Legislature(2021 - 2022)ADAMS 519

04/14/2022 09:00 AM House FINANCE

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09:02:56 AM Start
09:03:31 AM HB220
10:52:16 AM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+= HB 220 RETIREMENT SYSTEMS; DEFINED BENEFIT OPT. TELECONFERENCED
Heard & Held
-- Public Testimony --
+ Bills Previously Heard/Scheduled TELECONFERENCED
HOUSE BILL NO. 220                                                                                                            
                                                                                                                                
     "An Act  relating to  the Public  Employees' Retirement                                                                    
     System of  Alaska and the teachers'  retirement system;                                                                    
     providing  certain employees  an opportunity  to choose                                                                    
     between  the defined  benefit and  defined contribution                                                                    
     plans  of the  Public Employees'  Retirement System  of                                                                    
     Alaska  and   the  teachers'  retirement   system;  and                                                                    
     providing for an effective date."                                                                                          
                                                                                                                                
9:03:31 AM                                                                                                                    
                                                                                                                                
Vice-Chair   Ortiz  MOVED   to   ADOPT  proposed   committee                                                                    
substitute  for  HB  220,  Work  Draft  32-LS0717\B  (Klein,                                                                    
04/13/22).                                                                                                                      
                                                                                                                                
Co-Chair Merrick OBJECTED for discussion.                                                                                       
                                                                                                                                
9:04:09 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  GRIER HOPKINS,  SPONSOR, introduced  himself                                                                    
and indicated  that he was  going to explain the  changes in                                                                    
the committee substitute (CS)  through a presentation titled                                                                    
"HB220  CS  Version B  House  Finance  04/14/2022" (copy  on                                                                    
file). He wanted to address  a few questions from the bill's                                                                    
previous hearing on March 8,  2022. He confirmed that Alaska                                                                    
was  the only  state  in  the nation  that  did  not have  a                                                                    
defined benefit  system for educators. Secondly,  he assured                                                                    
the committee  that there was  an analysis done  which found                                                                    
that the vast majority of  Alaska employees would be able to                                                                    
roll  over  their  defined  contributions  to  the  proposed                                                                    
defined benefit plan.                                                                                                           
                                                                                                                                
Representative Hopkins continued to  slide 2 which reflected                                                                    
the changes  to Public  Employees' Retirement  System (PERS)                                                                    
as follows:                                                                                                                     
                                                                                                                                
    Change all PERS employee contribution rates to 8-12%.                                                                    
          Public Safety was 8-10%                                                                                               
        o All others PERS was 6-8%                                                                                              
    Public Safety retirement age now 55 years old or 20                                                                      
     years of service.                                                                                                          
        o Previously 55 years of age with 20 years of                                                                           
          service.                                                                                                              
    PERS All Other 60 years old with 30 years of service                                                                     
     or 65 years old.                                                                                                           
        o Previously 5 years of service and 60 years of                                                                         
          age.                                                                                                                  
                                                                                                                                
Representative  Hopkins continued  reviewing the  changes to                                                                    
the teacher retirement system (TRS) in  the CS on slide 3 as                                                                    
follows:                                                                                                                        
                                                                                                                                
    Change TRS contribution rate to 8-12%.                                                                                   
        o Previously was 8-10%                                                                                                  
    TRS 60 years old or 30 years of service.                                                                                 
        o Previously was any age with 20 years of service                                                                       
          or 55 years old.                                                                                                      
                                                                                                                                
9:07:17 AM                                                                                                                    
                                                                                                                                
Representative  Hopkins  advanced  to slide  4  to  continue                                                                    
reviewing the changes as follows:                                                                                               
                                                                                                                                
    High consecutive 5 years for pension calculator.                                                                         
   Returned COLA and PRPA control to DoA Commissioner.                                                                       
        o Previous version controlled by ARM Board.                                                                             
    Upon hire, all PERS and TRS starts at 8% employee                                                                        
     contributions.                                                                                                             
                                                                                                                                
Representative  Hopkins reviewed  the actuarial  analysis on                                                                    
slide 5. If  a person stayed in Alaska and  was eligible for                                                                    
a  permanent  fund  dividend  (PFD),  the  individual  would                                                                    
receive  a  slight  increase   in  pension  adjustment.  The                                                                    
increase  was intended  to encourage  the dollars  that were                                                                    
made in  Alaska to  stay in Alaska.  In addition,  the post-                                                                    
retirement  pension adjustment  (PRPA)  would  reflect a  10                                                                    
percent  adjustment if  the  fund was  at  least 90  percent                                                                    
funded.  He emphasized  that PERS  and TRS  both started  at                                                                    
eight percent contribution.                                                                                                     
                                                                                                                                
9:09:22 AM                                                                                                                    
                                                                                                                                
Representative Josephson pointed to  the middle bullet point                                                                    
regarding the Alaska Retirement  Management Board (ARMB). He                                                                    
asked  what would  trigger  the  commissioner's decision  to                                                                    
change  the  cost-of-living  allowance (COLA)  or  PRPA.  He                                                                    
asked if  there was concern  that the authority would  be in                                                                    
the hands of a single person.                                                                                                   
                                                                                                                                
Representative Hopkins  responded that  COLA was  already in                                                                    
the  hands  of   a  single  person.  He   relayed  that  the                                                                    
Department  of  Administration  (DOA) and  the  Division  of                                                                    
Retirement and Benefits (DRB) requested that the decision-                                                                      
making power  remain in the  hands of the  DOA commissioner.                                                                    
He wanted to ensure that  risk reductions were available. If                                                                    
there was  a downturn  in the economy,  he wanted  to ensure                                                                    
that the commissioner had the  authority to decide the level                                                                    
of  adjustment.  Between  the   PRPA  and  the  one  percent                                                                    
increase in the employee  contribution level, there was over                                                                    
half a billion dollars in risk sharing options available.                                                                       
                                                                                                                                
9:11:07 AM                                                                                                                    
                                                                                                                                
Representative LeBon asked  Representative Hopkins to define                                                                    
the acronym "PRPA."                                                                                                             
                                                                                                                                
