Legislature(2025 - 2026)BELTZ 105 (TSBldg)
04/04/2025 01:30 PM Senate LABOR & COMMERCE
Note: the audio ![]()
and video ![]()
recordings are distinct records and are obtained from different sources. As such there may be key differences between the two. The audio recordings are captured by our records offices as the official record of the meeting and will have more accurate timestamps. Use the icons to switch between them.
| Audio | Topic |
|---|---|
| Start | |
| SB132 | |
| SB11 | |
| SB81 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 11 | TELECONFERENCED | |
| += | SB 81 | TELECONFERENCED | |
| += | SB 132 | TELECONFERENCED | |
SB 81-PUBLIC EMPLOYER PENSION CONTRIBUTIONS
1:58:10 PM
CHAIR BJORKMAN reconvened the meeting and announced the
consideration of SENATE BILL NO. 81 "An Act relating to employer
contribution rates in the teachers' retirement system and the
Public Employees' Retirement System of Alaska; and providing for
an effective date."
1:58:41 PM
SENATOR BERT STEDMAN, District A, Alaska State Legislature,
Juneau, Alaka, as sponsor presented SB 81:
[Original punctuation provided.]
Senate Bill 81
In 2006, Alaska instituted a new defined contribution
retirement tier for employees in both the Public
Employees' Retirement System (PERS) and the Teachers'
Retirement System (TRS). When the state implemented
the new tier IV (PERS) and tier III (TRS) defined
contribution retirement plans, it was extremely
challenging to determine the individual participant's
unfunded liability, with some showing surpluses and
some showing deficits. The magnitude of the deficits
of several municipal employers were so significant
that financial insolvency was apparent. To avoid
financial insolvency and potential legal issues for
municipalities, the state limited the unfunded
liability payment to 22 percent of the total employer
payroll.
2:01:07 PM
SENATOR STEDMAN elaborated on the sponsor statement saying that
Fairbanks' unfunded liability once exceeded 100 percent of its
payroll, leaving the city unable to pass an insolvency test.
Anchorage and many other communities likely would not have
survived financially either. He said to address this,
liabilities were pooled and capped. Pooling was chosen because
some communities appeared to have surpluses while others had
large deficits, but these figures varied depending on retiree
numbers and ages. He said rather than face years of litigation
over who owed what, all communities were combined, ensuring
immediate relief for those in serious trouble like Fairbanks,
while recognizing that some perceived surpluses were likely
deficits.
SENATOR STEDMAN continued reading the sponsor statement for SB
81:
This cap has been in place since 2008. The state is
required to meet its employer obligation and to
contribute any amount that exceeds 22 percent of
payroll for other employers.
SENATOR STEDMAN explained that the 22 percent cap means that if
contributions toward the unfunded liability exceed that level,
the state covers the excess. The state assumes full liability
for TRS, but this provision applies to non-TRS and non-state
employees.
Approximately 13 percent of total payroll is allocated
to the unfunded liability while the remaining balance
is applied to the normal cost of retirement savings
for active employees.
SENATOR STEDMAN commented that the normal cost is the yearly
expense an employee accrues for retirement benefits. If funded
properly each year, there would be no unfunded liability, as
contributions would cover payments when the employee retires.
For the past two decades, the unfunded liability has
significantly impacted both the participants' and the
state's finances. This trend is expected to continue
for several more decades. Over the past ten years, the
unfunded liability has increased from $5.3 billion in
FY13 to $5.7 billion in FY23. Despite a total
contribution of $2.5 billion to address this issue,
the unfunded liability has still grown by $447
million, indicating a troubling trajectory.
To aid in reducing the unfunded liability, the Alaska
Retirement Management Board requires the flexibility
to adjust the 22 percent contribution rate. This rate
could be increased or decreased at the Board's
discretion, with municipal employer input, to assist
in the state's goal of eliminating the unfunded
liability.
SENATOR STEDMAN noted that instead of keeping the 22 percent cap
fixed in statute, the proposal would have the retirement
management board regularly review and adjust contribution levels
with input from all participants. He said currently, about 13
percent of municipal payroll goes to the unfunded liability,
limiting funds for services, salaries, or schools. Over a
worker's entire career, these payments significantly reduce
local resources, and the concern is that this long-term burden
is unacceptable without stronger efforts to pay down the debt at
both the state and local levels.
2:07:40 PM
SENATOR STEDMAN moved to slide 2, History of the Unfunded
Actuarial Accrued Liability, and stated that this provides a
chronological history of events related to the unfunded
liability, created as a refresher and to give the committee a
background. He said the original target to eliminate the
unfunded liability was 2030, but that won't be met, and the
issue will continue beyond 2030. Slide 2 also highlights key
changes, such as the adoption of the 22 percent cap in 2021.
