Legislature(2025 - 2026)SENATE FINANCE 532
04/14/2025 09:00 AM Senate FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| SB57 | |
| Presentation: Department of Administration – Division of Reitrment and Benefits | |
| SB55 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| += | SB 55 | TELECONFERENCED | |
| += | SB 57 | TELECONFERENCED | |
SENATE BILL NO. 57
"An Act making appropriations, including capital
appropriations and other appropriations; making
reappropriations; making appropriations to capitalize
funds; and providing for an effective date."
9:04:56 AM
Co-Chair Stedman relayed that the version on the table had
been adopted on April 10, 2025, and no amendments had been
received.
Co-Chair Hoffman MOVED to REPORT CSSB 57(FIN) out of
Committee with individual recommendations and to authorize
the Legislative Finance Division and the Division of
Legislative Legal Services to make conforming and technical
changes. There being NO OBJECTION, it was so ordered.
CSSB 57(FIN) was REPORTED out of committee with two "do
pass" recommendations, four "no recommendation"
recommendations, and one amend recommendation.
Co-Chair Stedman handed the gavel to Co-Chair Hoffman.
9:06:38 AM
AT EASE
9:09:09 AM
RECONVENED
Co-Chair Hoffman announced a presentation by the Division
of Retirement and benefits.
^PRESENTATION: DEPARTMENT OF ADMINISTRATION DIVISION OF
REITRMENT AND BENEFITS
9:10:26 AM
KATHY LEA, DIRECTOR, DIVISION OF RETIREMENT AND BENEFITS,
DEPARTMENT OF ADMINISTRATION, introduced herself and
discussed a presentation entitled Alaska Supplement
Benefits System-Annuity Plan/PERS Normal Cost and
Delinquent Employers (copy on file).
Ms. Lea provided history on Slide 3, "Alaska Supplemental
Benefits System-Annuity Plan (SBS):
o In 1979, the Legislature created the Alaska
Supplemental Benefits System
o Participation was open to any government employer
participating in the Public Employees' Retirement
System who wished to use SBS as a replacement to
Social Security upon withdrawal from that plan or who
had never participated in Social Security
o In 1980, the State of Alaska held a referendum vote
with its employees to cease participation in the
federal Social Security System and to enter the SBS as
its Social Security Replacement Plan
o Participation in SBS began for State employees on
February 1, 1980
o Participation in SBS Annuity is mandatory; employees
pay 6.13% of wages which is matched 100% by the
employer; total contributions to the account are
12.26% of wages; participants are immediately 100%
vested
o SBS is comprised of an annuity plan as well as a
voluntary benefits plan that includes voluntary
supplemental health, death and disability benefits;
members electing any of the voluntary benefits have
premiums take on a pre-tax basis from their paychecks;
members have a yearly open enrollment to choose from
these benefits.
9:12:30 AM
Senator Cronk asked why teachers had been left out of the
supplemental benefits system.
Ms. Lea replied that in the statute it indicated that to
participate in the supplemental benefits system the
employee had to be a PERS employee who had never been in,
or had withdrawn from, social security.
9:13:03 AM
Ms. Lea summarized slides 4 and 5. She stated that if an
employee enters SBS, and makes no other choice, they will
be defaulted into an age based, target date plan. The
target date trusts offer a professionally selected and
diversified portfolio in one single investment and the mix
of assets changes overtime as the employee approaches
retirement.
9:13:55 AM
Ms. Lea listed the investments options other than the
default options highlighted on slide 6:
U.S. Small-Cap Trust1
S&P SmallCap 600® Equity Index Fund
Mid Capitalization Equity Index Fund
International Equity Fund
World Equity Ex-US Index Fund
Environmental, Social, and Governance Fund
Russell 3000 Index Fund
S&P 500® Stock Index Fund
Strategic Completion Fund
Alaska Long-Term Balanced Trust
FIAM Core Plus CIT Class
Passive U.S. Bond Index Fund
Stable Value Fund
State Street Treasury Money Market Fund Inst
She noted that it was a good mix of high and low risk
funds.
9:14:28 AM
Senator Kiehl asked how the fund options were selected and
vetted.
