Legislature(2021 - 2022)ANCH LIO DENALI Rm
11/08/2021 04:00 PM House LABOR & COMMERCE
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| Audio | Topic |
|---|---|
| Start | |
| HB220 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 220 | TELECONFERENCED | |
HB 220-RETIREMENT SYSTEMS; DEFINED BENEFIT OPT.
4:01:27 PM
CO-CHAIR FIELDS announced that the only order of business would
be 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."
4:01:39 PM
REPRESENTATIVE GRIER HOPKINS, Alaska State Legislature, as prime
sponsor, presented HB 220. He said the proposed legislation
would give employees the option to choose between defined
contribution and defined benefit plans of Alaska's public
employee retirement system; the defined benefit plan was removed
as an option for employees hired in 2006 and forward.
REPRESENTATIVE HOPKINS began a PowerPoint presentation [hard
copy included in the committee packet]. He said employees have
been asking for a plan that will allow them a career path in
public service with a guarantee of what will be provided at
retirement. He stated that there is a recruitment and retention
crisis; some employees on the 401K plan cannot collect social
security benefits; and HB 220 would avoid additional medical
costs and protect the state from unfunded liabilities by sharing
the risk with employees.
REPRESENTATIVE HOPKINS said the City of Fairbanks police have
nine vacant positions and are offering a $20,000 sign-on bonus
[slide 3]. He said the Department of Public Safety (DPS) has
reported that it is struggling to attract applicants as the
perception is the department is underfunded, understaffed, and
lacks a competitive pay and benefits package [slide 4].
4:05:58 PM
REPRESENTATIVE HOPKINS discussed the critical turnover rate of
Alaska's educators, including teachers, principals,
superintendents, and support staff [slide 5]. There are
"leavers" who either leave the state or leave education work for
something else. He talked about the expense of training
educators and the drain to the state when they leave after being
trained. He directed attention to key findings [slide 6],
wherein a Rand Corporation study shows that 6 percent is a
normal turnover nationally, while in Alaska that rate is 22-25
percent. He said Governor Mike Dunleavy is conducting a
$300,000 study to figure out the cause and solution for this
attrition. Representative Hopkins said turnover in education is
worse in rural areas [slide 7]. The average turnover in urban
Alaska is 19 percent for teachers and principals; in rural
Alaska, the numbers increase to 36 percent for teachers and 38
percent for principals. This affects students' ability to
learn.
REPRESENTATIVE HOPKINS related that teacher retention and
recruitment survey results, compiled by the Department of
Education and Early Development (DEED), April 2001, [slide 8],
show eight influence items, three of which pertain to a lack of
[an adequate] retirement system. He said these factors rank
Alaska as the worst place to retire as a teacher.
Representative Hopkins displayed a graph showing the value of a
teacher's 401K after 30 years in the system [slide 9], pointing
out that the graph shows that a teacher would not be able to
maintain a positive balance.
4:11:15 PM
REPRESENTATIVE HOPKINS described how HB 220 would work [slides
9-13]. He said the proposed legislation would restore the
option for a modest pension for Alaskans, while protecting the
state from potential unfunded liabilities, and it would be cost
neutral to Alaska, establishing a pension option using the
existing contribution amount to the defined contribution plan.
It would protect Alaska tax payers with a variable contribution
rate; if the plan's funding falls below 90 percent, employee
contribution rates can rise from 6-8 percent. He said the
proposed legislation would establish employee choice: Those
hired in Tier 3 of the Teachers' Retirement System (TRS) or Tier
4 of the Public Employees' Retirement System (PERS) could choose
between a defined contribution or defined benefit plan and use
their defined contribution accounts to buy years of service
credit in the new system; all future hires would have 90 days to
make the choice. Representative Hopkins said employees are
eligible for retirement after 30 years of employment or at age
60, with reduced time for those working in public safety. The
bill would maintain the status quo for health care benefits; it
would include the same health care benefits as PERS 4 and TRS 3.
4:17:47 PM
REPRESENTATIVE HOPKINS listed the following benefits of HB 220
[slides 17-18]: improved recruitment and retention; long-term
expertise and career; competitiveness with other states;
improved education and public safety results; and efficient use
of state dollars. That concluded the PowerPoint presentation.
4:19:38 PM
REPRESENTATIVE HOPKINS, in response to a question from Co-Chair
Spohnholz, clarified that the retirement eligibility of 30
years' work or 60 years of age is determined by whichever occurs
first. He added that under HB 220, a person no longer has to
"retire straight out of the system" but would not "get the state
support" until age 65.
