Legislature(2011 - 2012)BUTROVICH 205
01/26/2012 09:00 AM Senate STATE AFFAIRS
| Audio | Topic |
|---|---|
| Start | |
| SB150 | |
| SB121 | |
| SB136 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 121 | TELECONFERENCED | |
| += | SB 136 | TELECONFERENCED | |
| = | SB 150 | ||
SB 121-TEACHERS & PUB EMPLOYEE RETIREMENT PLANS
SENATOR WIELECHOWSKI announced that the next bill before the
committee was SB 121, a bill that would give public employees in
Alaska a choice between participating in a defined benefit (DB)
or defined contribution (DC) retirement system. He noted it was
the third hearing on the bill. The bill has evolved considerably
since the sponsor sought to design a system that would cost the
State of Alaska, municipalities, and school districts less than
the current Tier III Defined Benefit (DB) system costs.
SENATOR PASKVAN moved to adopt CSSB 121, labeled 27-LS0281\R, as
the working document before the committee.
SENATOR WIELECHOWSKI objected in order to hear comments from the
sponsor.
9:14:30 AM
SENATOR DENNIS EGAN, sponsor of SB 121, voiced appreciation for
the work the committee and his staff did on the bill. He read
from the sponsor statement:
SB 121 lets teachers, troopers, firefighters and other
public employees choose one of two state retirement
systems: an individual defined contribution retirement
account, or earning a defined benefit pension.
A defined benefit pension takes time to earn, but
rewards a record of public service by paying a
guaranteed monthly benefit and, for long-term
employees, health insurance. An individual defined
contribution account is portable from one employer to
another and flexible in how it can be used, but makes
no guarantees. SB 121 will let newly hired public
servants in Alaska choose the one that fits best.
9:16:21 AM
JESSE KIEHL, staff to Senator Egan, explained the changes in the
new CS for SB 121, version R. The substantive changes in version
R were made in order to address the fiscal note from the
Department of Administration. The biggest change is in the
provisions that cover those employees currently in the DC plan
who choose to convert into the new tiers of DB that the bill
creates. As shown in the previous fiscal note, the individual
accounts do not have enough money in them to prefund the
benefits for the actual time the employees have worked to date.
The amount in the previous fiscal note was around $120 million.
The new CS should erase that number. Those employees who choose
to convert to the new DB plan will have their accounts deposited
into one of the DB pension trusts. The actuary will calculate
the time value of that money. When that amount is less than that
employees actual time worked, the employee will have a choice to
create an indebtedness and "buy the difference" up to their
actual service time, or they may choose to start with however
much time the DC account buys and earn going forward.
MR. KIEHL explained that the second substantive change in
version R addresses the difficulty of prefunding the retiree
health care benefit. It mirrors, in part, the structure in the
DC plan for retirees who do qualify for the retirement system to
pay a portion of their retiree medical benefit. An employee must
work ten years before the system will pay any of the retiree
medical premium. If an employee works 10 years they would have
to be Medicare eligible before the system will pay, except for
teachers, police officers, and firefighters who must work a
total of 25 years to qualify for retiree medical payments. Other
employees must work 30 years.
9:20:04 AM
MR. KIEHL pointed out that the new schedule matches what is set
up in current DC statutes. He gave several examples of how
premiums are paid.
MR. KIEHL said that version R also makes several technical and
mechanical changes, which are described in a handout. He spoke
of one additional change that was omitted. The earlier version
of the bill was not clear in how it treated public organizations
that participate in PERS, such as housing authorities and
development organizations. Version R clarifies that they are
also subject to all sections of the bill.
MR. KIEHL noted that the effective date had been changed to July
1, 2013.
SENATOR WIELECHOWSKI recalled work done in a previous meeting in
Fairbanks by the administration's actuary services to help
assess the fiscal implications of proposed changes to the bill.
He said the committee and sponsor greatly appreciate that offer.
He added that he was expecting new fiscal projections now that
version R was adopted.