Ms. Lea replied that the investment options were choses by
the Alaska Retirement Management Board in conjunction with
their advisory committee and with support from the
Department of Revenue, Treasury Department.
Senator Hoffman interjected that the actual allocation was
directed by the employee.
Ms. Lea responded in the affirmative. She said that
employees could direct how they wanted their money invested
or could remain in the default target date fund.
9:15:55 AM
Co-Chair Stedman thought the asset selections and
performance were virtually identical to those in TRS.
Ms. Lea said that the investment line-up on slide 6 was
similar what was used for the PERS and TRS Defined Benefit
Funds, was the same line-up used for the PERS and TRS
Defined Contribution Plans and was like the Deferred
Compensation Plan.
9:16:55 AM
Ms. Lea looked at slide 6, "Withdrawal (Disbursement)
Options":
Participants must be terminated from employment for 60
days before a withdrawal of funds is allowed. The only
exception to payment eligibility earlier than 60 days
after termination is for a qualified hardship. The
following withdrawal options are available:
?? Deferred payment until you reach the age for a
required minimum distribution (usually age 73)
?? Lump-sum payment (full or partial)
?? Five-, 10- and 15-year period-certain annuity
?? Single life annuity
?? Single life annuity with 10- or 15-year period
certain
?? 50% or 100% joint/survivor annuity
?? Periodic payment
?? Direct rollover to a traditional IRA or Roth IRA or
other qualified or eligible plan
?? Lump-sum payment
Ms. Lea said that people could keep their funds in the plan
even after employment termination.
9:18:29 AM
Ms. Lea advanced to slide 7, "SBS Employee Balances," which
showed a table of account balances in the SBS plan. The
information had been requested by the committee. She
observed that the balance went up to $4,7 million for 2
employees. She said that employees were able to amass so
much in the plan because they had ended their PERS service
with salaries of between $200,000 and $220,000, had been
retired for more than 10 years, and had rolled additional
monies into the plan.
9:19:48 AM
Co-Chair Stedman considered the 556,000 people in SBS and
asked about the average length of service for those
employees.
9:20:17 AM
Ms. Lea referenced Appendix B and noted that at 2.25
percent increase in a $60,000 salary, with a 7.25 percent
increase in investment income, the person would have close
to a million dollars after 30 years. She pointed out that
years of service was illustrated in the lefthand column.
Co-Chair Stedman thought the amounts were significant. He
assured the committee that he did not begrudge employees
return on investment. He pointed out that SBS was a
replacement for Social Security and pondered that it was
like for a person who did not have either plan. He
announced that nearly all state employees were enrolled in
SBS.
9:23:14 AM
Senator Kaufman asked how the $60,000 salary was chosen as
a starting point for the chart.
Ms. Lea believed that the amount was a median salary and
was the same figure used by an actuary to do the defined
contribution and defined benefits sample.
9:23:53 AM
Senator Kiehl considered the balances on the table on slide
7. He asked how the balances compared with the estimated
account balances in the appendix. He wondered about the
percentage of SBS participants.
Ms. Lea had not calculated those percentages.
Senator Kiehl thought it helped to have a sense of how the
actual account balances compared to the estimated account
balances.
9:25:23 AM
Ms. Lea showed slide 8, "Employer Participation
BRANDON ROOMSBURG, RETIREMENT OPERATIONS MANAGER, DIVISION
OF RETIREMENT AND BENEFITS, DEPARTMENT OF ADMINISTRATION,
referenced slide 9, "Employer Participation," which showed
a table of that illustrated employer participation in PERS
(154), SBS (21), SSA (85), DCP (17), and PERS Only (48). He
noted those under the PERS ONLY tab did not participate in
Social Security. Participation Agreements and resolutions
are passed for plan participation.
9:27:01 AM
Co-Chair Stedman asked about deferred compensation. He
understood that certain percentage of an employee's salary
was deferred into the account. He asked how may of the
plans had employer match.
Mr. Roomsburg replied that there was one employer that made
6 percent match. He said that the states plan allowed for
a match up to 6 percent but only one employer was making
the match.