2:08:54 PM
SENATOR STEDMAN moved to slide 3, History of the 22 percent Cap:
[Original punctuation provided.]
SB 125 PERS/TRS CONTRIBUTIONS; UNFUNDED LIABILITY
• Established in 2008.
• Created a combined liabilities system for all
PERS employers and allocated the unfunded
liability to be collectively shared among them.
• Capped the contribution rate for non-state PERS
employers at 22 percent of aggregate payroll.
• Applied remaining contributions, after covering
the plan's normal cost, to the unfunded
liability.
• Obligated the state to pay its 22 percent
employer contribution and cover the difference
between the 22 percent cap and the annually
determined actuarially rate
SENATOR STEDMAN said the 22 percent cap was set high enough to
get participants' attention without bankrupting them. What began
as roughly 10 percent of aggregate payroll has since grown to
about 13 percent. He said over time, these payments have become
routine, with little discussion, simply built into budgets. At
the state level, the annual cost now exceeds $200 million for
both TRS and PERS combined, showing the scale of the burden.
2:10:24 PM
SENATOR STEDMAN moved to slide 4, Why the 22 Percent Cap Was
Needed:
[Original punctuation provided.]
• Prior to the 22 percent cap, non-state employers
made a variety of contributions to reduce their
share of the unfunded liability.
• Some employers had previously made additional
payments towards reducing their portion of the
unfunded liability.
• Others were paying rates below the 22 percent
level.
• The deficits of several municipal employers were
so substantial that their financial insolvency
became apparent
2:11:22 PM
SENATOR STEDMAN moved to slide 5, PERS Annual Additional State
Contribution vs. PERS Unfunded Actuarial Accrued Liability, and
explained that the chart shows the state's additional
contributions to PERS by year: $33.9 million in FY23, $97.7
million in FY22, and $200 million in FY21. The red line tracks
accrued liability, reflecting market fluctuations. He said for
TRS, the state assumed full responsibility due to its
constitutional obligation for education. However, for municipal
employeessuch as police, firefighters, sanitation, and library
staff, the state did not absorb their unfunded liability,
leaving those costs with the municipalities.
2:12:55 PM
SENATOR STEDMAN moved to slide 6, PERS additional state
contributions FY23-FY26, and explained that the chart shows
current contributions for FY2325, with the proposed budget for
FY26 at $79.8 million for PERS alone, not including TRS. He
noted that if liability had been addressed 20 years ago, today
the state would have about $80 million more in the budget to
tackle major priorities, highlighting the significant impact of
these ongoing costs.
2:13:50 PM
SENATOR DUNBAR noted that the growth in earlier years appears
much smaller and asked for an explanation to what drove the
sharp increase from FY24 to FY25, and then again from FY25 to
FY26. He asked where this money is reflected in the budget and
whether it is adjustable or is the contribution an automatic
obligation.
2:14:26 PM
SENATOR STEDMAN replied that the Alaska Retirement Management
(ARM) Board sets the contribution rate, currently capped at 22
percent, and the state typically honors that amount using
general funds in the operating budget. The legislature rarely
debates the unfunded liability; rates are simply calculated by
the ARM Board, put in the operating budget, then approved by the
governor. He said while short-term fluctuations may be explained
by market changes, the lack of improvement over a decade is seen
as unacceptable, prompting calls for a new strategy.
2:15:55 PM
CHAIR BJORKMAN noted that the unfunded liability of the legacy
system, which ended nearly 20 years ago, represents the state's
obligation to pay pensions and certain health care premiums for
retirees not covered by Medicare. He asked how the state would
cover future past service costs with current funds if those
costs grow so large they exceed the state's ability to pay.
2:17:03 PM
SENATOR STEDMAN replied that the state faces no risk of
insolvency in meeting retirement obligations. Health care is
currently overfunded, while pensions are underfunded but not to
a level that threatens payroll or retirement payments. He is
concerned that the ARM Board's current strategy for addressing
the unfunded liability isn't effective. The goal is to raise
awareness and explore ways to shorten the payment timeline. Even
though this isn't the year to commit major new funds due to
tight finances, the issue should remain a priority for future
planning alongside other needs like school funding and
maintenance. He emphasized it wouldn't be fair for younger
generations to carry this debt for decades.
2:20:07 PM
CHAIR BJORKMAN asked why the unfunded liability is considered a
concern if the state faces no risk of insolvency and can meet
all pension and benefit payments over time, instead of treating
the accounts as if all the money needs to be on hand
immediately.
