Legislature(2023 - 2024)SENATE FINANCE 532
05/12/2023 09:00 AM Senate FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| SB88 | |
| SB95 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| += | SB 88 | TELECONFERENCED | |
| += | SB 95 | 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."
9:04:31 AM
AT EASE
9:04:58 AM
RECONVENED
9:06:04 AM
GENE KALWARSKI, CEO, CHEIRON, VIRGINIA (via
teleconference), discussed the presentation, "Actuarial
Estimates" (copy on file). He looked at slide 2, "About
Cheiron":
Formed in 2002
Our consultants have decades of experience
advising several
of the nation's largest public pension plans
Cheiron 2023
• Highest percentage of fully credentialed
actuaries in the industry
• National reputation for being proactive,
responsive, and innovative
• Often called on to assist in the most
politically charged/challenging environments
Mr. Kalwarski looked at slide 3, "Our Public Sector
Experience." He spoke to an overview of all the states and
organizations which were considered clients.
Mr. Kalwarski pointed to slide 4, "Methodology Used":
• Step 1
Run initial valuation to determine purchase
liability assuming all DCR service converts to DB
service
Compare DCR balance to purchase liability
If DCR balance exceeds purchase liability, all DCR
service converts to DB service
If DCR balance is less than purchase liability, only
a proportionate amount of DCR service converts to DB
service
• Step 2
Rerun valuation using only the purchased service
from Step 1 which converts to DB service
Co-Chair Stedman queried the ending dates on the accounts,
and whether they were run the previous year before the
market slide.
Mr. Kalwarski replied that everything was run as of June
30, 2021, so there was not a reflection of the most recent
market downslide.
Co-Chair Stedman remarked that June 30, 2021 predated a
good portion of the market correction.
Mr. Kalwarski agreed.
Mr. Kalwarski discussed slide 5, "Methodology Used." He
remarked that it was a snapshot of the results of the
evaluation.
Mr. Kalwarski addressed slide 5, "Key Valuation Results."
He noted the line titled, "Actuarial Liability", which
showed the total of $1.169 billion.
9:10:42 AM
Co-Chair Stedman requested more information, and asked
about the assumption of a 100 percent transfer.
Mr. Kalwarski agreed.
Co-Chair Stedman requested more background information with
the slides.
Mr. Kalwarski replied that the information is in a more
formal report.
Co-Chair Stedman queried the timeline of the report.
Mr. Kalwarski replied that the draft report was submitted,
and the final would be submitted following the meeting.
Senator Wilson asked about other simulations that had
quartered out other percentage of transferring.
Mr. Kalwarski replied that the table on slide 5 showed the
percentages.
Senator Wilson wondered whether the models were done
throughout the presentation.
Senator Wilson wondered whether the stress testing
projections also assumed 100 percent transfer.
Mr. Kalwarski replied in the affirmative, and stated that
other percentages would show the same projections
multiplied by that presumption.
Senator Wilson asked that those percentages be provided to
the committee.
Mr. Kalwarski agreed to provide that information.
9:15:48 AM
Co-Chair Stedman agreed that it was unfortunate that they
did not have the report in advance.
Mr. Kalwarski stated that beginning on slide 7 showed the
impact of the unfunded liability.
Co-Chair Stedman looked at slide 6, and remarked that there
was overfunding and asked about more information.
Mr. Kalwarski replied that slide 6 was a generic picture
and was not representative of Alaska.
Mr. Kalwarski addressed slide 7, "Baseline Combined."
9:21:47 AM
Co-Chair Stedman asked for clarification on the red line,
which was the portion that would otherwise go to the
unfunded liability.
Mr. Kalwarski noted that the red line was the contribution
if not for SB 88.
Co-Chair Stedman remarked that the concern was about the $7
billion unfunded liability.
Mr. Kalwarski replied that the slide did not speak to money
going to the legacy plan.
Co-Chair Stedman surmised that it had no impact on the
legacy plans.
Mr. Kalwarski agreed.
9:25:14 AM
Co-Chair Stedman stressed that the existing liability was
the state's responsibility.
Mr. Alper replied that there would be a presentation from
Buck Consulting address the issue.
Co-Chair Stedman wanted Buck Consulting to address the
question in order to prevent more liability from the
municipalities be put to the state.
9:27:23 AM
Mr. Kalwarski looked at slides 8, 9, and 10, which broke
out the TRS, PERS Other, and PERS Safety.
Co-Chair Stedman asked about the salary replacement of 67.5
percent over 30 years.
Mr. Kalwarski replied in the affirmative.
Co-Chair Stedman queried how the state would replace 67.5
percent and SBS.
Mr. Kalwarski replied that he did not have that data, but
felt that it was in the "middle of the plans" he was
working on. He felt there were no outliers.
9:30:18 AM
Co-Chair Stedman requested a formal answer related to
salary replacements.
Mr. Kalwarski stated that slides 7 through 10 were
baselines of earnings.
