Legislature(1993 - 1994)
04/18/1994 09:12 AM Senate STA
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
CHAIRMAN LEMAN brings up HB 494 (ALASKA PENSION INVESTMENT AUTHORITY) as the next order of business before the Senate State Affairs Committee and calls Mr. Harding to testify. Number 362 DAVID HARDING, Aide to Representative MacLean, prime sponsor of HB 494, states the bill would offer several opportunities that would lead to greater long-term financial stability and more appropriate lines of authority in the state's pension investment system. Mr. Harding further describes the bill as outlined in the sponsor statement. Number 385 CHAIRMAN LEMAN asks Mr. Harding if HB 494 is similar to a previous bill. Number 388 MR. HARDING responds it has been around before, but he does not remember how far through the legislative process the bill got. He states there are differences between HB 494 and the previous legislation relating to this subject. CHAIRMAN LEMAN calls Mr. Corbus to testify. Number 394 BILL CORBUS, Chairperson, Alaska State Pension Investment Board, introduces Ms. Oba and other witnesses in the audience. Mr. Corbus reads a written statement. There are several items in committee members' bill file on HB 494 from the Alaska State Pension Investment Board and the Department of Revenue. Number 437 GAIL A. OBA, Vice-chairperson, Alaska State Pension Investment Board, states HB 494 was modeled after previous legislation introduced by Senator Pourchot. Ms. Oba gives a brief history of the previous legislation and of HB 494. MS. OBA tells the committee of a survey conducted by the Department of Revenue, the intent of the survey being to gather information about boards, staff, and accountability of state pension funds. Number 461 CHAIRMAN LEMAN asks if there are any questions for Ms. Oba or Mr. Corbus. Hearing none, the chairman calls a brief at ease of the Senate State Affairs Committee. Number 462 CHAIRMAN LEMAN calls the committee back to order. Number 464 SENATOR TAYLOR makes a motion to adopt the committee substitute for HB 494. Number 467 SENATOR DUNCAN objects and asks Mr. Corbus if he has seen the proposed committee substitute. MR. CORBUS responds he has not. Number 470 SENATOR DUNCAN states the only change, from what he understands, is that on page 4, section 7, employees of the authority would be in the exempt service. MR. CORBUS thinks the board would prefer the committee substitute. Number 480 MS. OBA points out that no other authority has language restrictive like the language here. This is unique to the state pension authority. SENATOR DUNCAN asks if subsection (b) was also in the house bill. MR. CORBUS responds that language was put in the house bill at the very last minute, and was not part of the authority's original proposal. Number 488 SENATOR DUNCAN states he has no problem with that. He is focusing on the last sentence of the new language. Number 490 CHAIRMAN LEMAN clarifies for Senator Duncan that the only change in this amendment was the deletion of that second part. The other part was language that came from the house. MS. OBA responds she did not understand the question, and that was original language from the authority. Number 507 CHAIRMAN LEMAN asks if there is further objection to the adoption of the Senate State Affairs committee substitute for HB 494. Hearing none, the chairman announces the cs has been adopted. CHAIRMAN LEMAN asks who in the audience is planning to testify on HB 494. Number 521 COMMISSIONER REXWINKEL states Mr. Prussing and Mr. Storr are available to answer questions on the fiscal note. SENATOR DUNCAN asks if the department can explain the two different fiscal notes on HB 494. DARREL REXWINKEL, Commissioner, Department of Revenue, states the Treasury Division now has twenty-nine employees. Those employees work on various funds; the department has at least eighteen funds. Four of those funds are the pension trust funds. The fiscal note for the pension investment board consists of twenty positions. The pension note for the remaining management functions consists of about seventeen employees. The important component is in the salaries. Commissioner Rexwinkel continues to explain the fiscal notes for HB 494. Number 555 COMMISSIONER REXWINKEL states it is important to note that there is a continuing cost of 497,000$ for the pension authority operations. Those monies all come out of the pension trust fund. There is over 7 billion dollars in the pension trust fund. One basis point, which is 1/100th of a percent of 7 billion dollars would be 700,000$. So if the fund were to only earn 1 basis point, it would more than cover the cost of operations. COMMISSIONER REXWINKEL states that the board had approved and expenditure of 398,000$, but the House Finance Committee cut that to 200,000$, just because. There was no calculation of the number. The board believes 398,000$ is the appropriate figure, and would enable the investment authority to be a functional entity. Number 575 COMMISSIONER REXWINKEL states the fiscal note for the Treasury Division reflects that costs will be continuing costs, and not first year costs. The commissioner states that, though the fiscal note reflects an increased cost, there will also be an estimated increase in revenue from 10 million dollars to 30 million dollars. TAPE 94-28, SIDE B Number 595 SENATOR TAYLOR asks why the state should limit employees from further investment in their retirement