2:22:12 PM
SENATOR STEDMAN explained that while annual retirement payments
total about $1 billion, the past service cost payment for FY26
is only $80 million. A defined benefit plan can't be run on a
pay-as-you-go basis, as cash flow would be insufficient when
retirees outnumber active workers. Unfunded liabilities arise
from factors like overestimated market returns, life expectancy,
and other variables in the system. He said the state correctly
funds the retirement system each year, including unfunded
liability payments, which have never been skipped. Accelerated
funding is preferred to avoid passing the debt to future
generations. He said the 13 percent contribution toward the
unfunded liability, embedded in both state and municipal
payrolls, is significantly comparable to combined Social
Security contributions. While necessary, the contribution
reduces funds available for salaries and other uses, impacting
both state and municipal employees.
2:26:49 PM
CHAIR BJORKMAN asked if the past service cost continues to grow,
at what point will there be so many retirees and so few active
contributors that the system faces a financial shortfall or is
unable to meet payroll obligations.
2:27:14 PM
SENATOR STEDMAN emphasized that the state and municipalities are
not at risk of running short on pension, healthcare, or
retirement payments; any cash flow issues would be minor and
temporary. He said data shows that assets and liabilities are
still growing, with retiree numbers increasing, but these trends
will stabilize over several decades as older retirees pass away.
He said the concern is not immediate solvency but the slow
reduction of the unfunded liability. He urged the committee to
question the ARM Board's approach, noting that 10 years of
payments have not meaningfully reduced the liability, and
adjusting the 22 percent rate to address the issue without
burdening municipalities. The goal is to resolve long-standing
obligations from past decades rather than letting them persist
indefinitely.
2:29:31 PM
CHAIR BJORKMAN emphasized the need to ensure the state can
reliably meet its payment obligations each month and year. He
asked if the state will not default on payments or face
insolvency, he wants to understand what that means in practical
terms.
SENATOR STEDMAN replied that the state doesn't want to ever stop
making the payments.
SENATOR BJORKMAN agreed and said he wasn't suggesting that.
SENATOR STEDMAN said the retirement system is sound with no risk
of insolvency. The real issue is reducing or eventually
eliminating the unfunded liability so that future generations
don't have to deal with it.
2:31:05 PM
SENATOR STEDMAN moved to slide 7, TRS Annual Additional State
Contribution vs. TRS Unfunded Actuarial Accrued Liability, and
explained that State contributions to the retirement system
(TRS) fluctuate, with $91 million in 2023, $42 million in 2024,
and $135 million the following year. The unfunded liability has
declined to under $2 billion, compared to $3 billion a few years
ago. He said a major reduction came in 2015 when the legislature
added $3 billion: $2 billion to TRS and $1 billion to PERS,
which was a smart move. He wished more had been contributed,
since the state had billions in savings at the time. A larger
deposit could have further reduced liabilities and lowered
future payments, leaving the state in a much stronger position
today.
2:32:50 PM
SENATOR STEDMAN moved to slide 8, Combined PERS & TRS Additional
State Contribution vs. Combined Unfunded Actuarial Accrued
Liability and explained that he combined PERS and TRS figures to
show the scale of state contributions: about $338 million in
2021, $240 million in 2022, and $125 million in 2023. These are
large amounts that often go unnoticed because they are simply
paid without much discussion. He said the concern is that
despite these sizable payments, the overall liability isn't
shrinking. After a decade of contributions, he wants to
understand why there hasn't been meaningful progress in reducing
the unfunded liability.
2:33:57 PM
SENATOR DUNBAR praised the Legislature's 2015 decision to put
extra money into the retirement system, calling it a smart
investment and wishing today's surpluses still allowed for
similar action. He pointed out a drop in actuarial accrued
liability in 2021 during the COVID year and asked what caused
that dip.
2:34:29 PM
SENATOR STEDMAN replied that the dip in 2021 was driven by
financial market performance, strong gains followed by a COVID
related selloff. He said as the portfolio grows, liabilities
decrease, assuming all other factors remain constant.
SENATOR DUNBAR said the dip might have been due to actuarial
assumptions about lifespan or a large group passing away, but it
was driven by financial market performance.
SENATOR STEDMAN replied that the main factor was financial
markets, though life expectancy tables are updated every so
often. In the past, delays in updating those tables contributed
to problems.
SENATOR DUNBAR asked whether the recent market sell-off and the
possibility of a deep recession this summer would affect the
chart.
