Legislature(2007 - 2008)SENATE FINANCE 532

03/19/2007 09:00 AM Senate FINANCE


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09:06:02 AM Start
09:07:21 AM SB125
10:31:14 AM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
*+ SB 125 PERS CONTRIBUTIONS; UNFUNDED LIABILITY TELECONFERENCED
-- Testimony <Invitation Only> --
+ Bills Previously Heard/Scheduled TELECONFERENCED
9:07:21 AM                                                                                                                    
                                                                                                                                
                                                                                                                                
     SENATE BILL NO. 125                                                                                                        
     "An  Act   relating  to  the   accounting  and   payment  of                                                               
     contributions under  the defined benefit plan  of the Public                                                               
     Employees' Retirement  System of Alaska, to  calculations of                                                               
     contributions  under  that  defined  benefit  plan,  and  to                                                               
     participation  in,  and  termination of  and  amendments  to                                                               
     participation   in,  that   defined  benefit   plan;  making                                                               
     conforming  amendments;  and   providing  for  an  effective                                                               
     date."                                                                                                                     
                                                                                                                                
                                                                                                                                
This was  the first hearing for  this bill in the  Senate Finance                                                               
Committee.                                                                                                                      
                                                                                                                                
Co-Chair  Stedman reminded  of accounting  issues  of the  Public                                                               
Employees Retirement  System (PERS)  and the  Teachers Retirement                                                               
System (TRS) discussed  the previous week and  of "challenges" to                                                               
these systems  that were  learned. This bill,  in addition  to SB
123 relating to technical corrections  to the Tier IV plan, would                                                               
address those challenges.                                                                                                       
                                                                                                                                
9:09:35 AM                                                                                                                    
                                                                                                                                
ANNETTE  KREITZER,  Commissioner, Department  of  Administration,                                                               
introduced Ms. Millhorn.                                                                                                        
                                                                                                                                
9:09:51 AM                                                                                                                    
                                                                                                                                
MELANIE MILLHORN, Director, Division  of Retirement and Benefits,                                                               
Department  of  Administration,  gave  an  opening  statement  as                                                               
follows.                                                                                                                        
                                                                                                                                
     This  presentation  will  be comprised  of  two  parts:  (1)                                                               
     overview of  SB 125 PERS  Cost Share Bill and  (2) financial                                                               
     proposal  to address  unfunded liability  for PERS  and TRS,                                                               
     which will be presented by Commissioner Kreitzer.                                                                          
                                                                                                                                
     On  March  13,  2007,   you  received  a  presentation  from                                                               
     Charlene Morrison, Chief  Financial Officer and Commissioner                                                               
     Kreitzer.                                                                                                                  
                                                                                                                                
     During the presentation  it was explained that  PERS Plan is                                                               
     an  agent  multiple  employer plan,  which  means  that  the                                                               
     assets are pooled for all  PERS employers and they share the                                                               
     administrative expenses.                                                                                                   
                                                                                                                                
     Currently, in  accordance with  statute, each  PERS employer                                                               
     has its  own individual  employer contribution rate  that it                                                               
     pays to the PERS Plan.  The employer contribution rates vary                                                               
     from between  14.48% to 185%  of covered payroll.  There are                                                               
     160 employers that  participate in the PERS  Plan, the State                                                               
     being the largest employer.                                                                                                
                                                                                                                                
     The presentation on March 13,  2007, formed the backdrop for                                                               
     our  discussion this  morning. The  information provided  to                                                               
     you  involved  the  concerns  raised  about  the  accounting                                                               
     associated with the  PERS Plan at the employer  level. It is                                                               
     important  to   note,  this  matter  does   not  impact  the                                                               
     economics at the plan level.                                                                                               
                                                                                                                                
     Governor Palin has introduced SB  125 as a proposed solution                                                               
     to  address  the  concerns  raised  by  moving  forward  and                                                               
     establishing the PERS Plan as a COST SHARE PLAN.                                                                           
                                                                                                                                
     SB 125 is  molded after the TRS Plan, which  is a cost share                                                               
     plan  established  by  the  legislature  in  1955.  All  TRS                                                               
     employers pay one uniform rate.  There are 58 employers that                                                               
     participate in the TRS plan.                                                                                               
                                                                                                                                
     Under SB 125 there will  be no assignment of liabilities and                                                               
     assets by  individual employer.  Instead all  employers will                                                               
     share in  the liabilities  and the assets  - hence  the name                                                               
     "Cost Share Plan".                                                                                                         
                                                                                                                                
     This bill  will establish one uniform  employer contribution                                                               
     rate for PERS  employers, with the exception  that the State                                                               
     of Alaska will pay a higher contribution rate.                                                                             
                                                                                                                                
9:12:18 AM                                                                                                                    
                                                                                                                                
Ms. Millhorn gave a PowerPoint presentation titled, "Senate Bill                                                                
125 Overview, PERS Cost - Share Bill" [copy on file].                                                                           
                                                                                                                                
9:12:37 AM                                                                                                                    
                                                                                                                                
     Page 2                                                                                                                     
                                                                                                                                
     Purpose of Cost-Share Bill                                                                                                 
        · Assigns the state 65% of the unfunded liability at                                                                    
          6/30/2006 (estimated $3.6 billion of $5.5 billion                                                                     
          total)                                                                                                                
        · Employers would pay uniform rate (31.86%-FY 08),                                                                      
          except state would pay higher rate (47.92%-FY 08)                                                                     
        · All employers share cost (benefits, administration and                                                                
          investment)                                                                                                           
        · Simplifies administration of plan                                                                                     
                                                                                                                                
Ms. Millhorn  read this  information into  the record.  The Cost-                                                               
Share  method would  simplify  administration  of the  retirement                                                               
program  because  it would  eliminate  the  need to  account  for                                                               
assets and liabilities at the employer level.                                                                                   
                                                                                                                                
9:13:34 AM                                                                                                                    
                                                                                                                                
     Page 3                                                                                                                     
     Section 1 - AS 39.35.100                                                                                                   
        · Repeals prior language on separate employer accounts                                                                  
        · Eliminates Retiree Reserve Account                                                                                    
        · States how pension benefits will be paid                                                                              
             o Employee account exhausted first                                                                                 
             o Plan funds benefits after employee account                                                                       
               exhausted                                                                                                        
                                                                                                                                
Ms.  Millhorn  stated that  this  legislation  would create  "one                                                               
integrated  system" of  accounting  for  all employers.  Existing                                                               
statutory  language  provides  for  separate  accounts  for  each                                                               
employer. Issues  surrounding the  Retiree Reserve  Account would                                                               
be eliminated, as it would be no longer necessary.                                                                              
                                                                                                                                
Ms. Millhorn explained that pension  benefits would first be paid                                                               
from  the  employee  contribution   account.  When  the  employee                                                               
account is  exhausted, the plan  would fund future  benefits. The                                                               
new system  would provide  that the  plan "as  a whole"  would be                                                               
responsible for  funding benefits after an  employee's account is                                                               
depleted. This "aligns" with a cost share plan design.                                                                          
                                                                                                                                
9:14:38 AM                                                                                                                    
                                                                                                                                
     Page 4                                                                                                                     
     Section 2 - AS 39.35.115                                                                                                   
        · Adds two subsections                                                                                                  
             o (d) joint contributory plan                                                                                      
             o (e) allocates excess assets at plan termination                                                                  
     Reason                                                                                                                     
        · Clarifies who contributes                                                                                             
        · Section (e) required by IRS                                                                                           
                                                                                                                                
Ms.  Millhorn  noted that  the  TRS  Plan  also employs  a  joint                                                               
contribution  methodology.  This  bill would  clarify  that  both                                                               
employees  and employers  submit mandatory  contributions to  the                                                               
PERS Plan. This bill would  also provide that upon termination of                                                               
the plan,  if all  liabilities of the  plan have  been satisfied,                                                               
any excess  assets revert to  the employers as determined  by the                                                               
administrator,  subject  to  approval  by  the  federal  Internal                                                               
Revenue Service (IRS). Termination  occurs when a member employer                                                               
opts to discontinue participation in the plan.                                                                                  
                                                                                                                                
9:15:23 AM                                                                                                                    
                                                                                                                                
     Page 5                                                                                                                     
     Establishes Cost-Share Plan                                                                                                
     Section 5 - AS 39.35.255                                                                                                   
        · Defines required employer contribution rate                                                                           
        · Defines how rate is applied                                                                                           
        · Specifies minimum contribution rate                                                                                   
        · Sets timing for contribution payment                                                                                  
       · Defines contribution level for rehired retirees                                                                        
        · Defines normal cost and past service rates                                                                            
     Section 19                                                                                                                 
        · Cost-share effective date July 1, 2007                                                                                
                                                                                                                                
