Legislature(2005 - 2006)CAPITOL 106
04/02/2005 10:00 AM House STATE AFFAIRS
| Audio | Topic |
|---|---|
| Start | |
| HB133 | |
| HB238 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | HB 133 | TELECONFERENCED | |
| += | HB 170 | TELECONFERENCED | |
| += | HB 177 | TELECONFERENCED | |
| += | HB 191 | TELECONFERENCED | |
| += | HB 238 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
HOUSE STATE AFFAIRS STANDING COMMITTEE
April 2, 2005
10:05 a.m.
MEMBERS PRESENT
Representative Paul Seaton, Chair
Representative Jim Elkins
Representative Bob Lynn
Representative Berta Gardner
Representative Max Gruenberg
MEMBERS ABSENT
Representative Carl Gatto, Vice Chair
Representative Jay Ramras
COMMITTEE CALENDAR
HOUSE BILL NO. 133
"An Act relating to regulations of the Local Boundary Commission
to provide standards and procedures for municipal incorporation,
reclassification, dissolution, and certain municipal boundary
changes; and providing for an effective date."
- MOVED CSHB 133(STA) OUT OF COMMITTEE
HOUSE BILL NO. 238
"An Act relating to contribution rates for employers and members
in the defined benefit plans of the teachers' retirement system
and the public employees' retirement system and to the ad-hoc
post-retirement pension adjustment in the teachers' retirement
system; requiring insurance plans provided to members of the
teachers' retirement system, the judicial retirement system, the
public employees' retirement system, and the former elected
public officials retirement system to provide a list of
preferred drugs; relating to defined contribution plans for
members of the teachers' retirement system and the public
employees' retirement system; and providing for an effective
date."
- HEARD AND HELD
HOUSE BILL NO. 170
"An Act relating to the qualifications of public members of the
Public Employees' Retirement Board and the Alaska Teachers'
Retirement Board."
- SCHEDULED BUT NOT HEARD
HOUSE BILL NO. 177
"An Act relating to employee and employer contributions to the
teachers' retirement system and the public employees' retirement
system; and providing for an effective date."
- SCHEDULED BUT NOT HEARD
HOUSE BILL NO. 191
"An Act relating to defined contribution systems for members of
the teachers' retirement system and the public employees'
retirement system; and providing for an effective date."
- SCHEDULED BUT NOT HEARD
PREVIOUS COMMITTEE ACTION
BILL: HB 133
SHORT TITLE: MUNICIPAL BOUNDARY CHANGES/ COMMISSION
SPONSOR(s): REPRESENTATIVE(s) COGHILL
02/09/05 (H) READ THE FIRST TIME - REFERRALS
02/09/05 (H) CRA, STA
02/16/05 (H) SPONSOR SUBSTITUTE INTRODUCED
02/16/05 (H) READ THE FIRST TIME - REFERRALS
02/16/05 (H) CRA, STA
02/24/05 (H) CRA AT 8:00 AM CAPITOL 124
02/24/05 (H) Heard & Held
02/24/05 (H) MINUTE(CRA)
03/03/05 (H) CRA AT 8:00 AM CAPITOL 124
03/03/05 (H) Moved CSSSHB 133(CRA) Out of Committee
03/03/05 (H) MINUTE(CRA)
03/04/05 (H) CRA RPT CS(CRA) 5DP 2NR
03/04/05 (H) DP: SALMON, NEUMAN, KOTT, THOMAS,
OLSON;
03/04/05 (H) NR: LEDOUX, CISSNA
04/02/05 (H) STA AT 10:00 AM CAPITOL 106
BILL: HB 238
SHORT TITLE: PUBLIC EMPLOYEE/TEACHER RETIREMENT
SPONSOR(s): STATE AFFAIRS
03/30/05 (H) READ THE FIRST TIME - REFERRALS
03/30/05 (H) STA, FIN
03/31/05 (H) STA AT 8:00 AM CAPITOL 106
03/31/05 (H) Heard & Held
03/31/05 (H) MINUTE(STA)
04/02/05 (H) STA AT 10:00 AM CAPITOL 106
WITNESS REGISTER
RYNNIEVA MOSS, Staff
to Representative John Coghill
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Introduced HB 133 on behalf of
Representative Coghill, sponsor.
MIKE BLACK, Director
Division Community Advocacy
Department of Commerce, Community, & Economic Development
Anchorage, Alaska
POSITION STATEMENT: Testified on behalf of the department in
opposition to HB 133.
JOHN B. "JACK" COGHILL, SR.
Nenana, Alaska
POSITION STATEMENT: Testified as a former Representative in the
Alaska Territorial Legislature, Senator in the Alaska State
Legislature, and lieutenant governor of Alaska, during the
hearing on HB 133.
PETE ROBERTS, President
Citizens Concerned About Annexation
Homer, Alaska
POSITION STATEMENT: Testified on behalf of Citizens Concerned
About Annexation during the hearing on HB 133.
ROBERT KALLIO
Fairbanks, Alaska
POSITION STATEMENT: Testified on behalf of himself in support
of HB 133.
CAM CARLSON
Fairbanks, Alaska
POSITION STATEMENT: Testified on behalf of herself in support
of HB 133.
GARY PETERSON
Homer, Alaska
POSITION STATEMENT: Testified on behalf of himself in support
of HB 133.
VI JERREL, Ph.D.
Anchor Point, Alaska
POSITION STATEMENT: Testified on behalf of herself and Alaskans
Opposed to Annexation during the hearing on HB 133.
ALAN LeMASTER
Gakona, Alaska
POSITION STATEMENT: Testified on behalf of himself during the
hearing on HB 133.
BILL BJORK, President
NEA-Alaska
Anchorage, Alaska
POSITION STATEMENT: Highlighted key points from his written
testimony during the hearing on HB 238.
WILLY DUNNE, President
Kachemak Bay Chapter
Alaska State Employees' Association (ASEA)
Homer, Alaska
POSITION STATEMENT: Testified on behalf of ASEA during the
hearing on HB 238.
KATIE SHOWS, Staff
to Representative Paul Seaton
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Testified on behalf of Representative
Seaton, Chair of the House State Affairs Standing Committee,
sponsor of HB 238.
TOM HARVEY, Executive Director
NEA-Alaska
Anchorage, Alaska
POSITION STATEMENT: Testified on behalf of NEA-Alaska during
the hearing on HB 238.
BRADLEY FLUETSCH
Juneau, Alaska
POSITION STATEMENT: Testified on behalf of himself during the
hearing on HB 238.
HEATH HILYARD, Staff
to Representative Mike Kelly
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Testified on behalf of Representative Kelly
during the hearing of HB 238.
ACTION NARRATIVE
CHAIR PAUL SEATON called the House State Affairs Standing
Committee meeting to order at 10:05:33 AM. Representatives
Elkins, Lynn, Gardner, and Seaton were present at the call to
order. Representative Gruenberg arrived as the meeting was in
progress.