Mr. Kalwarski looked at slide 11, "Combined Two Strong
Investment Returns." He noted that there was a 15 percent
increase outlined and evaluated within the slide.
Mr. Kalwarski addressed slide 12, "Combined Two Poor
Investment Returns." He remarked that the slide reflected
the impact of poor investment returned.
Co-Chair Stedman looked at the slide related to public
safety. He remarked that some communities did not include
the public safety employees in SBS or social security. He
queried the remedy for that situation.
Mr. Kalwarski replied that there needed to be an increase
to the current formula.
Co-Chair Stedman wondered whether there needed to be a
split tier to fix that issue.
Mr. Kalwarski replied that the proposed SB 88 gave public
employees the chance to earn a pension.
Mr. Kalwarski addressed slide 13, "Combined 1930-1960
Returns." He stated that the slide showed the impact of the
Great Depression.
9:36:29 AM
Senator Kiehl wondered whether there was an evaluation of
what would happen to the unfunded liability over time.
Mr. Kalwarski replied that the recognized each year was
amortized over a 25 year period.
Senator Wilson wondered when members would draw from the
funds.
Mr. Kalwarski replied that the each DCR member projected
them through end of life and the probabilities of end of
life, so the draw depended on each person.
Senator Wilson wondered whether the assumptions were within
the projections.
Mr. Kalwarski replied in the affirmative.
Senator Wilson surmised that it was unknown of the specific
year, but based on the assumption of earnings.
Mr. Kalwarski responded that the drawdown began at a
different time for everyone.
Senator Wilson wondered whether the projected draw amounts
were included in the slides.
Mr. Kalwarski replied in the affirmative.
9:39:54 AM
Co-Chair Stedman queried the risk to the employee if the
state uncapped the employee and matched the increase to 50
percent.
Mr. Kalwarski responded that the risk sharing concept was
between 8 and 12 percent, and would increase only when
increased by the Alaska Retirement Management (ARM) board.
Co-Chair Stedman wondered whether it was reasonable to cap
it at 12 percent.
Mr. Kalwarski replied that most statewide plans in the
country did not have the risk sharing concept, so there was
a fixed rate.
Co-Chair Stedman wondered whether the other states had the
constitutional protections of diminishment of benefits.
Mr. Kalwarski responded that many but not all states had
that protection.
Senator Kiehl wondered whether the bill would make changes
to how the funds were managed for risk and return.
Mr. Kalwarski replied that the bill did not have that
impact.
Senator Kiehl wondered whether other states had employees
which had a say in the management of funds.
Mr. Kalwarski replied most systems had more than one
employee representative.
Senator Kiehl felt that the bill showed more employee risk
with less employee involvement.
Mr. Kalwarski pointed to slide 14, "Combined 1940-1970
Returns." He stated that the time period showed a "rosy"
scenario.
9:45:03 AM
Co-Chair Stedman felt that the slide was better spread over
the years. He wondered whether the pink column showed
billions of dollars.
Mr. Kalwarski replied that it was a negative, meaning that
it was a reduction to the unfunded liability.
Mr. Kalwarski pointed to slide 15, which showed the good
returns of the 1950s, but then higher costs in the 1960s
and 1970s.
Co-Chair Stedman noted the trigger mechanism.
Mr. Kalwarski replied that the total contribution, but the
ARM Board could increase the member contribution at not
more than 12 percent.
Mr. Kalwarski discussed slide 16, "Combined 1960-1990
Returns."
Co-Chair Stedman asked about the annual unfunded liability
or surplus without averages.
Mr. Kalwarski replied that the pink column was exactly the
unfunded liability due to SB 88.
9:50:01 AM
Co-Chair Stedman asked for more definition on that column.
Mr. Kalwarski replied that it was not a comparison, but
rather showed that because of SB 88 there would be an
impact on the legacy liability.
Senator Wilson requested the slides restated without the
errors.
Mr. Kalwarski agreed to provide that information.
Senator Wilson felt that the slides did not show a delta,
because it was fairly negligible. He asked about the
difference from the losses and gains.
Mr. Kalwarski replied that comparing slides 18 and 19,
showed fully funding, but the bottom chart showed that
contributions were greater in slide 19.
Senator Bishop requested a slide on the total average
market return from 1930 to present day.
Mr. Kalwarski agreed to provide that information.
Co-Chair Stedman surmised that the gains or losses on
previous years were against the forward projected
liability.
Mr. Kalwarski replied that it was not a comparison, rather
an evaluation of the history of the markets and returns.
9:56:24 AM
Co-Chair Stedman wondered whether the actuarial report
would have more detail.
Mr. Kalwarski replied in the affirmative.
Senator Bishop MOVED to ADOPT the committee substitute for
SB 88, Work Draft 33-LS0505\O (Klein, 5/11/23).
Co-Chair Olson OBJECTED for discussion.
