Legislature(2021 - 2022)BELTZ 105 (TSBldg)
01/31/2022 01:30 PM Senate LABOR & COMMERCE
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| Audio | Topic |
|---|---|
| Start | |
| HB55 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | HB 19 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| *+ | HB 55 | TELECONFERENCED | |
HB 55-PEACE OFFICER/FIREFIGHTER RETIRE BENEFITS
1:32:54 PM
CHAIR COSTELLO announced the consideration of CS FOR HOUSE BILL
NO. 55(FIN) "An Act relating to participation of certain peace
officers and firefighters in the defined benefit and defined
contribution plans of the Public Employees' Retirement System of
Alaska; relating to eligibility of peace officers and
firefighters for medical, disability, and death benefits;
relating to liability of the Public Employees' Retirement System
of Alaska; and providing for an effective date."
1:33:51 PM
REPRESENTATIVE ANDY JOSEPHSON, Alaska State Legislature, Juneau,
Alaska, Juneau, Alaska, sponsor of HB 55, introduced the
legislation speaking to the sponsor statement that read as
follows:
HB 55 aims to create a new hybrid retirement plan
option for state and municipal peace officers and
firefighters under the Alaska Public Employees'
Retirement System (PERS) with new protections for the
state against unforeseen future liabilities.
Alaska ended the defined benefit plan in 2006 after we
discovered that those accounts were too underfunded to
meet anticipated retiree obligations. Since these
plans were eliminated, one of Alaska's greatest public
safety challenges has become employee retention and
recruitment. Alaska is one of the few jurisdictions
that does not presently offer a defined benefit type
retirement for new public safety employees.
Additionally, many municipal public employees do not
participate in Social Security or the Supplemental
Annuity Plan (SBS-AP). HB 55 is crafted to retain and
attract quality peace officers and firefighters while
protecting the state from unnecessary financial risks
in the future.
The proposed option would allow future peace officers
and firefighters under the PERS system and current
ones under the PERS Tier IV plan to join the defined
benefit plan. The proposal includes several safeguards
modeled after the most fiscally responsible plans in
the nation. These safeguards provide stability and
would provide the state with fiscal certainty about
their ability to maintain adequate funding for this
plan into the future. These provisions include a
minimum retirement age of 55 with 20 years of service,
flexibility setting employee contribution rates,
minimum 12 percent employer contribution rates,
mechanisms to prevent costly "pension spiking," and
the ability to withhold post-pension retirement
adjustments should the plan's funding drop below 90
percent.
The new tier will closely mirror Tier III of PERS for
public safety employees, with the exception of two
cost saving measures: the continued inclusion of the
Tier IV defined contribution retirement plan's health
reimbursement arrangement (HRA) and the absence of
cost-of-living adjustments.
HB 55 will be a step toward making Alaska more
attractive to public safety employees. The nature of
the jobs that peace officers and firefighters hold are
uniquely physically demanding and hazardous compared
to other public employees, and all Alaskans pay the
cost for understaffed public safety agencies.
1:38:36 PM
REPRESENTATIVE JOSEPHSON stated that HB 55 affects just five
percent of all public employees. It is a group that has always
been treated a little differently and HB 55 continues that
practice. Public safety employees have by statute lower
retirement ages and these employees are classified and tracked
separately in the PERS system. They are unique. These employees
understand that the job is physical in nature and that they will
be exposed to unique and consequential harm. The result is that
their bodies wear down more quickly. Another unique aspect is
that state and local governments invest up to $200,000 to train
these workers, although after five years their defined
contribution is portable and many choose to take their training
and money move where they can have a pension in retirement.
REPRESENTATIVE JOSEPHSON said the cost of losing these trained
public safety employees is in the millions of dollars per year.
He calculated that if two percent of the 3,400 public safety
employees leave every year and it costs $120,000 to train each
employee, which translates to a loss of $8 million per year in
training costs. Over the course of 20 years the loss is $160
million.
1:47:01 PM
He emphasized that the hybrid plan that HB 55 proposes will be
solvent and the state does not bear all the risk. A series of
triggers or levers come into play if there is any threat to the
solvency of the plan. These include: firefighters and police
will have to wait until age 55 to receive a pension; retirement
will be calculated based on the average high five years; the
Alaska Retirement Management (ARM) Board can remove the
inflation adjustment if it finds the plan is not producing
expected returns; and the ARM Board can adjust the worker
contribution to 12 percent if it determines that 8 percent is
inadequate.
REPRESENTATIVE JOSEPHSON stated that the net result of HB 55 is
that these retirees on average will receive 45 percent of their
replacement wage rather than the current 31 percent. According
to Buck consultants, this will add just half a year to the
unfunded liability. He described it as not significant.
1:51:00 PM
CHAIR COSTELLO asked for the sectional analysis.
1:51:51 PM
ELISE SORUM-BIRK, Staff, Representative Andy Josephson, Alaska
State Legislature, Juneau, Alaska, presented the sectional
analysis for HB 55. It read as follows:
[Original punctuation provided.]
Sectional Analysis for CSHB 55(FIN)
Section 1: Amends AS 37.10.220(a) regarding the powers
and duties that the Alaska Retirement Management (ARM)
board shall carry out including:
• Adding new duties to account for appropriate
employer contributions for peace officers and
fire fighters and adjustments to these employees'
contributions; and
• Determining the amount of the monthly employer
contributions under new subsection AS
39.35.255(i) for peace officers and firefighters
participating in the defined benefit plan after
June 30, 2006.
Section 2: Amends AS 37.10.220(b) regarding the powers
and duties of the Alaska Retirement Management (ARM)
board, adding the ability to adjust the post-
retirement pension adjustment (PRPA) amounts and the
employee contribution rates for peace officers and
firefighters participating in the defined benefit plan
after June 30, 2006.
Section 3: Adds to the ARM board statute the
definitions for "peace officer" and "firefighter" the
existing in AS 39.35.680 (the PERS defined benefit
definitions section).