10:05:54 AM
HB 133-LOCAL BOUNDARY COMMISSION REGS & POWERS
10:06:08 AM
CHAIR SEATON announced that the first order of business was
HOUSE BILL NO. 133, "An Act relating to regulations of the Local
Boundary Commission to provide standards and procedures for
municipal incorporation, reclassification, dissolution, and
certain municipal boundary changes; and providing for an
effective date."
10:06:40 AM
REPRESENTATIVE ELKINS thanked the chair and vice chair of the
boundary commission for their helpfulness and e-mail
correspondence [included in the committee packet].
10:06:48 AM
REPRESENTATIVE LYNN moved to adopt the committee substitute (CS)
for the sponsor substitute (SS) for HB 133, Version 24-LS0512\F,
as a work draft. No objection was stated and Version F was
before the committee.
10:07:42 AM
RYNNIEVA MOSS, Staff to Representative John Coghill, Alaska
State Legislature, introduced HB 133 on behalf of Representative
Coghill, sponsor. She said that under state law, in order for
an area to be annexed, it has to be approved by a majority of
the people who vote in the area that's being annexed. She
stated, "This aggregate regulation undermines that intention.
What it says is that the people within the existing borough and
the people who live in an area to be annexed would all vote on
the annexation .... All of the votes would be pulled together,
and if a majority of that aggregate vote approves, then the
area's annexed." She said Representative Coghill feels strongly
that that's not legislative intent, nor is it the intent of the
Alaska State Constitution. She added, "This piece of
legislation says that regulations that are adopted by the local
boundary commission have to be consistent with state statute.
The commission has, in the past, said that they felt that the
constitution gave them separate authority from the legislature
to do as they want, but that is not Representative Coghill's
contention."
10:09:24 AM
MS. MOSS said that, at the request of the speaker [of the
House], Section 1 was added during the House Community and
Regional Affairs Standing Committee meeting, regarding the
limitations of the local boundary commission. Ms. Moss said the
constitution allows [the boundary commission] to consider
petitions, but does not give it authority to amend a petition or
impose additional conditions on the incorporation. She said
Section 2 was added to the sponsor substitute, which specifies
that, even if the local boundary commission wants to bring a
proposal for incorporation to the legislature, there still has
to be two public hearings and an election of the people.
10:11:05 AM
MS. MOSS noted that Representative Coghill has recommended an
amendment [to be labeled Amendment 1] for the committee to
consider, which would bring annexation in line with how service
areas are formed. When a service area is altered, there is an
election of the people in the service area and, separately, the
people in the proposed annexed area hold an election. Both
elections require a majority vote of the people. This serves
two purposes: it allows people in an area to be annexed to
voice whether or not they want to be in a new municipality, and
it also avoids what could be termed as a hostile takeover. She
offered an example.
10:12:38 AM
CHAIR SEATON directed attention to [lines 11-12 as numbered on
Amendment 1], which read:
(1) a proposed annexation must be approved
by a majority of votes on the question cast by voters
residing in the annexing municipality;
CHAIR SEATON said that is the language that establishes a
separate vote for the municipality, and he asked where the
language was regarding the proposed vote in the area being
annexed.
10:13:15 AM
MS. MOSS replied that that language [is now found in paragraph
(2)], which read as follows:
(2) a proposed annexation or [AND]
detachment must be approved by a majority of votes on
the question cast by voters residing in the area
proposed to be annexed or detached;
10:14:14 AM
REPRESENTATIVE ELKINS asked if [HB 133] deals only with
annexation, not unification or consolidation.
10:14:29 AM
MS. MOSS answered affirmatively.
10:15:51 AM
MIKE BLACK, Director, Division of Community Advocacy, Department
of Commerce, Community, & Economic Development, testified on
behalf of the department in opposition to HB 133. He stated
that the proposed legislation would encumber [the Local Boundary
Commission's] ability to perform under its job description in
the constitution and regulations. In response to Chair Seaton,
he said he has no response to Amendment 1.
10:16:59 AM
JACK COGHILL testified as a former Representative in the Alaska
Territorial Legislature, Senator in the Alaska State
Legislature, and lieutenant governor of Alaska. He reminded the
committee that he was also a member of the Alaska Constitutional
Convention, as well as the chair of the committee that ran the
convention. He said his position is that the first Article in
the constitution is clear: all government originates with the
people and is instituted solely upon the people as a whole. He
said the legislature is the defender of the constitution to
ensure that government structure does not override the will of
the people. The government structure has to have a legislative
approval or vote of the people in order to be able to establish
people within a government unit.
10:19:13 AM
MR. COGHILL directed attention to Section 12, Article 10 of the
Alaska State Constitution, which says the commission or boards
subject to law may establish procedures whereby boundaries may
be adjusted by local action. He stated, "It's the local action
that refers back to Article 1 of the constitution, which
establishes under Section 2 that all government is created by
the people, and by the people solely." He explained that, on
that basis, he has lobbied for many years with the legislature
and now with his son [Representative John Coghill] to ensure
that this provision gets established within the state
government's procedure to allow the people that are going to be
annexed to have the vote.
10:20:15 AM
REPRESENTATIVE ELKINS thanked Lieutenant Governor Jack Coghill
for testifying, and congratulated him on his upcoming award as
"Man of the Year."
10:20:47 AM
CHAIR SEATON expressed his appreciation of Lieutenant Governor
Jack Coghill's past service.
10:20:59 AM
REPRESENTATIVE GRUENBERG noted that the copy of the constitution
that he carries around with him has one autograph on the front.
He added, "And I'm going to not have to tell you whose autograph
that was."
10:21:49 AM
MR. COGHILL responded, "Time tells that this document that we
have is a good document; it's a breathing document and it lives
everyday." He noted that there are only five [participants in
the Alaska Constitutional Convention] still living, and 2005
marks the convention's 50th anniversary.
CHAIR SEATON asked Lieutenant Governor Jack Coghill if Section 1
of HB 133 would have been acceptable to those in the
constitutional convention.
MR. COGHILL answered affirmatively.
10:24:03
PETE ROBERTS, President, Citizens Concerned About Annexation,
told the committee that he was "intensely involved with the
hostile annexation in Homer." Regarding HB 133, he said he
thinks the bill is a very good change; it goes a long way to
take out the anti-constitutional bias by the LBC that has
existed for years. Mr. Roberts said, "They cram down
annexations in surrounding areas to cities, they claim that the
state constitution has a preference for cities and a bias
against service areas, and they are talking apples and oranges
here." He indicated that the LBC was talking about utility
districts before there were municipalities in Alaska, and the
service areas the LBC talks about today have nothing to do with
those old utility districts; they're merely an area function of
the boroughs.
MR. ROBERTS concurred with Mr. Coghill. He said, "The problem
here is that small groups of people with vested interests - a
city administration or a city council - can hijack their
neighbors, and the LBC lets them choose the method in which they
do it. And the only last resort is if those people can garner
enough support in the legislature to have it voted down;
otherwise, the annexation rides through." He said Homer was
hijacked. He continued as follows:
We effected the process greatly with our fight with
the LBC. We're still in court; we won one ...