Ms.  Millhorn  explained  that employers  would  be  required  to                                                               
contribute to the  plan an amount representing  the employer rate                                                               
as approved by the Alaska  Retirement Management Board (ARM). The                                                               
employer  rate is  calculated as  the normal  cost rate  plus the                                                               
past service  rate. The  rate would  be applied  to the  total of                                                               
"all PERS  salaries" for  the employees  that participate  in the                                                               
system. The employer  rate could be no less than  the normal cost                                                               
rate,  a  requirement established  with  the  passage of  SB  141                                                               
relating  to  changes  to  the  retirement  system  by  the  24th                                                               
Legislature.  Contributions must  be remitted  within 15  days of                                                               
the close of  the employer's pay period, under  the provisions of                                                               
this bill. Past service contributions  for retirees rehired under                                                               
the Retiree Return  Program would be paid at the  same level that                                                               
the employer is paying for  active employees. Language in current                                                               
statute  for  past  service  rate   is  based  on  an  individual                                                               
employer; new  language for  past service  rate would  align with                                                               
cost share plan design, which  would be "uniformly determined for                                                               
all employers and applicable to each employer."                                                                                 
                                                                                                                                
9:16:50 AM                                                                                                                    
                                                                                                                                
     Page 6                                                                                                                     
     Section 6 - AS 39.35.260                                                                                                   
        · Requires rate to be calculated annually                                                                               
        · Requires participating employers to budget for                                                                        
          contributions                                                                                                         
                                                                                                                                
Ms.  Millhorn   informed  that  this  would   change  the  annual                                                               
calculation of  the employer rate  from a separate  employer rate                                                               
to one uniform employer rate.                                                                                                   
                                                                                                                                
9:17:19 AM                                                                                                                    
                                                                                                                                
     Page 7                                                                                                                     
     Section 7 - AS 39.35.260                                                                                                   
        · Adds subsection (b)                                                                                                   
             o Assigns 65% of unfunded liability to state at                                                                    
               6/30/2006                                                                                                        
             o Remaining 35% of unfunded liability to other PERS                                                                
               employers                                                                                                        
             o Stipulates rate conditions                                                                                       
                                                                                                                                
Ms. Millhorn  outlined this information.  The State's  portion of                                                               
the unfunded liability of $5.5  billion would be $3.6 billion and                                                               
the remaining employers' portion would be $1.9 billion.                                                                         
                                                                                                                                
Ms. Millhorn  remarked, "Once the  rate for the State  of Alaska,                                                               
as calculated in this subsection,  is within one percentage point                                                               
of the  rate for all  other PERS  employers, a separate  rate for                                                               
the State" would no longer be calculated.                                                                                       
                                                                                                                                
9:18:19 AM                                                                                                                    
                                                                                                                                
     Page 8                                                                                                                     
     Section 9 - AS 39.35.610(b)                                                                                                
        o Provides for intercept in event employer does not make                                                                
          timely contributions                                                                                                  
                                                                                                                                
Ms. Millhorn  pointed out this  language would add a  new section                                                               
to statute. It would allow the  administrator of the PERS Plan to                                                               
"intercept the amount  of contributions and interest  due from an                                                               
employer"  in the  event that  an employer  fails to  make timely                                                               
payment contributions.  It would also allow  the administrator to                                                               
claim delinquent  contributions and interest "from  any agency of                                                               
the  State  or  political  subdivision  that  has  funds  in  its                                                               
possession  of the  employer that  are to  be distributed  to the                                                               
employer that are  not restricted by statute  or appropriation to                                                               
a specific purpose."  This would provide a  method for collection                                                               
of  overdue  contributions  and   to  prevent  one  employer  "in                                                               
default"  from  adversely  affecting  the  rate  "shared  by  all                                                               
employers in the plan."                                                                                                         
                                                                                                                                
9:18:56 AM                                                                                                                    
                                                                                                                                
     Page 9                                                                                                                     
     Section 10 - AS 39.35.615                                                                                                  
        o Addresses voluntary termination provisions and allows                                                                 
          employer to terminate from plan                                                                                       
        o Prevents amendments to participation agreement under                                                                  
          cost-share design                                                                                                     
                                                                                                                                
Ms.  Millhorn  stated  that  two sections  of  the  bill  address                                                               
termination. Section  10 would allow  an employer  to voluntarily                                                               
terminate from  the plan. It  would also "remove the  ability" of                                                               
an  employer  to amend  its  participation  agreement. Under  the                                                               
current plan, an  individual employer funds any  related costs as                                                               
a result  of amendments to its  participation agreement. However,                                                               
with  a cost  share plan,  amendments  by one  employer have  the                                                               
potential   to  create   liability  to   all  of   the  employers                                                               
participating in the plan.                                                                                                      
                                                                                                                                
9:20:09 AM                                                                                                                    
                                                                                                                                
     Page 10                                                                                                                    
     Section 11 - AS 39.35.615(g)                                                                                               
        o Sets timeframe for termination cost payment                                                                           
             o Payment plan or lump sum                                                                                         
        o Allows for intercept of funds                                                                                         
        o Provides for refund of excess assets, if any                                                                          
        o Allows for employer to join DCR [Defined Contribution]                                                                
          Plan if termination cost paid in full                                                                                 
     Section 11 - AS 39.35.615(h)                                                                                               
        o Requires employer pay termination costs                                                                               
                                                                                                                                
Ms.  Millhorn explained  that these  provisions would  require an                                                               
employer terminating from  the plan to pay  the termination costs                                                               
within  60  days of  their  assessment.  This  could be  paid  in                                                               
increments or in  full, and funds allocated to  the employer from                                                               
other  State  agencies  could be  "intercepted"  as  payment  for                                                               
delinquent termination  costs. Refund  of excess assets  would be                                                               
made  to the  employer  if those  assets  exceed the  termination                                                               
costs  and if  in compliance  with IRS  regulations. An  employer                                                               
could rejoin  the plan  at a future  date once  termination costs                                                               
were paid in full.                                                                                                              
                                                                                                                                
9:20:25 AM                                                                                                                    
                                                                                                                                
     Page 11                                                                                                                    
     Section 12 - AS 39.35.620(i)                                                                                               
        o Sets timeframe for involuntary termination cost                                                                       
          payment                                                                                                               
             o Payment plan or Lump sum                                                                                         
        o Allows for intercept of funds                                                                                         
        o Provides for refund of excess assets, if any                                                                          
        o Allows for employer to join DCR Plan if paid in full                                                                  
     Section 12 - AS 39.35.620(j)                                                                                               
        o Requires employers under involuntary termination to                                                                   
          pay termination costs                                                                                                 
                                                                                                                                
Ms.  Millhorn  announced  that this  pertains  to  an  employer's                                                               
involuntary termination  from the plan and  because she described                                                               
the provisions  of Sections 10 and  11, she would not  repeat the                                                               
same information.                                                                                                               
                                                                                                                                
9:21:32 AM                                                                                                                    
                                                                                                                                
     Page 12                                                                                                                    
     Section 13 - AS 39.35.650                                                                                                  
        o Clarifies employer refund conditions                                                                                  
             o Plan's termination                                                                                               
             o Employer's    termination,   if    assets   exceed                                                               
               liabilities                                                                                                      
     Reason                                                                                                                     
        o Clarification of statute                                                                                              
             o Codify existing practice                                                                                         
        o Comply with IRS Code                                                                                                  
                                                                                                                                
Ms. Millhorn noted the refund could only be made if the assets                                                                  
exceed liabilities at the time of termination.                                                                                  
                                                                                                                                
9:22:26 AM                                                                                                                    
                                                                                                                                
     Page 13                                                                                                                    
     Section 15                                                                                                                 
        o Transition                                                                                                            
             o Provides for notification to employer of employee                                                                
               groups covered under participation agreement                                                                     
                  Æ’90-day time limit for amendments                                                                            
             o Past service credit not allowed during transition                                                                
     Section 18                                                                                                                 
        o Immediate effective date for employer notification                                                                    
                                                                                                                                
Ms.  Millhorn explained  that Section  15 would  provide for  the                                                               
administrator  to notify  every employer  in the  defined benefit                                                               
plan  of the  departments,  groups, or  other classifications  of                                                               
employees   the   employer    currently   covered   under   their                                                               
participation  agreement.  Employers  would  have  90  days  from                                                               
receipt  of the  notification to  request an  amendment to  their                                                               
participation to  either add or  delete covered groups.  Once the                                                               
90 days  elapsed, employers would  no longer be allowed  to amend                                                               
their agreement in this manner.                                                                                                 
                                                                                                                                
9:23:56 AM                                                                                                                    
                                                                                                                                
     Page 14                                                                                                                    
     Section 16                                                                                                                 
        o Transition                                                                                                            
             o Provides for adoption of regulations                                                                             
     Section 18                                                                                                                 
        o Immediate effective date to promulgate                                                                                
     Section 17                                                                                                                 
        o Reviser's Instructions                                                                                                
             o Change headings                                                                                                  
                  Æ’AS 39.35.615 (voluntary termination)                                                                        
                  Æ’AS 39.35.620 (involuntary termination)                                                                      
                                                                                                                                
Ms. Millhorn outlined these provisions.                                                                                         
                                                                                                                                
9:24:33 AM                                                                                                                    
                                                                                                                                
     Page 15                                                                                                                    
     Cost-Share Legislation                                                                                                     
        o Redesign PERS, DB plan - align with TRS                                                                               
             o All   employers   share    cost/income   of   plan                                                               
               (benefits, administration, investment)                                                                           
             o Uniform, less volatile, contribution rate                                                                        
             o Resolves accounting issues                                                                                       
        o ARMB supports concept - Resolution 2007-04                                                                            
        o AML [Alaska Municipal League] supports concept                                                                        
        o Plan administration simplified                                                                                        
        o Introduced by Governor as proposed solution                                                                           
                                                                                                                                