SENATOR STEDMAN replied that if assets decline, liabilities
rise. While market fluctuations affect the numbers, smoothing
and averaging techniques with the numbers help manage the
impact. He said a significant sell-off could increase the
unfunded liability, but the system is designed to withstand
typical market ups and downs.
2:36:42 PM
SENATOR STEDMAN moved to slide 9, GOAL: Reduce the Unfunded
Liability, and stated that over the past two decades, unfunded
liability has had a significant impact on both employer and
state finances due to required contributions. SB 81 would remove
the statutory cap, though the 22 percent rate would likely
remain. This change gives the ARM Board more flexibility and
encourages discussion, addressing an issue that often quietly
affects financial statements.
2:39:01 PM
CHAIR BJORKMAN opened public testimony on SB 81.
2:40:08 PM
JOHN RINGSTAD, Council Member, City of Fairbanks, Fairbanks,
Alaska, testified in support of SB 81 and backing efforts to
address the unfunded liability to prevent it from worsening and
to find a path toward improvement, noting the state is heading
in the wrong direction again. However, he is concerned that SB
81, as written, could cost the city over a million dollars
annually with no municipal control, which is difficult for the
city to accept. He recalled past difficulties with municipal
finances due to large unfunded liabilities and emphasized that
municipalities have little control over ARM Board projections,
which the legislature then funds. He stressed the importance of
including municipalities in discussions to ensure transparency
and informed decision-making. He warned against creating another
long-term, generational unfunded liability, advocating for a
balanced approach that avoids repeating past mistakes.
2:44:06 PM
LISA PARKER, President, Alaska Municipal League, Soldotna,
Alaska, testified with concerns on SB 81 and stated that the
proposed removal of the 22 percent cap on employer contributions
to PERS, while intended to address the system's unfunded
liability, would shift the full actuarial burden onto local
governments without any transition support. She said this could
have immediate and severe impacts, especially for smaller or
revenue-limited municipalities, forcing unpredictable and rising
costs. Potential consequences include deep cuts to essential
services, layoffs, hiring freezes, delayed infrastructure
projects, and tax increases, disproportionately affecting
economically vulnerable residents. She said rural communities
would face particularly difficult choices. Higher costs could
also undermine the recruitment and retention of qualified public
employees. She urged considering amendments that provide a
gradual transition, revenue relief, or broader pension reforms
to protect local governments.
2:46:53 PM
CHAIR BJORKMAN closed public testimony on SB 81.
2:47:08 PM
SENATOR STEDMAN clarified that SB 81 would remove the 22 percent
cap, but it wouldn't set a higher rate, the ARM Board would
still determine contributions, and it's unlikely the board would
raise the cap above 22 percent. He said removing the cap would
encourage discussion about the unfunded liability and bring
municipalities, like Fairbanks, to the table for dialogue on
solutions. While municipalities might prefer keeping
contributions effectively at 22 percent, the change is intended
to foster collaboration, possibly including state assistance or
adjusted payments over time, not to push local governments
toward insolvency.
2:48:44 PM
CHAIR BJORKMAN asked whether under the current system the ARM
Board, working with PERS contributors, can make additional
"principal" payments toward the past service cost during a
market downturn to maximize future investment returns.
2:49:12 PM
SENATOR STEDMAN replied that additional contributions toward the
past service cost could be made at any time, but typically only
the required 22 percent is paid. Market downturns are smoothed
in the analysis, like the Permanent Fund, and over time, despite
cycles of bear and bull markets, the general trend is upward if
the economy grows.
2:50:09 PM
CHAIR BJORKMAN held SB 81 in committee.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SB132 Draft Proposed Amendment G.1.pdf |
SL&C 4/4/2025 1:30:00 PM |
SB 132 |
| SB132 Draft Proposed Amendment G.2.pdf |
SL&C 4/4/2025 1:30:00 PM |
SB 132 |
| SB81 Sectional Analysis ver A.pdf |
SL&C 3/3/2025 1:30:00 PM SL&C 4/4/2025 1:30:00 PM |
SB 81 |
| SB81 Sponsor Statement ver A.pdf |
SL&C 3/3/2025 1:30:00 PM SL&C 4/4/2025 1:30:00 PM |
SB 81 |
| SB81 ver A.pdf |
SL&C 3/3/2025 1:30:00 PM SL&C 4/4/2025 1:30:00 PM |
SB 81 |
| SB81 Fiscal Note-DOA-DRB 02.28.25.pdf |
SL&C 4/4/2025 1:30:00 PM |
SB 81 |
| SB81 Presentation to SLAC 04.04.25.pdf |
SL&C 4/4/2025 1:30:00 PM |
SB 81 |