Co-Chair Stedman asked whether the employers name was a
secret.
Mr. Roomsburg replied in the negative and agreed to follow
up with the committee on the name of the employer.
9:28:08 AM
Ms. Lea referenced the appendix, which listed a breakdown
of which plans employees were participating in. She said it
showed PERS employers, and only TRS employers that
participate in the DCP.
9:28:54 AM
Ms. Lea showed slides 10 and 11, "PERS Delinquent
Employers,":
Defined Contribution Only Employer
1. A political subdivision or public organization may
request that its participation in the plan be
terminated after an adoption of a resolution by their
governing body
2. If contributions are not transmitted to the plan,
it is in default, and participation in the plan is
terminated
3. Upon termination, the amount necessary to
actuarially fund the costs to the plan for terminated
employees is determined (included cost of health
insurance, disability or death benefits); this is
their termination cost (AS 39.35.958)
Defined Benefit/Defined Contribution Employer
1. In addition to termination costs, terminated
employers must pay each payroll period and amount
representing the past service rate on the total base
salaries of
the positions terminated or the 2008 salary floor,
whichever is greater; this payment will continue until
the past service liability of the plan is extinguished
(AS
39.35.625)
Ms. Lea stated the slide showed that there were currently
18 delinquent employers, nine of which were in the process
of termination. Termination studies were being conducted to
determine future liability of employees who have remained
in the plan.
9:29:08 AM
Ms. Lea showed slide 11, "Delinquent Employers," which
showed a table of all delinquent employers. She noted that
the last nine listed had been delinquent for a very short
amount of time. She noted that interest the accrued on the
debt was 1.5 times the base interest rate of 7.5 percent.
She said that the liability would still be owed to the plan
when an employer left the system and would be reflected as
an unfunded liability in the system.
9:30:59 AM
Co-Chair Stedman mentioned the constitutional protection
for the diminishment of benefits. He thought some of the
communities listed on the slide were not very economically
fluid. He stressed that all the employees from these
communities would be paid. He wondered when the liability
was folded into the aggregate liability in entirety, would
it fall back on the state, or the municipalities in the
plan pay a portion of the debt. He noted that many of the
older plans involved defined benefits, which was a unique
challenge. He asked whether there were communities in
arrears for defined contribution plans, which differed in
ending value from defined benefit plans.
Ms. Lea relayed that the nine historically delinquent
employers were defined benefit employers and had taken a
refund that had reduced the liability allocated between the
employers and the state. The employees would receive the
benefits earned and become part of the general liability.
The other nine that currently had interest accruing were
participating in the defined contribution plans, which had
a different criterion for termination. Those employers were
required to pay continuous contributions to the plan until
the overall unfunded liability of the plan was
extinguished.
9:34:58 AM
Co-Chair Stedman expressed concern about newer employees
and referenced a computer system error that resulted in
late paid contributions, which had resulted in a $2 million
request from the administration. He asked what the state
could do to protect employees of the nine communities
against lack of timely payment. He thought some of the
communities might have difficulty meeting the obligations.
Ms. Lea relayed that statutes were silent on the subject
area of what to do for the participant in these cases. She
relayed that the $2.7 million requested was due to
employers not being able to pay into the plan because the
division's systems were down. The state has an obligation
to make communities whole if the system is down for more
than 90 days. She said that in the case of the communities
listed on slide 11, it was the employer's obligation to
make the payments.
Co-Chair Stedman was concerned about the employees and
thought that further dialogue should occur to ensure
employees were taken care of. He did not believe the
challenge was insurmountable.