[Alaska] Supreme Court case and we're probably headed
for another .... So, in a general sense, I have to
say that I think that this bill should be passed. The
LBC should not get to operate as the commissar of
boundaries in Alaska. The idea that, in general, a
city and a small area surrounding it could have one
vote, even, is likely to hijack the people in the
surrounding area.
In the case of the Homer annexation: if the city had
been willing to put it to a vote of the people in the
city -- it became such a divisive issue here, it would
have been voted down, and they didn't dare let it go
to a vote.
10:27:40 AM
REPRESENTATIVE GRUENBERG asked Ms. Moss for her opinions
regarding the constitutionality of the bill.
10:28:12 AM
MS. MOSS said there have been differences of opinion over the
intent of the Constitutional Convention; it's a gray area. That
is why, she explained, Representative John Coghill was asked to
testify. She said she would provide those opinions to the
committee. In response to an observation that the bill would
not be heard by the House Judiciary Standing Committee, she said
she thought it should be, because of the amount of contention
and disagreement.
10:28:58 AM
REPRESENTATIVE GRUENBERG stated, "I have no problem in passing
the bill out, but I will make a motion that we, in writing,
request that this be referred to [the House Judiciary Standing
Committee]."
CHAIR SEATON asked if the sponsor would have any objection to
that.
MS. MOSS interjected, "I think it would help the whole case."
10:29:29 AM
ROBERT KALLIO, testifying on behalf of himself, referred to
Article 1, Section 2, of the Alaska State Constitution, which
read as follows:
SECTION 2. Source of Government.
All political power is inherent in the people. All
government originates with the people, is founded upon
their will only, and is instituted solely for the good
of the people as a whole.
MR. KALLIO stated that it is clear that the founders of Alaska
did not intend that a borough could annex additional areas or
"be created by a state employee or five unelected
commissioners." He urged the committee to pass HB 133, to
protect the rights of residents in unincorporated areas against
being annexed into any borough against their will. He said
Lieutenant Governor Coghill stated this sentiment much better
than he ever could; he was there at the convention and
understood the intent. He stated his belief that [the
legislature] is bound to, and thus must follow, the state
constitution.
10:31:24 AM
REPRESENTATIVE GRUENBERG said he concurs with Mr. Kallio and the
intent of the bill.
10:31:36 AM
CAM CARLSON testified on behalf of herself. She stated the
following:
I am definitely not in favor of annexations that are
proposed where we're going to take in large quantities
of the state, not because we can provide them with
anything, but just because we can pick their pockets.
It comes off to me as totally immoral. The moment I
heard that this was even being proposed by the
Fairbanks North Star Borough Mayor, I was just
absolutely appalled.
I agree with all the previous speakers that the people
should be able to vote on their future and what
happens to them, [and] that people that are employees
of government and not elected by the people have
frequently in the past and are still going way beyond
what they are supposed to be doing to us and for us.
So, I'm very much in favor of this being a vote of the
people that reside in the areas before they get
annexed to anything, and I am very opposed to what is
happening currently and being proposed by some of our
officials, statewide. And I am very much in favor of
HB 133, and also the amendments to it. I think it's a
good idea to have a vote of both areas - the existing
area and that proposed to be annexed - and that if
both don't pass it, it doesn't happen.
10:34:01 AM
REPRESENTATIVE GRUENBERG offered a possible scenario in which a
municipality wants to annex a large area that is only populated
by five people. He asked if those five people would be able to
"scotch the whole thing."
10:34:41 AM
MS. MOSS answered yes.
10:34:45 AM
GARY PETERSON testified on behalf of himself in support of HB
133. He stated that he would like two points outlined
specifically: The first is that the people living in proposed
annexed areas should have the exclusive right to decide whether
or not they want annexation. The second is that the people in
the city limits who are proposing annexation should not be
allowed the aggregate vote to impose annexation in areas outside
their city limits. He stated, "I believe that 'annexation' is a
dirty word." He indicated that the rights of people who come to
Alaska to enjoy their freedom, the wilderness, and the wildlife
have eroded. Annexation imposes rules and regulations and,
additionally, heavy taxation. He said he would like the staff
of the local boundary commission fired and the governor to close
it down.
10:37:35 AM
VI JERREL, Ph.D., testified on behalf of herself and Alaskans
Opposed to Annexation. She stated support of having a vote by
the people in the area proposed to be annexed, but voiced
opposition to having a vote by the people in the city or area
that files the annexation petition. She also stated opposition
to aggregate votes, and to giving the LBC the authority to
"amend a change or change a petition." Dr. Jerrel stated,
"Public funds cannot be used to deny a person due process of
law. Rights guaranteed by the state and U.S. Constitution
guarantee that a person cannot be deprived of life, liberty, or
property without due process of law." She stated objection to
the State of Alaska's using public funds for misrepresentation
and wrongful procedures by the current LBC.
DR. JERREL said she and Doris Cabana formed Alaskans Opposed to
Annexation and hired Robert C. Erwin - a former Alaska Supreme
Court Justice - to represent them in the "wrongful and illegal -
in our opinion - Homer annexation."
10:41:24 AM
CHAIR SEATON asked Dr. Jerrel to focus specifically on HB 133.
10:41:46 AM
DR. JERREL posited that the subject before the committee is in
regard to authority of a local boundary commission, and she is
talking about authority and lack of authority by the LBC. She
reported that [the LBC] did not get the 26 square miles it asked
for [in Homer] because "we fought for it." The case is
currently in the Alaska Superior Court. In response to a
request for clarification from Chair Seaton, she reiterated that
she supports HB 133, but not the amendment that would allow a
dual vote.
CHAIR SEATON clarified that the amendment would not allow an
aggregate vote; it would be two separate votes.
DR. JERREL indicated that she had been advised by Mr. Erwin to
say, "We want a vote only of the people in the area proposed to
be annexed," not an aggregate vote.
10:43:03 AM
DR. JERREL, in response to a question from Representative Lynn,
revealed that her Ph.D. is in administrative leadership and
human behavior. She offered further personal history.
10:43:45 AM
ALAN LeMASTER, testifying on behalf of himself, stated that he
is impressed with the testimony heard thus far and the support
of the bill and its amendment. He offered his recollection
that, during a hearing of HB 133 in the House Community and
Regional Affairs Standing Committee, Commissioner Hicks said he
felt that the bill was "objectively unconstitutional" and he
didn't know of any attorneys in the state who could effectively
defend it. Mr. LeMaster said he is especially cautious about
the constitutionality of the bill and is happy to hear that the
committee will be referring it to the House Judiciary Standing
Committee.
10:44:58 AM
REPRESENTATIVE GRUENBERG said he would like the citation for the
recent Homer case.
10:45:19 AM
CHAIR SEATON closed public testimony.
