Legislature(2007 - 2008)BELTZ 211
03/19/2008 09:30 AM Senate STATE AFFAIRS
| Audio | Topic |
|---|---|
| Start | |
| SB183 | |
| SB259 | |
| SB260 | |
| HB88 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | SB 183 | TELECONFERENCED | |
| *+ | SB 259 | TELECONFERENCED | |
| *+ | SB 260 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| = | HB 88 | ||
SB 183-REPEAL DEFINED CONTRIB RETIREMENT PLANS
9:36:21 AM
CHAIR MCGUIRE announced the consideration of SB 183.
PAT LUBY, Advocacy Director, AARP Alaska, said financial
security is the cornerstone of the American dream - you work
hard and follow the rules and you'll be able to retire without
financial worries. However, one quarter of [Alaska] retirees
don't participate in social security. A person doesn't outlive
social security. In the past it didn't matter so much that
Alaska's public employees did not participate, because they had
a defined benefit plan (DBP) that would last as long as they
lived. Now, they have no DBP or social security. The American
dream no longer exists for Alaska's newly hired public
employees.
MR. LUBY said it is possible to make the defined contribution
plan (DCP) work "as long as you don't live too long." But most
people live into their mid 80s and many into their mid 90s. If a
DCP is to work, people need to predict their life expectancy as
well as their spouse's. They need to know if they will be
healthy up until death or if they will need long-term care.
Medicare doesn't pay for nursing homes or home care. A person
will need to know if there will be inflation in health care and
utility costs. Defined benefits and social security provide
annual COLAs [cost of living allowances], but the DCP doesn't.
The price of fuel oil and gasoline may go up. "You better have a
crystal ball to make a defined contribution plan work." Many
companies have switched to DCPs, but all who work in the private
sector have social security that will last as long as they live.
No matter how much is saved in a 401k or I.R.A., they will
always have the defined benefits of social security. Alaska's
public employees used to have the same financial security before
SB 141 [of 2005], and no matter how long they lived or what bad
luck was dealt them, they would not starve or end up on public
assistance. AARP members rely on Alaska's public servants for
police assistance, to teach their grandchildren, and to put out
fires, and they don't want these honorable public servants to
end up worrying about their health coverage and outliving their
savings. They deserve better than that. He asked for support for
SB 183. Give them the security they deserve, he said.
9:39:09 AM
SENATOR BUNDE asked if social security will exist in 50 years.
MR. LUBY said yes. It can pay complete benefits up until 2041.
There will definitely be changes to the social security program,
like was done in 1983. Everyone needs to share in the changes.
Senator Lisa Murkowski expects changes after the next
presidential election. Social security will be there; it is the
cornerstone for all of us in retirement. No one wants to see it
go away. "We will tinker with it, but it will be there."
SENATOR BUNDE said a lot of young people he talks to think that
social security won't be there. It has become a Ponzi scheme. It
may be around but it will change, "and that's what we've done
with state retirement." A constituent said the SBS state program
is really a form of social security. That program may be around
longer than social security.
9:40:59 AM
BARBARA RICH, President, Alaska Retired Educators Association,
Juneau, said the association is the original retired teachers of
Alaska, and it is not union. She said she listened to
yesterday's testimony and spoke with many new teachers. Her
group just gave a scholarship to a wonderful young, life-long
Alaskan who really wants to teach in Alaska, but when she
learned about Alaska's pension for new hires she decided to go
to a state with good benefits. There are 13 to 15 states where
workers do not have social security, but all have a very good
defined benefit plan -- except Alaska. The other states provide
their teachers with full social security and a defined benefit
plan, and there are a few that have a hybrid plan. This is
important, and students are looking at this. Senator Bunde said
new teachers are only interested in a high salary, but that is
not true - they are interested in the pension.
