Legislature(2015 - 2016)BUTROVICH 205
04/09/2015 09:00 AM Senate STATE AFFAIRS
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| Audio | Topic |
|---|---|
| Start | |
| SB83 | |
| SB1 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | SB 83 | TELECONFERENCED | |
| + | SB 89 | TELECONFERENCED | |
| += | SB 1 | TELECONFERENCED | |
| + | TELECONFERENCED |
SB 83-PEACE OFFICER/FIREFIGHTER RETIREMENT
9:04:11 AM
CHAIR STOLTZE announced the consideration of SB 83.
9:04:37 AM
GENEVIEVE WOJTUSIK, Staff, Senator Lesil McGuire, Alaska State
Legislature, Juneau, Alaska, introduced SB 83 on behalf of the
sponsor, reading the following sponsor statement into the
record:
An Act relating to the Protective Occupation
Retirement Council; relating to participation of
certain employees in the defined benefit plan and the
defined contribution plan of the public employees'
retirement system; and providing for an effective
date.
In 2005, Alaska moved away from a defined benefit to a
defined contribution retirement system for public
employees hired after July 1, 2006. Both the defined
benefit and the defined contribution plans contain
risks and benefits to employees and employers. With a
defined benefit plan comes the advantage of
professional money management, lower fees, pooled
risk, and long term investment strategies. However,
employers carry significant risk if investment returns
fall short or actuarial predictions prove inaccurate,
which they are shielded from in a defined contribution
plan. Taking both of these points of view into
account, the Variable Benefit Retirement System (VBRS)
was developed.
9:05:49 AM
WILLIAM FORNIA, actuary, Pension Trustee Advisors (PTA), Inc.,
Centennial, Colorado, stated that he is working on behalf of the
Alaska State Firefighters Association (ASFA). He said the focus
of his presentation on the VBRS Plan is to address the
following:
· Why the change is necessary.
· Proposed structure of the new variable retirement plan.
· Examples of how the variable retirement plan would have
worked if ASFA had the plan all along.
9:07:06 AM
MR. FORNIA explained that a hypothetical police officer or
firefighter that retires at age 56 with an average salary of
$80,000 would receive one of the following benefit plans:
· Tier 3 Defined Benefit (DB) Plan for people hired before
2005: $45,000 pension per year.
· Tier 4 Defined Contribution (DC) Plan for people hired
after 2005: $25,000 pension per year.
He noted that even though the retiree is not covered under
Social Security, the annual Social Security payment would be
$22,000. He summarized that the Tier 4 DC Plan is not a whole
lot better than Social Security and significantly less than what
an individual would receive from the Tier 3 DB Plan after a 25
year career in Alaska.
9:09:19 AM
He revealed that the current retiree healthcare provision is not
likely to provide adequate pre-Medicare benefits. He detailed
that due to healthcare costs escalating faster than wages, the
current average monthly premium will increase from 39 percent of
an average Alaska Public Employees' Retirement System (PERS) pay
to over 58 percent by 2034.
He explained the pros and cons of the DB Plan approach versus
the DC Plan approach.
He said DB plans are more cost efficient at providing retirement
benefits and specified as follows:
· Pool longevity-risks.
· Maintains a better diversified portfolio because, unlike
individuals, the plan does not age.
· Achieve better investment returns because of professional
asset management and lower fees.
MR. FORNIA explained that DC plans are more consistent with
individual responsibility and specified as follows:
· Benefit is a clearly defined contribution from the employer
and employee to a trust.
· Benefit is more under the control and full ownership of the
individual.
· Benefit is much more portable.
· No risk of unfunded liabilities.
9:11:55 AM
He stated that VBRS tries to strike a compromise. He explained
that SB 83 fixes the employer contribution so that there's no
risk of the contribution going up. He specified that the bill
creates a board to figure out how to live within the fixed
contribution. He specified that the plan has targeted benefit
levels and the board will have some authority to figure out how
to adjust benefits or employee contributions as necessary to
provide the benefits out of the fixed contribution amount. He
added that VBRS is designed with a lower anticipated rate of
return to provide a cushion against a long term experience that
might be worse than expected.
9:13:06 AM
He explained that current members in the DB Plan pay 7.5 percent
of pay with employers paying 22 percent of pay for members in
the old plan; however, more than half is going towards paying
off old unfunded liabilities. He said individuals under the DC
Plan are putting in 8 percent of pay and the employer's amount
also adds up to 22 percent.
He set forth that the proposed VBRS Plan increases the member
contribution to 9 percent, keeps the employer pay at 22 percent
with 8 percent going towards "legacy" pre-funded liabilities,
and 14 percent going towards the VBRS Plan. He summarized that
the board will have to figure out how to make the 9 plus 14
percent work and how to provide the level of benefits. He
revealed that PTA's projections are that the VRBS Plan could
provide benefits similar to the Tier 3 DB Plan. He added that
there is a chance that the benefit projections will not work
out.