Representative  Hopkins   responded  that  it   meant  post-                                                                    
retirement  pension adjustment.  He reiterated  that if  the                                                                    
PRPA was at least 90  percent funded, the commissioner could                                                                    
decide to  increase pensions.  The increase  would correlate                                                                    
to the COLA  and be reliant on a person's  eligibility for a                                                                    
PFD. The goal was to keep dollars circulating in Alaska.                                                                        
                                                                                                                                
Representative LeBon asked if the PRPA could go up or down.                                                                     
                                                                                                                                
Representative Hopkins responded in the affirmative.                                                                            
                                                                                                                                
Representative LeBon asked  if the COLA could also  go up or                                                                    
down.                                                                                                                           
                                                                                                                                
Representative Hopkins  responded that  it was  dependent on                                                                    
the consumer price index (CPI) for Anchorage.                                                                                   
                                                                                                                                
Representative  LeBon asked  if  the thinking  was that  the                                                                    
COLA  would   only  increase.   He  asked   if  it   was  an                                                                    
inflationary adjustment.                                                                                                        
                                                                                                                                
Representative Hopkins  replied that it would  be an upwards                                                                    
trend  due  to  the  way  it was  structured  in  the  bill.                                                                    
However, it  would be  based on  each year  individually and                                                                    
previous years would not be taken into account.                                                                                 
                                                                                                                                
Representative LeBon thought it could be flat lined.                                                                            
                                                                                                                                
Representative Hopkins replied, "Correct."                                                                                      
                                                                                                                                
Representative  Wool asked  whether  PRPA was  as likely  to                                                                    
increase as COLA.                                                                                                               
                                                                                                                                
Representative  Hopkins   responded  that  the   PRPA  would                                                                    
involve an  additional increase of  a certain  percent which                                                                    
was at the discretion of the commissioner.                                                                                      
                                                                                                                                
9:13:08 AM                                                                                                                    
                                                                                                                                
Representative Wool wanted to  know if COLA increased, would                                                                    
PRPA also increase.                                                                                                             
                                                                                                                                
Representative Hopkins responded in the affirmative.                                                                            
                                                                                                                                
Representative Wool  asked about the choice  to increase TRS                                                                    
eligibility from 55  years of age or 20 years  of service to                                                                    
60 years of age or 30 years of service.                                                                                         
                                                                                                                                
Representative  Hopkins responded  that it  was 30  years to                                                                    
fully invest in  medical benefits. It was  a policy decision                                                                    
that he made to reduce the cost and the risk for the state.                                                                     
                                                                                                                                
Co-Chair  Merrick WITHDREW  the  OBJECTION.  There being  NO                                                                    
further  OBJECTION,  the  committee substitute  for  HB  220                                                                    
(version B) was ADOPTED.                                                                                                        
                                                                                                                                
9:15:06 AM                                                                                                                    
                                                                                                                                
Representative   Hopkins  continued   his   review  of   the                                                                    
actuarial  analysis  on  slide  5.  The  slide  depicted  an                                                                    
analysis  of version  A of  the bill  and version  B of  the                                                                    
bill, which had been adopted.  The analysis of version A had                                                                    
been  done by  Buck, which  was the  DOA's actuary,  and the                                                                    
analysis  of  version  B  had   been  done  by  Cheiron,  an                                                                    
actuarial consulting firm. If the  bill were to pass, it was                                                                    
projected that the  state would save $10.7  million in state                                                                    
contributions in fiscal  year (FY) 24 and there  would be an                                                                    
additional $29  million dollar reduction over  the following                                                                    
six years.  He noted  that PERS  would continue  to increase                                                                    
because  the  contribution  levels  were  at  six  to  eight                                                                    
percent.  However,  the  changes  in the  adopted  CS  would                                                                    
reduce the  amount the state  needed to pay.  The additional                                                                    
contributions on the  bottom of the slide  were based solely                                                                    
on the  cost of healthcare.  The bill would  allow employees                                                                    
who  were 65  or older  and  eligible for  Medicare to  gain                                                                    
access to  the state's  healthcare without first  needing to                                                                    
retire.  His   understanding  was   that  if   he  decoupled                                                                    
healthcare from  the bill, it  would be cost neutral  to the                                                                    
state. He relayed  that HB 220 would result  in cost savings                                                                    
to the state.                                                                                                                   
                                                                                                                                
Representative  Wool  asked for  some  of  the terms  to  be                                                                    
defined. He also asked why TRS  showed a decrease in cost on                                                                    
the slide.                                                                                                                      
                                                                                                                                
Representative  Hopkins  replied  that he  would  defer  the                                                                    
question  to   a  testifier  from  Cheiron,   but  the  cost                                                                    
reduction had to do with higher contributions by employees.                                                                     
                                                                                                                                
9:19:55 AM                                                                                                                    
                                                                                                                                
GENE  KALAWARSKI,  CHIEF  EXECUTIVE  OFFICER  AND  PRINCIPAL                                                                    
CONSULTING ACTUARY, CHEIRON  (via teleconference), began the                                                                    
Cheiron PowerPoint  presentation (copy on file).  He started                                                                    
on slide  1 which  showed an  analysis summarizing  the Buck                                                                    
numbers.   He   would    conclude   by   showing   Cheiron's                                                                    
calculations.                                                                                                                   
                                                                                                                                
Mr. Kalawarski advanced to slide  2 showing the breakdown of                                                                    
Buck's numbers.  The slide depicted the  total contributions                                                                    
before HB 220. The solid  colors represented the pension and                                                                    
health costs prior  to HB 220. The left showed  HB 220 as it                                                                    
was originally designed, and the  right showed the bill with                                                                    
the eight percent contribution rate.  The sum of pension and                                                                    
health costs on the left  totaled to $229 million, which was                                                                    
the  bottom-line cost  increase  showed by  Buck  for FY  23                                                                    
through FY  28. If the  eight percent contribution  rate was                                                                    
implemented, Cheiron  had calculated that there  would be no                                                                    
increase in pension costs.                                                                                                      
                                                                                                                                