10:45:34 AM
REPRESENTATIVE GARDNER said she had not been, until today, aware
of the pending issue regarding annexation and Homer, Alaska.
She asked if there are other pending cases that she is aware of
across the state.
10:45:54 AM
MS. MOSS answered that there is a related issue regarding
Whittier and Valdez. She added that Delta [Junction] is "in the
process of petitioning for a borough to have an election."
Additionally, she noted that the Fairbanks North Star Borough is
looking at annexing everything to the south bank of the Yukon
River, including Pogo Mine, which is part of the land that Delta
is petitioning to annex. She said, "The big concern with that
whole situation is the fact that the borough mayor ... publicly
said that he intended to use an aggregate vote that was created
by regulation that is, without a question, inconsistent with
state law."
10:47:09 AM
REPRESENTATIVE GRUENBERG requested that any other court opinions
be sent to him.
10:47:33 AM
MS. MOSS agreed to research to find any past decisions. She
said:
We have been pressing this bill on the issue of equity
and constitutional intent. Because the constitution
is quite clear that the people are the power. And the
Local Boundary Commission on several occasions has
stated that the constitution has given them
independent authority to create law. And the
constitution is quite clear that the term - and I'm
looking at Article 12, Subsection 11 - the term "by
law" and "by legislature" are interchangeable. So law
is what the legislature enacts.
Ms. Moss, in response to a question from Representative
Gruenberg, she said Article 12 is about general provisions.
10:49:10 AM
REPRESENTATIVE GRUENBERG read that subsection.
10:49:27 AM
REPRESENTATIVE ELKINS moved to report CSHB 133(CRA), as amended,
out of committee with individual recommendations and the
accompanying fiscal notes.
CHAIR SEATON objected to note that the committee had not yet
proposed or adopted Amendment 1.
10:50:12 AM
REPRESENTATIVE ELKINS, as a point of order, withdrew his motion.
10:50:21 AM
REPRESENTATIVE LYNN moved to adopt Amendment 1 [text provided
previously].
10:51:14 AM
REPRESENTATIVE GRUENBERG objected for discussion purposes.
MS. MOSS, in response to a question from Representative
Gruenberg, affirmed that the sponsor approves of Amendment 1.
REPRESENTATIVE GRUENBERG stated for the record, "We'll look at
this with the rest of bill in [House Judiciary Standing
Committee]." He removed his objection to Amendment 1.
10:51:32 AM
CHAIR SEATON announced that, there being no further objection,
Amendment 1 was adopted.
10:51:40 AM
REPRESENTATIVE ELKINS moved to report CSHB 133(CRA), as amended,
out of committee with individual recommendations and the
accompanying fiscal notes.
10:52:31 AM
CHAIR SEATON reminded the committee that the bill has been
assigned an additional referral to the House Judiciary Standing
Committee, and that referral has been agreed to by the sponsor.
10:52:33 AM
REPRESENTATIVE ELKINS revealed that he came into the meeting
today agreeing with the chair of the Local Boundary Commission,
but after the testimony of everyone, he changed his position.
10:53:13 AM
CHAIR SEATON announced that there being no objection, CSHB
133(STA) was reported out of the House State Affairs Standing
Committee.
10:53:22 AM
MS. MOSS thanked the committee, in particular Representative
Gruenberg for his efforts to allow the bill the scrutiny of the
House Judiciary Standing Committee.
The committee took an at-ease from 10:54:00 AM to 10:59:55 AM.
10:59:58 AM
HB 238-PUBLIC EMPLOYEE/TEACHER RETIREMENT
11:00:05 AM
CHAIR SEATON announced that the next order of business was HOUSE
BILL NO. 238, "An Act relating to contribution rates for
employers and members in the defined benefit plans of the
teachers' retirement system and the public employees' retirement
system and to the ad-hoc post-retirement pension adjustment in
the teachers' retirement system; requiring insurance plans
provided to members of the teachers' retirement system, the
judicial retirement system, the public employees' retirement
system, and the former elected public officials retirement
system to provide a list of preferred drugs; relating to defined
contribution plans for members of the teachers' retirement
system and the public employees' retirement system; and
providing for an effective date."
CHAIR SEATON noted that there is a sectional analysis in the
committee packet. He opened public testimony.
11:00:45 AM
BILL BJORK, President, NEA-Alaska, said he represents 12,500
employees in Alaska. He highlighted key points from his written
testimony [included in the committee packet]. He said the
purpose of the retirement system is stated in AS 14.25.012,
which read as follows:
(a) The purpose of this chapter is to encourage
qualified teachers to enter and remain in service with
participating employers by establishing a system for
the payment of retirement, disability, and death
benefits to or on behalf of the members.
MR. BJORK read from his written testimony as follows:
Although there is some anecdotal evidence that the
retirement benefits can be used for recruitment, its
main attraction is a tool for retaining educators.
Job satisfaction, competitive compensation and
retirement benefits are the three major reasons for a
person to remain in education.
11:02:34 AM
MR. BJORK said currently the average number of years a teacher
serves before retiring is 27. He addressed some of the key
assumptions made going into deliberations over changes in the
retirement system. He stated assumption 1: "An educator with
27 years of service ought to be able to receive an annual
annuity of at least 55 percent of their salary at retirement to
be able to retire with dignity." He noted that he provided
information regarding the average [teacher] salary and "what
that represents as a percentage." He said HB 238 would require
teachers to work at least 30 years [before retiring], which is
three more years than the current average.
MR. BJORK said assumption 2 is in regard to the level of
investment return. He stated, "We agree with the assumption
currently in the retirement systems of 8.25 percent; ... it's
consistent with permanent fund assumptions, as well." He stated
assumption 3: "The combined contribution of the employee and
the employer to the pension must be at least 20 percent of
salary ...." He said assumption 4 is in regard to inflation.
The present actuarial assumption is 3.5 percent annually. He
said that is not consistent with permanent fund assumptions. He
asked, "Given that inflation has been 2.6 percent over any 10-
year period in Alaska, why would we adopt a 3.5 percent
inflation rate?" That half a percent over 25 years would add a
huge amount of money to the past service cost. He stated that
assumptions are critical in determining the necessity of a new
and improved retirement system and making the wrong ones today
will only lead to retirees having no dignity and becoming
dependent on the State of Alaska for Welfare. He said, "We must
take time to reach agreement on the actuarial assumptions to be
used."
11:05:10 AM
MR. BJORK stated his belief that there is agreement that "the
actuarial assumptions made in the past have brought us to this
point, particularly in the area of health care." He noted that
the delayed used of [updated] mortality rates and the addition
of benefits in the retirement system, without a corresponding
increase in contributions, are major factors. Two of the
factors can be corrected without the adoption of a new tier for
TRS and PERS. He stated that the legislature could mandate the
use of the most recent mortality tables, and it could also
require an actuarial evaluation of any proposed benefit changes
and require an increased contribution "to cover past service
cost at the time of passage." He offered an example.