MR. FORNIA said there are safeguards that the board can use to
make adjustments and prevent the state from having to contribute
more than 22 percent:
· Increase employee contributions or decrease when things are
good.
· Provide cost of living increases.
· Adjust the benefit.
· Adjust how much goes towards healthcare.
9:15:34 AM
He explained that another safeguard is a built-in actuarial
assumptions margin where lower assumed rates of return provide a
higher threshold before action is required when returns are
lower. He added that better than expected returns will be used
to build reserves. He noted that the ongoing DB Plan assumes an
8 percent return, the VRBS Plan assumes a 7 percent return.
He referenced a chart that modeled the VRBS Plan if enacted in
1985 to present. He pointed out that funding levels would have
ranged from 80 percent to 158 percent. He noted that the VRBS
Plan would currently be 95 percent funded on a target level
basis and 110 percent funded on a guaranteed level basis. He
summarized that the chart demonstrates that the VRBS Plan should
work as long as the board is prudent in not guaranteeing more
than can be afforded.
9:17:21 AM
SENATOR MCGUIRE joined the committee meeting.
MR. FORNIA reviewed case studies of similar plans in four states
that have worked well:
· Wisconsin: a very well-funded plan with a board that has
the flexibility to generate cost of living adjustments
based on returns.
· South Dakota: same situation as Wisconsin.
· Ohio: most similar to Alaska where the contributions are
fixed so there is no increased contributions that have to
go through the Legislature; however, Ohio's board annually
decides how much to use for healthcare and pensions.
· Colorado: firefighters and police officers environment with
a fixed contribution rate where their board makes decisions
on how much to shift year after year.
9:19:36 AM
MR. FORNIA set forth that the VRBS Plan purposes that the
employers put in 14 percent of pay for police officers' and
firefighters' plans. He noted that a small group of people that
work in police and fire departments that are not police officers
or firefighters would receive a 12 percent of pay contribution.
He pointed out that the proposal is consistent with other plans
across the country as well as being consistent some of Alaska's
significant employers such as Wells Fargo or Alaska Airlines.
He remarked that the state is very concerned with future
unfunded liabilities and that is the reason why Alaska made a
change in 2005; however, the change is projected to not provide
adequate benefits for the next generation of police officers and
firefighters. He stated that SB 83 provides a potential solution
with benefits that are similar to Tier 3 DB Plan benefits;
however, lower returns will result in lower benefits. He
explained that the government takes the risk under Tier 3 DB
Plan and individuals each take the risk under Tier 4 DC Plan. He
summarized that the VRBS Plan is more efficient where the police
and firefighters take on risk as a "pooled" group.
9:22:04 AM
TOM WESCOTT, President, Alaska Professional Fire Fighters
Association, Anchorage, Alaska, specified that he is also a
captain in the Anchorage Fire Department working out of Station
5 in Spenard. He stated that fixing the Tier 4 DC Plan and its
shortcomings is very important.
MR. WESCOTT said the first goal of any retirement system should
be to ensure that participants are ready to retire and can
remain self-sufficient once they do retire. He asserted that
remaining self-sufficient for retirees is going to be difficult
under the Tier 4 DC Plan and noted that many are not eligible
for Social Security or for the Alaska Supplemental Annuity Plan;
for example, firefighters or police officers in Kenai,
Anchorage, and Fairbanks do not participate in either plan.
CHAIR STOLTZE asked if the non-participations are federal
prohibitions.
MR. WESCOTT answered that the state has a Section 218 Agreement
with the federal government that outlines participants. He
detailed that firefighters and police officers traditionally
have participated in defined benefit plans based on the need to
retire at a younger age because of the physical nature of their
jobs.
MR. WESCOTT said the VBRS Plan from SB 83 is a better retirement
system that was borne out of listening to the Legislature's
concerns about risk and unfunded liabilities. The VBRS Plan
takes from other states' plans where tools were built-in to deal
with adverse experiences. He noted that Wisconsin's plan
remained nearly 100 percent funded after a financial collapse.
He asserted that large pooled retirement accounts earn higher
rates over the long haul versus individual retirement accounts.
He detailed that large pooled retirement accounts benefit from
lower fees through economies of scale and earn maximum returns
from professional management oversight. He added that the VBRS
Plan pools risk and maintains investment portfolio diversity for
all participants.
9:26:11 AM
He said SB 83 addresses three issues that the state should be
concerned about:
· Costs associated with recruitment, retention, and training
for new hires when police officers and firefighters leave
for competing jurisdictions.
· Higher workers' compensation where an older work force is
required to work "on the line."
· Increase in social welfare costs where retirees run out of
money.