Mr. Kalawarski moved  to slide 3 which showed  the impact of                                                                    
the  original version  of  HB 220.  He  reiterated that  the                                                                    
health  increase  would  be   eliminated,  but  the  pension                                                                    
increase  remained. The  impact of  the modifications  to HB
220 were shown in the bottom right of the slide.                                                                                
                                                                                                                                
Mr. Kalawarski continued to the  projections prior to HB 220                                                                    
on  slide 3.  The projections  assumed that  the plan  would                                                                    
earn 7.38 percent  every year. It would begin  at 68 percent                                                                    
funded in 2021 but would be  140 percent funded by 2051. The                                                                    
contributions  from  the  state   and  employers  were  also                                                                    
projected on the slide in red and blue respectively.                                                                            
                                                                                                                                
9:25:47 AM                                                                                                                    
                                                                                                                                
Mr.  Kalawarski  advanced  to   slide  4  which  showed  the                                                                    
projections after  the implementation  of HB 220  but before                                                                    
the 8 percent  contribution rate  was implemented.  It would                                                                    
begin at 68 percent funded in  2021 but would be 110 percent                                                                    
funded by 2051.                                                                                                                 
                                                                                                                                
Mr.  Kalawarski   moved  to  slide  5   which  depicted  the                                                                    
projections   after  HB   220  and   after  the   8  percent                                                                    
contribution rate. The projections  were the same apart from                                                                    
the  modification  of  the  additional  8  percent  employer                                                                    
contributions.  The  chart  projected cost  savings  to  the                                                                    
state through 2029.                                                                                                             
                                                                                                                                
Mr.  Kalawarski  continued  to  slide  6  which  showed  the                                                                    
projections   after  HB   220   and  after   a  12   percent                                                                    
contribution   increase.  He   explained   that  if   member                                                                    
contributions  went up  to 12  percent, the  cost of  HB 220                                                                    
would be  significantly lower. He  relayed that  Cheiron had                                                                    
also  completed various  stress  tests  to the  projections,                                                                    
such  as comparing  the projections  in a  bear market  to a                                                                    
bull market.  In all tests,  the modified version of  HB 220                                                                    
would be less expensive than the current situation.                                                                             
                                                                                                                                
9:27:55 AM                                                                                                                    
                                                                                                                                
Mr.  Kalawarski discussed  the PRPA  risk sharing  impact on                                                                    
liabilities on slide  9. He noted that  recent inflation had                                                                    
exceeded  8  percent.  Cheiron had  calculated  that  a  one                                                                    
percent reduction in PRPA reduced  liabilities by about $200                                                                    
million.  The risk  sharing  tools at  the  disposal of  the                                                                    
state were in excess of half a billion dollars.                                                                                 
                                                                                                                                
Mr. Kalawarski  indicated that Cheiron  had consulted  on at                                                                    
least half  of the statewide  pension funds in  the country.                                                                    
He  had  been  personally  responsible for  the  success  of                                                                    
various state  pension funds since  he began at the  firm in                                                                    
1988.                                                                                                                           
                                                                                                                                
9:29:45 AM                                                                                                                    
                                                                                                                                
PERTER  HARDCASTLE, ACTUARY,  CHEIRON (via  teleconference),                                                                    
introduced  himself and  stated  that he  was available  for                                                                    
questions.                                                                                                                      
                                                                                                                                
9:30:12 AM                                                                                                                    
                                                                                                                                
Representative  Johnson  asked   whether  the  7.38  percent                                                                    
projected yearly growth  figure was given to  Cheiron or was                                                                    
it calculated by Cheiron.                                                                                                       
                                                                                                                                
Mr. Kalawarski  responded that  it was  the number  that was                                                                    
currently assumed  by Buck. Cheiron accepted  Buck's numbers                                                                    
and  had  not  had  time  to examine  the  accuracy  of  the                                                                    
projection.  He had  no  reason to  believe  the figure  was                                                                    
unreasonable.                                                                                                                   
                                                                                                                                
Representative  Johnson  asked  if   7.38  percent  was  the                                                                    
assumed rate of return.                                                                                                         
                                                                                                                                
Mr. Kalawarski  replied that it  was the  current assumption                                                                    
and Cheiron's cost estimates were  based on the number. They                                                                    
had done  stress tests which  showed returns  different than                                                                    
7.38.                                                                                                                           
                                                                                                                                
Representative Johnson was trying  to understand the rate of                                                                    
return, being that  the permanent fund had a  rate of return                                                                    
of  5.5 percent.  She noted  the  significant difference  in                                                                    
return rate. She asked how  much risk the state would assume                                                                    
if the projected rate of return was not achieved.                                                                               
                                                                                                                                
Mr.  Kalawarski  indicated that  most  of  the analysis  was                                                                    
based on comparing  the system prior to HB 220  and after HB
220  as  modified.  He understood  that  there  were  risks,                                                                    
however under  the current arrangement,  there were  no risk                                                                    
sharing tools.                                                                                                                  
                                                                                                                                
Co-Chair Merrick  asked for copies  of the  different stress                                                                    
tests he had mentioned.                                                                                                         
                                                                                                                                
Mr. Kalawarski would get them to the committee.                                                                                 
                                                                                                                                
9:33:32 AM                                                                                                                    
                                                                                                                                
Representative LeBon  understood needing to manage  the risk                                                                    
for the state.  He understood that efforts  such as lowering                                                                    
the expected  rate of return  on investments  and increasing                                                                    
the cap for employee contributions  aimed to manage the risk                                                                    
to the state.  He assumed that there was a  risk of the plan                                                                    
becoming  underfunded.  He  asked if  Mr.  Kalawarski  could                                                                    
provide  assurance  that  the  state  would  not  experience                                                                    
underfunding   in  the   future.  He   asked  if   the  plan                                                                    
participants  would  share  the  risk  in  reduced  benefits                                                                    
should the plan become underfunded.                                                                                             
                                                                                                                                
Mr. Kalawarski replied that  under the existing arrangement,                                                                    
defined  contribution plan  members assumed  100 percent  of                                                                    
the risk  of possible  underfunding. The  risk under  HB 220                                                                    
would be not  nearly as severe as  the defined contributions                                                                    
system. A  strategy to prevent underfunding  that had worked                                                                    
in other states  such as Maine was taking  measures to lower                                                                    
the discount rate whenever there was  a drop in the rate due                                                                    
to   good    performance.   The   strategy    ensured   that                                                                    
contributions would not have to be increased.                                                                                   
                                                                                                                                