11:06:28 AM
MR. BJORK stated that NEA-Alaska believes that health care costs
can be managed to provide a more predictable rate increase. He
stated, "It seems that the health cost trend actuarial
assumptions provided to the administration June 30, 2002,
absolutely defied common sense or logic." He said the
projections provided, as printed in the retirement booklet,
showed increases in health care of: 7.5 percent for [Fiscal
Year 2001 (FY 01)], 6.5 percent for FY 02, 5.5 percent for FY
03, 5 percent for FY 04-08, and declining after that. He
stated, "Anyone using health care services could tell you that
those rate projections were not based in reality." He said the
next year the assumptions were changed to show: 12 percent for
FY 04, 12 percent for FY 05, 11.5 percent for FY 06, and
declining until the increases would only be 5 percent in FY 17.
He questioned how such a drastic change could occur in one year.
He queried, "These numbers, when graphed, would make a pretty
downhill slope, but are they based in reality?" He stated that
this kind of dramatic change does not inspire credibility in the
actuary. He asked, "Is this the kind of assumption that the $5
billion unfunded liability is based upon?"
11:07:48 AM
MR. BJORK said NEA-Alaska appreciates the efforts made through
HB 238 to provide important access to health care and payment of
premiums for retirees. He said once everyone agrees on which
health care inflation assumption to use, it will be possible to
"evaluate the proposal and its impact on retirees' standard of
living." Mr. Bjork stated for the record that a teacher that
begins a career at age 22 and works nonstop for 30 years, as
outlined in HB 238, will be eligible to retire at age 52. Since
the teacher must retire directly out of the system, he/she would
have to teach for 38 years to reach age 60, or pay for his/her
health care for 8 years, which would erode the pensions
annuities significantly.
MR. BJORK said NEA-Alaska believes that several things can be
done to provide a new and improved retirement system for both
teachers and public employees and "stands ready to work with the
[House State Affairs Standing] Committee to determine the
appropriate actuarial assumptions upon which a new retirement
system could be built that meets the purpose of recruiting and
retaining qualified educators and public employees."
11:09:29 AM
CHAIR SEATON expressed appreciation for the focus of Mr. Bjork's
testimony, which he said parallels the committee's own focus.
11:09:33 AM
REPRESENTATIVE LYNN asked how the legislature would use more up-
to-date mortality tables when they only are produced every 10
years.
11:10:15 AM
MR. BJORK said Representative Lynn raises an excellent point.
He continued as follows:
We just believe that we ought to implement the most
recent actuarial table ... available. The mortality
table, as you correctly point out, is a key driver of
cost. If we change from one mortality table to a new
mortality table and it shows increased longevity, then
the actuarial assumptions trigger a huge past service
increase. So, you're absolutely right. When these
are published, though, we ought to be using them.
But the actuarial assumption that is a particular
problem ... is the increase in medical coverage costs.
Those projections ... were just simply not real world
based. To say that, at some point in the magic
future, medical cost increases would only be 4 percent
just simply isn't ... reflecting the kind of reality
that all of us experience when we need medical
coverage.
11:11:36 AM
REPRESENTATIVE LYNN asked if the health cost is "a bigger driver
of the problem" than the actuarial tables.
11:11:51 AM
CHAIR SEATON explained that the two systems are different. The
"health cost" is the largest driver in TRS, accounting for
approximately 40 percent of the unfunded past service cost, but
it's much less in PERS. He said the two systems contribute at
different rates and the age at which a person qualifies is
different.
11:12:58 AM
CHAIR SEATON asked:
Do you have an analysis at all on how much those
[RIPs] lowered the retirement age, and how much of
that 3-year gap between the 30 that [HB] 238 calls for
and the 27 which is your average coming out of the
system - how much of that do you think would be
accounted for by the different [RIPs] that went
forward?
11:14:01 AM
MR. BJORK noted that both state and local RIPs were offered. He
said it's difficult to answer Chair Seaton's question, because
only a small number of the total retirees actually got access to
those RIPs; therefore, it's hard to "spread that number across
the retired population to give you a straight up answer on
that." He noted that about 27 years of active service is that
average for "those retirees," not factoring in the RIP,
whatsoever.
11:15:08 AM
CHAIR SEATON returned to assumption 3, which Mr. Bjork noted
would require that the contribution must be 20 percent. He
noted that the current version of HB 238 would require that the
contribution be 22 percent. He asked, "Does that fit within
your range of expectation for a plan that would provide those
equality of benefits?"
11:15:47 AM
MR. BJORK stated, "It's our experience that 20 percent of salary
needs to go towards the pension." Regarding the 22 percent in
HB 238, he noted that "a chunk of that goes toward major medical
coverage and also the health reimbursement rate"; therefore,
"those percentages are not going directly into the pension." He
stated his experience with [NEA-Alaska's] own employees is that
is takes about 20 percent of salary into the pension to
accomplish retirement with dignity.
11:16:24 AM
CHAIR SEATON offered some statistics and explained, "I'm trying
to figure out where the 20 percent into the retirement plus
medical comes from if that hasn't been the history in any of the
last 20 years in the current program."
11:17:37 AM
MR. BJORK responded that he agrees with the numbers that Chair
Seaton put forward. Notwithstanding that, he said, "That is our
experience that it takes 20 percent of salary to accomplish a
defined ... contribution program that would allow an annuity of
sufficient size to last a person throughout their retirement
years."
11:18:03 AM
CHAIR SEATON said he appreciates knowing that Mr. Bjork is
talking about "the amount that would be necessary under a
defined contribution [plan]." He asked if Mr. Bjork is
factoring in an 8.25 percent rate or a lower percentage
investment rate based on the history of defined contribution
programs, such as 401K, versus a defined benefit program.
11:18:30 AM
MR. BJORK said he is factoring in an 8.25 percent [rate].
11:18:39 AM
WILLY DUNNE, President, Kachemak Bay Chapter, Alaska State
Employees' Association (ASEA), which includes approximately 60
state employee members, noted that he sent in written testimony
[included in the committee packet]. He stated that the members
of the chapter are concerned about any increase to their current
contribution. They have not seen a pay increase in a couple of
years and are due for a small one this year, which would be lost
if there was any increase in the contribution rate.
MR. DUNNE said most of the employees are doing their jobs
because they like doing them; they could make more money in the
private sector or working with the federal government, and many
employees are lost to both. He stated that retirement benefits
are one of the factors that keeps state employees going. He
asked the committee to carefully evaluate any changes to current
employees' benefits, and he cautioned the committee to think
carefully before structuring a new tier. He said the latter
could negatively impact recruitment. He stated his
understanding that "there's a big, $5 billion problem out there
that has to be dealt with."
MR. DUNNE said he read a study that shows that state employees
have lost approximately 30 percent buying power in their wages
over the past 25 years. He predicted that any further reduction
would cause employees to "think about jumping ship and not
sticking it out." He expressed appreciation for the work that
Chair Seaton and his staff have put into [HB 238], but
reiterated that he would like the committee to think carefully
about [what may] harm employees "any more than we already have
been."