Section 4: Amends AS 39.30.090(a) by adding the AS
39.37.537 (the new health reimbursement arrangement
(HRA) medical benefit for peace officers and
firefighters participating in the defined benefit plan
after June 30, 2006 found in section 29) to the list
of retiree medical benefit programs that the
Department of Administration has the power to procure
group insurance for.
Section 5: Amends AS 39.30.097(a) regarding Alaska
retiree health care trusts. Adds the new AS 39.35.537
(the peace officer/firefighter HRA found in section
29) to the list of medical benefit programs that the
Department of Administration commissioner is
authorized to prefund.
1:54:06 PM
Section 6: Amends AS 39.30.097(b) regarding Alaska
retiree health care trusts. Adds the new AS 39.35.537
(the peace officer/firefighter HRA found in section
29) to the list of medical benefit programs that the
Department of Administration commissioner is
authorized to prefund.
Section 7: Makes a Revisor's type technical change by
using the new preferred term for referring to the
state retirement system.
Section 8: Amends AS 39.30.380 regarding how the HRA
medical benefits are handled for terminated employees
who leave prior to retiring. A person who terminates
employment prior to meeting the eligibility
requirements under the new AS 39.35.537 (proposed
peace officer and firefighter HRA found in section 29)
lose rights to their contribution to the HRA trust
fund, in line with other Tier IV HRAs.
Section 9: Amends AS 39.30.390 regarding eligibility
for reimbursement under the HRA. Adds the new AS
39.35.537 (proposed peace officer and firefighter HRA
found in section 29) as eligible for reimbursements
from the HRA.
Section 10: Amends AS 39.30.400(a) regarding benefits
payable from individual HRA accounts. The new AS
39.35.537 (proposed peace officer and firefighter HRA
found in section 29) is added as a plan from which the
administrator may deduct the cost of monthly premiums.
Section 11: Amends AS 39.30.495 which contains the
definitions for the HRA statutes. Adds the new AS
39.35.537 (proposed peace officer and firefighter HRA
found in section 29) to the definition of "eligible
person" found in AS 39.30.495(5).
1:55:44 PM
Section 12: Amends AS 39.35.095 which lays out the
applicability of the defined benefit retirement plan
statutes found in AS 39.35.095-39.35.680 to include
peace officers and firefighters participating in the
defined benefit plan after June 30, 2006.
Section 13: Conforming amendment to AS 39.35.160(a)
which outlines the employee contribution rates for
peace officers or firefighters hired before June 30,
2006, excepting the new AS 39.35.160(e) (found in
section 14). Deletes material on page 9, lines 18-25
that is reproduced in a new AS 39.35.160(f) (found in
section 14).
1:56:49 PM
MS. SORUM-BIRK advised that Section 14 was one of the
substantive parts of HB 55.
Section 14: Creates new subsection AS 39.35.160 (e)
setting the employee contribution rate for peace
officers and firefighters participating in the defined
benefit plan after June 30, 2006, at 8 percent of the
employee's compensation. The ARM board may adjust the
contribution rate from 8 to 12 percent. Subsection (f)
reproduces the deleted material from page 9, lines 18-
25 in section 13 of the bill, ensuring that
contributions conform with the federal Internal
Revenue Code.
Section 15: Amends AS 39.35.255(a) by referring to a
new subsection (i) and by doing so makes clear that
the total employer contribution remains 22% for peace
officer and fire fighter employers.
Section 16: Amends AS 39.35.255(d) and is a technical
conforming change to accommodate the new subsection
(i) of this statute.
Section 17: Amends AS 39.35.255(e) and is a technical
conforming change to accommodate the new subsection
(i) of this statute.
1:57:48 PM
MS. SORUM-BIRK stated that Section 18 was another key section of
the bill.
Section 18: Adds new subsections (i) and (j) to AS
39.35.255.
• New subsection (i) establishes one of the new
features that aim to make this new tier
financially viable. It specifies that the
employer contribution to the employee retirement
benefit will remain constant at 12%. And, that
the difference between the 12% contribution
dedicated to employee benefits and the 22% total
employer contribution will be available for the
past liability of the PERS system.
• New subsection (j) states that the ARM board may
increase the employer contribution to the
employee retirement benefit based on the board's
decision to increase employee contributions. This
is also a new feature, or "lever," added to help
make the new tier financially viable.
Section 19: Amends AS 39.35.282 regarding employer
contributions for medical benefits, conforming that
section to changes in the bill affecting peace
officers and firefighters first participating in the
defined benefit plan after June 30, 2006.
Section 20: Conforming amendment to AS 39.35.370(a)
which outlines the years of service requirements to
become eligible for retirement benefits under the
defined benefit retirement plan. The conforming
language specifies that the credit service
requirements in subparagraphs 1-3 only apply to
persons who became members of the defined benefit
retirement plan prior to July 1, 2006.
1:59:19 PM
MS. SORUM-BIRK identified Section 21 as another key section of
HB 55.
Section 21: Amends AS 39.35.370 by adding a new
subsection (l) detailing the service requirements for
peace officers and firefighters participating in the
defined benefit plan after June 30, 2006. Members are
eligible for a normal retirement benefit:
• At age 60 with at least five years of credited
service as a peace officer or firefighter, or
• At age 55 with at least 20 years of credited
service as a peace officer or firefighter.
Section 22: Amends AS 39.35.381 concerning the
alternative benefits for elected public officials. The
new AS 39.35.537 (proposed peace officer and
firefighter HRA found in section 29) is added to the
list of plans that elected public officials are not
entitled to under the alternative benefit for elected
public officials.
Section 23: Conforming amendment to AS 39.35.475(a)
concerning the schedule for making the annual
postretirement pension adjustments (PRPA), making
those payments subject to the exceptions in the new
subsection (g) (found in section 25).
Section 24: Conforming amendment to AS 39.35.475(b)
concerning the calculation of the annual
postretirement pension adjustments (PRPA), making
those payments subject to the new subsection (h)
(found in section 25).