9:36:14 AM                                                                                                                    
                                                                                                                                
Representative  LeBon   noted  that  if  a   private  sector                                                                    
employee retired with a 401k  and rolled it into an annuity,                                                                    
the employee  would receive a  certain payment per  month in                                                                    
retirement. The  risk of the annuity  was the responsibility                                                                    
of the  seller of  the annuity who  had committed  to paying                                                                    
the  employee a  particular amount  of money  throughout the                                                                    
employee's  retirement. He  asked how  a similar  risk would                                                                    
not be internalized to the state under HB 220.                                                                                  
                                                                                                                                
Representative Hopkins  responded that there was  upwards of                                                                    
half  a billion  dollars in  risk sharing  opportunities for                                                                    
ARMB  to set.  If the  market went  down and  there was  not                                                                    
enough money to pay out  the employee benefits, ARMB had the                                                                    
opportunity   to   increase    the   employee   contribution                                                                    
percentage which would  be injected back into  the system to                                                                    
help supplement  the decline  in the  economy. Additionally,                                                                    
not  distributing  a PRPA  or  COLA  would save  about  $200                                                                    
million. It  resulted in  about $500  million that  could be                                                                    
adjusted  at  the  risk  of  the  employees.  Alaska  had  a                                                                    
requirement in the Constitution of  the State of Alaska that                                                                    
pensions  to retirees  could not  be diminished.  There were                                                                    
currently two actuaries  looking at the analysis  of ARMB to                                                                    
ensure  that  the  correct numbers  were  being  calculated.                                                                    
There was  always a risk  associated with a  defined benefit                                                                    
plan, but the risk was  long-term and leveled out over time.                                                                    
In about  30 years, the  state would see an  overfunded plan                                                                    
unless there  was an extreme  circumstance like  an economic                                                                    
collapse.                                                                                                                       
                                                                                                                                
9:40:41 AM                                                                                                                    
                                                                                                                                
Representative   LeBon  appreciated   the  explanation.   He                                                                    
suggested that there  was an internalized risk  to the state                                                                    
no matter  the risk  to the employee.  If the  state entered                                                                    
into a  defined benefit plan,  the state would have  a legal                                                                    
obligation to protect  the plan. He wanted  to recognize the                                                                    
reality of that risk.                                                                                                           
                                                                                                                                
Representative Hopkins  responded that  Representative LeBon                                                                    
was correct.  The root cause  of the  bill was the  issue of                                                                    
retention  and recruitment  and the  impacts it  had on  the                                                                    
performance of  students and the overall  performance of the                                                                    
state. The bill  could offset these issues,  which imposed a                                                                    
threat to  the wellbeing  of the  state. There  were studies                                                                    
that  showed  a  direct   causation  between  reductions  in                                                                    
teacher retention  and student  performance. He  agreed that                                                                    
there was a risk to  the state constitutionally but wondered                                                                    
if   that  risk   outweighed   the   continued  decline   in                                                                    
performance and retention in schools.                                                                                           
                                                                                                                                
9:42:43 AM                                                                                                                    
                                                                                                                                
Representative Wool touched on the  topic of risk. He agreed                                                                    
that there  was risk in  doing nothing because the  issue of                                                                    
recruitment and  retention needed  to be addressed.  He also                                                                    
noted the cost  burden of retraining new employees  due to a                                                                    
lack of  retention. He suggested  that the cost  of training                                                                    
and was not included in any of the calculations.                                                                                
                                                                                                                                
Representative Hopkins replied in the affirmative.                                                                              
                                                                                                                                
Representative  Wool thought  that  if  economic times  were                                                                    
hard, employees would be required  to contribute more monies                                                                    
to make up  for the loses. The benefit amount  could also be                                                                    
reduced.  He thought  this would  mean that  employees would                                                                    
pay more and receive less.                                                                                                      
                                                                                                                                
Representative Hopkins  indicated employees would  pay more,                                                                    
however it was not permitted  to distribute a lower check to                                                                    
the employees than what was  in statute. The check could not                                                                    
be lowered but the check would also not be increased.                                                                           
                                                                                                                                
Representative  Wool asked  for  more information  regarding                                                                    
additional health costs.  He wondered if there  was a health                                                                    
plan  once  employees  turned  65 or  would  they  be  fully                                                                    
reliant on Medicare.                                                                                                            
                                                                                                                                
Representative Hopkins  answered that the bill  did not have                                                                    
a   healthcare   plan   component.   The   defined   benefit                                                                    
contribution  for Tiers  3 and  4 TERS  employees would  not                                                                    
change. There was  a sliding scale once  the employee turned                                                                    
65  and the  employee  would  pay a  certain  amount of  the                                                                    
insurance premium. The system in  place would not be altered                                                                    
by the  bill. The change proposed  by the bill was  to allow                                                                    
employees  aged  65  or older  to  collect  health  benefits                                                                    
without needing  to retire. He explained  that employees who                                                                    
retired before  turning 65  would no  longer be  required to                                                                    
pay  a monthly  premium until  they turned  65. However,  if                                                                    
this element was decoupled from  the bill, it would save the                                                                    
state  money.  He was  amenable  to  the  change if  it  was                                                                    
desired.                                                                                                                        
                                                                                                                                
9:48:04 AM                                                                                                                    
                                                                                                                                
Representative Wool  asked for the definition  of a discount                                                                    
rate  and for  examples of  the contribution  rate of  other                                                                    
states such as Maine.                                                                                                           
                                                                                                                                
Mr.   Kalawarski   responded   that   every   pension   fund                                                                    
contribution  and  investment  income  had to  pay  for  all                                                                    
benefits  and  expenses.  The  discount  rate  examined  the                                                                    
expected  amount of  investment  earnings.  If 7.38  percent                                                                    
earnings  were   assumed,  the  contribution   amount  would                                                                    
correlate  appropriately.   If  10  percent   earnings  were                                                                    
assumed,  the  contribution  amount  would  be  reduced.  If                                                                    
earnings  were  lower  than 7.38,  the  contribution  amount                                                                    
would be higher. It was what was expected to be earned.                                                                         
                                                                                                                                