MS. RICH said that right after her husband retired he had a
heart attack. He needed by-pass surgeries. "If we had not had
the retirement plan that we have, my husband and I would have
been wiped out completely - all of our savings, our house, and
everything. There would have been nothing left for us." New
teachers need to have something like she has. Alaska can afford
to do that. If Alaska doesn't provide for them, it won't have
decent people teaching its children. Alaska needs to get the
best people to teach, not people who can't get a job anywhere
else. Alaska will become a training ground. She won't be
personally affected because she has her pension, as does Senator
Bunde, but she is concerned for the young people.
9:44:55 AM
SENATOR BUNDE said he has an excerpt from the Pew Charitable
Trust's article entitled Mandate to Measure. It said many
workers are not looking for retirement, but they are looking for
"flexibility, opportunity, and performance pay." There are
different points of view. By an accident of birth he got [his
benefit plan], but he didn't choose the date of his birth and so
he "had an opportunity to deal with what existed in Alaska at
that time. Today is another day." Circumstances are different.
9:45:57 AM
SENATOR STEVENS said he agrees that Alaska needs well-paid
teachers, and he would like to return to the days when Alaska
paid them as high as any other state. He asked about the
unfunded liability. It has to be paid by someone.
MS. RICH said to look at what caused the unfunded liability. One
cause is the legislature. She lobbied heavily against the Early
Retirement Incentive program. The only comment she heard was the
same thing she heard from Senator Bunde yesterday: "We have a
lot of teachers who don't want to be teaching, so we want to get
rid of them." An early buyout is not the way to get rid of
teachers. Even her middle school students could understand that
it would hurt the system. "That was only one of the things that
hurt it." The other one was lack of funding by communities. The
market was part of it. This body has passed a bill to get things
back in place. The fourth part [of the unfunded liability] deals
with health, which Alaska can't control, but the state can start
dealing with prescription drugs. "One thing we have to stop
doing is cutting back Medicare - that's really hurting the
senior population in Alaska." People who have older doctors who
retire can't get another doctor. If the state works with
Congress, "we can control a lot of this." Health is a national
issue, and we need affordable health care for everyone. The PERS
pension is funded over 100 percent, the TRS is funded 93
percent, and actuaries feel it is tremendous if one is 80
percent funded. "So our pension is very good … and if we could
get the health care taken care of…" The Tier II in TRS and the
Tier III PERS is suppose to take care of that, but there hasn't
been time to see if it does because people have not retired much
out of those plans. Most retired people are Tier I.
SENATOR GREEN asked what was funded at 100 percent.
MS. RICH said the PERS retirement pension is over 100 percent -
not counting health care. The TRS is 93 percent.
9:49:54 AM
SENATOR GREEN said that is news to her.
MS. RICH said she believes the figures come from the ARM [Alaska
Retirement Management] board.
SENATOR GREEN said if that is the case Alaska wouldn't have the
unfunded liability.
MS. RICH said there is the liability because of early
retirement, and it wasn't funded the way it should be. Some
districts did not pay their share. The state has to pay its
share just like the public employees, "and they didn't in all
cases." The early retirement and the health portions are why
there is the unfunded liability.
SENATOR GREEN asked when the state didn't pay its share.
MS. RICH said a few years ago everyone thought the pension
system was doing so well, and some districts did not pay their
share.
SENATOR GREEN said that is not the state. The state has always
paid, she assumed. There are unique characteristics about these
plans that don't allow overfunding. There are things that don't
allow preparation for the bad days.
9:52:07 AM
SENATOR BUNDE said many actuarial organizations say not to fund
over 80 percent, because there will be pressure to increase
benefits, which will spiral into problems. If the state is over
100 percent, it needs to be looked at.
CHAIR MCGUIRE said that during the Knowles administration, the
ARM board wasn't presenting accurate information - they got
their numbers from Mercer. "Then add to it the political
equation of having to put into the budget the real numbers that
it would cost to afford a system. And then to ask employees, who
are then your voters, to contribute an amount that would also be
reflective of reality, and you start seeing where things
spiral." It isn't any one single thing, there is enough blame to
go around.