Ms. Millhorn read  this information to "summarize  and recap" the                                                               
presentation.                                                                                                                   
                                                                                                                                
9:25:38 AM                                                                                                                    
                                                                                                                                
Commissioner Kreitzer testified from her written notes as                                                                       
follows.                                                                                                                        
                                                                                                                                
     For  the last  two years  and  coming into  this year,  rate                                                               
     relief  for  PERS/TRS employers  has  been  a focus  of  the                                                               
     Legislature.   With the introduction  of SB 125, we  hope to                                                               
     broaden the discussion to include other options.                                                                           
                                                                                                                                
     At  a  minimum, the  cost-share  bill  does the  things  Ms.                                                               
     Millhorn outlined for you in her presentation:                                                                             
                                                                                                                                
     It resolves  the issue of  separate accounting  for employer                                                               
     contributions;  It will  address the  issue that  was raised                                                               
     about members who  work for more than one  employer and have                                                               
     liabilities  assigned to  the different  employers based  on                                                               
     service and  not on salary  - employers do not  believe this                                                               
     is  equitable.    This  will  no  longer  be  a  concern  by                                                               
     implementing a cost-share plan.                                                                                            
                                                                                                                                
     There  are   some  pieces  of   this  bill  that   could  be                                                               
     contentious.                                                                                                               
                                                                                                                                
        · The bill as written, requires municipalities to choose                                                                
          employees to  be covered in  the plan.    They  have 90                                                               
          days from the  effective date of this bill  to do that.                                                               
          It  removes some  of the  flexibility  they now  enjoy.                                                               
          But, like TRS, a PERS  cost-share plan means that costs                                                               
          are  shared among  employers and  we've tried  to level                                                               
          the playing field for all municipalities.                                                                             
        · Unlike the Alaska Municipal League plan - which                                                                       
          advocated  the  State  pick  up  85%  of  the  unfunded                                                               
          liability;  or HB179,  which advocates  an 80/20  split                                                               
          and  a 5%  employee  contribution; SB  125 is  Governor                                                               
          Palin's discussion  document for  looking at  the whole                                                               
          picture of  PERS/TRS funding.   Moving to a  PERS cost-                                                               
          share plan allows all employers  to pay one rate, which                                                               
          encompasses   35%   of   the  $5.5   billion   unfunded                                                               
          liability.   That will  bring rates  down, and  it will                                                               
          save local governments money in their FY08 budgets.                                                                   
        · If a local government abdicates its responsibility to                                                                 
          pay its  costs, SB  125 allows  the State  to intercept                                                               
          any State  funds bound  for that  community.   This may                                                               
          sound drastic, but as the ultimate deep pocket, the                                                                   
          State should have the flexibility to use this tool if                                                                 
          it fits the situation.                                                                                                
        · Making a local government pay for a termination study                                                                 
          will save the plan from folks who just want us to run                                                                 
          numbers.  Every time we do that, everyone else in the                                                                 
          plan pays for it.  We raise it here as a policy issue.                                                                
                                                                                                                                
     That's all that's  in the bill, but as I  said the last time                                                               
     I was here before you, we've  tried to look at the situation                                                               
     holistically.   Instead of  rate relief  every year,  can we                                                               
     take a longer  range view, still impact the  State and local                                                               
     governments' FY08  budgets in a  positive way, and  pay down                                                               
     the unfunded liability so it doesn't continue to grow?                                                                     
                                                                                                                                
     You'll  have the  technical fix  bill  before you  tomorrow,                                                               
     which allows  us to calculate  the employer rate  across the                                                               
     entire wage  base.  That  change won't have much  impact for                                                               
     several  years,  until  there  are  more  employees  in  the                                                               
     defined contribution plan - but,  it will help keep the rate                                                               
     lower.   Employers will contribute  the same; the  rate will                                                               
     simply appear lower.                                                                                                       
                                                                                                                                
     So let's talk about what happens if the State:                                                                             
                                                                                                                                
        o adopts this cost-share plan,                                                                                          
        o is allocated 65% of the unfunded liability,                                                                           
        o holds harmless employers who would in FY08 have to pay                                                                
          more,                                                                                                                 
        o and if the State were to pay down 30% of the unfunded                                                                 
          liability through pension obligation bonds                                                                            
                                                                                                                                
     In addition:                                                                                                               
        o the State puts $500.0 million toward extinguishing the                                                                
          TRS liability and takes the risk for $2.0 billion in                                                                  
          pension obligation bonds.                                                                                             
                                                                                                                                
9:30:02 AM                                                                                                                    
                                                                                                                                
Commissioner Kreitzer  overviewed "Cost Share Exhibits"  [copy on                                                               
file.] She intended to demonstrate  to the Committee the "thought                                                               
process" in  developing this legislation. As  concerns and issues                                                               
were  raised, the  Committee could  understand  how the  proposed                                                               
plan was reached.                                                                                                               
                                                                                                                                
     Exhibit 1                                                                                                                  
     Estimated PERS Contributions                                                                                               
          Level $ Amortization - Change to Cost Share-                                                                          
          Before 65/35 and POBs                                                                                                 
          Winners and Losers - FY 08 Base                                                                                       
     [Five page spreadsheet  listing every participating employer                                                               
     and corresponding  figures for  Gross Salaries  Estimated FY                                                               
     08 (FY  07 gross  salaries plus 3%);  FY 08  Board Requested                                                               
     Rate; FY 08 Estimated  Contribution-Original; Average Rate -                                                               
     05  valuation with  level $  amortization;  FY 08  Estimated                                                               
     Contribution - Straight  Cost Share; Loser FY  08 cost share                                                               
     >  FY 08  original; and  Winner  FY 08  cost share  < FY  08                                                               
     original.]                                                                                                                 
                                                                                                                                
Commissioner Kreitzer  reported that  if the PERS  plan converted                                                               
to a "pure" cost share plan  in which the State and all employers                                                               
paid  the  same  percentage  in contributions,  the  State  would                                                               
"save" $36 million, $25 million  of which would be general funds.                                                               
However,   such   savings   would  cost   all   other   employers                                                               
approximately  $52 million.  She  did not  anticipate this  would                                                               
receive   popular  support.   The  contribution   rate  for   all                                                               
employers, including the State, would be 39.76 percent.                                                                         
                                                                                                                                
9:31:02 AM                                                                                                                    
                                                                                                                                
     Exhibit 2a                                                                                                                 
     Estimated PERS Contributions                                                                                               
          Level $ Amortization- Cost Share 65% SOA- $1.7B in POB                                                                
          Winners FY 08 Base                                                                                                    
     [Two   page  spreadsheet   listing  those   employers  whose                                                               
     contribution rates would  decrease from the FY  08 ARM Board                                                               
     Requested   Rate.  Information   for  each   includes  Gross                                                               
     Salaries Estimated FY 08 (FY  07 gross salaries plus 3%); FY                                                               
     08 Estimated  Contribution; Average Rate (FY  05 valuation);                                                               
     Cost Share Contributions in FY 08;  and Winners - FY 08 cost                                                               
     share < original FY 08.]                                                                                                   
                                                                                                                                
Commissioner  Kreitzer stated  that this  spreadsheet shows  "who                                                               
the  winners would  be"  under the  proposed  cost-share plan  in                                                               
which  the  State  accepts  65  percent  of  the  liability.  The                                                               
contribution rate requested by the  ARM Board for these employers                                                               
would be higher  than the Average Rate of  31.86 percent proposed                                                               
for FY 08 in the cost share legislation.                                                                                        
                                                                                                                                
9:31:36 AM                                                                                                                    
                                                                                                                                
     Exhibit 2b                                                                                                                 
     Estimated PERS Contributions                                                                                               
          Level $ Amortization- Cost Share 65% SOA- $1.7B in POB                                                                
          Losers FY 08 Base                                                                                                     
     [Three  page  spreadsheet   listing  those  employers  whose                                                               
     contribution  rates  would  increase. Information  for  each                                                               
     includes  Gross  Salaries  Estimated  FY  08  (FY  07  gross                                                               
     salaries  plus 3%);  FY 08  Estimated Contribution;  Average                                                               
     Rate (FY 05  valuation); Cost Share Contributions  in FY 08;                                                               
     and Losers - FY 08 cost share > original FY 08.]                                                                           
                                                                                                                                
Commissioner  Kreitzer  explained  this spreadsheet  shows  those                                                               
employers  with ARM  Board requested  rates  for FY  08 that  are                                                               
lower than the  proposed Average Rate. The rate for  the State of                                                               
Alaska would increase  from 44.01 percent to  47.92 percent under                                                               
the provision in  which the State would accept 65  percent of the                                                               
liability.                                                                                                                      
                                                                                                                                