11:23:13 AM
CHAIR SEATON said one segment of the retirement program being
considered would be switching to a defined contribution program.
No element of that program would change [the benefits of]
existing employees, unless they were not vested and opted to
change from the current Tier III defined benefit to a new Tier
IV defined contribution plan.
11:24:10 AM
REPRESENTATIVE GARDNER asked for verification that going to a
defined contribution plan with a new tier level would not in any
way affect the shortfall; it would only deal with the future.
11:24:27 AM
CHAIR SEATON answered that's correct. As a point of general
information, he reviewed that the past service cost is generated
by looking at the projected payments of state, municipal, and
school employers and figuring out what the projected
expenditures are going to be, amortized over the next 25 years.
He explained that the benefits expected to be accrued by
employees are looked at to determine their cost. Based on the
amount of money in the bank, the percentage of the future
benefits that will be covered can be predicted at an 8.25
percent growth rate. The payments that would have to be made
over the next 25 years add up to $15.6 billion.
CHAIR SEATON noted that there are charts [included in the
committee packet] that show that. He indicated that it's only
the present dollar value that is $15.6 billion. He explained
that "if you take those costs and back ... calculate,
subtracting 8.25 percent interest per year," the result is an
unfunded liability of $5 billion in 2003 present dollar value.
He said the assumption is that if the $5 billion in 2003 was put
in the bank and earned 8.25 [percent], that amount would grow to
[meet the future payments of expected benefits]. That deposit
was not made in 2003; therefore, the 2004 numbers basically
escalated by 8.25 percent and, because there was one less year
to grow that amount, the unfunded liability is now $5.6 billion.
CHAIR SEATON stated that $5.6 billion is "the present dollar
cost that we would need to have invested at 8.25 [percent] to
cover the projected liabilities of $15.6 billion." Chair Seaton
indicated that if nothing is done this year, the $5.6 billion
will grow by 8.25 percent, resulting in an even larger present
dollar value unfunded liability next year. The $15.6 billion of
projected payments are still the same, but there won't be as
many years to invest an initial sum of money now that can grow
to cover the shortfall.
11:27:09 AM
CHAIR SEATON said one option would be to spend $5.6 billion from
the general fund this year and let it grow at 8.25 percent,
which would cover every bit of the past service cost, without
having to have an increase in employer contribution rates. He
described another option as increasing the employer contribution
rates. A third way, he proffered, would be a combination of
paying off some of the unfunded liability and increasing the
employer rate or having a matching employer/employee rate.
CHAIR SEATON said the calculations [presented by Mercer Human
Resource Consulting - "Mercer"] are all based on the employer
rates [escalating to as much as] 44 percent of the total salary
of all the school districts. Because the calculations are made
on the total [population] base growing at 1 percent a year, even
if a defined contribution plan is instituted and there is no
actual past service cost associated with [those individual
employees] under that plan, the employer is still going to have
to pay the same amount of money into the system because the
calculations of [the past service cost] rates [from Mercer] are
based on the total salary of the employer. Chair Seaton stated
that it gets confusing. He indicated that there is a past
service cost liability to the employer even though a defined
contribution program would mean that each individual employee
does not have a past service cost associated with him/her, and
the employer would be responsible for that liability.
11:29:29 AM
CHAIR SEATON explained that if the wage base of the new
employees under the defined contribution plan is not included,
then as soon as there are an equal number of new employees
[under the defined contribution plan] and old employees [under
the defined benefit plan], the contribution rate - instead of
being at 44 percent - would be at 88 percent and would result in
[the same dollar rate distributed among] fewer employees. The
actuaries, he explained, have tried to calculate a [past service
cost] rate that is reasonably fixed over time - amortized over
time - to give a stable percentage, and they have to use the
entire wage base [to make those calculations]. If a declining
wage base is used, pretty soon there would be 200-300 employees
left that hadn't retired yet, and "you'd be paying 10,000
percent of their salary," because [the employer] still has to
contribute the same dollar amount and would not be spreading it
over the [entire] wage base.
11:30:21 AM
REPRESENTATIVE GRUENBERG asked Mr. Dunne about a study he
previously mentioned that shows that, over last 25 years, the
earning power of governmental employees has declined 30 percent.
11:30:51 AM
MR. DUNNE recollected that that study was part of the public
safety employees' negotiation, and he offered to track down a
copy.
11:31:14 AM
CHAIR SEATON echoed that he would like a copy of the study.
11:31:51 AM
CHAIR SEATON noted that Mr. Dunne had mentioned the existing
tiers during his testimony. He noted that HB 238 would change
three things: First, a preferred provider drug list would be
required for existing employees. Second, the bill would change
the definition of the Ad Hoc Post Retirement Pension Adjustments
(PRPAs), so that "when the system can support it" means when the
system is 100 percent funded. Third, the bill would equalize
contributions between employers and employees. He noted that
Mr. Dunne had testified to that and indicated that the committee
would give that careful consideration.
11:33:15 AM
REPRESENTATIVE GRUENBERG said Representative Elkins had asked a
question regarding the meaning of "qualified domestications
relations order" (QDRO). He said QDROs are required under both
federal and state law to meet the requirements "of these
statutes" and the Employment Retirement Income Security Act
(ERISA). He offered further details.
11:34:45 AM
CHAIR SEATON explained that in the bill, "member" means someone
who was in a retirement program and "participant" could include
a child or spouse, for example.
11:35:19 AM
REPRESENTATIVE GRUENBERG added that those two words are terms of
art that are known throughout the industry.
The committee took an at-ease from 11:35:42 AM to 11:36:49 AM.
11:36:50 AM
CHAIR SEATON mentioned the article in the March 6, 2005,
Anchorage Daily News, written by David Reume entitled "State's
salaries are falling behind". [The article is included in the
committee packet.]
11:37:46 AM
KATIE SHOWS, Staff to Representative Paul Seaton, Alaska State
Legislature, on behalf of Representative Seaton, Chair of the
House State Affairs Standing Committee, sponsor, directed
attention to a [single-page, double-sided] handout in the
committee packet. She said the handout is a model showing a
defined contribution pension account amount, based on a model by
Richard Solie, Ph.D. She stated, "All offices have this model
and have been working with it." She directed attention to the
front page, entitled, "Projected Benefits-Rate of Return 6.73
percent." She said that is based on the Anchorage "CPI" of 3.73
percent and a [real rate of interest] of 3 percent. She noted
that the real rate of interest mistakenly shows on the page as
4.52 percent, and should read 3 percent. It's a conservative
rate of return based on the assumption that individually managed
accounts will collect less interest than a group-managed
account, because the employee will choose more conservative
investment options.
