Legislature(2023 - 2024)BELTZ 105 (TSBldg)
03/25/2024 01:30 PM Senate LABOR & COMMERCE
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| Audio | Topic |
|---|---|
| Start | |
| SB203 | |
| SB200 | |
| SB153 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | SB 203 | TELECONFERENCED | |
| *+ | SB 200 | TELECONFERENCED | |
| *+ | SB 153 | TELECONFERENCED | |
SB 200-TRS CONTR RATE; PERS SOC SECURITY OR SBS
1:48:34 PM
CHAIR BJORKMAN reconvened the meeting and announced the
consideration of SPONSOR SUBSTITUTE FOR SENATE BILL NO. 200, "An
Act relating to employer contributions in the teachers'
retirement system; relating to supplemental employee benefits;
and providing for an effective date."
1:49:08 PM
SENATOR BERT STEDMAN, District A, Alaska State Legislature,
Juneau, Alaska, sponsor of SB 200, explained that this is the
beginning of a discussion of three options to address the
inequities in the retirement system. With respect to the
education system, he stated that there is concern about the wage
level and savings for retirement. However, when compared to the
average state worker, there is a considerable retirement value
discrepancy. Education workers feel they should be accumulating
more value towards their retirement. He shared his belief that
education workers should be treated the same as state workers.
1:51:20 PM
SENATOR STEDMAN gave a brief overview of the three areas of
consideration. One is an increase in the contribution to the
retirement system to make it equal to the contribution of the
average state worker. Another option would be for all educators
to join the Supplemental Benefits System (SBS) He explained that
this is a replacement for social security (which the average
state worker does not participate in). He said that, in lieu of
social security, employee and employer equally contribute 6.13
percent of the employee's salary to SBS. Teachers do not have
this option. Allowing educators to participate in SBS would
create equal footing among state employees with respect to
retirement. The third option would ask employers that are not
participating in social security or SBS and are in the state
retirement system to ensure that all employees are covered by
either social security, SBS, or an equivalent program. This
would ensure that the employee is not shorted on their ability
to accumulate retirement. He added that many state employees do
not have social security, SBS, or a replacement option and are
therefore not able to accumulate retirement funds. He shared his
belief that this is unacceptable.
1:54:18 PM
SENATOR STEDMAN advanced to slide 2:
[Original punctuation provided.]
Teachers' Retirement System (TRS) Basics
• The Teachers' Retirement System (TRS) was the
first Alaska retirement system, developed by the
Territory of Alaska in the 1940s to encourage
teachers to live and work in Alaska
• Tiers I and II are defined benefit plans that
closed to new employees 6/30/2006
• Tier III is a defined contribution plan, and is
the plan offered to employees hired after
6/30/2006
• TRS employees are in neither SBS nor Social
Security
SENATOR STEDMAN stated that in the 40s, 50s, 60s, and 70s, the
average teacher in Alaska had substantially more salary growth
than those in the lower 48. He stated that this information is
not disputable and referenced a report that offered data on this
issue. However, this is not the case today. He encouraged
members of the committee to keep this in mind when considering
SB 200. What was reasonable in the past is not reasonable today;
therefore, review is necessary. He briefly explained Tiers I and
II, which ensured that employees get a percentage of their
salary for the remainder of their life after retirement. He
emphasized that these payments continue regardless of the
state's economic status. He briefly explained Tier III and the
way it differs from tiers I and II. He pointed out that teachers
were not in SBS or social security during this time.
1:57:06 PM
SENATOR STEDMAN advanced to slide 3:
[Original punctuation provided.]
History of Social Security in Alaska
1935
• Social Security established by the federal
government, available to federal employees only
1940s
• Teachers' Retirement System (TRS) created in the
Territory of Alaska
1950s
• A series of amendments to the Social Security Act
allowed states and local governments to enroll
employees in Social Security by enacting "Section
218 agreements"
1961
• The Public Employees' Retirement System (PERS)
established for State of Alaska employees, all of
whom were also enrolled in Social Security
1980
• The State of Alaska created the SBS system and
terminated its Section 218 agreement, moving all
state (PERS) employees from Social Security into
the SBS program
SENATOR STEDMAN reiterated that during this time, average
teacher salaries were substantially higher in Alaska. Because
teachers were adequately compensated and had a defined benefit
plan, it was not necessary for them to be a part of the SBS or
social security program. However, times have changed.
