04/09/2015 03:30 PM Senate COMMUNITY & REGIONAL AFFAIRS

         SB 88-TEACHERS & PUB EMPLOYEE RETIREMENT PLANS                                                                     
                                                                                                                                
4:30:06 PM                                                                                                                    
CHAIR BISHOP called the committee back to order and announced                                                                   
the consideration of SB 88.                                                                                                     
                                                                                                                                
4:31:16 PM                                                                                                                    
SENATOR EGAN, as the sponsor, introduced SB 88 as follows:                                                                      
                                                                                                                                
     SB 88  let's teachers, police, firefighters,  and other                                                                    
     public  employees choose  one of  two state  retirement                                                                    
     systems: an individual  defined contribution retirement                                                                    
     account, or earning a new defined benefit pension.                                                                         
                                                                                                                                
     A defined  benefit pension takes  time to earn,  but it                                                                    
     rewards  public   servants  by  letting  them   earn  a                                                                    
     guaranteed monthly benefit when  they retire. For long-                                                                    
     term  employees,   they  can   earn  help   paying  for                                                                    
     healthcare, they  can stay in  Alaska and  pay property                                                                    
     taxes  to their  local municipality.  Alaska's teachers                                                                    
     and public  employees don't  earn the  private sector's                                                                    
     defined benefit  of Social Security and  many even lose                                                                    
     Social  Security benefits  they  earned  in their  past                                                                    
     jobs. For most, a  defined benefit pension makes sense,                                                                    
     but many will still  choose defined contribution; as an                                                                    
     example,  some  have  a   military  or  private  sector                                                                    
     pension or  some have a  spouse employed in  Alaska and                                                                    
     only plan to  stay a few years. Others  want to control                                                                    
     their investments  or take their savings  to their next                                                                    
     job, they could choose defined contribution.                                                                               
                                                                                                                                
     SB 88 creates  a new, more stable  and more predictable                                                                    
     defined benefit  pension tier. A few  years ago, Alaska                                                                    
     beefed up oversight of the  pension system; SB 88 keeps                                                                    
     those  smart  safeguards,  making  Alaska's  retirement                                                                    
     system  stronger  than  ever. Analysis  of  a  previous                                                                    
     version of  this bill showed  it saved the  state about                                                                    
     $70 million  in 5 years and  it is cost neutral  in the                                                                    
     long term,  it shares the  risk of rising  health costs                                                                    
     between employees  and employers, and it  adds nothing,                                                                    
     not one  red-cent to the unfunded  liabilities from the                                                                    
     past. To  make the  new system cost  neutral, employees                                                                    
     will  share the  risk  of health  costs  rising in  the                                                                    
     future, that's  a risk  worth taking,  I think,  and is                                                                    
     fair to Alaskans.                                                                                                          
                                                                                                                                
4:33:55 PM                                                                                                                    
JESSE   KIEHL,  Staff,   Senator   Dennis   Egan,  Alaska   State                                                               
Legislature,  Juneau,  Alaska,  noted  that  testimony  from  the                                                               
previous bill  pointed out some  of the difficulties in  the very                                                               
complex question  of teacher retention.  He stated that  he would                                                               
focus on the economic impact of pensions as follows:                                                                            
                                                                                                                                
     The  total economic  impact of  just the  PERS and  TRS                                                                    
     pensions  to   Alaska,  according  to   an  independent                                                                    
     research group,  is about $1.4 billion  in our economy.                                                                    
     More than 70 percent of  Alaska's PERS and TRS retirees                                                                    
     stay in-state and that's by  design, the pension system                                                                    
     has a cost of living  increase if you retire in Alaska.                                                                    
     The  PERS and  TRS  trust together  paid  more than  $1                                                                    
     billion  in  fiscal  year  2014  in  pension  payments,                                                                    
     roughly 90  percent of those  dollars stayed  in state.                                                                    
     So that really  will show you how effective  that is in                                                                    
     helping  Alaska's public  servants  to  retire here  in                                                                    
     Alaska, and as  Senator Egan said, have  homes in their                                                                    
     communities  and contribute  to their  local economies.                                                                    
     In that sense,  the pension system has been  one of the                                                                    
     shock-absorbers  for our  economy through  the national                                                                    
     downturn, there  have been a number  of them, certainly                                                                    
     healthy  capital  budgets  were  a  major  piece;  but,                                                                    
     through the coming years, that  more than $1 billion in                                                                    
     functionally  payroll,   retirement  payroll,   and  an                                                                    
     additional $500 million in medical  benefits, will be a                                                                    
     huge element in keeping our local economies healthy.                                                                       
                                                                                                                                
4:36:35 PM                                                                                                                    
MR. KIEHL stated that SB 88 addresses turnover as follows:                                                                      
                                                                                                                                
     SB  88 also  addresses a  major cost  for the  State of                                                                    
     Alaska  from  municipalities  and school  districts  of                                                                    
     turnover. The  cost of training  new employees  is very                                                                    
     high and when  you can retain good  employees, not lose                                                                    
     them to  other places and  other folks, you save  a lot                                                                    
     of public dollars,  you make a much  more efficient use                                                                    
     of  the public  treasury, that  is of  course vital  to                                                                    
     municipalities   and  school   districts  using   local                                                                    
     property taxes. Just  to give you a  couple of, frankly                                                                    
     fairly dated  estimates, ten  years ago  the Department                                                                    
     of Fish and  Game estimated the cost of  training a new                                                                    
     biologist was  $16,000 in their first  couple of years,                                                                    
     the Department  of Public Safety  estimated that  a new                                                                    
     state  trooper  through  the  academy,  equipment,  and                                                                    
     training was $150,000.                                                                                                     
                                                                                                                                