11:40:32 AM
MS. SHOWS said the chart shows what the amount of the defined
benefit account lump sum would be at termination at 10, 20, 30,
and 40 years. She said the lump sum amounts would be the same
for both males and females, assuming a base salary of $37,538
and a salary increase, including inflation, of 5.73 percent.
She highlighted further details regarding the lump sums. In
response to a question from Chair Seaton, she stated her
understanding that the column which shows the lump sum at
termination is "in the real dollar value at retirement," whereas
the column that shows the beginning annuity in 2004 dollars
shows the annual pension benefit for the retiree, calculated in
2004 dollars. She noted that the reason the number is higher
for men than women, under the beginning annuity in 2004 dollars
column, is because women tend to live longer than men. She
directed attention to the last column, which shows the percent
funded compared to the current defined benefit plan. She
offered an example. She added, "And that also assumes the
defined contribution pension account percentage of 15.5 percent,
which is what HB 238 has for PERS employees. It's slightly
higher - 15.75 percent - for TRS employees. So, after medical
benefits are taken out of the equation, this is what is
attributed to a defined contribution account."
11:43:48 AM
REPRESENTATIVE GRUENBERG directed attention to a portion of the
fourth paragraph of previous testifier Mr. Dunne's written
testimony, which read:
Most state employees have not had a pay raise in
several years. We are scheduled to receive a small
(1.5%) raise this year ....
REPRESENTATIVE GRUENBERG said it looks like the charts being
reviewed assume a salary increase of 5.73 percent the first five
years, then 4.23 percent, based on the assumptions of Mercer.
He said that seems to be contrary to what Mr. Dunne has said.
11:44:37 AM
MS. SHOWS responded as follows:
The assumptions included here [are] a real salary
increase of 1.5 percent for the first five years, and
then .5 percent for the following years. So, the
additional percentage is indexed for inflation. And
we are going off of - as is Dr. Solie's table -
Mercer's assumptions.
REPRESENTATIVE GRUENBERG said he is just trying to compare the
chart in front of the committee with the conflicting previous
testimony.
11:45:17 AM
CHAIR SEATON answered that's correct.
11:45:42 AM
MS. SHOWS turned to the back of the page, which shows the same
headings, but for a rate of return of 8.25 percent. She said
it's a far more generous percentage compared to the current
plan. She noted that she could make available the computer
program which she used to project these assumptions. In
response to a question from Chair Seaton, she confirmed that the
chart is calculated for PERS.
11:47:11 AM
CHAIR SEATON made the following observation:
Basically, the analysis is showing that, if the
defined contribution rate of return is equal to
Mercer's rate of return ..., then ... the defined
contribution plan actually - other than the 10 years -
... for 20, 30, or 40 years of service is generating a
much more lucrative plan for the employee than the
current plan. However, if we're looking at a 2
percent or ... less return rate ..., [and] if we
assume that employees managing their own money are
going to earn less than the PERS investment, then we
see that it doesn't compare nearly as well, unless
you're a male and you've been in the system for 40
years.
CHAIR SEATON said he thinks those are issues the committee needs
to wrestle with.
11:48:31 AM
REPRESENTATIVE GRUENBERG noted that during a divorce, one
question often involves what a pension is worth. Many of the
arguments revolve around the assumptions that are made.
11:49:31 AM
CHAIR SEATON reminded the committee that Mercer [Human Resource
Consulting] is the company that projects the actuarials. He
also mentioned Milman, another actuarial firm used in 2001
specifically to audit the results provided by Mercer. Chair
Seaton said that information is available through his office.
11:51:36 AM
CHAIR SEATON indicated that HB 238 would set "a 20 percent
rate." Subtracting out the medical portion, which is 3.5
percent medical and 1 percent health care reimbursement rate,
what is left is "a very good plan that's better than the defined
benefit plan that we have, if we are using the 8.25 percent
return rate on the account." He added, "Or we have a plan that
doesn't match up if we say that we're going to earn 1.5 percent
less than retirement and benefits currently earns on the
assumptions." He explained that all the assumptions are "the
same on both, except for the rate of return."
11:52:42 AM
REPRESENTATIVE GRUENBERG asked if there could be a plan made
available to give people the option of investing their
retirements themselves or having someone else do it.
11:53:09 AM
CHAIR SEATON answered, "Sure." He clarified that HB 238 would
not allow people to individually manage their funds; it would
provide for a selection of money managers, similar to that in
[the state's Supplemental Benefits System (SBS)], to manage the
fund. There have been a number of studies that have shown that
the employee managing his/her own money is more conservative and
thus receives less reward from his/her pension fund. He
suggested one option may be to have one board manage the money,
but in individual accounts.
11:55:52 AM
REPRESENTATIVE GRUENBERG responded that he thinks that's a great
idea; however, he suggested that it should be left to the
employee to choose one way or the other.
11:56:17 AM
CHAIR SEATON said that's what is being considered "with these
diversities."
11:56:50 AM
REPRESENTATIVE GARDNER referred to a white paper from NEA-Alaska
showing Nebraska's experience of changing to a defined
contribution plan and then changing back to a defined benefit
plan.
MR. BJORK explained that that happened because the individually
directed accounts had a lower rate of return and could not
sustain retirement. He noted that West Virginia made a similar
decision a week ago to return from a defined contribution plan
to a defined benefit plan for the same reason.
11:58:09 AM
REPRESENTATIVE GARDNER asked what those states' rate of return
was.
11:58:17 AM
MR. BJORK answered that the rate of return in Nebraska was
approximately 6 percent, and it is recognized that it takes 8.25
percent to generate the kind of return needed to have a viable
retirement. He said the numbers were about the same for West
Virginia.
11:59:15 AM
REPRESENTATIVE GRUENBERG said he would like to hear from
witnesses from one of those two states.
11:59:35 AM
CHAIR SEATON said paper work will be made available regarding
West Virginia. He asked if some of Mr. Bjork's concerns would
be alleviated if [the Alaska State Pension Investment Board
(ASPIB)] was investing the money at the same rate that the
defined benefit plan would generate.
12:00:46 PM
MR. BJORK answered yes. He stated, "This rate of return is a
critical money-management assumption within any retirement
system, and we believe ASPIB has done a very good job ... - it
models the Alaska Permanent Fund."
12:01:18 PM
CHAIR SEATON noted that a report last year showed that the
retirement funds were actually producing, over time, a higher
rate of return than the Alaska Permanent Fund did. He offered
further details.
12:01:52 PM
MR. BJORK said employees are naturally "risk averse" and ASPIB
has the capacity to "dot that professional management."
12:02:10 PM
REPRESENTATIVE GRUENBERG suggested that a common theme is
security and rate of investment. He applauded the work of the
chair and the work that the committee is doing. He said "the
other bill" that would change the makeup of the boards concerns
him, and he opined that it is imperative to have "the best, most
honest people" on the boards to "maximize the return and the
security."
