Legislature(2023 - 2024)SENATE FINANCE 532
05/02/2023 01:30 PM Senate FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| SB88 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | SB 88 | TELECONFERENCED | |
| + | TELECONFERENCED |
SENATE BILL NO. 88
"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."
1:41:23 PM
DAN DOONAN, NATIONAL INSTITUTES ON RETIREMENT SECURITY,
CALIFORNIA (via teleconference), discussed the
presentation, "Alaska Teacher Recruitment and Retention
Study: Options and Analysis Supporting Retirement Design"
(copy on file). He looked at slide 2, "Most of Those
Leaving the DC Plans Are Quitting, Not Retiring." He noted
that the slide showed the number of people leaving public
service from 2017 to 2022, and the reasons for their
leaving.
1:46:05 PM
Mr. Doonan pointed to slide 3, "Quits Rates Are Much Higher
in DC Plans." He remarked that slide showed the termination
assumptions, that were based on the experience study.
1:50:13 PM
Senator Wilson looked at slide 3, and wondered whether the
timeframes were overlapping the same similar years of state
service in the DC and DB plans.
Mr. Doonan replied that the experience study was published
with the valuation report. He noted that the June 2023
experience study that took into account for the same years
of the DC and DB plans.
Senator Wilson asked for the plan to begin in 2007, and
wondered whether there was an evaluation of the employers
before 2007.
Mr. Doonan replied that the data for the green line was the
most recent data for the last five years.
Senator Wilson queried data that showed a person in state
service in the DC plan later in life.
Mr. Doonan replied that the years of service were a better
predictor of behavior.
Co-Chair Stedman wondered why the people quit working.
Mr. Doonan replied that the actuaries collected data, but
did not pinpoint the exact reasons.
Mr. Doonan addressed slide 4, "TRS DC Turnover is Much
Higher than DB." He displayed slide 5, "Female Teachers:
How the Seemingly Small Difference Adds Up":
What this means:
• 100 teachers in DB plan expected to provide 1,792
years of teaching
• 100 teachers in DC plan: 1,093 years of teaching
Mr. Doonan pointed to slide 6, "Male Teachers: Even Larger
Impact":
What this means:
• 100 teachers in DB plan expected to provide 1,914
years of teaching
• 100 teachers in DC plan: 935 years of teaching
Senator Wilson asked about the comparison with other states
that have DB plans.
Mr. Doonan replied that there was a slide to address that
question in the presentation.
2:00:55 PM
Mr. Doonan addressed slide 8, "Peace Officer DC Turnover
Much Higher." He stated that it was a subset of the TRS
plan.
Mr. Doonan looked at slide 9, "PERS DC Turnover also
Higher." He remarked that the turnover in the DC plan.
Mr. Doonan discussed slide 10, "TRS DC: Early Retention
Getting Worse." He noted that it appeared that there was an
increase in turnover in the TRS DC plan.
Mr. Doonan pointed to slide 11, "Cumulative Years Taught
from 100 newly hired, 25-year Old Teachers Over Next 30
Years."
Mr. Doonan highlighted slide 13, "Variety of Plan Types
Available in the Public Sector." He pointed out the
differences in different plans and classifications across
the country.
2:07:34 PM
Mr. Doonan looked at slide 14, "Most States Still Offer
Educators a DB Pension Plan." He remarked that there were
four columns outlining the comparisons with the other
states.
Mr. Doonan discussed slide 16, "Cost Stability Strategies
and Observations on Other States National." He remarked
that there were states that had stable states as related to
retirement and health benefits.
2:11:57 PM
Mr. Doonan addressed slide 17, "IN, SD and WI Have Kept
Contribution Rates Stable Over Past Two Decades." He
stressed that there were other states that had stable
situations. He displayed slide 18, "Contribution Rates Have
Been Much Higher in the Two Alaska Plans."
Co-Chair Olson remarked that slide 14 showed that most
states had a DC plan, but Alaska was the only one in the
section.
Mr. Doonan replied in the affirmative, and stated that
Alaska was the only one in the chart that did not
contribute to social security.
