Legislature(2021 - 2022)BELTZ 105 (TSBldg)

02/22/2021 01:30 PM LABOR & COMMERCE

Note: the audio and video recordings are distinct records and are obtained from different sources. As such there may be key differences between the two. The audio recordings are captured by our records offices as the official record of the meeting and will have more accurate timestamps. Use the icons to switch between them.

Download Mp3. <- Right click and save file as

Audio Topic
01:32:22 PM Start
01:34:36 PM Confirmation Hearing(s)
02:08:57 PM SB55
03:00:55 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ Consideration of Governor's Appointees TELECONFERENCED
Alcoholic Beverage Control Board:
- Dana Walukiewicz
- Diane Thompson
- John Cox
-- Invited & Public Testimony --
Heard & Held
-- Testimony <Invitation Only> --
+ Bills Previously Heard/Scheduled TELECONFERENCED
**Streamed live on AKL.tv**
             SB  55-EMPLOYER CONTRIBUTIONS TO PERS                                                                          
2:08:57 PM                                                                                                                    
CHAIR  COSTELLO   reconvened  the   meeting  and   announced  the                                                               
consideration  of  SENATE  BILL  NO.  55,  "An  Act  relating  to                                                               
employer  contributions  to   the  Public  Employees'  Retirement                                                               
System of Alaska; and providing for an effective date."                                                                         
She stated that  the intention is to hear  the introduction, take                                                               
questions and hold the bill  for further consideration. She noted                                                               
who was representing the administration.                                                                                        
2:09:54 PM                                                                                                                    
CAROLINE SCHULTZ, Chief Policy Analyst,  Office of Management and                                                               
Budget, Juneau, Alaska,  stated that SB 55 excludes  the State of                                                               
Alaska, as  an employer, from the  22 percent cap on  payroll for                                                               
the  Public  Employment  Retirement  System.  She  presented  the                                                               
following sectional analysis on behalf of the administration:                                                                   
        Sec. 1: Amends AS 36.35.255(a), the statutory 22                                                                      
               percent cap on payroll for PERS employer                                                                         
               payroll   contributions,    to   specify   an                                                                    
               exception referenced in new subsection (i).                                                                      
      Sec. 2: Adds a new subsection (i) that specifies the                                                                    
               state as an employer shall contribute to                                                                         
               PERS   each   payroll    period   an   amount                                                                    
               sufficient to:                                                                                                   
           • Pay the actuarially determined normal cost;                                                                        
           • Contributions required under AS 39.30.370 to                                                                       
              the retiree health reimbursement arrangement                                                                      
              plan trust fund;                                                                                                  
           • Contributions required under AS 39.35.750 to                                                                       
              individual retirement accounts, for retiree                                                                       
              major medical insurance, and for occupational                                                                     
              disability and death payments;                                                                                    
           • And past service cost for members at the                                                                           
              actuarial contribution rate adopted by the                                                                        
              Alaska Retirement Management Board under AS                                                                       
      Sec. 3: Adds new section to uncodified law allowing                                                                     
               the   commissioner  of   the  Department   of                                                                    
               Administration    adopt     regulations    to                                                                    
               implement  secs.   1  and  2   and  specifies                                                                    
               regulations  may not  take effect  until July                                                                    
               1, 2021.                                                                                                         
     Sec. 4: Immediate effective date for sec. 3.                                                                             
     Sec. 5: Effective date of July 1, 2021 for secs. 1 and                                                                   
2:11:31 PM                                                                                                                    
MS.  SCHULTZ  advised  that  she   also  attached  the  statutory                                                               
references to the health and employer contributions.                                                                            
CHAIR COSTELLO  asked what  problem this bill  solves and  if the                                                               
expectation is  that the percentage  will rise and fall  with the                                                               
actuarial costs.                                                                                                                
MS. SCHULTZ  suggested that Mr.  Steininger discuss  the concepts                                                               
behind the bill.                                                                                                                
2:12:28 PM                                                                                                                    
NEIL  STEININGER,  Director,  Office of  Management  and  Budget,                                                               