1:59:08 PM
SENATOR STEDMAN moved to slide 4:
[Original punctuation provided.]
Employee Retirement Savings Comparison: PERS v. TRS
PERS TIER IV
• Employee Contribution: 8 percent
• Employer Contribution: 5 percent
• SBS Employee Contribution: 6.12 percent
• SBS Employer Contribution: 6.12 percent
• Total Retirement Savings: 25.24 percent
TRS TIER III
• Employee Contribution: 8 percent
• Employer Contribution: 7 percent
• SBS Employee Contribution: --
• SBS Employer Contribution: --
• Total Retirement Savings: 15.0 percent
SENATOR STEDMAN explained that PERS Tier IV includes those
employed after 2006. He explained that the employer contribution
is two percent higher for TRS because teachers do not
participate in SBS. He drew attention to the inequity between
the PERS 25.24 percent total retirement savings and the TRS 15
percent and emphasized that there would be no way for teachers
to close the gap. He said that it is not uncommon to see values
of $750,000 to $1 million in the employees SBS account. He
stated that this is a significant retirement savings.
2:01:50 PM
SENATOR STEDMAN advanced to slide 6 and posed the question, "How
do we make it fair?" He shared his belief that employers should
be contributing the same amount of money. He suggested that
there is no difference between a teacher and someone working at
the airport or in any other state employment position. He
emphasized that all employees should be treated equally. He
explained that one concept was to take the seven percent
contribution and add 2 percent - or even 3 percent - to it.
However, he stated that allowing teachers to join SBS would be
an even better choice. This would mean both employer and
employee pay in 6.12 percent (SBS), and the regular employer
contribution would be adjusted down to 5 percent, thus creating
the same 25.24 percent as state employees receive. This would
level retirement savings capability throughout the state
employment system. He reiterated that the potential savings is a
significant amount of funds and added that SBS funds are passed
along to the employee's beneficiaries after death.
2:03:23 PM
SENATOR BISHOP joined the meeting.
2:04:05 PM
SENATOR MERRICK asked which option is preferred by teachers.
SENATOR STEDMAN answered that, over the past two years, he has
spoken to NEA representatives about this concept and shared his
understanding that they would take whatever was given. However,
SB 200 would potentially increase the retirement potential by
the hundreds of thousands of dollars (not by tens of thousands).
He surmised that getting this issue on the table would germinate
the necessary discussion.
2:05:00 PM
SENATOR STEDMAN advanced to slide 6:
[Original punctuation provided.]
SB 200 Key Provisions
GOAL: Equalize retirement savings between State
employees and nonstate PERS and TRS employees
Increase the TRS Employer Contribution Rate
• Raises the employer contribution rate by 2
percent, from 7 percent to 9 percent of gross
salary
• Increases the cap on employer contributions from
12.56 percent to 14.56 percent to account for the
increased contribution
Require PERS and TRS Employers Provide a Supplemental
Annuity Plan
• Requires participation in either SBS or Social
Security
• Opens the SBS statute to allow TRS employers to
participate in the program alongside PERS
employers
SENATOR STEDMAN commented that a Base Student Allocation (BSA)
increase is a top-down way to fund this increase. He said that
the legislature can decide what fiscal lever is best suited to
benefit both the state and the employee. He questioned whether
the intention is for educators to receive what other state
employees get or to truly level the system. He argued that the
system needs to be level.
2:07:10 PM
SENATOR STEDMAN advanced to slide 7:
[Original punctuation provided.]