SENATOR FRENCH said it comes down to the unfunded liability.
This bill does not fix it or break it. "We've fixed it with a
different mechanism, which is to contribute more money to that
unfunded liability and to correct the past errors, whatever they
were." With or without DBP, the unfunded liability exists and
needs to be fixed. He firmly believes in going back to DBPs, and
it can be funded in a way that doesn't cause any economic pain,
any more pain than necessary, to provide for a stable retirement
for public employees.
9:54:47 AM
SENATOR STEVENS said the question is how to avoid an unfunded
liability.
SENATOR FRENCH said that is a perfect question, and the answer
is to be ever vigilant. There are many jurisdictions that have
avoided this problem by being proactive, conservative,
questioning the assumptions, and staying on top of it.
CHAIR MCGUIRE said someone needs to sit down and reflect on Tier
II and III. Perhaps it will be a carve-out for medical, a
separate stipend, or a bare-bones plan. She is young and she
knows that her friends are looking at retirement. Some young
people might not care about it, but her generation is
increasingly looking at retirement and how they will live with
dignity and health in their final years. If it really were a
choice between high pay and benefits, "I might even be willing
to go down that path, but I don't see this state ever going to a
merit-based system and I don't see … us increasing teacher pay."
Alaska has the worst of all scenarios - teachers are paid some
of the lowest rates in the nation, the state is geographically
challenged, especially with rural teachers and peace officers,
and on top of that, the state won't give social security or a
stable retirement. It makes it a real challenge to attract and
retain good people in Alaska.
9:57:02 AM
SENATOR BUNDE said, "Where you stand on an issue often depends
on where you sit." There is merit pay for teachers. He said he
helped get it passed a couple of years ago. It was fought, tooth
and claw, by NEA because they want to support common factors -
if not mediocre ones. A number of schools took advantage of it
and rewarded outstanding performance with additional pay. But
for how to deal with the unfunded mandate, the state should do
it as they currently are -- dipping into the general fund. One
of the biggest frustrations that he hears from people in private
enterprise is "you guys are using their money to fund state
employees' retirement." If there is a DBP, the contribution from
the employee has to go up enough so there is no unfunded
mandate. He doesn't think that is politically achievable.
CHAIR MCGUIRE said there could be a discussion about it. She was
frustrated that the debate and the repeal became such a
political pressure cooker that a lot of details and potential
corrections were lost in the mix. There might be a middle ground
to pull back to. It would likely be higher contribution rates,
but at the end of the day, the state needs to pay for state
functions. "Last I checked education is still in the
constitution. It's still something that we want to publicly
fund. We want an education to be accessible to all Alaskans
irrespective of income and irrespective of where they live." The
state has that commitment and it is different from what happens
in the private sector. It is a constitutional commitment.
9:59:42 AM
SENATOR GREEN said the conversations during the construction of
the new plans were about not being able to change a contract
[with workers], and a new tier would need to be created. "Does
this do that? Is it a Tier V and Tier IV?"
JESSE KIEHL, Staff to Senator Kim Elton, said the bill is
prospective and will put new hires into the previous tier. Those
who are in the DCP will get a choice of taking their DCP account
and converting the funds, value for value, to the DBP system.
The bill ensures that if they choose to change, it won't create
any unfunded liability because it will be the lesser of their
actual time of service or the actuarial value of their account
balance. If he had a DCP for two years, had done staggeringly
well in the market, and the actuarial value of his account
balance was greater than his two years of service, he might only
have a year and a half of value. That would be the credited
service he would get with such a conversion. A new hire would be
a Tier III hire, in effect, no matter what it might be called.