Office  of   the  Governor,  Juneau,  Alaska,   stated  that  the                                                               
intention  of  SB 55  is  to  reduce  the  general fund  cost  of                                                               
employee  retirement  by  increasing   the  share  received  from                                                               
federal  and other  funds in  order to  pay those  costs. To  the                                                               
question about fluctuation over time,  he said the actuarial rate                                                               
is determined on  an annual basis so it fluctuates  each year. He                                                               
advised that Mr. Barnhill would  provide some history on what the                                                               
percentages  have  been  over  the  last  several  years  so  the                                                               
committee can get an idea about the range of fluctuation.                                                                       
2:13:31 PM                                                                                                                    
SENATOR STEVENS  asked what  the practical  impacts might  be for                                                               
retirees and new employees.                                                                                                     
MR. STEININGER  answered that  there is  no impact  to individual                                                               
retirees or  the benefits  paid to  retirees or  employees paying                                                               
into retirement  plans. The intention  is only to change  the way                                                               
the  costs  are  financed.  "We  still intend  to  pay  the  full                                                               
actuarial  liability into  the  pension system;  it  is just  how                                                               
we're  able   to  charge  and  get   participation  from  federal                                                               
2:14:26 PM                                                                                                                    
SENATOR  GRAY-JACKSON  asked for  an  example  of an  actuarially                                                               
determined cost.                                                                                                                
MR. STEININGER  answered that for FY22,  the actuarial determined                                                               
cost is 30.11  percent of state payroll. He  explained that 30.11                                                               
percent is a  blended rate that covers the  three defined benefit                                                               
tiers  and  the  one  defined   contribution  tier  in  the  PERS                                                               
retirement system.                                                                                                              
SENATOR GRAY-JACKSON asked for an  example of the individual cost                                                               
for an  employee in the defined  benefit tier, as opposed  to the                                                               
22 percent the state is currently paying.                                                                                       
MR. STEININGER  directed attention  to the  sheet in  the packets                                                               
that shows  the retirement contributions for  an example employee                                                               
and where  the costs outside of  salary fall. It provides  a cost                                                               
comparison between current law and the proposed law, he said.                                                                   
Under current  law, the retirement  benefit is 22 percent  of the                                                               
sample  employee's  $60,411 salary.  Towards  the  bottom of  the                                                               
chart is the 8.11 percent  or $4,899.33 state assistance payment,                                                               
which makes up the difference between  the 22 percent cap and the                                                               
actuarial liability.                                                                                                            
The state agency  the employee works for pays 22  percent or $13,                                                               
290.42   into  the   retirement  system.   The  $4,899.33   state                                                               
assistance  payment is  outside  the agency's  budget. The  total                                                               
actuarial retirement  liability for this employee  is $18,189.75.                                                               
That covers  the employee's actual  service cost as well  as past                                                               
service costs for liabilities the state has created in the past.                                                                
2:18:10 PM                                                                                                                    
SENATOR GRAY-JACKSON asked if employees  would have to contribute                                                               
more than they do currently.                                                                                                    
MR. STEININGER answered  no. The bill only looks  at the employer                                                               
side of the liability.                                                                                                          
SENATOR GRAY-JACKSON asked if the  "current situation will remain                                                               
MR. STEININGER confirmed that it would.                                                                                         
2:19:11 PM                                                                                                                    
CHAIR COSTELLO  asked him  to talk  about the  unfunded liability                                                               
and the number  of members in PERS who are  under defined benefit                                                               
versus defined contribution. She  acknowledged that the bill does                                                               
not affect  the Teachers Retirement  System (TRS), but  asked how                                                               
many individuals are in that system.                                                                                            
MR. STEININGER  stated that the  PERS unfunded liability  is $4.8                                                               
billion  and  the  TRS  unfunded liability  is  just  under  $1.4                                                               