Representative Wool asked for Maine's contribution rate.                                                                        
                                                                                                                                
Mr. Kalawarski replied  that since 1986 it  had been between                                                                    
15 and 20 percent.                                                                                                              
                                                                                                                                
Representative  Wool clarified  that the  rate proposed  for                                                                    
Alaska was between 8 and 12 percent.                                                                                            
                                                                                                                                
Mr.  Kalawarski  responded  that   was  the  correct  member                                                                    
contribution. The 15  to 20 percent rate was  what the state                                                                    
would pay.                                                                                                                      
                                                                                                                                
Representative Wool  asked what the member  contribution was                                                                    
in Maine.                                                                                                                       
                                                                                                                                
Mr.  Kalawarski  responded  that  it  varied  by  group.  He                                                                    
estimated that it ranged from 5 percent to 8 percent.                                                                           
                                                                                                                                
Representative Hopkins expounded  that Buck's analysis (copy                                                                    
on  file)  on  page  3,  line  7  stated  that  the  state's                                                                    
contribution  rate   into  the  fund  was   currently  25.65                                                                    
percent. The  previous version of  HB 220 (version  A) would                                                                    
have seen  an increase of  the state's contribution  of 0.79                                                                    
percent.  The   increase  had  been  estimated   before  the                                                                    
employee contribution  had been  increased to 8  percent. He                                                                    
had not had the 0.79  number adjusted and reevaluated but he                                                                    
planned to do  so. The goal was that 0.79  would decrease to                                                                    
a negative number. The proposed  8 percent contribution rate                                                                    
would lower the yearly payments for  TRS. He hoped to see it                                                                    
mirrored in PERS as well.                                                                                                       
                                                                                                                                
9:52:15 AM                                                                                                                    
                                                                                                                                
Vice-Chair Ortiz thought the discussion  was broad. He asked                                                                    
if   Representative  Hopkins   had   already  informed   the                                                                    
committee of  the number  of states  that currently  did not                                                                    
have a defined benefit program for teachers.                                                                                    
                                                                                                                                
Representative Hopkins  indicated Alaska was the  only state                                                                    
without a defined benefit for teachers.                                                                                         
                                                                                                                                
Vice-Chair  Ortiz  mentioned he  was  sent  a picture  of  a                                                                    
teacher  recruitment fair  in another  state and  there were                                                                    
more  recruiters than  applicants.  The bill  would help  to                                                                    
make  Alaska  more  competitive in  what  was  an  extremely                                                                    
competitive  market.  He thought  the  state  had to  become                                                                    
competitive to  attract teachers.  He hoped  better outcomes                                                                    
would result from the passage of the bill.                                                                                      
                                                                                                                                
9:55:17 AM                                                                                                                    
                                                                                                                                
Representative  Johnson agreed  that  it was  vital to  have                                                                    
better  outcomes and  better education  for the  children of                                                                    
Alaska. She asked  if there was a  comparative chart showing                                                                    
that  a defined  benefit plan  led to  better outcomes.  She                                                                    
questioned whether  defined benefits  were working  in other                                                                    
states  considering  other  states  also  were  experiencing                                                                    
recruitment and retention issues.                                                                                               
                                                                                                                                
Representative Hopkins  indicated Alaska also had  job fairs                                                                    
for  teachers   and  the  number  of   applicants  had  been                                                                    
dropping.   He   had   spoken   with   many   teachers   and                                                                    
administrators  who had  identified  the lack  of a  defined                                                                    
benefits  plan as  a key  driver for  reduced retention  and                                                                    
recruitment.  He relayed  that  teachers, firefighters,  and                                                                    
other  public  employees  indicated they  were  leaving  the                                                                    
state because  of a lack  of financial  incentives. Multiple                                                                    
studies done  by DOA  indicated that the  lack of  a defined                                                                    
benefit plan was  one of the top three  reasons for teachers                                                                    
leaving  the  state.  He thought  that  offering  a  defined                                                                    
benefit  plan was  the number  one  thing legislators  could                                                                    
reasonably do to keep teachers in the state.                                                                                    
                                                                                                                                
Representative Johnson  suggested that  the "grand  exit" of                                                                    
employees  was  difficult to  pin  on  the lack  of  defined                                                                    
benefits. She would have to do additional research.                                                                             
                                                                                                                                
Representative  Hopkins agreed  that it  was exacerbated  by                                                                    
the "great  resignation" currently  taking place  across the                                                                    
nation. However,  it was not  a new  issue and did  not come                                                                    
about due  to the  great resignation.  The problem  had been                                                                    
getting worse over the past 15 years.                                                                                           
                                                                                                                                
9:59:30 AM                                                                                                                    
                                                                                                                                
Representative   LeBon   understood    the   motivation   of                                                                    
legislators 15 years ago to  pivot to a defined contribution                                                                    
plan based roughly on the  private sector. He thought that a                                                                    
defined benefit  program represented a  decades-long promise                                                                    
to  employees.  He asked  if  the  discount rates  of  other                                                                    
states  had  been  examined.   He  suggested  splitting  the                                                                    
difference  and  offering a  discount  rate  closer to  6.75                                                                    
percent. He asked  what it might look like  if the long-term                                                                    
expectation for returns was reduced.                                                                                            
                                                                                                                                
Mr. Kalawarski responded that the  discount rate was decided                                                                    
by ARMB  and its  advisors. He  noted that  Maine's discount                                                                    
rate was  at 6.5 percent,  but no matter the  discount rate,                                                                    
the current program  costs would also be  impacted before HB
220  and would  also be  impacted after  HB 220.  The result                                                                    
would  be similar,  but the  program costs  would be  higher                                                                    
with a lower discount rate.                                                                                                     
                                                                                                                                
