed
plan does not include a cost-of-living adjustment (COLA).
Stakeholders agreed to exclude it to reduce expenses and
maintain the plan's long-term financial stability.
2:03:14 PM
SENATOR GIESSEL moved to slide 25, Post Retirement Pension
Adjustments (PRPA) aka Inflation Protection. She stated that the
plan allows the ARM Board to adjust post-retirement pension
adjustments (PRPA) for inflation. If the fund falls below 90
percent funded, retirees may receive a reduced adjustment,
reflecting shared risk. Additionally, non-resident retirees
receive only 50 percent of the PRPA, encouraging retirees to
remain in-state where they contribute to communities, mentor, or
even return to work temporarily.
2:04:47 PM
SENATOR YUNDT asked whether the current plan has a reduction for
Tier 1 individuals, and if so, what is the percentage.
2:05:02 PM
SENATOR GIESSEL replied that there is no alteration for Tier 1
individuals, as they receive a COLA.
2:05:29 PM
SENATOR GIESSEL moved to slide 26, Post Retirement Pension
Adjustments (PRPA), and showed a slide that listed the other
states that use PRPA contingent on fund performance.
2:05:36 PM
SENATOR GIESSEL moved to slide 27, Retirement Medical Coverage
PERS and TRS, and spoke to the following:
[Original punctuation provided.]
• Coverage is consistent with PERS Tier IV and TRS
Tier III Defined Contributions (DC) Plans for all
employees
• Employer makes contribution of 3% to employee
Health Reimbursement Arrangement (HRA)
• HRA can be used for any qualifying medical need
• Keeps the plan solvent
2:06:09 PM
SENATOR GIESSEL moved to slide 28, Death and Disability Benefit
PERS, and stated that the plan includes an occupational death or
disability benefit, providing 40 percent of gross monthly
compensation to employees injured or killed on the job. This
corrects a gap in the defined contribution system, which
previously left families of deceased or disabled public safety
employees without coverage. Ten years ago, the legislature
granted limited medical benefits to the families of three state
troopers who died on duty, underscoring the importance of
establishing a permanent, comprehensive safety net for public
safety workers and their families. She said the plan includes a
non-occupational death and disability benefit if the individual
is injured outside of the job.
2:07:48 PM
SENATOR GIESSEL moved to slides 30-31 and stated that the plan
requires separate accounting of assets and liabilities, distinct
from both the previous defined benefit and defined contribution
systems. She stated that SB 28 establishes sub-trusts to further
differentiate it from the prior pension system.
2:08:16 PM
SENATOR GIESSEL moved to slide 32, TRS members w/ PERS service
and PERS members w/ TRS Service and spoke to the following:
[Original punctuation provided.]
Employees that are members of both TRS AND PERS may
elect to have their earnings included in the base
salary of their selected DB plan to potentially count
toward their pension benefit calculation.
2:08:41 PM
SENATOR GIESSEL moved to slide 33 and stated that current
employees in the defined contribution plan will have a six-month
window, assumed to be from July 1, 2025, to January 1, 2026, to
choose whether to remain in the defined contribution plan or
transfer to the new defined benefit plan. She said employees
hired after the enactment of SB 28 will automatically enter the
defined benefit plan.
2:10:03 PM
SENATOR GIESSEL moved to slide 34 and stated that employees
choosing to convert from the defined contribution plan to the
defined benefit plan will work with the Alaska Retirement
Management (ARM) Board and the Division of Retirement and
Benefits to translate their DC savings into equivalent years of
service in the DB plan. Some employees' savings will fully
equate to DB years, while others may need to either purchase
additional service credit or accept fewer years of credit.
2:10:50 PM
SENATOR GIESSEL moved to slide 35 and spoke to the following:
[Original punctuation provided.]
What will happen to NEW employees after SB 28
effective date?
PERS & TRS
• New employees would automatically be enrolled in the
Defined Benefit (DB) system
2:10:57 PM
SENATOR GIESSEL moved to slide 36 and stated that former defined
contribution (DC) employees who have left service but maintained
active accounts can choose to return under the new defined
benefit (DB) plan and convert their DC savings into DB benefits.
2:11:13 PM
SENATOR GIESSEL moved to slide 37 and stated that if a former DC
employee with an inactive account wishes to return to work, they
would join the new defined benefit plan.
2:11:26 PM
SENATOR GIESSEL moved to slides 38-39 and stated that according
to a January 31, 2025, report from the Alaska Retirement
Management Board, approximately $105 million was withdrawn from
TRS and PERS defined contribution accounts over the past seven
months. She said about 90 percent of these withdrawals occurred
after employees reached full vesting at five years, indicating
that many employees are leaving their jobs once vested and
cashing out their accounts.