9:37:47 AM
Ms. Lea turned to slide 12, "Delinquent Employer Process
Defined Contribution Only Employer
1. A political subdivision or public organization may
request that its participation in the plan be
terminated after an adoption of a resolution by their
governing body
2. If contributions are not transmitted to the plan,
it is in default, and participation in the plan is
terminated
3. Upon termination, the amount necessary to
actuarially fund the costs to the plan for terminated
employees is determined (included cost of health
insurance, disability or death benefits); this is
their termination cost (AS 39.35.958)
Defined Benefit/Defined Contribution Employer
1. In addition to termination costs, terminated
employers must pay each payroll period and amount
representing the past service rate on the total base
salaries of the positions terminated or the 2008
salary floor, whichever is greater; this payment will
continue until the past service liability of the plan
is extinguished (AS 39.35.625)
9:40:20 AM
Senator Cronk thought that the list on slide 11 showed some
places that were forced to incorporate that did not have a
baseline revenue to support the plans. He noted that a
village in his district struggled to pay the debt. He
thought some of the places did not have the economic
infrastructure to support the plans.
9:41:29 AM
Senator Kaufman asked Ms. Lea to address item three under
the Delinquent Employer Process on slide 12. He queried the
use of an actuary to determine the cost in the case of
defined contribution.
Ms. Lea explained that there was a defined benefit
component to the defined contribution plans, which rested
in the retirement health care, disability benefits, or
death benefits. If the defined contribution only employer
had employees receiving disability or survivor benefits, or
who were eligible for health insurance, that was included
by the actuary as part of their termination costs.
9:43:01 AM
Co-Chair Stedman asked whether cities had to be in the
state retirement system, or if it was possible for them to
use their own system or plan.
Ms. Lea relayed that it was voluntary participation for all
government employers except the state.
9:43:57 AM
DAVID KERSHNER, ACTUARY, ARTHUR J. GALLAGHER AND COMPANY
(via teleconference), introduced himself.
9:44:21 AM
AT EASE
9:45:08 AM
RECONVENED
Mr. Kershner addressed a presentation entitled "State of
Alaska Retirement Systems: Information for Senate Finance
Committee, Normal Cost Fundamentals PERS and TRS." (copy
on file)
9:45:32 AM
Mr. Kershner looked at slide 2, "Normal Cost Fundamentals":
• An actuarial cost method is used to allocate the
projected costs of PERS and TRS between past and
future periods
• Actuarial terminology:
o Present Value of Future Benefits (PVFB) includes all
future expected benefits for active and inactive
members as of the valuation date; the PVFB for active
members includes future expected salary increases and
future expected years of service
o Actuarial Accrued Liability is the portion of PVFB
attributable to past service
o Present Value of Normal Costs is the portion of PVFB
attributable to future service
o Normal Cost is the actuarial cost of active members'
expected benefit accruals for the upcoming year
9:48:30 AM
Co-Chair Stedman directed the presenter not to use acronyms
and to present in a slow and simple manner for the watching
public.
9:49:21 AM
Mr. Kershner continued to address slide 2. He said the PERS
and TRS systems provide pension and healthcare benefits to
employees. In actual valuation, projected benefits were
based on a series of assumption used to predict future
experience with past experience used as guidance. He
mentioned the example of future salary increases for active
employees, and date of retirement. There was also an
assumption about lifespan using mortality tables.
Mr. Kershner said that that the assumption as to expected
earnings on invested assets was 7.25 percent. He said
present value of all future benefits, discounting the 7.25
percent rate, resulted in the present value of future
benefits (PVFB). He furthered that a portion was allocated
to past service and a portion to future service, the
employer and state contributions were determined based on
projected payroll.
9:52:12 AM
Co-Chair Stedman wondered about how many variables were
used in calculating the projections.
Mr. Kershner relayed that for each active employee, there
was a myriad of variables. He said that employees were
recalculated from year-to-year using many variables. He
expounded on the dozens of variables projected for each
person based on the mortality assumption.
9:54:29 AM
Senator Kiehl commented on the number of variables. He
asked how often the projections were correct.
Mr. Kershner related that incorrect assumptions were
expected. He felt that over the long-term, the assumptions
would even out. He said that statue required an experience
study every four years to compare assumptions to reality
and adjust for better accuracy.