9:31:54 AM                                                                                                                    
                                                                                                                                
     Exhibit 3                                                                                                                  
     Estimated PERS Contributions                                                                                               
          Level $ Amortization-Cost Share-65% SOA-$1.7B in POB                                                                  
          Winners/Losers FY 07 as Base                                                                                          
          Hold Harmless                                                                                                         
          Listing includes political subdivisions and school                                                                    
          districts that have received rate relief in the past.                                                                 
     [Four page spreadsheet  listing employers whose contribution                                                               
     rates  would  increase  from  their   FY  07  rate  and  the                                                               
     corresponding figures  for Gross  Salaries, Estimated  FY 07                                                               
     (FY  06 plus  3%); Gross  Salaries, Estimated  FY 08  (FY 07                                                               
     plus  3%); FY  07 Adjusted  Contribution Rate;  FY 08  Board                                                               
     Requested Rate;  Average Rate (FY 05  valuation); Cost Share                                                               
     Contributions in  FY 08; Losers  FY 08  cost share >  FY 07;                                                               
     Winners FY  08 cost share  < FY 07.  The State of  Alaska is                                                               
     not   included  in   this  list,   nor  are   several  other                                                               
     employers.]                                                                                                                
                                                                                                                                
Commissioner  Kreitzer directed  attention  to  the total  amount                                                               
listed  in  the  Losers  column  of $82  million,  which  is  the                                                               
increase  from FY  07 to  FY 08  for all  employers. This  amount                                                               
would be necessary to hold harmless the employers.                                                                              
                                                                                                                                
9:32:29 AM                                                                                                                    
                                                                                                                                
     Exhibit 4                                                                                                                  
     [Spreadsheet containing the following information with                                                                     
     dollars listed in millions:                                                                                                
     PERS                                                                                                                       
         Contributions estimated in FY 07 (all sources)                                                                         
                                                       $354.8                                                                   
          FY 08 Legislation and operating budget                                                                                
            SB 52/HB 97 Education Bill                                                                                          
               Rate relief for school districts                                                                                 
               PERS/TRS contributions                  $ 37.0 GF                                                                
            SB 50/HB 95 Budget Bill                                                                                             
               PERS Municipal and Political Sub Division                                                                        
               Rate relief                             $ 77.5 GF                                                                
                    Governor's Budget Amendments                                                                                
            PERS Payroll Base Correction (line 25)     $  0.6 GF                                                                
            PERS Non-School Dist. ER rate increase                                                                              
               Relief (line 26)                        $  0.2 GF                                                                
            PERS School Dist. Payroll Base Correction                                                                           
               (line 27)                               $  0.1 GF                                                                
            SOA and University PERS increase                                                                                    
               (In operating budget for executive                                                                               
               and legislative branches)               $163.8 GF                                                                
          Total Increase in FY 08 Governor's Budget    $279.1 GF                                                                
          Non-GF increases - Governor's Budget         $ 62.0                                                                   
          Non-GF increases for other employers         $  2.1                                                                   
          PERS/TRS Estimated Costs (all sources)       $698.1                                                                   
     TRS                                                                                                                        
         Contributions estimated in FY 07 (all sources)                                                                         
                                                       $164.3                                                                   
          FY 08 Legislation and operating budget                                                                                
            SB 52/HB 97 Education Bill                                                                                          
               Rate relief for school districts                                                                                 
               PERS/TRS contributions                  $170.5 GF                                                                
            TRS Non-School Dist ER rate increase                                                                                
               Relief (line 29)                        $  0.5 GF                                                                
            TRS School Dist. Payroll Base Correction                                                                            
               (line 28)                               $  1.7 GF                                                                
            Transfer TRS increase funding from                                                                                  
               agencies to TRS DB plan:                                                                                         
               Education and Early Development                                                                                  
                 (line 22 and 30)                      $  1.0 GF                                                                
               Labor and Workforce Development                                                                                  
                 (line 23)                             $  0.4 GF                                                                
               University of Alaska (line 24)          $ 13.3 GF                                                                
          Total Increase in FY 08 Governor's Budget    $187.4 GF                                                                
          PERS/TRS Estimated Costs (all sources)       $351.7                                                                   
          CSHB 97 amend TRS rate to normal cost                                                                                 
            Not reflected in operating budget          $ 78.0 GF                                                                
                                                                                                                                
Commissioner Kreitzer  shared that  this exhibit was  intended to                                                               
show "what everybody  is paying". Most discussion  would focus on                                                               
how  the  cost share  plan  proposed  in this  legislation  would                                                               
affect budgets.                                                                                                                 
                                                                                                                                
9:33:17 AM                                                                                                                    
                                                                                                                                
Co-Chair Stedman  interrupted to request more  detail be provided                                                               
on the aforementioned and forthcoming exhibits.                                                                                 
                                                                                                                                
9:34:01 AM                                                                                                                    
                                                                                                                                
     Exhibit 1                                                                                                                  
                                                                                                                                
Commissioner  Kreitzer further  explained  this spreadsheet.  She                                                               
noted the  FY 08  Board Requested  rate for  the State  of Alaska                                                               
would  be  44.01  percent  and the  contribution  would  be  $373                                                               
million.  If   a  pure   cost  share   plan  were   adopted,  the                                                               
contribution rate  for all employers  would be 39.76  percent and                                                               
the  contribution amount  for the  State would  be $337  million,                                                               
saving $36 million. This data is listed for each employer.                                                                      
                                                                                                                                
9:34:49 AM                                                                                                                    
                                                                                                                                
Co-Chair  Stedman asked  if the  contribution rates  include both                                                               
normal  costs and  past service  costs. He  noted that  the gross                                                               
salary calculation for  FY 08 was a three percent  increase to FY                                                               
07 gross salary.                                                                                                                
                                                                                                                                
9:35:14 AM                                                                                                                    
                                                                                                                                
Commissioner Kreitzer deferred to Ms. Millhorn.                                                                                 
                                                                                                                                
9:35:25 AM                                                                                                                    
                                                                                                                                
Ms. Millhorn  explained that the  normal cost, which  pertains to                                                               
the current expense, "in this  particular case" is 14.48 percent.                                                               
This is a  consolidated normal cost for all  PERS employers. Many                                                               
of the  FY 08 ARM Board  requested rates are higher  because past                                                               
service costs are  included. Past service costs are  the costs of                                                               
the unfunded liability.  The requested rate of  44.01 percent for                                                               
the  State of  Alaska is  comprised  of 14.48  percent in  normal                                                               
costs and the remainder in  past service costs. Past service cost                                                               
is the  unfunded liability  amortized over  25 years.  The normal                                                               
cost rate  of 14.48  percent could be  subtracted from  the Board                                                               
requested rate  for each employer  to determine its  past service                                                               
cost.                                                                                                                           
                                                                                                                                
9:36:25 AM                                                                                                                    
                                                                                                                                
Co-Chair Stedman  understood that the contribution  rate would be                                                               
14.48 percent for those employers with no unfunded liability.                                                                   
                                                                                                                                
Ms. Millhorn affirmed.                                                                                                          
                                                                                                                                
9:36:49 AM                                                                                                                    
                                                                                                                                
Senator  Huggins  deduced  that  those employers  listed  on  the                                                               
spreadsheet with a  Board requested rate of 14.48  percent had no                                                               
past service cost.                                                                                                              
                                                                                                                                
9:37:06 AM                                                                                                                    
                                                                                                                                
Ms. Millhorn clarified  that a provision included  in the changes                                                               
to  the  retirement  system  enacted  through  SB  144  in  2005,                                                               
established   a  "floor"   that   would   not  allow   employers'                                                               
contribution rates be  less than the normal  cost. Therefore, the                                                               
actual normal  cost for some  employers could be less  than 14.48                                                               
percent.                                                                                                                        
                                                                                                                                
9:37:39 AM                                                                                                                    
                                                                                                                                
Co-Chair  Stedman  pointed  out  that  several  employers  had  a                                                               
surplus and that  those were mainly smaller  communities, such as                                                               
the  City of  Koyuk. He  requested a  listing of  all communities                                                               
with a surplus.  The Committee would later  discuss debt dilution                                                               
and consideration  for those communities with  any surplus versus                                                               
those with significant surplus.                                                                                                 
                                                                                                                                
9:39:38 AM                                                                                                                    
                                                                                                                                
Co-Chair Hoffman understood that  the Alaska Municipal League had                                                               
supported  the concept  of a  cost share  plan. He  asked if  the                                                               
Administration intended  to present  the details of  the proposal                                                               
contained in this  bill to the League and whether  input would be                                                               
considered.                                                                                                                     
                                                                                                                                
9:40:04 AM                                                                                                                    
                                                                                                                                
Commissioner Kreitzer  answered that  yes, the proposal  would be                                                               
detailed to the  League. She acknowledged that  not all employers                                                               
would support the plan.                                                                                                         
                                                                                                                                
9:40:28 AM                                                                                                                    
                                                                                                                                
Co-Chair Hoffman  commented that the  number of "losers"  is more                                                               
than  the number  of "winners".  He anticipated  the position  of                                                               
support could change.                                                                                                           
                                                                                                                                
9:40:42 AM                                                                                                                    
                                                                                                                                
Commissioner Kreitzer responded that,  as demonstrated in Exhibit                                                               
3, some of the  employers could be "made whole" at  a cost to the                                                               
State  of $82  million.  She  compared this  amount  to the  $115                                                               
million proposed  for rate  relief currently  under consideration                                                               
in the FY 08 budget.                                                                                                            
                                                                                                                                
9:41:01 AM                                                                                                                    
                                                                                                                                
Co-Chair  Hoffman  agreed, but  countered  that  the $82  million                                                               
appropriation is only proposed for one year in this legislation.                                                                
                                                                                                                                