He said a study has shown that individuals without defined
benefit pensions were nine times more likely to be in poverty
when they retired; the Alaska Professional Firefighters
Association worries that its members would be in the same boat
where individuals are not ready or ill prepared to retire.
He detailed that SB 83 allows employee contributions to
fluctuate in order to deal with adversities. Medical benefits
are paid with stipends as opposed to a level of coverage where
the costs are not known. The board determines optional cost of
living increases based on the plan's health. He added that as
opposed to guaranteed benefits, a portion of the benefit is
variable where payments are based on what the plan's financial
capabilities are.
He remarked that SB 83 is not perfect. He pointed out that legal
and fiscal concerns need to be addressed. He summarized that SB
83 addresses a problem and provides a better benefit for Alaska
Professional Firefighters Association members.
9:29:49 AM
JEREMY CONKLING, Officer, Anchorage Police Department Employees
Association, Anchorage, Alaska, explained that not having
defined benefits impacts the Anchorage Police Department's (APD)
recruitment and retention of officers.
MR. CONKLING detailed that APD is receiving 75 percent fewer
applications than were received in the late 90s and early 2000s.
He asserted that due to a lack of retirement, people don't have
an incentive to join APD and work for 20 years in Alaska with no
security on the back end.
He explained that retention is an issue where APD has shifted
from being a destination to a training ground where officers
leave after receiving training and certification. He detailed
that APD invests several hundred thousand dollars on training
and certification for each officer. He revealed that officers
from APD have left for places with defined benefit plans. He
noted that the Denver Police Department is offering officers the
ability to buy back up to ten years of service; for example, an
officer with 12 to 14 years can buy 10 years back and only do 10
more years and get a full retirement. He revealed that officers
in exit interviews are saying that not having defined benefits
is the reason why they are leaving.
He summarized that APD is unable to recruit and keep highly
trained, professional officers. He said passing SB 83 will give
APD a huge advantage for recruiting and retention.
9:33:05 AM
CHAIR STOLTZE asked the sponsor to comment on SB 83.
SENATOR MCGUIRE remarked that she is known for being an
innovator and visionary in reconsidering the way the Legislature
does things. She said she does not believe that things are black
and white. She explained that in 2005 Senate Bill 141 addressed
fiscal concerns to move away from a defined benefit plan to a
defined contribution plan for the state's firefighters,
teachers, and police officers. She said during her time in the
Legislature, men and women serving at the ground level have
testified about their concerns regarding recruitment, retention,
and retirement. She asserted that she wants to bring the noted
concerns forward for the Legislature to think about whether
there is a different way and asserted that SB 83's hybrid
approach is a possibility. She declared that the fine men and
women that serve and save Alaska's families deserve the
Legislature's attention on their retirement system.
CHAIR STOLTZE stated that SB 83 will get further review. He
asserted that the committee puts a lot of trust in the
administration to review the actuarial data and give their best
analysis. He asked that the committee receive a candid point-by-
point on SB 83. He summarized that SB 83 deals with a fiscal
issue which is one of the three legs of the state's deficit and
the committee will have no blindfolds on during the bill's next
hearing.
9:36:54 AM
CHAIR STOLTZE announced that SB 83 will be held in committee.
SENATOR HUGGINS asked that analysis be provided with different
parameters for alternative courses.
CHAIR STOLTZE agreed that the committee wants to receive the
best information.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SB1 DOT-IASO 3-27-15.pdf |
SSTA 4/9/2015 9:00:00 AM |
SB 1 |
| SB1 Letters of Support for SSTA (3-31-15 to 4-8-15).pdf |
SSTA 4/9/2015 9:00:00 AM |
SB 1 |
| SB1 Letters of Opposition for SSTA (3-31-15 to 4-8-15).pdf |
SSTA 4/9/2015 9:00:00 AM |
SB 1 |
| SB83 Sponsor Statement.pdf |
SSTA 4/9/2015 9:00:00 AM |
SB 83 |
| SB83 Presentation to SSTA - Variable Retirement Plan 4-9-15.pdf |
SSTA 4/9/2015 9:00:00 AM |
SB 83 |
| 28th Legislature - HB247 Fiscal Note-DOA-DRB-02-28-2014.pdf |
SSTA 4/9/2015 9:00:00 AM |
SB 83 |
| 28th Legislature - HB247 Actuarial Fiscal Note-DOA-DRB-02-28-2014.pdf |
SSTA 4/9/2015 9:00:00 AM |
SB 83 |
| SB83 Support Document - Email Angie & Matt Fraize 4-10-15.pdf |
SSTA 4/9/2015 9:00:00 AM |
SB 83 |
| SB83 Support Document - Letter (HB90) Patrick O'Connor 4-9-15.pdf |
SSTA 4/9/2015 9:00:00 AM |
HB 90 SB 83 |