10:02:30 AM                                                                                                                   
                                                                                                                                
Representative Wool  noted the significant  discussion about                                                                    
Alaska being the only state  without a defined benefit plan.                                                                    
He  wondered  if there  was  a  trend  for states  to  offer                                                                    
defined  contribution  plans  and  then  return  to  defined                                                                    
benefit plans. He  asked if there had been  a pendulum swing                                                                    
and thought that it was typical  for Alaska to be behind the                                                                    
pendulum swing.                                                                                                                 
                                                                                                                                
Mr. Kalawarski responded that there  was a pendulum swing in                                                                    
the 1990s.  For example,  West Virginia had  offered defined                                                                    
contribution plans in the 90s  but had returned to a defined                                                                    
benefit plan.  The most  recent state  to change  to defined                                                                    
contribution was  Oklahoma. Other  states had  a combination                                                                    
of  defined  benefit  and defined  contribution  plans  that                                                                    
allowed employees to make the choice for themselves.                                                                            
                                                                                                                                
Representative  Wool asked  how much  of the  pendulum swing                                                                    
back to defined  benefits was due to economics  and how much                                                                    
was  due to  functionality and  the resulting  difficulty in                                                                    
employee retention.                                                                                                             
                                                                                                                                
Mr. Kalawarski replied it was  a combination of factors, but                                                                    
economics  were   partially  responsible.   Investment  fees                                                                    
associated  with   defined  contribution  plans   that  were                                                                    
absorbed by  the investment industry  dwarfed the  fees that                                                                    
were paid to  defined benefit plans. It was  in the interest                                                                    
of the  investment industry to  lobby legislators  to change                                                                    
to a defined contribution plan.                                                                                                 
                                                                                                                                
10:05:32 AM                                                                                                                   
                                                                                                                                
Co-Chair Merrick OPENED public testimony.                                                                                       
                                                                                                                                
RONALD VIGIL,  PRESIDENT, ALASKA PEACE  OFFICER ASSOCIATION,                                                                    
ANCHORAGE CHAPTER, ANCHORAGE  (via teleconference), spoke in                                                                    
support  of   HB  220.  He  emphasized   the  importance  of                                                                    
recruiting  law enforcement  officers and  educators in  the                                                                    
state. Employees  that had been  with the state  for decades                                                                    
were promised specific benefits  since 2006. After 2026, the                                                                    
state stood to lose a number  of Tier 3 employees. He wanted                                                                    
to  offer   a  defined   benefit  plan  for   peace  officer                                                                    
employees.  He appreciated  the  committee  for hearing  the                                                                    
bill and reiterated his support.                                                                                                
                                                                                                                                
10:08:04 AM                                                                                                                   
                                                                                                                                
NORM  WOOTEN, ASSOCIATION  OF  ALASKA  SCHOOL BOARDS,  TEXAS                                                                    
(via  teleconference),  spoke  in  support of  HB  220.  The                                                                    
teacher  shortage was  a  problem not  only  in Alaska,  but                                                                    
across the  nation. However, it  was particularly  severe in                                                                    
Alaska. The  current teacher workforce was  getting close to                                                                    
retirement  and  there  were  not  enough  new  teachers  to                                                                    
replace them. Additionally, young  teachers were leaving for                                                                    
positions  outside   of  Alaska  and  the   current  defined                                                                    
contribution  system  was to  blame.  It  appeared that  the                                                                    
proposed  bill  would be  cost  neutral  for the  state.  He                                                                    
reiterated his support for the bill.                                                                                            
                                                                                                                                
10:09:39 AM                                                                                                                   
                                                                                                                                
STEVE   DEVRIES,  SELF,   ANCHORAGE  (via   teleconference),                                                                    
supported the  passage of  HB 220. He  was a  state employee                                                                    
and  retired  from state  service  after  20 years.  He  had                                                                    
personal   experience   with   recruitment   and   retention                                                                    
difficulties  after 2006.  He relayed  that after  2006, the                                                                    
quality  of applicants  decreased,  and  retention became  a                                                                    
significant  issue. It  was difficult  to  compete with  the                                                                    
private  sector  which could  offer  a  much higher  salary.                                                                    
There was  little or no  incentive for employees to  stay in                                                                    
state jobs  without a proper pension  plan. Poor recruitment                                                                    
and  retention  also resulted  in  a  loss of  institutional                                                                    
knowledge. Existing staff were  required to constantly train                                                                    
and  retrain new  hires as  they came  and went  as well  as                                                                    
cover  work  that  would have  otherwise  been  assigned  to                                                                    
employees in  vacant positions. The  use of  outside counsel                                                                    
become  more of  an  acute  need. He  thought  HB 220  would                                                                    
benefit  the  state  especially if  the  cost  would  remain                                                                    
neutral for the state.                                                                                                          
                                                                                                                                
10:12:49 AM                                                                                                                   
                                                                                                                                
JAN CAROLYN  HARDY, STATE PRESIDENT, AMERICAN  FEDERATION OF                                                                    
STATE,   COUNTY  &   MUNICIPAL  EMPLOYEES,   ANCHORAGE  (via                                                                    
teleconference),  supported   HB  220.  The  impact   of  an                                                                    
insecure retirement system was  often only understood when a                                                                    
person  reached  the  age  of  70.  The  promise  of  social                                                                    
security  did  not  last  for  public  employees,  which  he                                                                    
identified  as the  first  loss. The  second  loss was  when                                                                    
stock   market    volatility   greatly    impacted   defined                                                                    
compensation employees. The lure of  Alaska only went as far                                                                    
as the ability to secure a  solid retirement in old age. She                                                                    
emphasized that  HB 220 was  cost neutral, and the  risk was                                                                    
shared between the state and  the employee. Additionally, HB
220 provided  a choice to employees  between defined benefit                                                                    
and  defined contribution  plans.  She urged  support of  HB
220.                                                                                                                            
                                                                                                                                
10:15:09 AM                                                                                                                   
                                                                                                                                
KATHLEEN YERBICH, SELF,  WASILLA (via teleconference), spoke                                                                    
in support  of HB 220.  After working  as a teacher  for the                                                                    
state for 20  years, she would receive $852  per month after                                                                    
retirement. She checked her social  security account and was                                                                    
informed  that because  she  was a  teacher  in Alaska,  she                                                                    
would not  receive all  the monies in  her account.  She had                                                                    
several jobs that required her  to pay into social security,                                                                    
but she  was being  penalized for being  a teacher.  She had                                                                    
been speaking  and writing  letters to  the state  for years                                                                    
about  the  issue  and would  continue  until  the  punitive                                                                    
system was dismantled. She asked members to pass HB 220.                                                                        
                                                                                                                                