9:41:13 AM                                                                                                                    
                                                                                                                                
Commissioner  Kreitzer  informed  that   she  had  requested  the                                                               
Division of Retirement and Benefits  to develop a plan to address                                                               
the "out years".                                                                                                                
                                                                                                                                
9:41:29 AM                                                                                                                    
                                                                                                                                
Ms. Millhorn continued outlining  Exhibit 1, explaining the Gross                                                               
Salary  estimate  for FY  08.  The  FY  08 Board  Requested  Rate                                                               
includes the  "level dollar amortization"  and is applied  to the                                                               
Gross  Salary  estimate  to  determine  the  FY  08  contribution                                                               
amount.                                                                                                                         
                                                                                                                                
9:42:31 AM                                                                                                                    
                                                                                                                                
Ms. Millhorn stated  that the consolidated cost rate  for all 186                                                               
employers would be 39.76 percent  under a pure cost share system.                                                               
Those amounts  are listed for  each employer in the  next column.                                                               
The last two  columns list the increase  or decrease respectively                                                               
of each employer's contribution.                                                                                                
                                                                                                                                
9:43:16 AM                                                                                                                    
                                                                                                                                
Co-Chair Stedman  remarked that the  decreased amounts are  not a                                                               
savings on  the liability, but  rather is a "budgetary  issue" in                                                               
which the  "cash flow call on  the general fund" is  reduced. The                                                               
liability would remain.                                                                                                         
                                                                                                                                
9:43:39 AM                                                                                                                    
                                                                                                                                
Ms.  Millhorn   affirmed  that  the  pure   cost  share  scenario                                                               
reflected  in   this  exhibit  would  not   change  the  unfunded                                                               
liability.                                                                                                                      
                                                                                                                                
9:44:00 AM                                                                                                                    
                                                                                                                                
Commissioner Kreitzer noted  that $25 million of  the $36 million                                                               
State of Alaska  "savings" is general fund.  This proposal should                                                               
be   presented  "holistically"   because  it   involves  multiple                                                               
aspects.                                                                                                                        
                                                                                                                                
9:44:28 AM                                                                                                                    
                                                                                                                                
Co-Chair Hoffman  asked whether  the employee  contribution rates                                                               
would  increase,  as  they  would  benefit  from  the  retirement                                                               
system.                                                                                                                         
                                                                                                                                
9:44:55 AM                                                                                                                    
                                                                                                                                
Ms. Millhorn  responded that the contribution  rate for employees                                                               
would remain  unchanged. These rates  are established  in statute                                                               
as 7.75  percent for  most public employees  and 7.5  percent for                                                               
peace officers.                                                                                                                 
                                                                                                                                
9:45:18 AM                                                                                                                    
                                                                                                                                
Co-Chair Hoffman asked whether  the Administration had determined                                                               
that employees should not contribute to the increases.                                                                          
                                                                                                                                
9:45:40 AM                                                                                                                    
                                                                                                                                
Ms.  Millhorn explained  that the  Alaska Constitution  prohibits                                                               
increases to existing employee contribution rates.                                                                              
                                                                                                                                
9:46:13 AM                                                                                                                    
                                                                                                                                
Senator Elton asked the number  of State and University of Alaska                                                               
employees in comparison to employees of other members.                                                                          
                                                                                                                                
9:46:34 AM                                                                                                                    
                                                                                                                                
Ms.  Millhorn reported  33,000  active  employees were  currently                                                               
enrolled  in  PERS,  with approximately  14,500  of  those  State                                                               
employees. She  did not know  the number of  University employees                                                               
enrolled in PERS.                                                                                                               
                                                                                                                                
9:46:58 AM                                                                                                                    
                                                                                                                                
Co-Chair  Stedman  requested  a   table  categorizing  State  and                                                               
University employees  and employees  of other  members delineated                                                               
by headcount and by liability.                                                                                                  
                                                                                                                                
9:48:16 AM                                                                                                                    
                                                                                                                                
     Exhibits 2a and 2b                                                                                                         
                                                                                                                                
Commissioner  Kreitzer stated  that these  spreadsheets show  the                                                               
impact of the  cost sharing method and the  proposed pension bond                                                               
issuance for each employer. These  figures are not intended to be                                                               
exact, but rather provide a generalized overview.                                                                               
                                                                                                                                
9:51:14 AM                                                                                                                    
                                                                                                                                
     Exhibit 3                                                                                                                  
                                                                                                                                
Commissioner  Kreitzer noted  that this  spreadsheet follows  the                                                               
same format as  the previous exhibits with the  exception that it                                                               
compares FY 07 to the proposal for FY 08.                                                                                       
                                                                                                                                
9:52:24 AM                                                                                                                    
                                                                                                                                
Co-Chair Stedman  ordered the matter of  pension obligation bonds                                                               
be deferred for possible consideration as separate legislation.                                                                 
                                                                                                                                
9:53:09 AM                                                                                                                    
                                                                                                                                
Commissioner  Kreitzer referenced  the fourth  and final  page of                                                               
Exhibit 3, which  lists the total increases between FY  07 and FY                                                               
08.                                                                                                                             
                                                                                                                                
9:53:50 AM                                                                                                                    
                                                                                                                                
     Exhibit 4                                                                                                                  
                                                                                                                                
Commissioner Kreitzer  shared that this information  was intended                                                               
to  assist in  facilitating  discussions on  proposed changes  in                                                               
relation  to the  current status  of the  FY 08  operating budget                                                               
legislation. The  Department was  "still trying  to get  a better                                                               
figure" of the impact to the  State and this table identifies the                                                               
general fund costs. The information  would continue to be updated                                                               
to include all  costs plus any additional items  requested by the                                                               
Committee.                                                                                                                      
                                                                                                                                
Commissioner Kreitzer detailed the information on Exhibit 4.                                                                    
                                                                                                                                
9:58:01 AM                                                                                                                    
                                                                                                                                
Commissioner  Kreitzer qualified  that  as  this information  was                                                               
being prepared, the House Finance  Committee proposed a change to                                                               
the TRS normal cost rate and thus the notation on the table.                                                                    
                                                                                                                                
9:58:24 AM                                                                                                                    
                                                                                                                                
     Exhibit 5a                                                                                                                 
     PERS Cost Share                                                                                                            
     2005 Valuation Rate - Level Dollar Amortization                                                                            
     SOA takes 65% of 6/30/2005  Unfunded and issues $1.7 billion                                                               
     in POBs                                                                                                                    
     [Spreadsheet   and  flowchart   combination  detailing   the                                                               
     Increase of  FY 08 contribution  amounts per ARMB  set rates                                                               
     from FY  07 contribution  amounts per  ARMB set  rates; Cost                                                               
     Share-05 Valuation rate-SOA takes  65%-$1.7B POB, Cost Share                                                               
     contributions less original FY  08 contributions, and Relief                                                               
     to  Employers whose  cost share  rate (31.86%)>  orig FY  07                                                               
     rate   for   two   unspecified   categories   of   Political                                                               
     Subdivisions,   two   unspecified   categories   of   School                                                               
     Districts, SE  Regional Resource  Ctr and Spec  Educ Service                                                               
     Agency.  Also  detailed  are  Original,  Amend  and  Amended                                                               
     amounts  associated with  Legislation:  SB 50  - Poli  subs-                                                               
     Budget Bill,  and SB 52  Education Bill. Impact on  SOA from                                                               
     OMB (excluding University) is listed as Post vacancy for                                                                   
     General Fund, Fed, Other and Total Funding Source. These                                                                   
     figures are totaled as follows.                                                                                            
                                                                                                                                
     Relief to Employers whose cost share rate                                                                                  
       (31.86%)> orig FY 07 rate                    $82,233,141                                                                 
     GF increase over orig 08 budget (per OMB)       25,095,400                                                                 
          Rate from 44.01% to 47.92%                                                                                            
     GF savings for University in 08 (per OMB)       (2,542,600)                                                                
          Rate from 33.75% to 31.86%                                                                                            
     Total GF cost - revised                        104,785,941                                                                 
     GF in SB 52 and SB 50 amended                  115,409,583                                                                 
     GF added cost (savings) from proposal          (10,623,642)                                                                
                                                                                                                                
     A notation reads as follows.                                                                                               
     Assumptions:                                                                                                               
     PERS goes to a cost share                                                                                                  
     State picks up 65% of 6/30/2005 unfunded liability                                                                         
     $1.7 billion in POBs are issued 6/30/2007]                                                                                 
                                                                                                                                
Commissioner  Kreitzer detailed  this  information. She  remarked                                                               
that $150  million is  currently included in  the proposed  FY 08                                                               
operating budget for  "rate relief". Of that  amount, $78 million                                                               
is intended for political subdivisions  and would be appropriated                                                               
in SB 50 and the remaining  $38 million for school districts, the                                                               
Southeast  Regional  Resource  Center  (SERRC)  and  the  Special                                                               
Education Service Agency appropriated in SB 52.                                                                                 
                                                                                                                                