2:00:54 PM
Section 25: This section contains one of the new
features, or "levers," added to help keep the new tier
financially viable. The section is intended to allow
the ARM board to reduce a benefit, the automatic post-
retirement pension adjustment, to keep the new tier
financially viable. The proposed new subsections:
• Subsection (g) sets up the adjustment feature of
the next subsection.
• Subsection (h) allows the ARM board to reduce
PRPA payments to peace officers and firefighters
participating in the defined benefit plan after
June 30, 2006, if the plan has an unfunded
liability greater than 10 percent and clarifies
that the feature can be used if the liability to
PERS is attributable to the employees of this new
tier.
Section 26: Conforming amendment to AS 39.35.535(a)
concerning the medical benefits for employees under
the defined benefit retirement plan. Adds a new
subsection (g) (found in section 28) as an exception
to the defined benefit retirement plan medical
benefits for peace officers and firefighters
participating in the defined benefit plan after June
30, 2006.
Section 27: Conforming amendment to AS 39.35.535(c)
concerning the major medical insurance coverage for
those under the defined benefit retirement plan. It
specifies that the section only applies to those
members or their surviving spouse who joined prior to
July 1, 2006.
Section 28: Amends AS 39.35.535 by adding a new
subsection (g) that states peace officers and
firefighters participating in the defined benefit plan
after June 30, 2006, are to receive benefits under the
HRA as allowed under the new AS 39.25.537 (found in
section 29).
2:02:49 PM
MS. SORUM-BIRK described Sections 29 and 30 as additional key
parts of HB 55.
Section 29: Adds a new section AS 39.35.537 creating
an HRA medical benefit for peace officers and
firefighters first participating in the defined
benefit plan after June 30, 2006. The section
specifies the eligibility, cost of premiums for the
major medical insurance, and procedures for
participation.
Section 30: Amends AS 39.35.680 (4) which contains the
definitions for the defined benefit retirement plan
statutes. Adds a new paragraph (F) under the
definition of "average monthly compensation" that
states the calculation for peace officers and
firefighters first participating in the defined
benefit plan after June 30, 2006, will be based on the
highest five consecutive payroll years during the
employee's career.
Section 31: Conforming amendment to the definition of
"employer" under AS 39.35.680(18) to include peace
officers and firefighters participating in the defined
benefit plan after June 30, 2006.
Section 32: Conforming amendment to the definition of
"normal retirement" under AS 39.35.680(26) to include
AS 39.35.370(l) detailing the service requirements for
peace officers and firefighters participating in the
defined benefit plan after June 30, 2006.
Section 33: Conforming amendment to AS 39.35.720
regarding the membership in the defined contribution
retirement system, stating that all employees who
become members on or after July 1, 2006, except as
provided in AS 39.35.095, are part of the defined
contribution plan, thus excepting peace officers and
firefighters participating in the defined benefit plan
after June 30, 2006.
Section 34: Adds a new subsection to AS 39.35.750
regarding employer contributions to the defined
contribution retirement plan, stating those
contribution requirements do not apply to peace
officers and firefighters participating in the defined
benefit plan after June 30, 2006, whose employer
contribution requirements are found in the new AS
39.35.255(i) (found in section 18).
2:05:48 PM
MS. SORUM-BIRK identified Section 35 as another important
section in HB 55.
Section 35: Adds a new section to the uncodified law
of the State of Alaska allowing peace officers and
firefighters hired after June 30, 2006 and before the
bill's effective date to elect, within 90 days of the
effective date of this section, to transfer their
contributions to their defined contribution retirement
plan to the defined benefit retirement plan. Those
transfers will be used to purchase credited service
under the defined benefit retirement plan on an
actuarially equivalent basis set by the ARM board.
Section 36: Adds a new section to the uncodified law
of the State of Alaska creating procedures set out by
the Department of Administration for employees to
transition their contributions under the defined
contribution retirement plan to the defined benefit
retirement plan. This section also states that the
election to transition from the defined contribution
to the defined benefit plan is irrevocable. If there
is a difference between the actual years of service
and the equivalent years of service calculated by an
employee's contributions to the defined benefit
retirement plan, then the Department of Administration
will allow persons to buy the difference. If the
equivalent years of service are in excess of the
actual years of service, then the excess remains under
the defined contribution retirement plan.
Section 37: Adds a new section to the uncodified law
of the State of Alaska instructing the Department of
Administration commissioner to make conforming
regulations.
Section 38: States that section 37 takes immediate
effect under AS 01.10.070(c).
Section 39: Sets effective date of July 1, 2021.
2:07:59 PM
At ease
2:08:48 PM
CHAIR COSTELLO reconvened the hearing on HB 55 and asked the
sponsor if he had something to add.
REPRESENTATIVE JOSEPHSON said he neglected to mention that these
stakeholders will receive no cost of living allowance.
CHAIR COSTELLO clarified for those listening that HB 55 affects
only public safety employees.
She stated that when HB 55 was brought to her attention she was
told that it does not return public safety employees to a
defined benefit system. However, the sponsor statement says this
is a defined benefit bill. She asked for clarification because
it raises concern that it could return the state to the
situation in 2006 when the state coffers were at huge risk.
2:11:46 PM
REPRESENTATIVE JOSEPHSON explained that it was medical care that
generated inflationary costs for the PERS/TRS retirement system
and HB 55 does not do that. The bill is a hybrid with defined
benefit and defined contribution components. The defined benefit
is the pension. That is controlled and the actuaries say it
poses virtually no threat to the state. The defined contribution
component relates to the HRA that is 3 percent of pay. The
retirees will need to fill the gap themselves until they age-
qualify for Medicare.
2:15:09 PM
CHAIR COSTELLO asked if he was saying "on the public record that
there is no change to the health benefit situation for the 2,200
individuals that will be affected by this bill.
REPRESENTATIVE JOSEPHSON answered that is correct
CHAIR COSTELLO noted that he also stated that the risk to the
state in terms of medical costs is nonexistent. She asked if he
stands by that statement.