2:15:19 PM
Mr. Doonan addressed slide 20, "DB Plans Are More
Economically Efficient Than DC Plans." He remarked that
there were more aggressive investment strategies within the
DB plan.
Mr. Doonan pointed to slide 21, "Conclusion":
• Employer benefits are provided so workers perceive
the employer as a good place to work.
• Many states had similar debates about retirement
offerings, but few plans followed your lead.
• Retention of teachers and PERS members is
problematic in the DC plans, compared to both the DB
plans and plans in other states. Workers in the DC
plan are where the focus should be to improve
retention, too.
Mr. Doonan discussed slide 22, "Conclusion, Continued":
• Unfortunately, all states seem to struggle with
retention of newly hired teachers. This problem is
exaggerated in Alaska, but nonretirement policies
could help with retention of newly hired teachers.
• There are important choices about how benefits are
designed and how they are funded, beyond DB versus DC.
The tools and examples are available, and a strong
case can be made that reopening the DB plans would
help in honoring the obligations that already exist in
the legacy plans.
2:19:52 PM
Senator Wilson wondered how consistent pay raises compared
to a pay rate only once a decade in terms of retention.
Mr. Doonan replied that he did not have the data on the pay
raises as it related to retention.
Senator Wilson wondered whether there was an analysis of
the DC plans as it related to generational or economic
issues.
Mr. Doonan replied that slide 11 showed that comparison.
2:24:29 PM
SENATOR CATHY GIESSEL, SPONSOR, began with slide 38 of the
presentation titled, "Senate Bill 88, A Shared Risk
Retirement Plan" (copy on file). Slide 38 was titled,
"Division of Retirement and Benefits Supplement to the
Treasury Report":
• Over last 7 months, withdrawals of TRS DC and PERS
DC are approximately $62 million dollars
• 90 percent of these withdrawals came after 5 years,
or 100 percent vesting
• On average $12.4 million/month is being withdrawn
from the DC systems
• Hundreds of millions of dollars are leaving the
system and potentially the state each year
Senator Giessel looked at slide 39:
Alaska Retirement Management Board (ARMB) Schedule of
Non-Investment Changes By Fund
Senator Wilson wondered whether the legislature should
determine how an individual uses their retirement funds.
Senator Giessel replied that the point of the bill was
about the retention of employees in order to reduce
investment in another short-term employee who would cash
out retirement and move out of the state. She stressed that
she did not make a value judgment on how a person chooses
to spend their money.
2:30:15 PM
Senator Merrick queried the cost of moving from DC to DB.
Senator Giessel replied that the money could be used to
purchase years in the DB program.
2:31:19 PM
AT EASE
2:32:22 PM
RECONVENED
2:32:49 PM
KEITH BRAINARD, NATIONAL ASSOCIATION OF STATE RETIREMENT
ADMINISTRATORS, TEXAX (via teleconference), read from a
prepared testimony, "Testimony of Keith Brainard to the
Alaska Senate Finance Committee May 2, 2023" (copy on
file):
Members of the committee: my name is Keith Brainard
and I serve as research director of NASRA, the
National Association of State Retirement
Administrators. Our members are the directors and
administrators of roughly 90 statewide and local
public retirement systems. In Alaska, our member is
Ajay Desai, who is the director of the division of
retirement and benefits. My opinions do not
necessarily reflect those of Mr. Desai or his office.
I want to focus my remarks on NASRA's position on
retirement plan design, and to tell you that it is
possible to design a retirement plan that meets the
needs of all stakeholders in Alaska, including public
employees, employers, and taxpayers. It is possible to
design a retirement plan that does not create large
unfunded liabilities, or any unfunded liabilities at
all, and whose cost you can control. And SB 88 appears
to go a long way toward accomplishing those important
objectives.
NASRA does not specifically support one type of
retirement plan, such as a defined benefit or a
defined contribution plan. We do support a retirement
plan that contains features that are known to achieve
key objectives for plan stakeholders, such as:
• Cost sharing between employers and employees.
That means that employers and employees alike
should contribute to the cost of the plan.
• Assets that are pooled and professionally
managed, an arrangement that can and usually does
generate higher investment returns with less
risk.