system. Number 575 COMMISSIONER REXWINKEL responds that monies the department is managing now are definite state programs established by the State of Alaska. To start accepting other monies would put the state in direct competition with private business enterprises. In addition, if the state did accept other monies, and did not return at an expected rate, then the department would receive a lot of critique that could significantly interfere with the ability to provide proper management of the fund. Number 565 SENATOR TAYLOR asks if the funds can be managed to defer employee compensation. Number 560 COMMISSIONER REXWINKEL explains the relationship between the pension investment board and the Department of Administration. In terms of accepting additional funds, the board would have to start registering with the FCC, and would have to do a lot of additional administrative work, which the board does not think would be in the best interest of the state. Number 550 SENATOR TAYLOR asks if, under deferred compensation, that money will still be managed through the pension investment board, and will return the same amount of money. Number 548 COMMISSIONER REXWINKEL responds that would not be the case. The board has been working on the deferred compensation option, and there are at least eight investment options opening up, into which an individual could elect to put their money. SENATOR TAYLOR asks what the return has been on the deferred compensation investments. Number 530 BOB STALNAKER, Director, Division of Retirement & Benefits, Department of Administration, states the Department of Administration administers the state pension plans, including deferred comp. Mr. Stalnaker thinks federal government fiscal policy has more to do with the bottom line. The plans that the state manages are qualified through the Internal Revenue Service. The IRS does not want people to defer all their income, and so puts limitations on the amount an employee is allowed to defer. In the deferred comp plan, the limitation is 7,500$ per year. In the SBS plans, as combined with PERS, is a maximum cap of 25% of their income as tax deferred contributions. Mr. Stalnaker states the blended rate of return was about 7%. The stocks and the bonds return varying rates. Number 502 SENATOR TAYLOR thanks Mr. Stalnaker for his explanation. Number 496 MR. STALNAKER says there is no question that the deferred compensation program is under-utilized. Number 493 COMMISSIONER REXWINKEL adds that there are no back-in fees in the state deferred compensation program. Number 484 MR. STALNAKER points out that, even if an employee severs their employment relationship with the state, that person can elect to leave their money in the deferred comp system. Number 477 SENATOR TAYLOR asks where the state is on the unfunded liability of the various investment programs. Number 471 MR. STALNAKER responds that PERS and TERS were recently reviewed, and the funding status of TERS is at 93.5%, while PERS is at 95+%. These figures include prefunding health insurance. Alaska is one of the only states in the country that prefunds health insurance as part of pension costs. If the state did not prefund health insurance, the state's funding ratios would be in excess of about 120% in both systems. So the funding status of the systems are very good. Number 455 SENATOR TAYLOR asks how that compares with other funds across the country. Number 451 MR. STALNAKER responds that PERS and TERS are in about the top 10% of funded status of most systems. Without the health insurance prefunding, the state would probably be up in the top 1-2%. The state's philosophy is that a system should not reach 100% funded. It should strive for just below 100% funded. It would put undue burden on employers by over-funding a system. Number 440 SENATOR DUNCAN asks if the fiscal notes would allow flexibility to the board for needed staffing requirements. Number 435 COMMISSIONER REXWINKEL replies that question goes back to the whole allocation function. The board believes that twenty positions would be the minimally accepted staffing level. SENATOR DUNCAN asks why the fiscal note only allows the appointment of a director. COMMISSIONER REXWINKEL responds that the fiscal note Senator Duncan is looking at only shows the increase resulting from HB 494. SENATOR DUNCAN asks if the state pension board agrees with the figures in the fiscal notes. COMMISSIONER REXWINKEL replies that the fiscal notes were approved of by the pension board. The commissioner repeats that the one change made by the House Finance Committee reducing one fiscal note from 398,000$ to 200,000$ was an arbitrary reduction. There is a continuing discussion of the Department of Revenue fiscal notes. Number 396 COMMISSIONER REXWINKEL states that monies will be shifted from other programs within the Department of Revenue to cover the cost of the state pension board if that board is not fully funded. Number 390 CHAIRMAN LEMAN thanks the commissioner for his testimony and calls the next witness. The chairman announces HB 494 will be held over until Wednesday's committee meeting, at which time he intends to move the bill. CLAUDIA DOUGLAS, President, NEA-Alaska, states that the NEA supports HB 494, and reads a brief, written statement. Number 373 CHAIRMAN LEMAN thanks Ms. Douglas for her testimony and restates that HB 494 will be held until Wednesday.
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