4:22:25 PM
CO-CHAIR FIELDS announced the committee would hear invited
testimony.
4:22:33 PM
DAN DOONAN, Executive Director, National Institute on Retirement
Security, presented a PowerPoint [hard copy included in the
committee packet] to highlight research done by the National
Institute on Retirement Security as it pertains to the issues
being address under HB 220. He noted there is a variety of plan
designs in the public sector [slide 2], including defined
benefit and defined contribution, and variable combinations of
those. A vertical combination offers defined contribution after
a certain level is reached with defined benefit. There is the
horizontal defined benefit and defined contribution, where the
differences occur depending on how much money is put in each. A
third system is to offer employees a choice. He discussed risk
sharing. He said other states customize their defined benefit
plans. In response to Co-Chair Fields, he described the
horizontal plan as being a "skinny" defined benefit with "a
savings-based plan on the side."
4:27:56 PM
MR. DOONAN shared resources on risk-sharing and state reforms
[slide 3]. He showed a graph chart [slide 4] depicting changes
in enrollment in traditional teacher programs since the
recession of 2017-2018. The national average is down about 47
percent; Alaska is lower. He highlighted pension rates [slide
5] of six defined benefit states, and the graph demonstrates
high retention in middle years for educators in these states.
He followed with a table [slide 6] showing projected teacher age
and service years at exit, which for the six states is a median
of 25 service years and 58 years of age at retirement.
Following that was a figure showing median years of tenure
[slide 7], which hovers around eight years for the public sector
and half that for the private sector.
4:35:44 PM
MR. DOONAN touched on the reasons that the defined contribution
plan costs almost twice as much for same benefits as the defined
benefits plan [slide 8]. In response to Co-Chair Fields, he
said it is less efficient to generate income from a low interest
rate. He moved on to show that under the defined contribution
plan, 15 percent of assets are not used for retirement [slide
9]. A table shows total benefit and estate payments under the
defined contribution plan. Finally, he stated that Michigan
serves as a warning for where Alaska is heading with a "closed
plan" [slide 10]. About 12 percent of assets are going to pay
benefits from the trust; contributions are about 5 percent of
the asset base; and expected investment returns are 7 percent
annually. If they don't make the 7 percent, they start to sell
investments to make benefit payments, which is negative cash
flow. He emphasized that the cashflow situation is important to
think about with a closed plan; either invest more
conservatively to prevent that from happening or don't, but
recognized there will be higher risks on the same investments
made. He said Alaska is at about 9.6 percent with PERS and TRS
combined. That concluded his presentation and he offered to
answer questions from the committee.
4:45:47 PM
MR. DOONAN, in response to Co-Chair Fields, explained that in
particular he worries about the negative cash flow plans when
there is a crash in the stock market. With an open plan, more
money comes in, which maintains balance. He said that in
general, the average public plan will be less cash flow negative
than a closed plan. In response to Co-Chair Spohnholz, he
defined an "open plan" as one where new employees join when
hired; a "closed plan" can mean new hires are not allowed in, or
the current employee is cut off. With the closed plan, he said,
over time [the employer] ends up with a lot of retirees and few
workers. In the ratio of financial risk, the payroll grows
greater over time, he concluded.
4:47:48 PM
LISA PARADY, Executive Director, Alaska Council of School
Administrators, said the Alaska Council of School Administrators
(ACSA) is an umbrella organization for several associations of
superintendents and principals. She stated that ACSA supports
the goals of HB 220, specifically the ability to attract and
retain educators. She said the association advocates for public
education and works collaboratively to draft joint position
statements to list priorities for education, and recruitment and
retention is a top priority. She said ACSA supports programs
that bring in and retain high-quality educators, and that is the
focus of HB 220. She said the association promotes the
strengthening of statewide recruiting efforts. She commented
that years ago Alaska was competitive and there were "lines [of
teacher applicants] out the door." Now Alaska has fallen to be
one of the least competitive states in terms of its retirement
benefit system for educators.
4:51:46 PM
MS. PARADY said the latest report from DEED notes a turnover
rate of 28 percent of school administrators throughout the
state. She indicated a loss of 100 years of experience. She
emphasized the cost of this kind of loss. She explained that
each school spends $20,000 or more per teacher hired, around $20
million annually for recruitment and training of new teachers.