9:22:28 AM
MIKE BARNHILL, Deputy Commissioner, Department of
Administration, explained that the department has received
version R and it has been transmitted to the actuary. He said he
believed the department was very close to having a new fiscal
note, particularly with respect to the elimination of the
"general fund subsidy of the one-for-one service credit", and
creating indebtedness on the employee as opposed to being on the
general fund. That part of the fiscal note will be easily
eliminated; however, there are more complicated issues that
still need to be reviewed. In particular, in PERS the bill
increases the assumed employee contribution rate. Currently,
employees pay 6.75 percent in the DB plan; 7.5 percent for
police and firefighters. In version R, that amount is increased
to 8 percent, which is a positive fiscal impact and reduces cost
to employers. Currently, in the TRS DB plan, the employee
contribution rate is 8.65 percent and it is reduced in version R
to 8 percent, a negative impact which will cost employers more.
He said he understood that the sponsor's intent is to create a
neutral fiscal impact. He said he thought the actuaries were on
the right track. He pointed out that there are still some
technical problems with the bill.
SENATOR WIELECHOWSKI inquired when the new fiscal note would be
ready.
MR. BARNHILL thought it would be soon.
SENATOR WIELECHOWSKI asked if the technical issues will be
addressed with the bill sponsor.
MR. BARNHILL replied that they would.
9:25:47 AM
ALICIA EGAN, Legislative Liaison, Department of Revenue, said
she was available to answer questions about SB 150.
Chair Wielechowski requested an explanation of the new fiscal
note.
MS. EGAN deferred to Ms. Rodell to answer.
ANGELA RODELL, Deputy Commissioner, Department of Revenue,
explained that the fiscal note reflects management fees required
to be paid in the Defined Benefit (DB) program. The source of
those fees is different than under the Defined Contribution (DC)
program. If there is significant movement of members from DC to
DB, there would be higher management fees.
SENATOR WIELECHOWSKI summarized that if more people move to DC
from DB, there would be a need for more management fees.
MS. RODELL said that was correct. She added that DB management
fees are incorporated into the amounts on deposit, whereas, the
DC fees come out of the employee.
SENATOR PASKVAN asked what calculation was used to arrive at
that amount.
MS. RODELL referred Senator Paskvan to page 2 of the fiscal
note. The Department of Revenue is assuming that, based on the
Department of Administration's fiscal note, 60 percent of the
current DC plan will convert to the DB plan, 80 percent of
future members will elect to be in the DB plan, and a management
load of 35 basis points will transfer to the state.
SENATOR PASKVAN asked for the current load of the DC plan.
MS. RODELL offered to supply that information.
SENATOR WIELECHOWSKI agreed that it was a good question and
requested further information.
9:30:07 AM
SENATOR PASKVAN shared his understanding that the greater the
sum of money, the lower load on the fund itself. He wanted to
understand the department's parameters.
SENATOR WIELECHOWSKI asked for the timeline on obtaining the
information.
MS. RODELL said she could provide that information later today.
SENATOR WIELECHOWSKI opened public testimony.
WILLIAM (FLICK) FORNIA, Consulting Actuary, Alaska Public
Pension Coalition, Centennial, Colorado, discussed the costs of
SB 121. He said he has been working together with the sponsor to
arrive at a close to cost neutral amount. He was optimistic that
it would result in savings to the state.
SENATOR WIELECHOWSKI described the new fiscal note from the
Department of Revenue: it is $593,000 the first year, $690,000
the second year, and over $1 million by 2017. He requested Mr.
Fornia's opinion of the fiscal note.
MR. FORNIA said he now understands the management fee impact
better. He said he would review all numbers in more detail.
9:34:14 AM
VINCE WELTRAMI, President, Alaska AFL-CIO, testified in support
of SB 121. He related that half of the 60,000 members in Alaska
AFL-CIO are public employees in PERS. He maintained that the
bill makes Alaska competitive when it comes to recruitment and
retention. It also is about restoring dignity and expressing
appreciation of the value of Alaska's employees and doing that
in a fiscally responsible way. Many of the current employees do
not have the option of a defined benefit, nor the right to a
pension from Social Security. The bill provides employees with a
dignified retirement. He recognized that having an option of a
DB plan or a DC plan has benefits. The bill strikes a balance.
He encouraged passage of SB 121.
9:37:16 AM
JOHN ALCANTRA, NEA Alaska, spoke in favor of SB 121 on behalf of
the 13,000 members he represents. This legislation has been
NEA's number one priority for the last five years. He thanked
the sponsors and co-signers for working on the legislation. He
gave an example of a math teacher who left Alaska because of the
current DC retirement plan. He shared statistics of NEA
employees and said returning to retirement security is their
priority issue. He spoke highly of the DB plan or a choice
between the two plans.