2:12:33 PM
SENATOR GIESSEL moved to slide 40 and referenced a chart that
supports the ARM board report referenced in slide 39 and noted
that very little is withdrawn at lower vesting levels, but 90
percent of withdrawals occur after full vesting.
2:13:41 PM
SENATOR GIESSEL moved to slides 41-42, Return to Social
Security, and stated that some argue that Alaska wouldn't face
these challenges if employees participated in Social Security.
While the state could rejoin Social Security, the process is
complex. She said Alaska originally opted out before statehood
when it implemented a strong defined benefit plan, viewing
Social Security as an unnecessary extra payroll cost. That
system worked until the shift to defined contribution. Now
retirees lack a Social Security safety net, with many
withdrawing their DC funds at five years leaving them with no
remaining retirement security.
2:15:15 PM
SENATOR GIESSEL moved to slide 43, Supplemental Benefit System
(SBS) aka Alaska Supplemental Annuity Plan, and stated that
Alaska has a supplemental benefit system similar to Social
Security, but many school districts and municipalities chose not
to join because of the cost. As a result, many teachers and
public employees are covered by neither the supplemental system
nor Social Security.
2:15:43 PM
SENATOR GIESSEL moved to slide 44, Health Reimbursement
Arrangement (HRA), and spoke to the following:
[Original punctuation provided.]
• A HRA must be funded solely by an employer per
IRS
• Not paid through voluntary salary reduction
agreement on the part of employee
• Employee pays no federal taxes or employment
taxes on money put in HRA by employer
• Used tax free for qualified medical expenses, not
included in employee's income
• Unused amounts can be carried forward for years
2:16:07 PM
SENATOR GIESSEL moved to slide 46 and referenced a statement
given in the House and Senate Finance Committees in 2024 by the
State of Alaska debt manager saying that the Public Employees'
Retirement System is about 86 percent funded, and the Teachers'
Retirement System is about 92 percent funded. She said rating
agencies viewed this positively, which improved Alaska's bond
ratings to AA and AAA levels, comparable to states like South
Dakota and Wisconsin that have similar retirement system
components.
2:17:04 PM
SENATOR GIESSEL moved to slide 47, Total Cost Through 2039, and
stated that the actuarial analysis, presented by Pension Trust
Advisors, shows that most of the system's cost, represented by
the blue bars from 2026 to 2039, represents payroll. Higher
payroll reflects retained employees who earn more as they gain
experience and skills, which is the intended outcome of SB 28.
She said Gallagher, the state's hired actuary, has repeatedly
stated that SB 28 will achieve its goal of retaining public
employees. Gallagher assumes nearly all defined contribution
employees would choose to move to the defined benefit plan
because it offers significantly better retirement security. She
said the chart illustrates these higher wages, the resulting
pension impacts, and the health benefit costs, which Alaska has
managed to keep relatively low.
2:19:01 PM
SENATOR GIESSEL moved to slide 48. The Economic Benefit of SB
28, and spoke to the following:
[Original punctuation provided.]
• $76 million per year savings reported by
Economist, Dr. Teresa Ghilarducci to the Senate
Finance Committee
• Recruitment and Retention will improve, saving in
training costs and lost workforce hours
• Returns Alaska to a Functioning State Government
2:19:31 PM
SENATOR GIESSEL moved to slides 49-54 and stated that the first
survey completed by Data for Progress (Feb 28Mar 7, 2024)
showed that the majority of Alaska voters support creating a new
guaranteed pension for state employees. Support was positive
across all regions of the state. The second survey completed by
Patinkin Research Poll (Nov 2023) asked whether respondents
favored a pension plan. She stated that detailed demographic
results are included in the accompanying addendum, but overall
support was strong. The third survey from the Department of
Public Safety Internal Survey (Mar 2024) showed an informal
survey of state troopers and public safety personnel, 83 percent
said they preferred a defined benefit pension over the current
system.
2:21:15 PM
SENATOR GIESSEL moved to slides 55-56 and summarized SB 28:
[Original punctuation provided.]
Safeguards in place
• Protect against downside risk
• Triggers to increase contributions
• Suspend or decrease benefits if needed
• Conservative rate of return
Cost Savings
• Retain employees
• Save recruitment costs
• Save onboarding costs
• Retain experience & knowledge
2:21:55 PM
SENATOR GIESSEL stated that in the bill packet she included a
chart with colored bars to serve as a guide in helping the
committee navigate SB 28. On the left, it lists each proposed
benefit, followed by columns showing how it applies to public
safety employees, regular public employees, and teachers. She
said the packet also provides the policy rationale and the
corresponding bill sections.
[CHAIR BJORKMAN held SB 28 in committee.]