billion. He  said he did  not have the  total number of  PERS and                                                               
TRS employees, but perhaps Ms. Schultz had the information.                                                                     
MIKE BARNHILL advised that he had the numbers.                                                                                  
CHAIR COSTELLO asked  if there were additional  questions for Mr.                                                               
2:20:37 PM                                                                                                                    
SENATOR  STEVENS asked  how the  federal government  would pay  a                                                               
larger share.                                                                                                                   
MR. STEININGER directed  attention to slide 6  and explained that                                                               
state programs pay 22 percent of  payroll. It may be general fund                                                               
entirely  or some  federal participation.  For  example, a  given                                                               
employee may  be working on  a federal public  assistance program                                                               
that has a  25 percent match to a 75  percent federal share. That                                                               
employee's salary  would be  paid 25  percent with  general funds                                                               
and 75 percent with federal monies.                                                                                             
He explained that the way  the state bills the federal government                                                               
is based on  the amount assigned to that program.  The 22 percent                                                               
of payroll (the employer contribution)  is the amount assigned to                                                               
programs  in  the  state  budget. That  is  currently  capped  in                                                               
statute. The additional  8.11 percent in FY21 to get  to the full                                                               
actuarial amount  is paid for in  the state assistance or  the on                                                               
behalf payment.  The dark  blue represents that  on the  right of                                                               
slide 6.  That amount is paid  100 percent from general  fund. SB
55 seeks  to put  the 8.11  percent into  the amount  assigned to                                                               
agency programs.  Then when the  Department of Health  and Social                                                               
Services (DHSS) or another agency  that has federal participation                                                               
negotiates its cost  share with the federal  government, they are                                                               
showing  the  full  actuarial  cost  of  that  retirement  system                                                               
MR.  STEININGER said  that  once  the state  can  show the  total                                                               
amount of  actuarial liability related  to overhead costs  for an                                                               
employee,  it can  be built  into the  cost allocation  plans for                                                               
federal programs. He  noted that this also applies  to some other                                                               
programs  that are  funded  with other  funds  through the  state                                                               
MR.  STEININGER  said slide  7  shows  the employer  contribution                                                               
applied  to an  employee's  budgeted  cost. It  shows  up in  the                                                               
actual  program budget,  not  a separate  section  of the  budget                                                               
where it cannot receive any federal participation.                                                                              
2:24:08 PM                                                                                                                    
CHAIR COSTELLO asked  if other states have  a separate on-behalf-                                                               
of payment or if it is treated the way SB 55 proposes.                                                                          
MR. STEININGER explained that every  state treats their actuarial                                                               
liability differently but the on-behalf-of  payment is unique. He                                                               
deferred to Mr. Barnhill to provide a more nuanced answer.                                                                      
CHAIR  COSTELLO asked  Mr.  Barnhill  to respond  to  any of  the                                                               
questions or go through the PowerPoint.                                                                                         
2:25:28 PM                                                                                                                    
MIKE  BARNHILL,  Deputy   Commissioner,  Department  of  Revenue,                                                               
Juneau,  Alaska, reported  that as  of September  30, 2020  there                                                               
were 34,718  active members  spread among the  four tiers  of the                                                               
Public  Employee Retirement  System (PERS).  The defined  benefit                                                               
Tiers I,  II, and III had  10,963 employees, which is  roughly 32                                                               
percent  of the  total  membership. The  remaining 23,755  active                                                               
members  were  in  the  defined contribution  Tier  IV.  This  is                                                               
roughly 68  percent of  the total  membership. These  numbers are                                                               
updated  quarterly  and  they  show a  steady  migration  to  the                                                               
defined contribution  Tier IV  because defined  benefit employees                                                               
are retiring.                                                                                                                   
CHAIR  COSTELLO  asked if  he  had  the  data for  the  Teachers'                                                               
Retirement System (TRS).                                                                                                        
MR. BARNHILL said he had the  data, but he wanted to clarify that                                                               
SB 55  does not apply to  TRS. He recounted that  as of September                                                               