9:39:37 AM
TED MONINSKI, Retired Public Employees of Alaska, testified in
support of SB 121 on behalf of the 2,000 members he represents.
He agreed with the previous testifiers. He spoke of the value of
SB 121 to Alaska. Having a monthly pension enhanced by a cost-
of-living allowance helps prevent retired teachers from moving
out of state and provides a direct economic impact to the state.
Two-thirds of retired employees now remain in Alaska after
retirement which provides a direct economic impact and helps
stabilize the economy.
MR. MONINSKI described how social security benefits do not apply
to Alaskan employees. In the absence of both social security and
a reliable state pension, public employees who were hired after
2006 must rely on savings, including their DC plan. National
studies show that more than two-thirds of DC plan participants
cash out their assets when terminating employment rather than
rolling them over into another retirement plan. There are many
negative consequences from this. He spoke of the indirect
benefits retirees provide for the state. He urged favorable
consideration of SB 121.
CHAIR WIELECHOWSKI announced that Senator Meyer had joined the
meeting.
9:43:37 AM
VALERIE KENNY, President, Alaska State Employees Association
(ASEA), Local 52, testified in favor of SB 121 on behalf of over
8,000 public employees. She noted that passage of SB 121 was
ASEA's primary goal. She described the benefits of Tier V, which
are less than in Tier III. In Tier V, employers and employees
will share risks and benefits. It is ASEA's goal to reinstate
the DB option without additional cost to employers and provide a
choice to members. She maintained that SB 121 is not a repeal of
SB 141, which will continue as an option for employees who wish
to remain on a DC plan.
LADAWN DRUCE, President Kenai Peninsula Education Association,
testified in favor of SB 121 on behalf of 650 teachers and
staff. She pointed out that the Kenai area has no problem
recruiting teachers, but does have difficulty retaining them.
She shared that about a third of the teachers in the Kenai area
are in the Tier III DC plan. The DC system, when combined with
no Social Security, puts Alaska teachers last of all states for
retirement benefits. She urged passage of the bill.
9:49:44 AM
GARY MILLER, Southeast Chair, Retired Employees of Alaska,
testified in support of SB 121. He shared his personal working
history in Alaska and emphasized that neither he nor his wife
would work today in Alaska under the DC plan because it does not
offer the security of retirement. He requested passage of the
bill so that his grandchildren would have an option for a secure
retirement.
9:51:35 AM
JAKE METCALF, Executive Director, Alaska Public Employees
Association (APEA) 103, testified in support of SB 121 on behalf
of the law enforcement officers, court service officers, airport
police, firefighters, and city police departments throughout the
state. He pointed out that retention of employees is a major
issue in APEA. His said APEA members make a career out of their
jobs and would like to remain in Alaska. They receive a large
amount of training at a cost to Alaska and many of those
employees are taking their training to another state. He urged
passage of the bill.
9:54:27 AM
BARBARA HUFF-TUCKNESS, Director of Legislative and Governmental
Affairs, Teamsters Local 109, urged support of SB 121 on behalf
of 800 public employee union members. She said changes made to
SB 121 are pro-active and will encourage employees to remain in
the state.
SENATOR WIELECHOWSKI closed public testimony.
SENATOR WIELECHOWSKI stated that SB 121 would be set aside. He
stressed the goal of getting the fiscal note as revenue-neutral
as possible.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SB150-UA-Sysbra-01-24-12.pdf |
SSTA 1/26/2012 9:00:00 AM |
SB 150 |
| SB150-DCCED-CBPL-01-20-12.pdf |
SSTA 1/26/2012 9:00:00 AM |
SB 150 |
| SB150-UA-Fiscal Note.pdf |
SSTA 1/26/2012 9:00:00 AM |
SB 150 |
| SB150.Vietnam Veterans of America Support Letter.pdf |
SSTA 1/24/2012 9:00:00 AM SSTA 1/26/2012 9:00:00 AM |
SB 150 |
| SB 150 Letter of Support.UAF Veteran Advocate.pdf |
SSTA 1/26/2012 9:00:00 AM |
SB 150 |
| CS SB150 (STA).pdf |
SSTA 1/26/2012 9:00:00 AM |
SB 150 |