Full Implementation of SB 200
FOR ILLUSTRATIVE PURPOSES ONLY
PERS TIER IV
• Employee Contribution: 8 percent
• Employer Contribution: 5 percent
• SBS Employee Contribution: 6.12 percent
• SBS Employer Contribution: 6.12 percent
• Total Retirement Savings: 25.24 percent
TRS TIER III
• Employee Contribution: 8 percent
• Employer Contribution: 9 percent
• SBS Employee Contribution: 6.12 percent
• SBS Employer Contribution: 6.12 percent
• Total Retirement Savings: 27.24 percent
If both the employer contribution and SBS
participation were enacted, a TRS Tier III employee
would be saving more for retirement that a PERS Tier
IV employee this is not the intent.
SENATOR STEDMAN explained that these numbers would need to be
rearranged by the Senate Finance Committee so that the total
contribution is equal to 25.24 across the board. He reiterated
that BSA would need to be adjusted to accommodate the additional
employer contribution and added that this would ensure the
responsibility does not fall to city governments. He opined that
it is the state's responsibility to fund education.
2:08:29 PM
SENATOR STEDMAN advanced to slide 8:
[Original punctuation provided.]
SB 200 provides options to improve retirement savings
equity
Participation in SBS
• Could provide total additional savings of 12.24
percent
• Contributions are made equally by employer and
employee
Increased employer contribution to TRS
• Could provide an additional savings of 2 percent
• Contribution made by employer
SENATOR STEDMAN said that SB 200 would require all employers in
the state retirement system to contribute to SS or SBS. He
explained that this would ensure that no employers outside of
the state (but in the state's retirement system) are skating
their responsibility to pay into social security or SBS - or
replacing these monies with bargaining unit agreements. He
explained that when the state's retirement system was rewritten
in 2006, an oversight allowed employers to not fund social
security or SBS - and thus short-fund the retirement system. He
said that the retirement system is balanced - regardless of
whether members are in a defined benefit or a defined
contribution plan - with the supplemental benefits system (which
is roughly one-quarter to one-third of an employee's
retirement). He stated that one does not work without the other.
SB 200 is an attempt to begin the dialogue to level retirement
throughout the system. He commented that education employees
deserve these benefits just as other state employees do.
2:10:28 PM
SENATOR BJORKMAN referred to 12.56 - 14.56 in Section 1, line 6
and asked for clarification on what number this is adjusting and
how this increase for the employer relates to other sections of
SB 200.
SENATOR STEDMAN said that this was the first "lever" considered
to enhance the retirement system. He explained that this would
adjust TRS employer contributions so that this number matches
that received by state employees. He briefly explained the
reasoning behind this change. He gave a brief history of TRS and
explained the amount paid by the state and the amount paid by
city hall. He suggested that the paragraph in question be edited
to reflect the appropriate adjustments if SBS was added to TRS.
He clarified that this paragraph is one lever that leaves TRS
out of SBS but gets employees a bigger contribution. He opined
that the current contribution is too light to accumulate wealth
for retirement.
2:13:37 PM
CHAIR BJORKMAN commented that it is not clear that SB 200 is a
menu of options from section to section. He asked for
clarification that the sponsor's intent is that the sections can
be taken individually. He asked for more information.
2:13:59 PM
SENATOR STEDMAN commented that SB 200, Section 3 would apply to
businesses that are a part of the state's retirement system but
are not paying into the appropriate retirement programs. He
requested a brief at-ease.
2:14:25 PM
At ease
2:15:39 PM
CHAIR BJORKMAN reconvened the meeting.
2:16:05 PM
SENATOR STEDMAN suggested the committee hear the sectional
analysis.
2:16:27 PM
ROSE FOLEY, Staff, Senator Bert Stedman, Alaska State
Legislature, Juneau, Alaska, provided the sectional analysis for
SB 200:
[Original punctuation provided.]
Sectional Analysis
SB 200 TRS Employer Contribution Rate; Supplemental
Employee Benefits
Sponsor Substitute version S 2.23.24
Section 1: Increases the required employer
contribution to the Teachers' Retirement System from
12.56 percent of payroll to 14.56 percent of payroll,
to account for the increased contribution rate in
Section 2.