REPRESENTATIVE JOSEPHSON answered yes. He offered his
understanding that the 3 percent employee contribution will be
invested and will rise and fall but it creates no threat to the
security of the state.
2:16:09 PM
CHAIR COSTELLO highlighted that the Labor and Commerce Committee
focuses on the economy and jobs for Alaskans now and for future
generations. She asked the sponsor to share what jobs and
training problem HB 55 solves and how he knows this is the
answer.
REPRESENTATIVE JOSEPHSON cited page 6 of The Department of
Public Safety (DPS) Recruitment and Retention Plan Overview
2018-2023. It states that "the lack of a defined benefit
retirement program is the source of attrition and applicant
disinterest." He stressed that Alaska is being poached. In
Washington and other states DPS equivalents are talking about
the incredible quality of employees that Alaska produces and
loses after year five. He said the state has to stop the
conveyor belt that sends trained employees to Lower 48 states.
The overview repeatedly identifies the problem and HB 55 is a
cautious and conservative solution.
2:19:09 PM
SENATOR REVAK stated that HB 55 proposes a solution to the issue
of retaining trained first responders and he was pleased to see
that the bill has cost containment levers. Nevertheless, he said
it is incumbent on the legislature to ensure that this or any
solution does not exacerbate the unfunded liability in PERS. He
referenced the indeterminate fiscal note and asked what
assurance the committee has that the bill will not result in an
additional unfunded liability.
REPRESENTATIVE JOSEPHSON deferred the question to Ms. Sorum-
Birk.
2:21:02 PM
MS. SORUM-BIRK stated that HB 55 received a full actuarial
analysis last year in the House Finance Committee and that
information is on BASIS. She offered to provide the analysis if
that was the committee's preference and noted that the sponsor
was told that the fiscal note will be updated if the bill moves
to the Senate Finance Committee. She also offered to share the
analyses William B Fornia, FSA presented in the House Finance
Committee last year.
SENATOR REVAK said he would like to see both analyses. He
mentioned the pro and con communications, and asked how the
employer and employee contribution rates were selected.
2:22:46 PM
MS. SORUM-BIRK explained that HB 55 proposes an 8 percent
employee contribution, which matches the current Tier IV
contribution rate. However, the Alaska Retirement Management
(ARM) Board has the ability to increase the contribution rate
incrementally to 12 percent if the new plan becomes less than 90
percent funded. The employer contribution is 22 percent across
all tiers and that does not change in HB 55. What is different
is the distribution. She skipped to slide 10 to explain the
difference. The two pie charts and the commentary are from page
4 of the Buck April 2021 actuarial analysis of HB 55. It reads:
[Original punctuation provided.]
The increase in Additional State Contributions can be
explained by the pie charts below. These show the
distribution of the 22% of pay employer contribution
for FY23 for HB 55 members among the various trusts
(similar distributions of employer contributions would
apply to other years). Because the percentage being
deposited to the DB trust decreases (from 12.2% to
10.0%), the Additional State Contribution increases to
make up the shortfall.
MS. SORUM-BIRK summarized that the contribution to the DB trust
decreases from 12.2 percent to 10 percent and that 2.2 percent
change is reflected in the fiscal note. The perceived cost, even
though the employer contribution remains 22 percent, is that
less money is allocated to pay down the unfunded liability each
year. She also recapped that vesting is still five years,
qualifications for retirement are a little more stringent,
benefit formulas are the same but based on the high five years
of employment rather than three years, and the health
reimbursement adjustment (HRA) is 3 percent. She explained that
the top pie chart depicted on slide 10 shows the current
distribution for Tier IV employees and the bottom pie chart
reflects the distribution under HB 55. Nine percent goes
directly to the new trust established by HB 55, 3 percent goes
to HRA, and 10 percent goes to pay off the unfunded liability.
SENATOR REVAK said he would hold his additional questions until
after the presentation.
2:27:18 PM
SENATOR STEVENS mentioned that he was in the legislature in 2006
when the unfunded liability prompted legislative action. He
recalled a discussion along the way that acknowledged that new
employees cannot be expected to pay for the sins of the past.
However, Section 18 implies that new employees are being asked
to do so.
REPRESENTATIVE JOSEPHSON responded and asked Ms. Sorum-Birk if
his response was accurate.
2:28:40 PM
MS. SORUM-BIRK clarified that Section 18 is talking about the
employer contribution. It is not Tier IV employees who are
paying for the sins of the past but rather the employers.
REPRESENTATIVE JOSEPHSON agreed with Ms. Sorum-Birk and added
that under HB 55 the state will contribute the same 22 percent,
but two percent less will be allocated to pay down the unfunded
liability. The new plan applies to 2,200 public safety employees
and testimony from last year indicated that this would add six
months to the estimated time to pay off the PERS unfunded
liability.
SENATOR STEVENS summarized that new employees will be treated
fairly and will not be paying for the sins of the past.
2:30:37 PM
SENATOR GRAY-JACKSON commented on her experience with the
unfunded liability and budget funding to train police and fire
employees. She stressed the importance of having incentives in
place to not only hire but also retain good employees. She said
she likes HB 55 in particular because it takes a fiscally
responsible approach.
She recalled that Tier IV PERS employees receive no health
benefits when they retire.
REPRESENTATIVE JOSEPHSON replied that the retirees under HB 55
will receive the three percent per annum of salary that has been
set aside in the health reimbursement arrangement (HRA). He
offered his understanding that those funds can be used to
purchase premiums but once the funds are depleted the employee's
premium payments would be out of pocket. He deferred to Ms.
Sorum-Birk for further explanation.
2:33:22 PM
MS. SORUM-BIRK added that the HRA has certain requirements such
as the employee has to retire directly from state employment to
use the money. She deferred further explanation to Mr. Puckett.
SENATOR GRAY-JACKSON commented that it is not a Cadillac plan.
REPRESENTATIVE JOSEPHSON agreed.
2:34:28 PM
CHAIR COSTELLO moved to invited testimony on SB 55.