30,  2020 there  were 9,859  total  active members  in the  three                                                               
tiers  of TRS.  The  defined benefit  Tiers I  and  II had  3,808                                                               
active members  and the defined  contribution Tier III  had 6,051                                                               
active members.                                                                                                                 
2:29:23 PM                                                                                                                    
CHAIR COSTELLO referred to a document  in the packet and asked if                                                               
there  was  a rationale  for  not  including TRS  employees,  the                                                               
university, state corporations, and municipalities.                                                                             
2:29:52 PM                                                                                                                    
MR. BARNHILL stated  that the State of Alaska is  the largest and                                                               
only PERS employer affected by SB 55.                                                                                           
SENATOR GRAY-JACKSON asked  if the bill was an  effort to address                                                               
the unfunded liability.                                                                                                         
MR. BARNHILL answered no.                                                                                                       
CHAIR  COSTELLO  asked  him to  proceed  with  the  presentation,                                                               
weaving in any answers to questions he heard previously.                                                                        
2:31:14 PM                                                                                                                    
MR. BARNHILL  directed attention to  the graph of  the historical                                                               
PERS/TRS unfunded  liability on slide  3 and the document  in the                                                               
packets  labeled, "SB  55: Employer  Contributions  to PERS."  He                                                               
prefaced  his  comments  by explaining  that  a  defined  benefit                                                               
retirement system defines  the benefit by formula and  sets it in                                                               
statute. In this system, investment  managers invest the combined                                                               
contributions  from employees  and  employers.  The intention  is                                                               
that  the money  from the  contributions and  investment earnings                                                               
will pay 100 percent of the  defined benefits when they come due.                                                               
However, investment  losses and inaccurate  actuarial predictions                                                               
sometimes   result  in   shortfalls,  which   are  the   unfunded                                                               
He pointed out  the dramatic increase of  PERS/TRS liability that                                                               
rose  from zero  in 2000  to more  than $12  billion by  2013. It                                                               
starts to  decline the  next year and  the unfunded  liability in                                                               
2020  is roughly  $6.2 billion.  He said  he would  talk about  a                                                               
couple of reasons the liability went  up and why it went down and                                                               
he  would  give a  couple  of  examples  of how  the  legislature                                                               
addressed the issue.                                                                                                            
MR. BARNHILL stated that the  increase in the liability from 2000                                                               
to 2010 can  be attributed to investment losses in  2000 and 2001                                                               
due to  the dotcom  bust; investment  losses in  2009 due  to the                                                               
great  financial recession;  and actuarial  malpractice. He  said                                                               
all public retirement systems in  the country experienced similar                                                               
investment  losses but  Alaska was  unique in  having to  wrestle                                                               
with actuarial malpractice over that same time.                                                                                 
He  advised that  the  legislature did  three  primary things  to                                                               
address  the increasing  unfunded  liability.  First, it  enacted                                                               
Senate Bill 141  in 2005 that closed the defined  benefit plan to                                                               
new employees  and created  a defined  contribution plan  for new                                                               
employees. In  the new  plan, the amount  of the  contribution is                                                               
fixed in  statute and the  employee invests  those contributions.                                                               
In this plan, the employee bears the risk.                                                                                      
MR. BARNHILL explained that as  the unfunded liability increased,                                                               
employer contributions skyrocketed  and municipalities and school                                                               
districts   faced    insolvency.   For    perspective,   employer                                                               
contribution rates in the 1990s were  10 percent or less for PERS                                                               
and about  12 percent for  TRS, but rates tripled  and quintupled                                                               
from 2000-2010.  The legislature addressed the  issue by enacting                                                               
Senate Bill  125 in  2008 that  capped the  employer contribution                                                               
rate at  22 percent  of payroll  for PERS  and 12.56  percent for                                                               
2:39:28 PM                                                                                                                    
MR.  BARNHILL advised  that  prior to  2008,  all employers  paid                                                               