12:03:33 PM
CHAIR SEATON reviewed that ASPIB is an investing board, while
the TRS and PERS Boards deal mainly with appeals and setting
rates. He noted that one section of HB 238 would set an 11
percent floor on employer contributions. He mentioned the
unfunded liability and said, "If ... the state and local
governments have to write checks for $15 billion over the next
25 years and have not collected that money, that is a big
problem within the system." He stated his understanding that 86
percent of the TRS retirement section is funded, which means
it's in much better shape; "it put a floor on and did not go
down below 11 percent." He offered further details and said,
"It's a question of the bottom line and how we get there." He
said the committee members could come in individually to his
office to view a Power Point presentation.
12:06:45 PM
REPRESENTATIVE ELKINS suggested that it might be advantageous to
do the Power Point presentation before the entire committee.
12:07:05 PM
TOM HARVEY, Executive Director, NEA-Alaska, testifying on behalf
of NEA-Alaska, commended Ms. Shows for "generating a mechanism
of looking at lots of scenarios." He said NEA-Alaska has also
developed several charts showing actual cases across the state,
and he offered to make those charts available to the committee
upon request. He said Mr. Bjork pointed out that the question
to ask is, "What are the assumptions you're going to use?"
MR. HARVEY noted that, regarding salary increases, over the past
16 years, the teacher average salary has increased 1.36 percent.
He said, "If you're making an assumption that somebody's
salary's going to increase by ... 5.73 percent, then sure, their
annuity's going to look good at the other end. But when in
reality what they're getting are increases of 1.36 [percent],
inflation alone is going to eat more of that up, because the
inflation, which is another assumption that I'd like to check on
..., should be the assumption for everything that the state
does." He recalled being continually told by actuaries during
work on the Percent of Market Value (POMV) last year that 2.6
percent was the inflation rate over any 10-year period of time
that "you would pick in the State of Alaska." He continued:
So, we generated charts at 2.6 [percent] and
discovered some alarming things that occur at that
rate of inflation, versus a salary increase of only
1.3 [percent].
MR. HARVEY stated his willingness to work with the committee on
any number of scenarios. He said teachers do better in the
first nine years because of the step increases. However, when
they get to the top and there are either no raises or raises of
only 1.36 percent, that's when the trouble begins, "particularly
when you're suggesting that a male has to work 40 years in order
to get to a defined contribution plan that will look the same as
the defined benefit plan."
12:11:08 PM
CHAIR SEATON clarified, "That is if you calculate defined
benefit at 8.25 [percent] and ... you calculate defined
contribution at 6.73 [percent]." He offered further details.
12:11:44 PM
MR. HARVEY said Chair Seaton hit on a potential solution of
ensuring that it is an entity like the ASPIB Board doing the
management so that the 8.25 percent return can be guaranteed.
He stated that the other issue will be the assumption on health
care.
12:13:00 PM
MR. HARVEY, in response to a comment from Representative
Gruenberg, reiterated that he has a simple chart that shows the
teacher average salaries. He offered more details and, in
response to Chair Seaton, said he would send it to the
committee.
12:14:04 PM
REPRESENTATIVE GRUENBERG suggested that his staff would benefit
from some informal individual instruction regarding these
issues.
12:15:10 PM
CHAIR SEATON said his staff is already doing that with other
groups and would be happy to involve Representative Gruenberg's
staff and anyone else's staff.
12:17:07 PM
CHAIR SEATON directed attention to a handout, "State of Alaska
PERS & TRS Proposed Medical Program House State Affairs." He
asked the committee to concentrate on the "pre-65" benefits. He
said he doesn't want to go through this without the department
representatives who have not yet arrived at the meeting.
Notwithstanding that, he proffered that there should be a fair
amount of difference in what the contribution rate must be,
depending on how the medical program is designed. He discussed
some differences between PERS and TRS that must be considered.
12:20:28 PM
BRADLEY FLUETSCH told the committee that he is a financial
consultant with Wells Fargo Investment, but is testifying on
behalf of himself. He referred to the "projected benefits -
rate of return 6.73 percent" page and said if the defined
contribution pension account percentage assumption of 15.5 is
"ramped up" to 28.5 and the columns are "rerun," the [numbers]
would be almost doubled. He indicated that when deferred
[compensation] is added, the retirement plan becomes "fairly
attractive."
MR. FLUETSCH, regarding West Virginia and Nebraska, said there
is good evidence of how Alaskans invest their retirement through
SBS. He suggested, "Let's take a look at the target retirement
funds - target 2015, target 2020. These are retirement funds
designed for employees retiring on or about a specific year.
How are they doing relative to the 8.25 and the 6.73 [percent]?"
Mr. Fluetsch also recommended looking at the Alaska Balanced
Fund to see how it's doing. The last thing he recommended
asking is: "What is the break-even rate of return, where the
assumptions zero out ... where the defined contribution equals
the defined benefit, so that in this percentage column they're
all zeros?"
12:23:26 PM
CHAIR SEATON informed Mr. Fluetsch that he has requested that
information regarding SBS, the different funds, and how they've
been faring. Another consideration will be whether or not SBS
should be a factor in a rewrite of the program. He offered
further details.
12:24:48 PM
MR. FLUETSCH, in response to a comment by Chair Seaton, stated
that everybody participates in SBS at the same rate; therefore,
he clarified that Chair Seaton is talking about deferred
compensation.
12:25:58 PM
HEATH HILYARD, Staff to Representative Mike Kelly, Alaska State
Legislature, on behalf of Representative Kelly, noted that the
State of Michigan changed to a defined contribution plan about
10 years ago, and he recommended that Michigan's plan could be
used as a comparison model.
12:26:43 PM
REPRESENTATIVE GRUENBERG asked whether any of the regional
divisions of [the Council of State Governments (CSG)] or the
National Conference of State Legislatures (NCSL) have any task
forces or committees working on this issue on an ongoing basis.
12:27:14 PM
MR. HILYARD offered his belief that NCSL is, but perhaps CSG is
not involved as much. He said he has also looked into the
American Legislative Exchange Council. In response to a
question from Chair Seaton and Representative Gruenberg, he said
he doesn't know if there are any House Representatives from
Alaska serving on [the NCSL] committee.
12:28:20 PM
REPRESENTATIVE GRUENBERG opined that as the Legislative session
winds down and the Interim begins, it is important to have
"somebody sitting on ... that committee, whatever it is." He
offered to look into the matter.
12:29:09 PM
MR. HILYARD stated his belief that Representative Anderson
serves on the Labor & Commerce labor committee for NCSL, but he
doesn't know if that committee has purview over retirement and
benefit issues.
12:30:03 PM
CHAIR SEATON noted that the information regarding the State of
Michigan's plan was being distributed. He asked the committee
members to go through the sectional and bill on their own time
and be prepared to go through it on Tuesday, April 5. He
indicated that it may be necessary to hold an informal work
session and told people to let him know if they are interested
in participating.
[HB 238 was heard and held.]
ADJOURNMENT
There being no further business before the committee, the House
State Affairs Standing Committee meeting was adjourned at
12:31:29 PM.
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