10:17:31 AM                                                                                                                   
                                                                                                                                
NATHAN   ERFURTH,  PRESIDENT,   KENAI  PENINSULA   EDUCATION                                                                    
ASSOCIATION, KENAI  (via teleconference), urged  support for                                                                    
HB 220.  He noted  Alaska was  the only  state that  did not                                                                    
have  a defined  benefit plan  for its  teachers. He  argued                                                                    
that  districts could  not compete  because  of the  current                                                                    
system in place.  He noted that high  teacher turnover rates                                                                    
where experienced  teachers were  retiring and  new teachers                                                                    
were  repeatedly  being  replaced would  naturally  lead  to                                                                    
worse testing  outcomes for students. It  impacted the state                                                                    
because  a  strong  education  system   made  for  a  strong                                                                    
workforce  and   economy.  Alaska  needed  to   support  the                                                                    
teachers   responsible  for   educating  its   children.  He                                                                    
suggested that  the state  needed to take  on the  risk that                                                                    
had been offloaded onto students.                                                                                               
                                                                                                                                
10:19:47 AM                                                                                                                   
                                                                                                                                
RYAN FROST, REASON  FOUNDATION, OREGON (via teleconference),                                                                    
spoke  in  opposition of  HB  220.  He thought  the  Cheiron                                                                    
analysis  was  incomplete.  He  suggested  that  more  tests                                                                    
should be  done to  examine potential outcomes.  He wondered                                                                    
how costs would  increase to the state and  thought that the                                                                    
projections   were   too    optimistic.   He   argued   that                                                                    
implementing the  system at a lower  contribution rate would                                                                    
be more reasonable. He challenged  the notion that a pension                                                                    
was what kept employees in their jobs.                                                                                          
                                                                                                                                
10:23:19 AM                                                                                                                   
                                                                                                                                
DANIELLE LOGAN, SELF,  FAIRBANKS (via teleconference), spoke                                                                    
in  support  of HB 220.  She  thought  that educators  hired                                                                    
after  2006 were  uniquely vulnerable.  She argued  that the                                                                    
state   had  experienced   low-quality   educators  due   to                                                                    
difficulty  in recruitment  and  the  quality would  improve                                                                    
with the passage of the bill.  There was a trend that showed                                                                    
that  the schools  with the  highest turnover  rates in  the                                                                    
state had the worst student  reading scores. There needed to                                                                    
be  more  stability  for teachers  and  retirement  security                                                                    
would contribute to the retention  of educators. She thanked                                                                    
members for supporting HB 220.                                                                                                  
                                                                                                                                
10:25:59 AM                                                                                                                   
                                                                                                                                
COREY  AIST,  PRESIDENT,  ANCHORAGE  EDUCATION  ASSOCIATION,                                                                    
ANCHORAGE   (via   teleconference),    indicated   that   he                                                                    
represented all  certified educators in  Anchorage's schools                                                                    
apart from principals. He supported  HB 220. Alaska had been                                                                    
plagued  with  recruitment  and retention  difficulties.  He                                                                    
noted  that   Anchorage  had  over  100   unfilled  teaching                                                                    
positions  and many  unfilled  support  staff positions.  He                                                                    
argued that  he repeatedly heard from  educators that fixing                                                                    
the  retirement  system was  the  number  one issue  in  the                                                                    
state. He strongly urged members to support HB 220.                                                                             
                                                                                                                                
WADE   HARRISON,   PRESIDENT,    ALASKA   PUBLIC   EMPLOYEES                                                                    
ASSOCIATION LOCAL 6141, NOME  (via teleconference), spoke in                                                                    
support  of the  bill.  He reported  that  88 employees  had                                                                    
turned over in  Nome since 2019. Teachers  were not retiring                                                                    
from Nome  anymore and  the district  was simply  a training                                                                    
ground for  other states.  He asked  members to  consider HB
220.                                                                                                                            
                                                                                                                                
10:30:40 AM                                                                                                                   
AT EASE                                                                                                                         
                                                                                                                                
10:31:32 AM                                                                                                                   
RECONVENED                                                                                                                      
                                                                                                                                
WINTER  MARSHALL-ALLEN,  SELF, HOMER  (via  teleconference),                                                                    
thanked Representative Hopkins for  bringing HB 220 forward.                                                                    
She  had been  a  teacher for  15 years  and  has taught  in                                                                    
Alaska  for seven  years.  She had  previously  taught in  a                                                                    
state with  a defined  benefit plan.  She had  thought about                                                                    
leaving  the  education  profession   entirely  due  to  the                                                                    
difficult conditions  for educators  in Alaska. There  was a                                                                    
dire need for stability from  the state and the state needed                                                                    
to  reciprocate support  to educators  who  invested in  the                                                                    
state.  She spoke  of retention  issues  with educators  and                                                                    
peace  officers. She  thought the  legislature could  have a                                                                    
significant impact by passing HB 220.                                                                                           
                                                                                                                                
10:34:35 AM                                                                                                                   
                                                                                                                                
KIM  HAYS, ALASKA  AFL-CIO, ANCHORAGE  (via teleconference),                                                                    
spoke in support of HB 220.  She shared that one of the core                                                                    
values of the union was  dignity of life in post-employment.                                                                    
There were public employees  contemplating leaving the state                                                                    
in order to obtain a  job that provided a secure retirement.                                                                    
She emphasized  that the retirement  system was  in jeopardy                                                                    
and the  state was not  treating its public  employees well.                                                                    
She  emphasized the  cost neutral  nature of  the bill.  The                                                                    
state was  losing money and  talent due to  an unprecedented                                                                    
recruitment and retention crisis.  She strongly supported HB
220 and urged members to move the bill out of committee.                                                                        
                                                                                                                                