2:34:56 PM
PAUL MIRANDA, President, Alaska Professional Firefighters
Association, Anchorage, Alaska, stated that the state is facing
a crisis in recruiting and retaining peace officers and
firefighters and the purpose of his presentation is to
illustrate that there is a real cost to maintaining the status
quo.
MR. MIRANDA stated that since 2006 when Tier IV became
effective, several unintended consequences have become very
apparent for Alaska's public safety employees. He recounted the
following:
• Public safety agencies have experienced difficulties in
recruiting troopers, correction officers, and municipal
fire and police statewide. Alaska is at a clear
disadvantage because no public safety retirement plan in
the country is comparable to the Tier IV retirement in
Alaska.
• Retention costs affect all public safety agencies across
the state. He noted that he will illustrate some of these
costs in later slides. Dollars are being siphoned off
through separations and a recruiting process that is made
more difficult because of the benefit package.
• Workers compensation costs can be expected to increase
because the workforce in these agencies lack the financial
security to retire.
• There are additional unforeseen costs as well.
MR. MIRANDA displayed slides 3 and 4 of testimony from fire and
police chiefs across the state that highlights the recruitment
and retention difficulties their departments face. He read the
following quotes:
[Original punctuation provided.]
• "Alaska cannot compete with agencies offering defined
benefit plans. This has left us with vacancies in multiple
academies as applicants decide to pursue careers
elsewhere." APD Police Chief Justin Doll (ret.)
• "Currently I serve as the Fire Chief of an organization
that trains and educates the future of Alaska fire service.
I frequently watch our young folks attain jobs in the lower
48, at a highly successful rate. They are leaving our state
with the education and experience we desperately need to
keep." - UFD Fire Chief Forrest Kuiper
• "We are also seeing younger officers who are very mobile,
very portable, with no pension plan tying them here, leave
for other opportunities and other departments." APD Chief
Ken McCoy
• "? the inability to provide a defined benefit retirement
system have placed the department at critically low
staffing levels." DPS Recruitment and Retention Plan
Overview 2018-2023
• "We are seeing our highly trained, qualified, and
experienced officers leave APD to work out of state for
other law enforcement agencies offering competitive defined
benefit retirement systems." APD Police Chief Justin Doll
(ret.)
• "The turnover of career staff appears to be higher?
compared with other clients. Turnover not only has a
financial effect on the department, but it also loses
valuable experience. " Fitch & Associates consultant
report Capital City Fire and Rescue
2:39:56 PM
MR. MIRANDA discussed the Workers Compensation Costs. He stated
that Tier IV has been in place about 16 years so no Tier IV
public safety employees have had a 20-25 year career in public
safety and then tried to retire. The average age of a new hire
in public safety is 31 years old. He said this means that as
agencies become staffed with an older workforce that does not
have the financial security to retire, increased workers
compensation costs can be expected. The job is physical and
there is an increased likelihood that older public safety
employees will sustain a higher rate of injury. He cited the
following points from a Rand Corporation study on California
firefighter's worker compensation injuries.
• Firefighters are particularly prone to musculoskeletal
disorders (MSDs).
• irefighters age 55 and older have a musculoskeletal
injury rate that is more than double that of younger
firefighters, and more than ten times greater than that of
private-sector workers of same age.
• "It is apparent that older firefighters are associated with
much higher rates of reported workplace injuries than both
younger firefighters and private sector workers.
• "This is consistent with the notion that the rigorous
physical demands of firefighting subject them to trauma
throughout their working lives, making them more subject to
musculoskeletal disorders in later years.
MR. MIRANDA said it is important to understand that more than
just physical injuries must be considered. Employees who are no
longer mentally prepared to do the job should have the ability
to leave. In public safety, retirement after 20-25 years is
common because the physical and mental toll of the job builds up
over time. For the employee's sake and the sake of the community
they serve, these employees should be able to leave when it is
time.
2:42:17 PM
MR. MIRANDA directed attention to slide 6 that highlights the
unforeseen costs associated with the Tier IV retirement plan. He
said departments have seen increased overtime costs due to
inadequate staffing; increased training costs; loss of
operational capabilities; loss of experience and future
leadership; and a rise in organizational stress levels. He said
departments statewide are being hollowed out. There are
employees who are at the end of their careers and those just
starting out, but there are few in the midlevel supervisory
ranks. Those employees are leaving, taking their training and
experience to other states.
MR. MIRANDA turned to slide 7 that highlights that the current
recruitment and retention problems will only increase. He
discussed the following points:
• Current recruitment and retention difficulties highlighted
by DPS, DOC, and public safety officers from across the
state are occurring with 40-50 percent of the workforce in
DB systems.
• Tier 4 currently makes up 50-60 percent of the public
safety workforce. He noted that the figure today is about
65 percent.
• The problems will be magnified as the Tier 4 workforce
population grows.
• A 100 percent portable public safety workforce is a
frightening thought for public safety officers around the
state.
2:44:46 PM
MR. MIRANDA explained that the next several slides look at the
cost of continuing to lose public safety employees at the
current rate. He made the following points:
• There are about 3,400 public safety employees in Alaska.
• A conservative estimate of the average cost to train a
public safety employee is $120,000, although some agencies
report much higher training costs.
• The Department of Public Safety (DPS) and the Department of
Corrections (DOC) have testified to the legislature about
having non-retirement separations of greater than 6
percent.
• Tier 4 comprises about 60 percent of the total public
safety workforce
2:45:40 PM
MR. MIRANDA highlighted the cost to Alaska of losing 1 percent,
2 percent and 3 percent of the Tier IV public safety workforce
each year, using training costs of $120,000 and not adjusting
for inflation.