their  contributions by  building it  into the  personal services                                                               
line. With the advent of Senate  Bill 125 in 2008, employers only                                                               
built the  22 percent  into the personal  services line,  but the                                                               
actuaries continued to compute  the actual actuarial contribution                                                               
rate. He directed attention to slide  4 that shows the history of                                                               
the  actuarial  contribution rate.  He  explained  that the  blue                                                               
horizontal line  is the 22 percent  cap rate and the  orange that                                                               
moves up  and down  is the  actuarial rate  for 2008  through the                                                               
present. The  spread between the two  lines is what the  State of                                                               
Alaska made up  for PERS through state assistance,  which is only                                                               
unrestricted general funds.  Starting in 2008 the  state lost the                                                               
ability to bill the entirety of  the actuarial rate to all of the                                                               
funding sources  that make up  how the personal services  line is                                                               
Responding to  Senator Stevens' earlier  question about  why this                                                               
wasn't done earlier, he said  the issue was discussed when Senate                                                               
Bill  125  was   enacted  in  2008  and  he   recalled  seeing  a                                                               
spreadsheet in 2011 that showed what  the state was losing by not                                                               
billing for the State of Alaska to all its funding sources.                                                                     
2:40:54 PM                                                                                                                    
SENATOR   STEVENS   asked  if   passing   SB   55  would   affect                                                               
municipalities' payments in any way.                                                                                            
MR. BARNHILL  answered no; SB 55  does not change the  amount the                                                               
state will  pay PERS  for State of  Alaska liabilities,  just the                                                               
way that it is done.  Instead of paying the employer contribution                                                               
in  two ways,  the state  assistance on  behalf of  the State  of                                                               
Alaska will be  collapsed into the personal  services line, which                                                               
is the way it was paid in all years up to 2006.                                                                                 
2:42:51 PM                                                                                                                    
SENATOR  GRAY-JACKSON  asked  for   the  ultimate  goal  of  this                                                               
MR. BARNHILL  replied the ultimate  goal is  to pay for  State of                                                               
Alaska  PERS  employer  contributions  with  the  full  array  of                                                               
funding sources used to pay the personal services line.                                                                         
2:44:01 PM                                                                                                                    
MS. SCHULTZ added nuance stating that  the goal is to continue to                                                               
make the  full appropriation for  the unfunded liability  and the                                                               
full retirement  contribution. The  reason for paying  the entire                                                               
employer contribution through the  personal services line is that                                                               
it will  save approximately $30  million in  unrestricted general                                                               
funds from  the state budget in  the first year. The  savings are                                                               
expected to increase in future years.                                                                                           
CHAIR  COSTELLO offered  her understanding  that  this is  moving                                                               
entries  on the  ledger to  capture more  federal assistance  and                                                               
increase transparency about the  actual costs. Acknowledging that                                                               
the bill  does not address  the unfunded liability, she  asked if                                                               
the administration had  a position on the advantage  of trying to                                                               
pay down that liability.                                                                                                        
2:45:52 PM                                                                                                                    
MR. BARNHILL referred to slide  3 and explained that the unfunded                                                               
liability dropped from a little over  $12 billion to just over $6                                                               
billion in  the second  decade of the  century for  three primary                                                               
reasons: substantial investment gains;  the legislature paid down                                                               
the  liability with  $3 billion  from  the Constitutional  Budget                                                               
Reserve in 2014; and the health costs decreased substantially.                                                                  
He said  he could not  speak to the administration's  position on                                                               
paying  down  the unfunded  liability  but  the position  of  all                                                               
administrations in  the last ten  years has consistently  been to                                                               
keep up  with PERS/TRS liabilities  and to contribute  extra when                                                               
possible.  He pointed  out that  the funding  for the  retirement                                                               
systems  has improved  from close  to  50 percent  to 80  percent                                                               