Section 2: Increases the employer contribution rate to
the Teachers' Retirement System defined contribution
retirement accounts from seven percent to nine
percent.
Section 3: Requires participation in the Supplemental
Annuity Plan (SBS) for employers in the Public
Employees' Retirement System and the Teachers'
Retirement System that do not participate in the
federal Social Security system.
Section 4: Adds employers within the Teachers'
Retirement System to the definition of "participating
employer" under the Supplemental Annuity Plan.
Section 5: Establishes an effective date of July 1,
2024.
MS. FOLEY noted that Section 3 is the second "lever" that is
available to adjust retirement savings.
2:18:13 PM
CHAIR BJORKMAN asked about the aggregate and total costs to
local municipalities and school districts based on these two
options.
SENATOR STEDMAN answered that the intent is to hold school
districts harmless. He added that funding would need to be
increased on the employer side, to cover the added contribution
(6.15 percent for both employee and employer if teachers were
added to SBS).
CHAIR BJORKMAN stated his understanding that this would be a cut
to what employees see on their check, putting this 6.15 percent
into a mandated savings account for them.
SENATOR STEDMAN said this is correct and pointed out that this
is matched by employer contributions, which is an instant 100
percent return. He acknowledged that this is an impact on
teachers' paychecks. He added that the intent of SB 200 is for
the state to fund this additional cost on the employer side,
making the cost identical for state employees and teachers. He
surmised that this would generate significant conversation due
to the potential savings, which could fall in the hundreds of
thousands per individual.
2:20:54 PM
SENATOR MERRICK stated that the fiscal note is incomplete.
CHAIR BJORKMAN stated that conversations would continue with
those impacted by SB 200. He shared the general industry
understanding that all sections would be enforced together,
rather than it being a choice. He opined that this is an
important distinction that requires clarification. He commented
on the high cost (more than $100 million) adding teachers to SBS
would place on school districts.
2:22:01 PM
SENATOR DUNBAR commented that he has received documents from AML
and referred to the hold harmless provision for the employee and
asked if the salary increase would come from state funds, local
government, or from the school district.
2:22:37 PM
SENATOR STEDMAN clarified that the provision would hold the
employer (school districts, in this case) harmless, not the
employee. He explained that, if teachers were added to SBS,
employees and employer (i.e. the school district) would
contribute 6.13 percent. He explained that the legislature would
have to fund the school districts' cost.
SENATOR DUNBAR referred to the AML document and explained that
it includes a "hold-harmless salary increase". He said that this
sounds like something different from what is being described.
SENATOR STEDMAN replied that this likely refers to a nonteacher
employee who may work for city hall as a policeman or a fireman.
He opined that if city hall does not have employees in SBS or
social security with a bargaining agreement, "they are getting
off like skinflints."
2:23:38 PM
SENATOR DUNBAR shared his understanding that the total increase
as a result of SB 200 is $36.3 million and asked if the sponsor
has seen this number.
SENATOR STEDMAN replied that he has not seen the document in
question.
SENATOR DUNBAR said that the committee received it within the
last day. He asked for clarification that this does not include
some of the costs for the school districts.
SENATOR STEDMAN replied that he has not seen the document and is
not able to speak to its contents.
SENATOR BJORKMAN stated that this can be discussed further as
members develop a better understanding of the mechanics of SB
200 and its associated costs.
2:24:30 PM
SENATOR STEDMAN stated that a committee substitute to clearly
delineate the various options may make this easier. He
emphasized that the intent is not to overfund teachers (over 25
percent) but to place them on level ground with other state
employees. He shared his belief that 10 percent is significantly
light in terms of retirement savings ability. He agreed that
this is an expensive change and argued that it is a change that
should have happened a long time ago.
2:25:07 PM
SENATOR DUNBAR questioned if SBS is it like social security
(which is guaranteed until death) or if it is more like a 401K.
He briefly discussed "retirement failure" - i.e. people running
out of money during their retirement years. He surmised that the
intent of SB 200 is to reduce the number of individuals who
experience this. He asked if there is information on the impact
this legislation would have on the number of individuals who
experience retirement failure.