10:02:57 AM
MR. KIEHL noted information provided to the committee on normal
costs. Normal cost is the percentage of pay that has to be put
in the system this pay period for this pay period's worth of
benefits. It is forward looking. "It's the prefunding that we
do." The chart on accrued liability represents 2007 when the
unfunded liability was valued at roughly $7 billion between the
two systems. The accrued liabilities of Tier I in PERS and TRS
are about $13 billion. For Tier II TRS and Tier III PERS it is
about $1.4 billion. Those are the tiers the bill will go back to
and there are two thirds as many members as Tier I, and yet the
total liability is one fifteenth. "We have never broken out
assets by tiers, so I can't compare the unfunded liability of
Tier I and Tier II of TRS." In essence, the change from Tier I
to Tier II in TRS and the change from Tier I to Tier III for the
PERS pretty much cover the unfunded liability issue. SB 141 did
other things that assured the constant vigilance that Senator
French suggested. It provided for a second actuary, mandatory
experience studies, and that nobody ever pays less than the
normal cost rate -- even if there is extra money. "Under SB 141,
nobody ever pays less than the normal cost rate of the benefits
accrued, and this bill does nothing to change those things." All
the safety valves are kept, while still going back to a benefit
that gives retirement security.
10:05:56 AM
CHAIR MCGUIRE said that was excellent. There are a lot of myths
about what the bill does. She asked if SB 183 will fix the
problem with SB 141 and reconnect PERS to TRS for vesting.
MR. KIEHL said the problem is fixed for the person who is hired
after SB 183 passes. If a person is in the DCP and chooses to
convert, the problem is fixed. But the problem will not be fixed
for those who choose not to convert.
10:07:15 AM
SENATOR FRENCH said this committee has had a good discussion,
but there are huge financial implications that should be taken
up by another committee. He moved to report SB 183 from
committee with individual recommendations and attached fiscal
note(s).
SENATOR BUNDE objected. Different people have different points
of view. "Right up there with the frustration that state
employees only work a 37.5-hour work week -- stipulating
teachers work a lot more than that -- is the fact that the
public is supporting a retirement plan that is vastly different
than what the public would have access to prior to 141." What
disturbs him is making people indentured servants, making
workers stay in Alaska because it is financially important to
them when they retire. They could be sour on their job, "but
we're going to encourage them, force them almost, to stay here
because of the retirement that they'll lose if they move." Chair
McGuire is the only member that was born in Alaska and "the rest
of us came from somewhere else." He cashed out his retirement in
Washington to move to Alaska. He doesn't want to deny that
opportunity to someone in Alaska. Those who grew up here would
like to move to other parts of the world. He would not deny them
that. Making people stay in Alaska so they can meet that ironic
definition of sourdough -- sour on Alaska without enough dough
to leave -- just doesn't make sense. If the DCP is repealed, it
will drain the public treasury, and in a few years the state
will be in a deficit. Once a retirement program is established,
the state has to stick with it. The money would need to be paid
with the corpus of the permanent fund. Bills are sometimes moved
just out of courtesy, and it causes a mess on the floor.
Sometimes those political mistakes pass into law.
10:10:55 AM
CHAIR MCGUIRE said her vote to move the bill will reflect the
fact that it is a good idea. There is more work to be done. She
prefers an option of a DCP and a DBP. Perhaps there are more
places where the bill can be ratcheted down. In general, [SB]
141 went too far and the effects will be seen when it is too
late. The state is seeing it already in its teachers. She made
note of the front line folks that face fires to save our
families and respond to those crimes in the middle of Alaska in
the cold, dark winter nights. If we are going to attract and
retain people to do these state functions, we need to be sure
that they have a humane and adequate retirement.
10:12:11 AM
SENATOR STEVENS said the discussion has to continue. The bill
may not make it through this session, but it is too early to
kill it. He has serious concerns about the unfunded liability
and the transferability of the TRS and PERS. This bill might
resolve his concern. "I'm going to vote to move it ahead to the
next committee, although I have very serious qualms about it."
A roll call vote was taken. Senators French, Stevens, and
McGuire voted in favor of moving SB 183, and Senators Bunde and
Green voted against it. Therefore SB 183 moved out of committee
on a vote of 3:2.
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