Commissioner Kreitzer  then addressed  the impacts  of transition                                                               
to  a  cost share  plan.  The  cost  share  utilizing the  FY  05                                                               
valuation  rate  with  the  State  assuming  65  percent  of  the                                                               
unfunded liability plus  the issuance of $1.7  billion in pension                                                               
obligation  bonds  for  political   subdivisions  would  be  $136                                                               
million  and $79  million  for school  districts,  SERRC and  the                                                               
Special Education Service Agency.  The cost share contribution in                                                               
the aforementioned  circumstance less  the currently  proposed FY                                                               
08 State rate  relief contributions would result in  a savings of                                                               
$23 million  for political subdivisions  and $10 million  for the                                                               
school district, SERRC and the Special Education Service Agency.                                                                
                                                                                                                                
Commissioner  Kreitzer continued  outlining the  cost to  provide                                                               
relief  to   those  employers  that   would  have   an  increased                                                               
contribution rate  under the cost  share plan. That  amount would                                                               
be  $54,816,392 for  political subdivisions  and $27,416,749  for                                                               
school  districts,  SERRC  and   the  Special  Education  Service                                                               
Agency.  The total  cost to  hold  harmless employers  for FY  08                                                               
would be $82,233,141 and is reflected  in Exhibit 3 on page 14 of                                                               
the handout.                                                                                                                    
                                                                                                                                
Commissioner  Kreitzer   subtracted  the  $150   million  already                                                               
included in  the proposed budget  for FY  08 from the  total hold                                                               
harmless cost to achieve a savings of $10 million.                                                                              
                                                                                                                                
Commissioner Kreitzer  clarified that these figures  only pertain                                                               
to the PERS system and do not include the TRS system.                                                                           
                                                                                                                                
10:01:40 AM                                                                                                                   
                                                                                                                                
     Exhibit 5b                                                                                                                 
     Estimated TRS Contributions With Level Dollar Amortization                                                                 
     $0.5 billion in cash, $2 billion in POBs                                                                                   
     [Spreadsheet listing  the school districts  that participate                                                               
     in TRS,  the Department of Education  and Early Development,                                                               
     SERRC,  the   Special  Education  Service  Agency   and  the                                                               
     University   of  Alaska   and   the   corresponding  FY   07                                                               
     Contribution  Rate,  FY  07 Estimated  Contribution,  FY  08                                                               
     Board Adopted  Rate, FY 08 Estimated  Contribution, Total FY                                                               
     08 increase over  FY 07, FY 08 Rate after  $0.5B deposit and                                                               
     $2B POB,  FY 08  Contributions after  $0.5B deposit  and $2B                                                               
     POB, and  FY 08  Contributions after  $0.5B deposit  and $2B                                                               
     POB in excess of original FY 08 Contribution.]                                                                             
                                                                                                                                
Commissioner  Kreitzer  reiterated   that  the  previous  exhibit                                                               
pertained  to  PERS.  This exhibit  demonstrates  the  impact  to                                                               
employers of a  $.5 billion State appropriation  and the issuance                                                               
of $2  billion in pension  obligation bonds specific to  TRS. She                                                               
understood this  is not  included in  the legislation  before the                                                               
Committee, but  that it demonstrates  the Administration  plan to                                                               
address retirement system funding issues.                                                                                       
                                                                                                                                
Commissioner  Kreitzer cautioned  that  pension obligation  bonds                                                               
"are not  without risk".  The most  important "selling  point" if                                                               
the legislature were to decide to  issue these bonds would be the                                                               
benefit to the  unfunded liability. The combined  savings of such                                                               
issuance over 25  years would total $4 billion for  both PERS and                                                               
TRS.                                                                                                                            
                                                                                                                                
10:03:29 AM                                                                                                                   
                                                                                                                                
Commissioner Kreitzer understood the difficulty in addressing                                                                   
future needs with a limited amount of funding available.                                                                        
                                                                                                                                
10:03:36 AM                                                                                                                   
                                                                                                                                
     Exhibit 7a                                                                                                                 
     State of Alaska                                                                                                            
     Public Employees' Retirement System                                                                                        
     Employers who used SB 46 Rate Relief to pay down unfunded                                                                  
     liability                                                                                                                  
     Fiscal Year 2006                                                                                                           
     [Table  listing  those  employers  that utilized  all  or  a                                                               
     portion  of  the State  allocation  intended  to offset  the                                                               
     contribution rate  increase for  the purpose of  paying down                                                               
     that  employers'  unfunded  liability.  The  amount  of  the                                                               
     appropriation  and  the  amount   applied  to  the  unfunded                                                               
     liability for each employer are listed as follows.                                                                         
          Aleutians East Borough                         $50,537                                                                
          Municipality of Anchorage                                                                                             
               Appropriation: $6,615,843                                                                                        
               Amount applied to unfunded liability:     748,094                                                                
          Bristol Bay Borough                             70,944                                                                
          City of Cordova                                  3,419                                                                
          Denali Borough                                  29,484                                                                
          City of Fairbanks                              305,784                                                                
          City of Galena                                  68,486                                                                
          City of Kachemak                                 3,068                                                                
          Ketchikan Gateway Borough                      206,307                                                                
          City of Ketchikan                              415,937                                                                
          City of Kodiak                                 293,700                                                                
          Kodiak Island Borough                          113,667                                                                
          Lake and Peninsula Borough                      32,811                                                                
          City of North Pole                             107,535                                                                
          City of Palmer                                 132,967                                                                
          City of Petersburg                             198,490                                                                
          City of Quinhagak                                1,552                                                                
          City of Seward                                 192,943                                                                
          City of Soldotna                               139,473                                                                
          City of Tanana                                  11,285                                                                
          City of Unalakleet                              13,698                                                                
          City of Valdez                                 255,619                                                                
          City and Borough of Yakutat                     22,773                                                                
               Total applied to unfunded liability    $3,517,055                                                                
     A notation reads as follows:                                                                                               
     In  FY   05  the  City   of  Soldotna  paid   an  additional                                                               
     contribution  of  $1  million  to PERS  to  pay  down  their                                                               
    unfunded liability. Payment was made on March 10, 2005.]                                                                    
                                                                                                                                
     Exhibit 7b                                                                                                                 
     State of Alaska                                                                                                            
     Public Employees' Retirement System                                                                                        
     Employers who used  SB 231 Rate Relief to  pay down unfunded                                                               
     liability                                                                                                                  
     Fiscal Year 2007                                                                                                           
     [Table  listing  those  employers  that utilized  all  or  a                                                               
     portion  of  the State  allocation  intended  to offset  the                                                               
     contribution rate  increase for  the purpose of  paying down                                                               
     that  employers'  unfunded  liability.  The  amount  of  the                                                               
     appropriation  and  the  amount   applied  to  the  unfunded                                                               
     liability for each employer are listed as follows.                                                                         
          Aleutians East Borough                         $33,915                                                                
          City of Bethel                                                                                                        
               Appropriation: $282,716                                                                                          
               Amount applied to unfunded liability:     275,716                                                                
          City of Cordova                                112,553                                                                
          City of Egegik                                   2,830                                                                
          City of Fairbanks                              333,653                                                                
          City of Huslia                                   5,215                                                                
          Kenai Peninsula Borough                        702,515                                                                
          City of Ketchikan                              400,460                                                                
          Kodiak Island Borough                          118,047                                                                
          City of Kodiak                                 314,368                                                                
          City of Palmer                                 154,333                                                                
          City of Petersburg                             206,671                                                                
          City of Saxman                                   5,637                                                                
          City of Seward                                 186,026                                                                
          City of Soldotna                               136,756                                                                
               Total applied to unfunded liability    $2,988,695                                                                
     A notation reads as follows.                                                                                               
     The following employers have not  used their relief balances                                                               
     or  requested  it  be  used   to  pay  down  their  unfunded                                                               
     liability. Any balance remaining at  6/30/07 will be used to                                                               
     pay  down  their  unfunded   liability.  The  Division  last                                                               
     reminded employers  of these balances  and their  options on                                                               
     2/20/07.                                                                                                                   
          City of Akutan                                 $16,941                                                                
          City of Allakaket                                3,056                                                                
          City of Atka                                     4,628                                                                
          City of Barrow                                  47,355                                                                
          Denali Borough                                   7,889                                                                
          City of Fort Yukon                              24,209                                                                
          City of Galena                                  69,984                                                                
          City of Homer                                  248,456                                                                
          City of Hoonah                                  35,299                                                                
          City of Hooper Bay                               1,576                                                                
          City of Kachemak                                 1,193                                                                
          City of Kaltag                                     870                                                                
          Ketchikan Gateway Borough                      214,696                                                                
          City of King Cove                               50,001                                                                
          City of Klawock                                 31,917                                                                
          City of Koyuk                                    1,664                                                                
          Lake and Peninsula Borough                      19,656                                                                
          City of Mountain Village                         1,786                                                                
          City of Nenana                                  12,244                                                                
          City of Noorvik                                 12,352                                                                
          Northwest Arctic Borough                        44,779                                                                
          City of Pelican                                  7,657                                                                
          City of Quinhagak                                1,920                                                                
          City of Saint Paul                              74,829                                                                
          City of Sand Point                              38,396                                                                
          City of Seldovia                                 2,405                                                                
          City of Skagway                                 89,301                                                                
          City of Tanana                                   7,302                                                                
          City of Thorne Bay                              10,435                                                                
          City of Unalakleet                              11,157                                                                
          City of Unalaska                               520,772                                                                
               Total                                  $1,640,725                                                                
     A notation reads as follows.                                                                                               
          All other employers who received rate relief are using                                                                
         that relief to offset required contributions.                                                                          
                                                                                                                                