     For those who wish to  earn a pension, those who choose                                                                    
     to make that choice, at  present, that is not available                                                                    
     to them  in Alaska, and so  we are beginning to  see in                                                                    
     exit  interviews  an  increasing number  of  folks  who                                                                    
     elect  to begin  their  careers  here, get  significant                                                                    
     training,  and  then  take  their  portable  retirement                                                                    
     benefit  south. Now  for  those who  want  to do  that,                                                                    
     that's the ideal  choice and SB 88  retains that choice                                                                    
     for them,  but for  those who would  prefer to  stay in                                                                    
     Alaska throughout  their lives,  stay local as  we grow                                                                    
     our own, the  opportunity to earn a  pension comes back                                                                    
     into existence with SB 88.                                                                                                 
                                                                                                                                
4:38:19 PM                                                                                                                    
CHAIR  BISHOP  noted that  there  was  no  need for  a  sectional                                                               
analysis, because  the bill does  not have  a fiscal note  at the                                                               
present  time. He  stated  that he  looks  forward to  ultimately                                                               
reviewing the bill's numbers in Senate Finance.                                                                                 
                                                                                                                                
MR. KIEHL summarized as follows:                                                                                                
                                                                                                                                
     Employees will  pay more of  their paychecks  into this                                                                    
     new defined benefit  tiers than any of  the old defined                                                                    
     benefit tier.  Employees will contribute more  cash and                                                                    
     will  always  pay  a  share   of  their  healthcare  in                                                                    
     retirement; in the old defined  benefit tiers, that was                                                                    
     not the case.  In this tier, depending on  how long you                                                                    
     serve,  you will  pay anywhere  from 10  percent to  30                                                                    
     percent or more of  your retiree health insurance; that                                                                    
     saves a great deal of money,  it shares a great deal of                                                                    
     risk with  the employees, and  there is an  adjuster in                                                                    
     the bill  that ensures  that the pre-funding  cost, the                                                                    
     amount  we put  away  each pay  period, pre-fund  these                                                                    
     benefits  as  they  are   earned,  doesn't  exceed  the                                                                    
     defined contribution.  So our pre-funding  systems will                                                                    
     be equal  no matter which system  our employees choose.                                                                    
     Mr.  Chairman,   you  alluded   to  the   forth  coming                                                                    
     analysis, the  department has worked very  closely with                                                                    
     our office, we understand  that they are beginning work                                                                    
     on analysis  and will work with  us on the bill  and we                                                                    
     appreciate their  willingness to  get that  rolling and                                                                    
     work with the sponsor.                                                                                                     
                                                                                                                                
CHAIR BISHOP  expressed that  he looks  forward to  reviewing the                                                               
numbers to  see if the  state really  can save money  because the                                                               
Legislature needs to look at  all ways to save revenue regardless                                                               
of economic conditions due to oil prices.                                                                                       
                                                                                                                                
4:41:10 PM                                                                                                                    
AARON DANIELSON, President,  Public Safety Employees Association,                                                               
Fairbanks, Alaska, remarked that the  value of experience is what                                                               
Alaska  is  losing with  having  the  current  Tier IV  plan.  He                                                               
disclosed that  many police  and fire  officers have  left Alaska                                                               
because the state cannot keep up with Lower 48 offerings.                                                                       
                                                                                                                                
4:43:10 PM                                                                                                                    
JACOB  BERA,  member,  Region VI  Board  of  Directors,  National                                                               
Education Association-Alaska,  Chugiak, Alaska, said SB  88 would                                                               
greatly  improve the  current  public  employee retirement  plan,                                                               
improve  teacher quality  and retention,  and save  the State  of                                                               
Alaska money.  He noted  that according  to statistics  from Buck                                                               
Consultants, Alaska has hired 3,037  teachers since 2006, by 2012                                                               
only 632  of those  teachers have  stayed in  Alaska more  than 5                                                               
years; this  has led  to more cost  in recruitment  and training,                                                               
leading  to the  revolving door  in the  classroom that  does not                                                               
contribute positively  to educational  outcomes for  students. He                                                               
set forth that  SB 88 creates a choice-pension  system that helps                                                               
attract and  retain quality and  effective teachers for  the long                                                               
haul,  especially in  specialized, high  need areas  in education                                                               
and  for  rural Alaska.  He  disclosed  that according  to  state                                                               
actuaries, new  healthcare costs safeguards and  smaller employer                                                               
contributions, SB 88 would save $70 million over 10 years.                                                                      
                                                                                                                                
4:46:40 PM                                                                                                                    
PEGGY   COWAN,  Superintendent,   North   Slope  Borough   School                                                               
District, Barrow, Alaska, stated that  she supports SB 88 for the                                                               
same reasons that she supports SB  79. She noted that SB 88 gives                                                               
options,   especially  in   recruiting   the  "millennial"   aged                                                               
workforce.  She  summarized  that  defined  benefits  do  make  a                                                               
difference for  attracting long term  teachers and  asserted that                                                               
retention is good for Alaska's students.                                                                                        
                                                                                                                                
4:47:46 PM                                                                                                                    
CHAIR BISHOP announced  that public testimony is  closed. He said                                                               
SB 88 will be held in committee.