1 PERCENT OF THE WORKFORCE LEAVING
• 3,400 x 0.01 = 34 employees
• 34 x $120,000 = $4,080,000 cost per year
• 5 x $4,080,000 = $20,400,000 5-year cost
• 20 x $4,080,000 = $81,600,000 20-year cost
2 PERCENT OF THE WORKFORCE LEAVING
• 3,400 x 0.02 = 68 employees
• 68 x $120,000 = $8,160,000 cost per year
• 5 x $8,160,000 = $40,800,000 5-year cost
• 20 x $8,160,000 = $160,200,000 20-year cost
3 PERCENT OF THE WORKFORCE LEAVING
• 3,400 x 0.03 = 102 employees
• 102 x $120,000 = $12,240,000 cost per year
• 5 x $12,240,000 = $61,200,000 5-year cost
• 20 x $12,240,000 = $244,800,000 20-year cost
2:47:35 PM
MR. MIRANDA stated that the costs outlined above far outweigh
the cost of HB 55 and they are just one aspect of the problems
of the non-retirement separation of public safety employees. He
highlighted that several states and local jurisdictions
nationwide have restored their defined benefit systems after
experiencing what Alaska is experiencing currently. He offered
to follow up with specific examples.
MR. MIRANDA said he believes the committee will hear testimony
that bolsters the idea that both labor and management are united
in support of HB 55. They have a shared interest in ensuring
that quality public servants fill the ranks of Alaska's public
safety agencies. He concluded that adopting an adequate
retirement plan that has reasonable costs and fair benefits and
shared risk will help in that mission.
2:49:36 PM
TODD CHAMBERS, Fire Chief, City of Fairbanks Fire Department
(FFD), Fairbanks, Alaska, stated support for HB 55. He reported
that the lack of a defined benefit retirement has increased FFD
employee turnover markedly. Over the last three years the
turnover at FFD has been about 17 percent, particularly for the
entry-level firefighter positions. About 50 percent of employees
have been working in the department for fewer than three years.
The combined effect of entry-level turnover and retirement of
experienced personnel has created a mid-level gap that makes it
difficult to fill supervisory positions for captain and
battalion chief. He described this as a very real problem for
life, safety, and property protection.
MR. CHAMBERS reported that over 60 percent of the personnel who
have left FFD in the last three years have stated that one
reason for leaving was the lack of a defined benefit retirement.
He urged the committee to pass HB 55.
2:51:13 PM
ANGELINA SALVATO, Communications Officer, Anchorage Police
Department Employees Association, Anchorage, Alaska, testified
in support of HB 55. She stated that she has been in law
enforcement for 20 years. She is a Tier III defined benefit
employee and can retire any time with a 20-year pension.
However, the majority of her academy was Tier IV and just 2 of
the 21 graduates are still working in law enforcement in Alaska
today. She said new officers who are 21-25 years old are not
thinking about retirement so it is the job of leaders, unions,
and legislators to set these young employees up for something
they are not thinking about.
MS. SALVATO related that in her current position she fields
calls from officers across the country who ask about employment
opportunities. One of the first questions she receives is about
retirement and many are disappointed when she explains it is a
401(k) type retirement.
MS. SALVATO said peace officers vest after five years and they
are taking their experience and expensive training to other
states that offer retirement benefits. This is leaving a
leadership gap and as a life-long Alaskan and community member
it is a large concern. She urged the legislature to do something
to change this situation by supporting HB 55.
2:55:52 PM
JUSTIN MACK, Vice President, Anchorage Fire Fighters and Vice
President, Alaska Professional Fire Fighters Association
(APFFA), Anchorage, Alaska, stated that he has worked with the
Anchorage Fire Department for 10 years and currently serves as a
captain. He advised that his testimony would focus on the risks
of the Tier IV plan, how HB 55 addresses those risks and the
cost of doing nothing.
He recounted that Tier IV changed the legacy pension system
medical benefit to a 2 percent health reimbursement arrangement
(HRA) account. HB 55 takes best practices from well-funded plans
in the U.S. and limits the retirement medical benefit, which
much like Tier IV severely limits the burden of health care to
the state. He stressed that public safety members deserve a
retirement that is dignified and includes a medical component.
But at the same time, risk to the state must be taken into
account. The goal he said is to have a well-funded, sustainable
system for public safety workers in Alaska.
MR. MACK highlighted additional provisions in HB 55 that help
protect the state from an unfunded liability. If the fund under
performs for any reason, the Alaska Retirement Management (ARM)
Board has the ability to increase employee and employer
contributions. This feature is a direct reflection of the
concerns brought forward by the administration and the
legislature. Other provisions include a five-year salary average
rather than three-year, and a minimum retirement age. He noted
that the legislature brought forward both issues.
MR. MACK agreed with previous testimony that the cost of doing
nothing is that Tier IV members are not staying in Alaska. They
come and receive top-notch training and certification and then
they are recruited to a state with a pension. Lower 48 states
get experienced public safety members after Alaska has footed
the bill for their training. He said increasing wages will
attract more people, but it will do nothing to address
retention. It simply gives the officer or fire fighter more
money when they leave the state to take a job with a defined
benefit.
MR. MACK stated that labor and management agree on what the
problem is and the solution offered in HB 55. He acknowledged
that some members in public safety do not think the bill goes
far enough to protect the worker, but the bill has to address
risk to the state. It has to show that this system will work in
good markets and poor, and police officers, state troopers,
correction officers, and firefighters by and large understand
this and that safeguards and best practices are implemented to
mitigate that risk to an acceptable level. HB 55 takes the same
approach to ensure that those who serve are also supported when
they no longer can do the job they swore to do. A "zero" risk
solution will not accomplish the goals for public safety in
Alaska. At the same time, public safety employees cannot be
expected to accept all the risk and stay in Alaska.
MR. MACK stated that HB 55 offers a shared risk solution with
provisions that significantly reduce risk to the state and
ensure departments can recruit, retain, and offer a dignified
retirement to public safety members in Alaska. He suggested the
committee members reach out to police and fire leadership in
their communities to talk about the experience gap that is
widening in departments. He concluded his testimony saying that
HB 55 is an opportunity to set a new course for public safety in
Alaska.