9:57:54 AM
Mr. Kershner advanced to slide 3, "Normal Cost Fundamentals
(cont'd)":
• Normal Costs are calculated individually for each
active member
o Under the Entry Age Normal actuarial cost
method, each member's Normal Cost is expected to
remain level as a percentage of the member's pay
at hire
• Total Normal Cost for the plan is the sum of the
individual Normal Costs
o Normal Costs are calculated separately for
Pension and Healthcare benefits
• Normal Costs are paid by members and employers
• Normal Cost rates by tier are expressed as a
percentage of pay for that tier
• Normal Cost rates for purposes of adopting
contribution rates are converted to a percentage of
total (DB and DCR) pay
10:01:15 AM
Mr. Kershner continued to address slide 3.
10:02:12 AM
Mr. Kershner discussed slide 4, "Normal Cost Rates for FY25
PERS," which showed a table of PERS pension and
healthcare for peace officers and firefighters as well as
all other employees. The first set of columns was for
pension benefits and the second was for health care
benefits. Columns A-C were the amounts by each Tier. Tier A
was anyone hired prior to July 1, 1986. Tier 2 was anyone
hired between July 1, 1986, and June 30, 1996. Tier 3
applied to anyone hired between July 1, 1996, and June 30,
2006. Tier 4 was anyone hired on or after July 1, 2006.
Column D was the sum of columns A-C. Column E was the
information from column D but converted to a total defined
benefit and defined contribution pay basis.
Mr. Kershner described projecting pay for each column on
the table. He used the example of 2025 pay for peace
officers and firefighters in Tier 1, which was $1,380,000.
The combined total in column D was $135,062,000. When
including DCR members, the projected pay was $454,700,000.
Mr. Kershner looked Tier 1 total normal cost rate, which
was 26.52 percent. He noted the employer normal cost rates
in each column once the member contribution was subjected.
The overall employer normal cost rate was 4.56 percent. He
discussed the same methodology for the jobs marked All
Others at the bottom of the slide.
10:07:01 AM
Mr. Kershner considered the right-hand side of the table,
which addressed healthcare.
Co-Chair Stedman requested the department get back to the
committee with more information regarding healthcare
deductibles for both PERS and TRS.
10:08:51 AM
Mr. Kershner reviewed slide 5, "Normal Cost Rates for FY25
TRS," which showed the same table as the previous slide
but for TRS.
10:10:04 AM
Co-Chair Stedman asked about the four-year data refresher
and asked whether the ARM Board had been on schedule.
Mr. Kershner understood that the process for adoption of
contribution rates by the ARM Board occurred each September
and set the rated for the fiscal years two years out. Based
on 2014 statute the contributions for each fiscal year were
based on a value set two years previously.
Co-Chair Stedman asked whether there had been delays or
complications with the updates for the experience study.
Mr. Kershner affirmed that the ARM Board was on track for
the next experience study. He shared that the last study
covered the data through June 2021, and the next four-year
study would cover to June 2025. He would expect the ARM
Board to adopt the assumptions at the June or September
2026 meetings. He relayed that since he had been involved
in the process, there had not been any delays or problems.
10:13:59 AM
Senator Kaufman wondered if Mr. Kershner could provide an
idea of the difference between a state-managed defined
benefits plan and a commercially available annuity.
Mr. Kershner thought the main difference was attributed to
the belief and expectation that professionally managed
assets provided superior investment returns. Without the
state-sponsored the purchase of annuities by individuals
would also be dependent upon the assumption at the time
they decide to annuitize the benefit. He thought that there
could also be tax benefits to the state sponsored plan.
10:16:51 AM
Senator Kaufman questioned the benefit of states taking on
the responsibility for paying the liability.
Co-Chair Hoffman asked Mr. Kershner whether he had closing
comments.
Mr. Kershner reiterated that the calculations shown today
were based on the June 30, 2024, valuations. The fiscal
year 2027 valuation rates would be adopted in September
2026, at which time the valuation cycle would begin over
again.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SB 55 UA SYSBRA 041425.pdf |
SFIN 4/14/2025 9:00:00 AM |
SB 55 |
| 041425 Normal Cost Fundamentals Presentation to Senate Finance April 2025.pdf |
SFIN 4/14/2025 9:00:00 AM |
|
| 041425 DRB Presentation to Senate Finance Alaska Supplemental Benefits System-Annuity Plan April 2025.pdf |
SFIN 4/14/2025 9:00:00 AM |