Commissioner Kreitzer suggested that the Committee's discussions                                                                
could include consideration of these employers and the amount                                                                   
they would be required to contribute.                                                                                           
                                                                                                                                
10:04:11 AM                                                                                                                   
                                                                                                                                
Co-Chair Stedman requested further explanation of the two                                                                       
exhibits.                                                                                                                       
                                                                                                                                
10:04:18 AM                                                                                                                   
                                                                                                                                
Commissioner Kreitzer deferred to Ms. Millhorn.                                                                                 
                                                                                                                                
10:04:36 AM                                                                                                                   
                                                                                                                                
Ms. Millhorn stated that Exhibit 7a  is a list of those employers                                                               
that  specifically  applied  to  their portion  of  the  unfunded                                                               
liability,  the  five percent  rate  relief  appropriated to  all                                                               
employers in  FY 06.  She exclaimed, "They  are our  heroes." She                                                               
highlighted the City  of Soldotna that applied  their rate relief                                                               
appropriation plus an additional $1 million.                                                                                    
                                                                                                                                
10:05:39 AM                                                                                                                   
                                                                                                                                
Ms. Millhorn  then explained that  Exhibit 7b included a  list of                                                               
those  employers that  specifically  did  the same  in  FY 07.  A                                                               
second list  shows those  employers that  had not  specified that                                                               
their rate  relief appropriation be  applied to their  portion of                                                               
the unfunded liability, but had  not expended those funds either.                                                               
If those  employers take no  affirmative action in  expending the                                                               
funds  or directing  the Department  to  apply the  funds to  the                                                               
unfunded   liability,   those    assets   would   eventually   be                                                               
automatically applied to their unfunded liability balance.                                                                      
                                                                                                                                
10:06:56 AM                                                                                                                   
                                                                                                                                
Co-Chair Stedman  commented that the additional  appropriation by                                                               
the City of Soldotna must have  impacted its general fund and the                                                               
delivery  of goods  and  services. The  Committee  must devise  a                                                               
method in which to acknowledge these actions to ensure fairness.                                                                
                                                                                                                                
10:07:31 AM                                                                                                                   
                                                                                                                                
Commissioner  Kreitzer  anticipated   this  issue  would  receive                                                               
further discussion.  The proposed cost sharing  plan would result                                                               
in a $10 billion savings,  which could be utilized to accommodate                                                               
these situations.                                                                                                               
                                                                                                                                
10:07:54 AM                                                                                                                   
                                                                                                                                
Co-Chair Stedman asked whether the  City of Soldotna was the only                                                               
employer  to  contribute funds  in  addition  to the  State  rate                                                               
relief appropriation.                                                                                                           
                                                                                                                                
Commissioner  Kreitzer   and  Ms.   Millhorn  indicated   in  the                                                               
affirmative.                                                                                                                    
                                                                                                                                
10:08:17 AM                                                                                                                   
                                                                                                                                
Co-Chair  Stedman continued  that the  matter of  addressing debt                                                               
dilution  and compensating  for  employers that  paid down  their                                                               
portion of the  liability should be resolved in as  fair a manner                                                               
as possible.                                                                                                                    
                                                                                                                                
10:08:57 AM                                                                                                                   
                                                                                                                                
Commissioner Kreitzer continued her testimony as follows.                                                                       
                                                                                                                                
     What we're proposing is a  longer-term solution, rather than                                                               
     a  fix that  artificially lowers  the employer  contribution                                                               
     rate, but doesn't really impact  the unfunded liability.  To                                                               
     me, that's like  paying only the interest on  a credit card,                                                               
     instead of  paying down the  principal.   Pension obligation                                                               
     bonds are  not without risk.   The Committee will  hear from                                                               
     Department of Revenue representatives,  if it chooses, about                                                               
     the risks  and potential rewards.   As part of  our analysis                                                               
     of this  approach, we've worked  with our actuaries  to come                                                               
     to  the $4.0  billion  savings achieved  by  paying off  the                                                               
     unfunded liability sooner rather than later.                                                                               
                                                                                                                                
     In closing Mr. Chairman  - I want to be sure  to be clear on                                                               
     the  record   -  Governor  Palin  comes   from  a  municipal                                                               
     background, as you  all know.  Her concern is  that we don't                                                               
     unduly  burden local  governments.   We don't  believe, when                                                               
     taken as a  whole, this package does that.   But, we're here                                                               
     to work with you, with  the Legislature to craft a long-term                                                               
     solution.    There  will  be  some  give  and  take  in  any                                                               
     solution,   but   we   look  forward   to   continuing   the                                                               
     conversation.                                                                                                              
                                                                                                                                
10:10:01 AM                                                                                                                   
                                                                                                                                
Co-Chair  Stedman reiterated  his  intent to  focus  on the  cost                                                               
share issue  and "clean up" of  the provisions of the  changes to                                                               
the retirement system implemented by  SB 141 and to not commingle                                                               
the issue  of pension  obligation bonds.  Once the  liability was                                                               
"cornered in the  room" the discussion could  continue to finding                                                               
a solution.                                                                                                                     
                                                                                                                                
10:11:03 AM                                                                                                                   
                                                                                                                                
Senator Elton  pointed out that  Exhibits 1 through 5  showed the                                                               
average  rate  based  on  the   FY  05  valuation.  However,  the                                                               
provisions of Section 7 of the  bill utilized the FY 06 valuation                                                               
as the base. He questioned the discrepancy.                                                                                     
                                                                                                                                
10:12:02 AM                                                                                                                   
                                                                                                                                
Ms. Millhorn gave the following response.                                                                                       
                                                                                                                                
     Section 7,  the allocation of the  65 percent is as  of June                                                               
     30,   2006.  That's   the  projected.   That  includes   the                                                               
     experience  study. So  that looks  at the  assignment of  65                                                               
     percent  of  the  liability  to   the  State  of  Alaska  of                                                               
     approximately  $3.5   or  $3.6   billion  compared   to  the                                                               
     valuation. The valuation as of  June 30th of 2005, the State                                                               
     of Alaska  is at 57  percent and  its $2.5 billion.  So this                                                               
     contemplates  that  that's  the  projected  amount  for  the                                                               
     valuation for June 30th of  2006, which is the higher amount                                                               
     at 65 percent.                                                                                                             
                                                                                                                                
10:12:54 AM                                                                                                                   
                                                                                                                                
Senator  Elton  again  asked  why  if the  FY  05  valuation  was                                                               
utilized in the legislation, the  FY 06 valuation was utilized in                                                               
the exhibits.  He asked if  the exhibits were amended  to reflect                                                               
the valuation  of June  30, 2006  whether the  calculated amounts                                                               
would change.                                                                                                                   
                                                                                                                                
10:13:26 AM                                                                                                                   
                                                                                                                                
Ms.  Millhorn answered  that completed  valuations  for June  30,                                                               
2006 were not  finalized. The ARM Board has  adopted the employer                                                               
contribution rates  based on  the June  30, 2005  valuations. The                                                               
provisions of  Section 7 of  the bill  would assign a  portion of                                                               
the unfunded liability  to the State based on  the last available                                                               
valuation from  2005. The Division's chief  financial officer has                                                               
collaborated with  the actuary to devise  the projected valuation                                                               
of the unfunded  liability. This amount of $8.6  billion has been                                                               
discussed  in  this Committee  and  is  based on  the  experience                                                               
study. The unfunded liability of  PERS is $5.5 billion and "under                                                               
the valuation" the amount is $4.4 billion.                                                                                      
                                                                                                                                
10:14:36 AM                                                                                                                   
                                                                                                                                
Co-Chair  Stedman asked  the date  the valuation  as of  June 30,                                                               
2006 would be available.                                                                                                        
                                                                                                                                
10:14:46 AM                                                                                                                   
                                                                                                                                
Ms. Millhorn replied  that the projected completion  date is June                                                               
2007.                                                                                                                           
                                                                                                                                
10:14:51 AM                                                                                                                   
                                                                                                                                
Commissioner Kreitzer  interjected that  the intent  of utilizing                                                               
the projected 2006  valuation data was to "take the  known and be                                                               
able  to  run  these  scenarios  and then  take  the  worst  case                                                               
scenario, which we  know is coming, and put it  in the bill." The                                                               
information contained  in the exhibits  is "the best we  can give                                                               
you right now to understand the impact of what we're proposing."                                                                
                                                                                                                                
10:15:13 AM                                                                                                                   
                                                                                                                                
Senator Elton asked  why the known valuations from  June 30, 2005                                                               
were not utilized in the legislation.                                                                                           
                                                                                                                                
10:15:45 AM                                                                                                                   
                                                                                                                                
Commissioner  Kreitzer answered  that  the  older valuation  data                                                               
could be  utilized; however, the  intent is to not  "ignore" that                                                               
the unfunded liability is continuing to increase.                                                                               
                                                                                                                                
10:16:05 AM                                                                                                                   
                                                                                                                                
Co-Chair Stedman  spoke to the  issue of the two-year  "lag time"                                                               
in securing  valuation figures.  At the end  of the  fiscal year,                                                               
studies are  conducted and upon  completion are forwarded  to the                                                               
ARM Board  for use  in setting  employer contribution  rates. The                                                               
ARM Board  is attempting to  accelerate this process.  This delay                                                               
is partially  the cause  of the  current situation  involving the                                                               
significant unfunded liability.                                                                                                 
                                                                                                                                