3:00:26 PM
RANDY MCLELLAN, President, Alaska Correctional Officers
Association and Staff Sergeant, Department of Corrections (DOC),
Anchorage, Alaska, testified in support of HB 55. He stated that
APOA represents the 940 correctional officers throughout Alaska
who work in a very dangerous profession. They face frequent
assaults, and daily violence. Covid-19 has added to the stress
level and made matters worse for officers and their families.
MR. MCLELLAN stated that DOC is having difficulty recruiting new
officers and is losing officers at record rates. The Tier IV
system is often cited as a primary reason for leaving. He
recounted that in 2021, 152 officers separated from DOC
employment. This represents 16 percent of the workforce, setting
a new record. When they leave, they take their $10,000 hiring
bonus and their training. The state shoulders the cost of hiring
and training and another state receives the benefit.
MR. MCLELLAN explained that retention difficulties lead to
understaffing and that severely affects safety and security
because there are few experienced officers to train new
employees. Because of shortages, existing employees are
incurring overtime at astronomical rates and this affects
families and is mentally and physically taxing for the employee.
He noted that the overtime budget last year set a record.
MR. MCLELLAN said one cause of the staffing crisis is the Tier
IV retirement. It is not competitive with law enforcement
agencies in the Lower 48. Officers who leave after five years of
service say they have no incentive to stay and they are leaving
to take a job with benefits. He said HB 55 takes a positive step
toward addressing the recruitment and retention crisis. He urged
the committee's support.
3:04:57 PM
JEREMY CONKLIN, President, Anchorage Police Department Employees
Association (APDEA), Anchorage, Alaska, testified in support of
HB 55. He stated he is a sergeant with the Anchorage Police
Department. He said the previous testimony has given a thorough
description of the bill and the aspects that make it reasonable
and good solution to the recruitment and retention crisis facing
public safety agencies in Alaska. He highlighted that in
Anchorage there is a level of service and professionalism in
police officers, firefighters, and correctional officers that
has been created by the culture that exists today. He expressed
concern that as the next generation of peace officers and
firefighters leave, he wonders who will carry that culture
forward and ensure that Alaskans get the type of public safety
service they deserve. There will be such a gap in experience and
community trust and engagement that Anchorage may end up like
some cities in the Lower 48 that do not have a level of
professionalism and community trust.
MR. CONKLIN said what is unique about HB 55 is that top level
peace officers and firefighters have all reached out and
identified that the lack of a defined benefit is negatively
affecting their ability to adequately staff their departments.
As president of APDEA he represents 550-560 members and over 60
percent are Tier IV and they overwhelmingly believe this bill is
a reasonable solution. He urged the committee to pass HB 55.
RYAN FROST, Policy Analyst, Reason Foundation, Olympia,
Washington, began his testimony on HB 55.
3:09:00 PM
CHAIR COSTELLO interrupted to open public testimony on HB 55
then asked Mr. Frost to start over.
RYAN FROST, Policy Analyst, Pension Integrity Project, Reason
Foundation, Olympia, Washington, restarted his testimony but his
call was dropped.
3:10:30 PM
At ease
3:10:41 PM
CHAIR COSTELLO reconvened the meeting and asked Mr. Frost to
either call back to finish his testimony or provide it in
writing.
3:11:05 PM
CODY CARVER, representing self, Bellingham, Washington,
testified in support of HB 55. He stated that he is a paramedic
with the Bellingham Fire Department and has been a fire fighter
for 12 years. He related his personal story of growing up in
Soldotna and dreaming of being a career paramedic/firefighter
with the Anchorage Fire Department. However, when he educated
himself about Tier IV retirement and medical benefits he decided
to explore his options in Washington. He found Tier IV benefits
unsatisfactory because of the uncertainty associated with a
defined contribution retirement plan and concern about what
would happen if he were injured on the job and could not return
to work.
He reported that many departments in Washington are hiring
firefighters in lateral transfers, which benefits both the
department and the firefighter. The departments get experienced
firefighters so it saves money in training, and lateral
firefighters enjoy higher wages and more sick leave and vacation
time than a rookie. This is appealing to experienced
firefighters like himself who are starting over with a new
department. He concluded his testimony saying that he would
never have left his dream job with the Anchorage Fire Department
if Tier IV members had a pension.
CHAIR COSTELLO asked Ryan Frost to state his name and
affiliation for the record and continue his testimony.
3:13:53 PM
RYAN FROST, Policy Analyst, Pension Integrity Project, Reason
Foundation, Olympia, Washington, testified on HB 55 to point out
what he sees as pitfalls. His testimony was interrupted twice
before due to technical difficulties. The following is his
testimony in its entirety:
[Original punctuation provided.]
Good afternoon, my name is Ryan Frost and I'm a policy
analyst with the Pension Integrity Project at Reason
Foundation. I've been with Reason since 2019, but
prior to that, I spent 7 years as the Research and
Policy Manager for the Law Enforcement Officers and
Firefighters Pension System in Washington State, or
LEOFF 2 for short. LEOFF 2 has been one of the top-
three best funded plans since its inception in the mid
1970's, and that's primarily been accomplished by
keeping up to date with best practices in plan and
funding design.
Our pension team has been a key pro-bono technical
consultant on 55 pension reforms over the past 6
years, the two largest being the public safety plan in
Arizona and the Texas employee's retirement system.
Those reforms include new defined benefit tiers, new
hybrid design tiers, new cash balance tiers, and new
defined contribution tiers. Each of those reforms has
at its very foundation, a way of paying for the
pension system that ensures costs do not eat into
state and local budgets, and that these important
benefits earned by employees are fully funded for
their retirement.
If it's the legislature's desire to open a guaranteed-
benefit design to the public safety employees of
Alaska, that can most certainly be done, but it must
be done in a way that protects the state from
financial risk. This bill would attach new public
safety employees to a plan that has had trouble with
funding spanning back two decades, only sitting at 76%
funded even after the largest one-year market return
in recent history. I'd like to lay out a few pension
best practices for the committee to consider, and
where HB 55 falls short.