• Targeted income replacement. Structuring a
retirement plan to replace a certain percentage
of pre-retirement wages at a specified age and/or
years of public service promotes retirement
security for employees and an orderly progression
of personnel for employers. Such an arrangement
allows employees to retire at an appropriate
point in their physical lives, which facilitates
important human resources objectives for
employers.
• Lifetime benefit payouts, meaning that once an
employee qualifies for a retirement benefit and
elects to retire, that employee should be able to
receive a benefit they cannot outlive.
• Survivor and disability benefits should be
integrated into retirement programs, a feature
that is particularly important for positions
involved in hazardous duty, or a public safety
plan.
These core features of retirement plan design are
known to promote retirement security for employees, to
reduce overall costs associated with fees and
expenses, and to enhance the ability of employers to
attract and retain employees.
Compared to the pension plan that was closed in 2006,
my understanding is that under SB 88, Alaska public
employees would contribute a higher percentage of
their salary, they would need to work either longer or
until attaining a higher age to qualify to receive a
benefit, and any post-retirement adjustment would
depend on the fund being in sound actuarial condition.
In addition, general employees, that is, those who are
not teachers or public safety officers, who work more
than 10 years, would receive a lower benefit.
One notable attribute of the plan proposed by SB 88 is
its risk-sharing features. In 2005, when Alaska
switched from a defined benefit to a defined
contribution plan, risk-sharing plans were less common
and less developed than they are today. Over the last
18 years, we have witnessed a significant evolution in
public retirement plan design. Risk-sharing plan
designs are more common and better developed and
understood than they were in 2005. NASRA published a
paper in 2019 describing many examples of innovative
risk-sharing retirement plan designs in use among
states and local government. Many of these new plan
designs were developed just in the last 10 or 15
years.
At the core of these plan designs are essential
features of a sound retirement plan: cost-sharing
between employees and employers; assets that are
pooled and invested by professionals; a benefit that
cannot be outlived; targeted income replacement; and
survivor and disability benefits.
Incorporating risk-sharing elements into a retirement
plan with these essential features can provide the
best of all worlds: a retirement plan that meets the
needs of all stakeholders while also protecting
employers and taxpayers against unsustainable
increases in unfunded liabilities and costs.
I'd like to briefly describe three specific examples
of retirement plans where this is done:
• The South Dakota Retirement System has offered
all public employees in that state a traditional
pension plan for decades with fixed contribution
rates. Since 2002, that contribution rate for
employees and employers has been 6.0 percent; 8.0
percent for public safety personnel. The SDRS
also has no unfunded liability, and generally has
not had one for years. The retirement system
accomplishes this by making benefits variable.
When the plan's actuarial experience falls short
of expectations, benefits are adjusted so that
the plan remains fully funded and the fixed
contribution rate remains adequate.
• In 2018, Colorado established risk-sharing
features in its retirement plan for teachers and
employees of state and local government. This
plan allows for incremental increases in employee
contribution rates, up to two percent in total,
and adjustments in the cost-of-living adjustment,
if specified actuarial and funding targets are
not met. These flexible arrangements for employee
contributions and cost-of-living adjustments are
similar to those proposed in SB 88.
• The third example I want to share with you is
from the City of Houston, Texas. This plan design
was created in 2017 and applies to each of the
city's three retirement plans, for firefighters,
police officers, and general employees. The
central feature of the Houston plans is a
contribution corridor arrangement that restricts
the change in the employer contribution rate to
five percent of pay. If the required cost of the
plan strays from the target rate by more than
five percent, a series of specified changes take
effect to bring the contribution rate back into
the five percent corridor. Those changes include
adjustments to actuarial methods and assumptions,
benefit levels, and employee contribution rates.
SB 88 proposes a trigger to increase employee
contribution rates should the plan funding level fall
below 70 percent and would prohibit paying a COLA if
the plan's funding level is below 90 percent. These
provisions will help protect the plan against higher
liabilities and costs and are consistent with many
other retirement plans that have been developed or
reformed in recent years.
I want to commend the bill's authors for your work in
proposing such a thoughtful retirement plan design.