10:17:00 AM                                                                                                                   
                                                                                                                                
Senator Elton  stressed the difficulty for  municipal governments                                                               
to budget for their contribution  before the amount was known. He                                                               
analogized this to "shooting in the dark".                                                                                      
                                                                                                                                
10:17:32 AM                                                                                                                   
                                                                                                                                
Co-Chair Stedman intended to conduct  a "sensitivity analysis" to                                                               
compare the  proposed assumption  of 65  percent of  the unfunded                                                               
liability by the State and 35  percent by the other employers, to                                                               
other ratios, including 60:40 and 70:30.                                                                                        
                                                                                                                                
10:18:10 AM                                                                                                                   
                                                                                                                                
Co-Chair Hoffman  asked if the proposed  contribution rates would                                                               
apply  to   both  defined   benefits  and   defined  contribution                                                               
employees.                                                                                                                      
                                                                                                                                
10:18:28 AM                                                                                                                   
                                                                                                                                
Ms. Millhorn  replied that  this legislation  would apply  to the                                                               
defined benefit  plan. This  bill does  include a  provision that                                                               
would  include the  defined contribution  plan  "for purposes  of                                                               
liquidating the past service liability."                                                                                        
                                                                                                                                
10:18:52 AM                                                                                                                   
                                                                                                                                
Co-Chair  Hoffman  asked  the estimated  savings  that  would  be                                                               
achieved over time  through attrition, as no  new employees would                                                               
be added to the defined benefit plan.                                                                                           
                                                                                                                                
10:19:05 AM                                                                                                                   
                                                                                                                                
Ms. Millhorn  explained that "in  this case" the  "payroll amount                                                               
will be  spread over both  the DB  [defined benefit] and  the DCR                                                               
[defined contribution]"  according to a calculation  based on the                                                               
amount  necessary to  "liquidate"  the  unfunded liability.  This                                                               
would  stabilize  the  rate  and the  amount  received  into  the                                                               
retirement system. If the payroll rate  were used only for the DB                                                               
members,  that   rate  would  have  to   increase.  However,  the                                                               
contribution rate to the DCR members would not "really change".                                                                 
                                                                                                                                
10:20:26 AM                                                                                                                   
                                                                                                                                
Co-Chair Stedman  directed attention  to Section 10,  which would                                                               
"remove the  ability of the  employer to amend  the participation                                                               
agreement  and  allow  only  for termination  of  the  plan."  He                                                               
commented  on  the  "surprise"  to  most  communities,  that  the                                                               
calculation  performed by  the actuary  would be  higher if  that                                                               
employer chose to terminate from  participation in the PERS plan.                                                               
He gave the community of Ruby as an example.                                                                                    
                                                                                                                                
10:21:06 AM                                                                                                                   
                                                                                                                                
Ms. Millhorn responded  that in the event  an employer terminated                                                               
its participation agreement, each employee  is given the right to                                                               
"vest or refund out of the  plan". The termination costs would be                                                               
based  on  the  individual  election of  the  employees  of  that                                                               
employer.  She gave  an example  of  a "small  employer" with  25                                                               
employees,  in which  several of  those employees  had less  than                                                               
five years of  service and elected to refund from  the system. In                                                               
this  instance,  the  termination   cost  would  be  lowered.  If                                                               
however,  those individuals  elect  to vest  in  the system,  the                                                               
employer costs would be higher.  The primary factor impacting the                                                               
termination  rate is  the associated  medical costs,  which could                                                               
make  a "huge  difference"  to the  employer.  The actual  amount                                                               
would be based on the number of years each employee had served.                                                                 
                                                                                                                                
10:22:46 AM                                                                                                                   
                                                                                                                                
Co-Chair Hoffman asked  if a transition period  would be provided                                                               
to  allow employers  to  remain  in the  plan  or terminate  from                                                               
participation.                                                                                                                  
                                                                                                                                
10:23:06 AM                                                                                                                   
                                                                                                                                
Ms. Millhorn  replied that  employers would  have the  ability to                                                               
voluntarily terminate from the plan  at any future date. However,                                                               
an  employer  that  terminated  would  be  required  to  pay  the                                                               
termination costs, which would include  the analysis of the costs                                                               
for those employees who elected to vest in the plan.                                                                            
                                                                                                                                
10:23:37 AM                                                                                                                   
                                                                                                                                
Co-Chair Hoffman  asked if  the termination  costs would  also be                                                               
levied  on  those  employers characterized  in  the  exhibits  as                                                               
"losers" who  would experience  increased contribution  rates for                                                               
remaining in  the plan. He contended  that differentiation should                                                               
be made on this matter between the "winners" and the "losers".                                                                  
                                                                                                                                
10:23:57 AM                                                                                                                   
                                                                                                                                
Commissioner Kreitzer  expressed wiliness to continue  to discuss                                                               
these  options.  A significant  factor  would  be how  the  final                                                               
legislation accommodates for winners and losers.                                                                                
                                                                                                                                
10:24:25 AM                                                                                                                   
                                                                                                                                
Senator Olson asked  the number of communities  currently in this                                                               
"dilemma" in  attempting to  reduce their  budget and  "caught in                                                               
this situation".                                                                                                                
                                                                                                                                
10:24:45 AM                                                                                                                   
                                                                                                                                
Commissioner   Kreitzer   answered   that  the   Department   has                                                               
determined that if the PERS system  were converted to a pure cost                                                               
share  plan, those  communities listed  in Exhibit  2b as  losers                                                               
could   face  this   situation.  However,   the  Administration's                                                               
proposal would be to make those  employers whole for FY 08 and to                                                               
develop a  method that would  "smooth out" for future  years. She                                                               
intended to speak to the Alaska Municipal League on this issue.                                                                 
                                                                                                                                
10:25:40 AM                                                                                                                   
                                                                                                                                
Senator Olson asked if about any  "relief in sight" that could be                                                               
provided  to  those  employers   charged  termination  costs  for                                                               
terminating participation  in the  PERS plan as  a result  of the                                                               
changes made in this legislation.                                                                                               
                                                                                                                                
10:26:07 AM                                                                                                                   
                                                                                                                                
Commissioner Kreitzer  had not reviewed  the matter  to determine                                                               
the  number of  communities  that could  chose  to terminate  for                                                               
existing reasons  versus those that  could terminate as  a result                                                               
of the  adoption of a  cost share plan.  She would report  on her                                                               
findings.                                                                                                                       
                                                                                                                                
10:26:29 AM                                                                                                                   
                                                                                                                                
Co-Chair  Stedman identified  the issue  of the  impact to  those                                                               
communities with a surplus or  a "small liability". "Pinpointing"                                                               
the  exact "asset  liability spread"  of all  employers would  be                                                               
difficult.                                                                                                                      
                                                                                                                                
10:27:11 AM                                                                                                                   
                                                                                                                                
Senator  Elton referred  to earlier  testimony stating  that this                                                               
proposal is  similar to  the transition  of the  TRS system  to a                                                               
cost share plan.  He asked if any provisions  in this legislation                                                               
were unique to the PERS system  and not identical to the TRS cost                                                               
share plan.                                                                                                                     
                                                                                                                                
10:27:36 AM                                                                                                                   
                                                                                                                                
Commissioner Kreitzer  answered that Senator Huggins  had posed a                                                               
similar question  and had requested  the Department to  provide a                                                               
comparison of the elements of TRS  to the proposed PERS plan. She                                                               
asked if this would be sufficient to Senator Elton's needs.                                                                     
                                                                                                                                
10:27:56 AM                                                                                                                   
                                                                                                                                
Senator Elton affirmed.                                                                                                         
                                                                                                                                
10:28:11 AM                                                                                                                   
                                                                                                                                
Co-Chair   Stedman  announced   that  public   comment  on   this                                                               
legislation would be forthcoming.  Additional discussion would be                                                               
held  on   issues  raised  at  this   hearing;  however,  pension                                                               
obligation bonds would not be considered as part of the debate.                                                                 
                                                                                                                                
10:28:58 AM                                                                                                                   
                                                                                                                                
Senator  Huggins cautioned  against  release  of insufficient  or                                                               
incorrect  information  to the  public.  This  occurred with  the                                                               
passage  of  SB  141  and resulted  in  misunderstanding  of  the                                                               
implications  of  that  change  to  the  retirement  systems.  He                                                               
advised the Administration  to be "up front" with  all aspects of                                                               
the process relating to the current proposal.                                                                                   
                                                                                                                                
10:29:27 AM                                                                                                                   
                                                                                                                                
Commissioner Kreitzer expressed intent to  "stay out in front" of                                                               
any  misinformation,   noting  the  Department  would   post  all                                                               
exhibits and  data on  its website in  one attempt  to accomplish                                                               
this.                                                                                                                           
                                                                                                                                
10:30:04 AM                                                                                                                   
                                                                                                                                
Co-Chair  Stedman encouraged  those  wanting to  testify on  this                                                               
bill to contact his office for scheduling purposes.                                                                             
                                                                                                                                
AT EASE 10:30:19 AM / 10:30:38 AM                                                                                           

Document Name Date/Time Subjects