2:26:15 PM
SENATOR STEDMAN said that this is a question for an actuary. He
surmised that an additional $750,000 in retirement funds after
30 years of service would extend their retirement and their
assets for their children substantially. He clarified that this
is not a defined benefit and works like a defined contribution.
SBS (defined contribution) has the same portfolio selections as
TERS and deferred compensation. He said that these programs are
different levers that get the money into the retirement system
for employees. He surmised that SB 200 would help keep people
from running short on retirement and argued that the benefit of
SBS would also help the employee's spouse and children.
2:27:39 PM
SENATOR STEDMAN stated that this is not a small movement -
rather, it is a substantial change. Employees who work for 10 or
15 years and then change jobs would take the money with them. He
expressed willingness to work on a committee substitute and
acknowledged that this issue is complex. He added that this
issue has a huge impact on state employees and their ability to
retire and stay in Alaska.
2:28:33 PM
SENATOR MERRICK commented that there has been discussion of a
$680 BSA increase. She asked how much of that money would be
used to fund the changes made by SB 200, vs how much would be
spent on classes and associated expenses.
SENATOR STEDMAN said that he has been seeking fiscal notes for
SB 200 for the past year, but there have been delays. He said
that the basic question is - how much does it cost the state for
every one percent additional contribution for a teacher in
retirement. He added that from this number a broader discussion
can occur. He pointed out that SBS is a known number (6.13) and
therefore the cost can be determined. If the legislature chooses
to take that route, plans can be made on how to fund the
additional expense. He argued that there is no way for teachers
making 15 percent in retirement to close the gap between that
and the 25 percent made by state workers.
2:30:22 PM
CHAIR BJORKMAN held SB 200 in committee.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SSSB200 ver S.pdf |
SL&C 3/25/2024 1:30:00 PM |
SB 200 |
| SSSB 200 Sponsor Statement ver S.pdf |
SL&C 3/25/2024 1:30:00 PM |
SB 200 |
| SSSB 200 Sectional Analysis ver S.pdf |
SL&C 3/25/2024 1:30:00 PM |
SB 200 |
| SB203 ver A.pdf |
SL&C 3/11/2024 1:30:00 PM SL&C 3/25/2024 1:30:00 PM |
SB 203 |
| SB203 Transmittal Letter 1.22.24.pdf |
SL&C 3/11/2024 1:30:00 PM SL&C 3/25/2024 1:30:00 PM |
SB 203 |
| SB203 Sectional Analysis ver A.pdf |
SL&C 3/11/2024 1:30:00 PM SL&C 3/25/2024 1:30:00 PM |
SB 203 |
| SB203 Fiscal Note-DCCED-CBPL-01.18.24.pdf |
SL&C 3/11/2024 1:30:00 PM SL&C 3/25/2024 1:30:00 PM |
SB 203 |
| SB203 Presentation for SL&C (Version A).pdf |
SL&C 3/11/2024 1:30:00 PM SL&C 3/25/2024 1:30:00 PM |
SB 203 |
| SB153 ver A.pdf |
SL&C 3/25/2024 1:30:00 PM |
SB 153 |
| SB153 Sponsor Statement Version A.pdf |
SL&C 3/25/2024 1:30:00 PM |
SB 153 |
| SB153 Sectional Analysis Version A.pdf |
SL&C 3/25/2024 1:30:00 PM |
SB 153 |
| SB153 Fiscal Note-DOLWD-WH-05.15.23.pdf |
SL&C 3/25/2024 1:30:00 PM |
SB 153 |
| SB200 Presentation to SLAC 03.25.24.pdf |
SL&C 3/25/2024 1:30:00 PM |
SB 200 |
| SB153 Fiscal Note-DOLWD-WH 03.22.24.pdf |
SL&C 3/25/2024 1:30:00 PM |
SB 153 |
| SB153 Presentation to SLAC 03.25.24.pdf |
SL&C 3/25/2024 1:30:00 PM |
SB 153 |