This retirement plan would return Alaska to the
mainstream of public retirement policy and strengthen
the ability of schools, police and fire departments,
and other public employers to attract and retain
qualified and essential public employees. I urge the
committee and the legislature to approve this bill.
Thank you.
2:40:39 PM
Senator Wilson wondered how many states were represented in
his current role.
Mr. Brainard replied that the members were the directors
and administrators statewide in all fifty states.
Senator Wilson wondered whether other states with DB plans
had similar recruitment and retention issues.
Mr. Brainard replied that public employers were in the
labor market.
Senator Wilson wondered whether the other states had
recruitment and retention issues.
Mr. Brainard replied in the affirmative.
2:43:31 PM
AT EASE
2:44:22 PM
RECONVENED
2:44:38 PM
DOMINIC LOZANO, ALASKA PROFESSIONAL FIREFIGHTERS
ASSOCIATION, JUNEAU, discussed the presentation, "Senate
Bill 88 Public Employee Retirement Fix" (copy on file). He
began with slide 2, "Overview":
Tier 4
Why is change necessary?
Details of HB 22
Status Quo Costs
What have other jurisdictions done?
Mr. Lozano addressed slide 3, "The History":
2006 - Alaska opens a Defined Contribution retirement
system known as Tier 4 Change motivated by unfunded
liabilities of legacy Defined Benefit system
Little to no thought given to benefits provided by
Tier 4
Major factors contributing to the unfunded liabilities
were:
- Bad actuarial advice,
- Underfunding in the "good" years
- Explosion in health care costs.
Mr. Lozano pointed to slide 4, "Details of Tier 4":
401A is made up of 13 percent of payroll: Employee=8
percent, Employer=5 percent
HRA = 3 percent of average PERS salary
Post-secondary Medicare coverage with 25 YOS for Co-
Chair Seaton
Disability similar to Tier 3
Most municipal employees not covered by Social
Security or SBS
2:48:49 PM
Co-Chair Stedman wondered whether there was a death benefit
in the police and fire specification in the DC plan.
Mr. Lozano replied in the affirmative.
Co-Chair Stedman noted that it was one of the weaknesses
within the plan.
Mr. Lozano looked at slide 5, "Inadequacy drives our desire
to see change":
"Public employees who are not covered by Social
Security will need higher contribution rates to meet
income replacement objectives. These contribution
rates would need to be around 18-20 percent of pay
depending on salary levels. Public safety employees
would need to have significantly higher contribution
rates in order support earlier retirement ages common
to those job classifications."
TIAA-CREF Institute, Defined Contribution
Pension Plans In The Public Sector: A Best
Practice Benchmark Analysis
2:50:53 PM
Mr. Lozano pointed to slide 6, "Three independent looks
show inadequacy":
William Fornia of Pension Trust Advisors says Tier 4
will replace 31 percent of income after 25 years
DOA estimated 38.5 percent income replacement- Used a
fixed time frame of 30 years.
Bob Mitchell, the prior CIO of the State of Alaska put
the probability of a 25-year Co-Chair Seaton employee
replacing 70 percent of income for 30 years at 6
percent and a 30-year employee at 22 percent
Co-Chair Stedman stressed that there were a number of
people that had an inadequate retirement system that needed
to be resolved eventually.
Mr. Lozano agreed.
2:55:41 PM
Co-Chair Stedman stressed that SBS and/or social security
could be nearly half of the retirement income.
Mr. Lozano agreed.
Mr. Lozano addressed slide 7, "Losing Dollars, Experience
Operational Capabilities." He pointed to slide 8, "Non-
competitive benefits affecting recruitment":
"Alaska cannot compete with agencies offering defined
benefit plans. This has left us with vacancies in
multiple academies as applicants decide to pursue
career elsewhere
Retired Anchorage Police Chief Doll
"The number of individuals wanting to work at the
Fairbanks Fire department has declined drastically
over the last several years." Former Fairbanks Fire
Chief Styers
"Our FF alumni populate most Alaska career fire
departments. The 42 young men and women in my program
are far more aware of financial planning and
retirement concerns than I was at their age. It is
troubling that the majority of them are testing and
interviewing for jobs in other states." Former UFD
Chief Schrage
Mr. Lozano discussed slide 9, "Retention":
"The turnover of career staff appears to be higher
than Fitch's experience compared with other clients.