today, and that the state is  keeping up with the annual payments                                                               
the actuary recommends.                                                                                                         
2:49:21 PM                                                                                                                    
SENATOR STEVENS asked him to  reassure PERS and TRS retirees that                                                               
their PERS and TRS retirements are not in jeopardy.                                                                             
2:50:36 PM                                                                                                                    
MR. BARNHILL  stated that  the Alaska  retirement systems  are 80                                                               
percent funded and an actuarial plan  is in place to achieve full                                                               
funding in 2039  or 2040. The state has a  legal security for the                                                               
benefits  supported under  the  plans  per the  anti-diminishment                                                               
clause  in the  Alaska  Constitution. He  emphasized that  people                                                               
should not be concerned about the security of the plans.                                                                        
2:52:20 PM                                                                                                                    
SENATOR STEVENS  said, "What  I hear you  saying Mr.  Barnhill is                                                               
that there really is no way  the state can avoid paying the state                                                               
retirement that both PERS and TRS employees are now receiving."                                                                 
MR. BARNHILL  replied, "Never  say never. Right  now, we're  in a                                                               
great place  and we just  need to  have discipline. I  don't know                                                               
what the next 20  years hold, but I think as  long as we continue                                                               
the path that we're on we will make the payments when due."                                                                     
SENATOR GRAY-JACKSON asked if there was  any way that SB 55 would                                                               
affect the unfunded liability.                                                                                                  
MR. BARNHILL  replied he believes  the actuaries  will ultimately                                                               
show a zero actuarial impact.                                                                                                   
2:54:48 PM                                                                                                                    
SENATOR  GRAY-JACKSON said  his response  was why  she asked  the                                                               
CHAIR  COSTELLO  encouraged the  members  to  submit any  further                                                               
questions  to  her office  and  she  would  forward them  to  the                                                               
administration for a written response.                                                                                          
She asked what effect an early retirement bill might have.                                                                      
MR.  BARNHILL explained  that the  actuaries compute  the accrued                                                               
liability  on an  employee-by-employee basis.  For employees  who                                                               
take advantage  of an  early retirement plan  (RIP) early  in the                                                               
actuarial  model,  not  enough   has  been  collected  from  that                                                               
employee  to fund  their retirement,  which  creates an  unfunded                                                               
liability. That  is not the  case for employees who  retire later                                                               
in the actuarial  model, but the general experience  of RIP plans                                                               
is that the  retiring employee goes back to work  so it costs the                                                               
state and the employer more in the long run.                                                                                    
CHAIR COSTELLO  asked how  the state  addresses retirees  who are                                                               
collecting retirement and  return to work, also  known as "double                                                               
MR. BARNHILL  replied the  systems do  not permit  double dipping                                                               
but the  legislature has allowed,  in certain  instances, certain                                                               
types of  positions to double dip.  His belief, he said,  is that                                                               
all  those exemptions  have  expired. He  added  that the  bigger                                                               
issue  is  that the  retired  employee  returns at  their  higher                                                               
salary so the  reduction in active personal services  cost is not                                                               
CHAIR  COSTELLO observed  that the  legislature  has reasons  for                                                               
rehiring  retired  individuals,  and  suggested  the  legislature                                                               
consider a rehire exemption for  nurses during the ongoing COVID-                                                               
19  pandemic instead  of bringing  nurses to  Alaska from  out of                                                               
3:00:12 PM                                                                                                                    
CHAIR COSTELLO thanked the presenters  and held SB 55 for further                                                               

Document Name Date/Time Subjects
SLAC GOV Appointee ABC Dana Walukiewicz.pdf SL&C 2/22/2021 1:30:00 PM
SLAC GOV Appointee ABC Diane Thompson.pdf SL&C 2/22/2021 1:30:00 PM
SLAC GOV Appointee ABC John Cox.pdf SL&C 2/22/2021 1:30:00 PM
SB 55 v. A.pdf SL&C 2/22/2021 1:30:00 PM
SB 55
SB 55 Transmittal Letter.pdf SFIN 3/11/2021 9:00:00 AM
SL&C 2/22/2021 1:30:00 PM
SB 55
SB 55 v. A Sectional Analysis.pdf SL&C 2/22/2021 1:30:00 PM
SB 55
SB 55 OMB Presentation 2.22.21.pdf SL&C 2/22/2021 1:30:00 PM
SB 55
SB 55 PERS Contributions One Pager.pdf SL&C 2/22/2021 1:30:00 PM
SB 55
SB 55 Retirement Contribution Examples.pdf SL&C 2/22/2021 1:30:00 PM
SB 55
SB 55 PERS History.pdf SL&C 2/22/2021 1:30:00 PM
SB 55
SB 55 v. A Fiscal Note 1.pdf SL&C 2/22/2021 1:30:00 PM
SB 55
SB 55 v. A Fiscal Note 2.pdf SL&C 2/22/2021 1:30:00 PM
SB 55