That amount is $75,000 per principal. She said teacher turnover
disrupts student learning. She further relayed that principal
turnover increases teacher turnover rates. Teachers and
administrators are asking that this problem be addressed. She
concluded that educators in Alaska need competitive compensation
and benefits. She reiterated ACSA's support of the goals of HB
220.
4:57:26 PM
JORDAN ADAMS, Business Manager, Secretary/Treasurer, Public
Employees Local 71, described his responsibilities and expressed
support for HB 220. He said Alaska has a problem in retaining
employees. He credited those who have showed up to work during
the pandemic, such as first responders. He said when PERS
changed to Tier 4 [defined contribution] in 2006, the
legislature recognized that wages would need to increase by 21
percent to retain workers. He reported that [the state's]
skilled positions are earning 15-30 percent less than the median
wage currently being paid by the Municipality of Anchorage, and
"the disparity grows" in the private industry. He said skilled
workers are refusing to take jobs, which results in "a revolving
door" of unskilled applicants. The state is losing its skilled
Tier 1-3 employees. He spoke about a next mass exodus of
workers. He indicated there was a survey question regarding
leaving state employment over the issue of wages and benefits,
and he said there was "a survey yield of 95 percent positive."
He opined that wages and benefits are the answer, and HB 220 can
be the first step towards Alaska's recovery. He said he would
be supplying financial reports to the next committee [of
referral], and he offered to answer questions.
5:03:21 PM
JEFF KASPER, Political Director and Southeast Regional Manager,
Alaska Public Employees Association, said the Alaska Public
Employees Association (APEA) is affiliated with the American
Federation of Teachers and represents nearly 7,000 people and 25
bargaining units across Alaska. He listed the three strikes
that Alaska's public employees have against them: those hired
after 2006 will not have a reliable pension when they retire;
the majority of public employees are ineligible to receive their
earned social security benefits from private sector work due to
the federal Windfall Elimination Provision; and Alaska law bars
public employees from earning social security for their public
sector work. He said these factors make recruitment of public
employees increasingly difficult.
MR. KASPER said Alaska's defined contribution plan is not
competitive in today's market place and provides little
incentive to attract quality applicants. Worse, without new
employees contributing to the pension funds, the closed defined
benefit system for PERS and TRS has [exacerbated] the unfunded
liability rather than solving it, he said. Mr. Kasper echoed
previous speakers regarding Alaska's issues related to
recruitment and retention. He said the most recent review
commissioned by [the Legislative Budget and Audit Committee]
concluded that the cost to replace employees earning between
$50,000 and $75,000 a year averages about 20 percent of the
salary for that position. Further, the study showed that high
turnover has a negative impact on the quality and quantity of
services provided. He talked about novel hiring techniques
required as a result of turnover. He mentioned that the annual
cost of teacher turnover for school districts is approximately
$20 million. Mr. Kasper said APEA's internal polling has shown
that the return to the defined benefit plan is its members' top
priority since its end in 2006. He pointed to other surveys
showing support for defined benefit and public pensions. He
stated APEA's support of HB 220, and he offered to answer
questions.
5:08:17 PM
CO-CHAIR SPOHNHOLZ reemphasized Mr. Kasper's point about public
employees being ineligible to earn social security benefits.
5:08:49 PM
CO-CHAIR FIELDS stated his desire to move the proposed
legislation quickly when regular session resumes in 2022. He
talked about the challenges around teacher recruitment.
[HB 220 was held over.]
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB220 ver. A 11.5.21.PDF |
HL&C 11/8/2021 4:00:00 PM HL&C 1/19/2022 3:15:00 PM HL&C 1/26/2022 5:15:00 PM |
HB 220 |
| HB220 Sponsor Statement 11.5.21.pdf |
HL&C 11/8/2021 4:00:00 PM HL&C 1/19/2022 3:15:00 PM HL&C 1/26/2022 5:15:00 PM |
HB 220 |
| HB220 Sectional Analysis ver. A 11.5.21.pdf |
HL&C 11/8/2021 4:00:00 PM HL&C 1/19/2022 3:15:00 PM HL&C 1/26/2022 5:15:00 PM |
HB 220 |
| HB220 Hopkins Slides Bill Overview 11.5.21.pdf |
HL&C 11/8/2021 4:00:00 PM HL&C 1/19/2022 3:15:00 PM HL&C 1/26/2022 5:15:00 PM |
HB 220 |
| HB220 Doonan NIRS Slides 11.5.21.pdf |
HL&C 11/8/2021 4:00:00 PM |
HB 220 |