In addition to career staff turnover, a significant
number of those leaving are paramedics. Turnover not
only has a financial effect on the department, but it
also loses valuable experience" Fitch and Associates
Consultant Report Capital City Fire and Rescue
"?the inability to provide a defined benefits
retirement system have placed the department at
critically low staffing levels." DPS Recruitment and
Retention plan overview 2018-2023 We are seeing our
highly trained, qualified, and experienced officers
leave APD to work out of state for other law
enforcement agencies offering competitive defined
benefit retirement systems." Retired APD Chief Doll
Mr. Lozano looked at slide 10, "Look for Tier 4 to cause
increased Workers Comp costs":
• "Firefighters 55 years and older, however, have an
MSD injury rate that is more than double that of the
youngest firefighters and more than ten times greater
than that of private sector workers of the same age.
Comparing Figures 2.3 and 2.4, it is apparent that
older firefighters are associated with much higher
rates of reported workplace injuries than both younger
firefighters and private sector workers. Moreover,
this difference is more pronounced for MSDs than it is
for all injuries combined. This is consistent with the
notion that the rigorous physical demands of
firefighting subject them to trauma throughout their
working lives, making them more subject to MSDs in
later years"
Rand Corporation Study on California Fire fighters
Senator Bishop queried the training requirements for fire
fighters.
Mr. Lozano replied that most departments had an entry level
physical performance test.
3:00:17 PM
Mr. Lozano addressed slide 11, "Unforeseen costs":
• Increased OT due to inadequate staffing
Increased training costs
• Loss of operational capabilities
• Loss of experience and future leadership
• Retention problems increase as we work toward 100
percent portable public safety workforce
• Rise in organizational stress levels
Co-Chair Stedman wondered which slides were the most
important.
Mr. Lozano replied that the point was in finding a
solution, and he stressed that the examples of state plans
should be considered in the evaluation of the bill.
Co-Chair Stedman asked about slides 15 and 16.
Mr. Lozano addressed slide 15, "Benefit Reductions":
No pre-Medicare coverage
Elimination of the 10 percent COLA on pensions
Final calculation based on 5 years as opposed to 3
years
Require a minimum age of 50 with 25 years of service
to collect benefits or age 55 with 20 years of service
for public safety. Age 60 with 30 years of service for
all others.
Mr. Lozano pointed to slide 16, "Best Practices":
Built on a lower expected rate of return-7 percent.
ARM Board currently uses 7.25 percent Require steady
contribution from employees and employers
Allow the employee contribution to go up to 12 percent
but not fall below 8 percent Allow the PRPA(inflation
proofing) to be withheld when funding falls below 90
percent Replicate Tier 4 defined contribution medical
Reasonable employer costs
3:04:45 PM
Senator Merrick noted that she had cosponsored legislation
for public safety retirement.
Senator Kiehl stressed that the bill did not address SBS or
social security for police and fire. He queried the benefit
of the bill.
Mr. Lozano replied that the goal was retirement security.
Senator Bishop wondered whether Seattle fire fighters were
leaving to come to Fairbanks.
Mr. Lozano replied that the last time a Seattle firefighter
came to Alaska was in 1997.
Senator Bishop wondered how many Alaskan firefighters left
to go to Seattle.
Mr. Lozano replied that it was probably more than he could
count.
Co-Chair Olson discussed the following day's agenda.
3:09:17 PM
AT EASE
3:09:40 PM
RECONVENED
SB 88 was HEARD and HELD in committee for further
consideration.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SB 88 Alaska TRR Presentation_Final_Senate Finance 5-2-23.pdf |
SFIN 5/2/2023 1:30:00 PM |
SB 88 |
| SB 88 Overview Lozano.pdf |
SFIN 5/2/2023 1:30:00 PM |
SB 88 |
| SB 88 Brainard AK Senate Finance Committee.pdf |
SFIN 5/2/2023 1:30:00 PM |
SB 88 |