10:37:48 AM                                                                                                                   
                                                                                                                                
SANDI RYAN,  SELF, FAIRBANKS (via teleconference),  has been                                                                    
a teacher in  Fairbanks for 28 years. She  thought there was                                                                    
a  lack  of understanding  of  the  guaranteed risk  of  not                                                                    
having quality teachers in the  state. She relayed that when                                                                    
she  first applied  for  a teaching  position  in Alaska  30                                                                    
years ago, there  was not a single opening.  Now, there were                                                                    
many  teaching  positions  that had  been  unfilled  for  an                                                                    
extended period  of time.  She thought  the grim  reality of                                                                    
the state of retirement  for new teachers was heartbreaking.                                                                    
The state was  training teachers but quickly  losing them to                                                                    
more   lucrative  opportunities   in   states  with   secure                                                                    
retirement plans. She urged support of HB 220.                                                                                  
                                                                                                                                
10:39:53 AM                                                                                                                   
                                                                                                                                
EMILY MOODY,  SELF, CORDOVA  (via teleconference),  spoke in                                                                    
support of  HB 220. She had  been teaching in the  state for                                                                    
11 years  and was  a Tier  III employee.  She felt  that the                                                                    
bill was  a fix  for Alaska's  broken retirement  system and                                                                    
would improve  retention and  recruitment. She  had recently                                                                    
read an  article that stated  that many teachers  were drawn                                                                    
to  the  profession  because   of  stable  retirement  plans                                                                    
usually  involving  defined  benefits. Reading  the  article                                                                    
brought her  to tears because  she was reminded  that Alaska                                                                    
was the only state that did  not have a defined benefit plan                                                                    
and  teachers   were  denied  access  to   social  security.                                                                    
Teachers  in  the   state  did  hard  work   with  the  most                                                                    
vulnerable population  in a state  with the highest  cost of                                                                    
living  and received  very little  in return.  There was  no                                                                    
guarantee of being able to  retire with dignity. She relayed                                                                    
that  73  percent of  teachers  would  likely outlive  their                                                                    
retirement  savings.  The  turnover   rate  cost  the  state                                                                    
millions   of  dollars   in   training   and  hurt   student                                                                    
achievement. It  took an amazing  amount of  time, training,                                                                    
and dedication  to be a  successful teacher. The  passage of                                                                    
the  bill would  allow her  to  no longer  need to  consider                                                                    
packing  up her  family  and moving  away  from Alaska.  She                                                                    
urged the passage of the bill.                                                                                                  
                                                                                                                                
10:43:23 AM                                                                                                                   
                                                                                                                                
HERMAN BECKER,  SELF, JUNEAU (via teleconference),  spoke in                                                                    
support of HB 220. He and  his wife were teachers in Juneau.                                                                    
He  thought that  the state  was spending  significant time,                                                                    
energy, and money  to train new teachers only  to lose them.                                                                    
He provided some  details of his teaching  career in Alaska.                                                                    
He did not  fully understand the weight of being  a Tier III                                                                    
employee  when he  began  teaching in  the  state. He  spoke                                                                    
about how  much he  loved teaching  and expressed  that most                                                                    
mornings when he was getting  ready for work, he was excited                                                                    
to go.  He urged  support of  HB 220. He  hoped he  would be                                                                    
able to stay in Alaska.                                                                                                         
                                                                                                                                
10:47:14 AM                                                                                                                   
                                                                                                                                
SARAH  CAMPBELL,   SELF,  KETCHIKAN   (via  teleconference),                                                                    
supported HB 220. She was a  lifelong Alaskan and had been a                                                                    
teacher for  22 years.  She believed strongly  that students                                                                    
needed and  deserved the best  teachers they could  get. She                                                                    
thought the bill would go  a long way in motivating teachers                                                                    
to stay  in the state.  She had contemplated  leaving Alaska                                                                    
due to  the instability of  her retirement account,  but she                                                                    
wanted to  stay. She spoke  of the difficulty  of recruiting                                                                    
Alaska State  Troopers as well due  to the lack of  a stable                                                                    
retirement   plan.  She   thought  HB   220  was   essential                                                                    
legislation  for the  state. She  thanked members  for their                                                                    
energy and time on the bill.                                                                                                    
                                                                                                                                
Vice-Chair Ortiz thanked Ms. Campbell  for her testimony. He                                                                    
shared  that Ms.  Campbell  had  been a  student  of his  in                                                                    
Ketchikan.                                                                                                                      
                                                                                                                                
10:50:26 AM                                                                                                                   
                                                                                                                                
Co-Chair Merrick CLOSED public testimony.                                                                                       
                                                                                                                                
Co-Chair Merrick  indicated amendments  for HB 220  were due                                                                    
by  noon  on  Tuesday,  April  19,  2022.  She  thanked  the                                                                    
presenters  and  reviewed  the   agenda  for  the  afternoon                                                                    
meeting.                                                                                                                        
                                                                                                                                
10:51:16 AM                                                                                                                   
                                                                                                                                
Representative LeBon  commented that  there was  an analysis                                                                    
from  Buck in  the  committee packets.  He  wondered how  to                                                                    
request a "Monte Carlo analysis"  that assumed a 6.5 percent                                                                    
discount rate rather than the proposed 7.38 percent.                                                                            
                                                                                                                                
Co-Chair Merrick had already  requested the information from                                                                    
the bill sponsor and would distribute it.                                                                                       
                                                                                                                                
HB  220  was  HEARD  and   HELD  in  committee  for  further                                                                    
consideration.                                                                                                                  
                                                                                                                                

Document Name Date/Time Subjects
HB 220 Public Testimony Rec'd by 041322.pdf HFIN 4/14/2022 9:00:00 AM
HB 220
HB220-CS Presentation 4.14.2022.pdf HFIN 4/14/2022 9:00:00 AM
HB 220
HB220 - Buck Analysis 032422.pdf HFIN 4/14/2022 9:00:00 AM
HB 220
HB220 - Cheiron Presentation 4.14.2022.pdf HFIN 4/14/2022 9:00:00 AM
HB 220
HB220 - CS WorkDraft Version B 041322.pdf HFIN 4/14/2022 9:00:00 AM
HB 220