A successful plan pays the full actuarially determined
rate using a full 50/50 cost sharing method. For a
defined benefit plan, this means that when
underperformance happens in the market, or any of the
other dozens of economic and demographic assumptions
aren't met, employees and employers equally share the
paydown of that added debt to the pension system.
This bill has been sold as being "risk shared", but
neither pays the actual cost of earned benefits, as
determined by the plan's actuary, nor equally shares
those costs between all stakeholders. Setting rates in
statute, and capping those rates for employees, is a
funding design from yesteryear that no longer follows
the best practices in pension design.
The best funded plans also don't look to past
investment experience when setting future assumed
rates of return. The median rate of return across the
country sits at 7%. This bill would put all employees
into a plan assuming 7.38%. Not only does that number
fail to track with past investment experience in
Alaska, but it also severely overestimates the 1015-
year market assumptions used by other institutional
investors.
For example, two of the largest three plans in the
country, the California Public Employees Retirement
System and the New York State and Local System, have
both stated in the past year that they only assume to
earn 6% over the next 10 years. Both systems made
immediate and prudent changes to their assumed rates
of return, with New York dropping all the way down to
5.9%. This bill has been sold as being "cost neutral"
due to having the same contribution rate as the DC
plan, but if this new tier earns even an optimistic
6.5%, while assuming 7.38%, costs will rapidly begin
to spike. Quite quickly, the cap on the employee rate
will be hit, and the employer rate will continue to
climb higher and higher to pay for those missed
returns and the added interest, at 7.38%, that each
year of missed returns adds to the plans unfunded
liabilities.
In conclusion, there is way forward that can meet
whatever needs this legislative body and stakeholders'
desire, but HB55 as currently written would not put
this new tier on a successful path. We'd be happy to
work with the committee and stakeholders to help draft
a design that best meets those needs and follows
current best practices in pension design. Thank you
for your time today, and I'd be happy to answer any
questions.
3:18:32 PM
SENATOR GRAY-JACKSON asked what he thinks about the current Tier
IV plan for public safety employees.
MR. FROST replied it appears to lack adequate benefits, and
increasing the contribution rate is one of several options to
rectify that issue.
SENATOR GRAY-JACKSON asked what is wrong with the option HB 55
proposes because she believes it is very viable.
MR. FROST replied it is important to ensure that any new plan
does not incur debt, and this bill it is missing a few very
important risk and cost mitigation factors. He noted that he
mentioned the issues in his testimony.
3:20:05 PM
JEFFERY JONES, representing self, Ketchikan Fire Department,
City of Ketchikan, Ketchikan, Alaska, testified in support of HB
55. He stated that he is a fire medic who has been in the PERS
system for 14 years. He opined that returning to a defined
benefit plan would help mitigate the costs associated with
training and turnover that state and municipalities currently
face. He listed the multiple certifications he has received
during his time with the department, all of which were paid for
by the city. He said he realizes that it will be expensive for
the city to replace his training and experience, but he is
actively searching for career opportunities in states that have
a defined benefit plan. He is not eager to uproot his family but
he wants to enjoy retirement and that is not realistic with his
current retirement plan. He will have worked for 30 years when
he's age 58 and will still not have enough to retire. Also,
performing the work of a fire fighter at that age would put
himself, his coworkers, and the public at greater risk.
MR. JONES stated his belief that the relatively small increase
in the cost of the proposed new plan is money well spent
considering the value of retaining employees throughout their
careers versus training new people but not having benefits in
place to keep them. He urged the committee to pass HB 55.
3:22:36 PM
CHARLES KOPP, Public Policy Consultant, Alaska Professional Fire
Fighters Association, Anchorage, Alaska, testified in support of
HB 55. He stated that the labor statistics for police and
firefighters look at life expectancy, which for a career police
officer is 21.9 years shorter than the average population in the
U.S. and 15 years shorter for career fire fighters. He said
pension actuaries routinely use these numbers. He shared that as
a retired police officer he pays a higher than average rate for
life insurance. Since retirement, four of the officers he worked
with have died and he experienced a heart attack last summer at
age 55. It was not a matter of a poor diet and lack of exercise.
It was the stress he experienced over the course of his career
as a police officer. The men and women who work in these
professions know the risks and choose to serve anyway. HB 55
recognizes what peace officers and firefighters are asked to do.
3:25:59 PM
COREY LUCK, representing self, Mukilteo Fire Department, City of
Mukilteo, Mukilteo Washington, testified in support of HB 55. He
stated that he is a fire fighter/EMT who was working for Capital
City Fire and Rescue in Juneau when COVID-19 became an issue. He
began to think about how to bring more certainty into his life
and career and decided to relocate to Mukilteo because it
offered a defined benefit retirement. The certifications and
training he received in Juneau transferred to his work in
Washington state. He concluded saying that if it weren't for the
lack of a defined benefit retirement he would still be working
for Capital City Fire and Rescue.
3:27:02 PM
CRAIG WARREN, Fire Chief, Sitka Fire Department, City and
Borough of Sitka, Sitka, Alaska, testified in support of HB 55.
He related that when he hires a new employee he is careful to
warn them that the job does not offer much of a retirement
unless they have a long, long career. As previous testimony has
indicated, it is difficult for someone who is 65 years old to
serve as a police officer or firefighter because these jobs are
physically taxing. He said we need to be able to offer a
retirement to these employees that allows them to retire at an
earlier age. He noted that a number of municipalities throughout
the state have opted out of paying into Social Security and
several have even opted out of paying SBS so the Tier IV plan is
all that is available and it will not cover what somebody needs
to retire. He voiced support for HB 55.
3:28:43 PM
CHAIR COSTELLO closed public testimony on HB 55. She recognized
the representatives from Capital City Fire and Rescue who were
in the audience and thanked them for their service.
CHAIR COSTELLO held HB 55 in committee.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 55 Letters of Support Received as of 1.28.22.pdf |
SL&C 1/31/2022 1:30:00 PM |
HB 55 |
| HB 55 Letters of Opposition Received as of 1.28.22.pdf |
SL&C 1/31/2022 1:30:00 PM |
HB 55 |