9:57:44 AM
KEN ALPER, STAFF, SENATOR DONNY OLSON, explained the
committee substitute. He discussed the Summary of Changes
(copy on file):
Change 1 Language was added to clarify that certain
former Defined Benefit plan members, who were not
vested before the Defined Contribution plan took
effect in 2006 and elected at the time to switch to
the DC plan, are eligible to transition to the new
Defined Benefit plans.
Change 2 Corrects a discrepancy in the previous
version regarding how long a TRS retiree under 60
years of age must receive pension benefits before
being eligible for the Post Retirement Pension
Adjustment (PRPA) benefit. All sections were aligned
for this at five years.
Change 3 Clarifies what happens if, in the future, the
full actuarial cost of the program for employers
declines to less than 12 percent and the 12 percent
"floor" in the bill were to take effect. In this case,
the additional employer contributions would be
deposited into the sub-trusts for the appropriate
employee groups.
Change 4 Adds language to account for what happens if
a Defined Contribution plan member elects to switch to
Defined Benefit, but the amount in their account is
more than what is needed to purchase their full-
service time. In that case, the excess funds would be
transferred either to the employee's SBS account or to
another eligible retirement plan.
Change 5 Clarifies language describing which plan
members are initially eligible to elect to switch to
the new Defined Benefit plan. This applies to those
employees who became a member of that plan after June
30, 2006, and are employed on the effective date of
the bill.
Change 6 Extends the time period for an employee to
choose whether to switch to the Defined Benefit plan
from 120 days to 180 days.
10:04:01 AM
Senator Wilson wondered whether employees would be given
consultation on their options to change the plan.
Mr. Alper replied in the affirmative.
Senator Wilson surmised it was not a requirement.
Mr. Alper replied that he believed it was required in the
bill.
Senator Merrick surmised that the DB plan, under TRS, saved
the state a significant amount of money, PERS was status
quo, and PERS safety was more expensive.
Mr. Kalwarski agreed.
Senator Merrick queried the cause of the expense for PERS
safety.
Mr. Kalwarski replied that it would be impacted by the
retirement eligibility.
Senator Merrick surmised that the combined baseline number
from slide 7 showed that the DB plan was slightly less
expensive for the state.
Mr. Kalwarski agreed.
Co-Chair Stedman wondered why the new tier would be shut
down and not run concurrently with the plan.
Mr. Kalwarski replied that the purpose of the plan was for
a pension.
10:10:01 AM
Co-Chair Stedman requested a better understanding of the
longevity of the employees.
Senator Bishop noted that he recalled someone who lost his
pension within the trade union due to bad management.
Senator Wilson wondered whether it was better to have one
PERS plan or separate PERS plans.
Mr. Kalwarski replied that separate plans were important
for mortality risks.
Co-Chair Stedman recognized that the safety employees were
employed at the municipal level and did not contribute to
social security and SBS. He felt that one plan was better
than two, so the TRS could contribute to SBS.
Mr. Kalwarski replied that it was a policy issue.
Co-Chair Stedman wondered whether other states had a
combined plan for efficiency.
Mr. Kalwarski replied that there was a combination in SB
88.
10:15:35 AM
Co-Chair Stedman disagreed, because TRS could not
contribute to SBS and social security. He wondered how to
enhance the retirement structure.
Mr. Kalwarski replied that he did not have a good enough
familiarity with that issue.
Senator Wilson wondered when the analysis began for SB 88.
Mr. Kalwarski replied that the work had been done for a
month.
Senator Wilson wondered who contacted the company for the
analysis.
Mr. Alper replied that he was involved in the project
before the bill passed form the previous committee.
Senator Wilson wondered whether Buck was involved in the
analysis.
Co-Chair Olson replied that there was resistance to using
Buck.
Mr. Alper replied that because Buck was on contract with
the Executive Branch, the Department of Administration
(DOA) stated that it would have been a conflict of
interest.
Senator Kiehl appreciated the work on the bill.
10:22:53 AM
SENATOR CATHY GIESSEL, SPONSOR, explained that the bill had
a very positive impact on the retirement system.
10:27:41 AM
AT EASE
10:28:02 AM
RECONVENED
10:28:05 AM
Co-Chair Olson REMOVED his OBJECTION. There being NO
OBJECTION, it was so ordered.
Co-Chair Olson stated that the amendment deadline was 5pm.
SB 88 was HEARD and HELD in committee for further
consideration.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SB 88 Cheiron actuary analysis slides 5-11-23 final (003).pdf |
SFIN 5/12/2023 9:00:00 AM |
SB 88 |
| SB 88 Summary of Changes FIN 5-12-23.pdf |
SFIN 5/12/2023 9:00:00 AM |
SB 88 |
| SB 88 work draft version (FIN) O 5-12-23 final.pdf |
SFIN 5/12/2023 9:00:00 AM |
SB 88 |
| SB 88 Cheiron report 20230512s.pdf |
SFIN 5/12/2023 9:00:00 AM |
SB 88 |