Legislature(2009 - 2010)HOUSE FINANCE 519

02/05/2009 01:30 PM FINANCE


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01:34:46 PM Start
01:36:04 PM HB81 || HB83
02:50:39 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+= HB 81 APPROP: OPERATING BUDGET/LOANS/FUNDS TELECONFERENCED
Heard & Held
+= HB 83 APPROP: MENTAL HEALTH BUDGET TELECONFERENCED
Heard & Held
+ Budget Overviews: TELECONFERENCED
PERS/TRS Update
Cruise Ship Initiative Tax Update
<Above Item Removed from Agenda>
+ Bills Previously Heard/Scheduled TELECONFERENCED
                  HOUSE FINANCE COMMITTEE                                                                                       
                      February 5, 2009                                                                                          
                         1:34 p.m.                                                                                              
                                                                                                                                
1:34:46 PM                                                                                                                    
                                                                                                                                
                                                                                                                                
CALL TO ORDER                                                                                                                 
                                                                                                                                
Co-Chair Stoltze  called the House Finance  Committee meeting                                                                   
to order at 1:34 p.m.                                                                                                           
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Bill Stoltze, Co-Chair                                                                                           
Representative Bill Thomas Jr., Vice-Chair                                                                                      
Representative Allan Austerman                                                                                                  
Representative Harry Crawford                                                                                                   
Representative Anna Fairclough                                                                                                  
Representative Les Gara                                                                                                         
Representative Reggie Joule                                                                                                     
Representative Mike Kelly                                                                                                       
Representative Woodie Salmon                                                                                                    
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Representative Richard Foster                                                                                                   
Representative Mike Hawker, Co-Chair                                                                                            
                                                                                                                                
ALSO PRESENT                                                                                                                  
                                                                                                                                
Annette     Kreitzer,    Commissioner,     Department     of;                                                                   
Administration; Pat  Shier, Director, Division  of Retirement                                                                   
and Benefits,  Department of  Administration; Jerry  Burnett,                                                                   
Deputy  Commissioner,  Division  of Treasury,  Department  of                                                                   
Revenue;  Kevin Brooks,  Deputy  Commissioner, Department  of                                                                   
Administration;  Kathy Lea, Retirement  Manager, Division  of                                                                   
Retirement  and   Benefits,  Department  of   Administration;                                                                   
Representative Carl Gatto                                                                                                       
                                                                                                                                
PRESENT VIA TELECONFERENCE                                                                                                    
                                                                                                                                
                                                                                                                                
SUMMARY                                                                                                                       
                                                                                                                                
HB 81     "An Act making appropriations for the operating                                                                       
          and loan program expenses  of state government, for                                                                   
          certain programs,  and to capitalize  funds; making                                                                   
          supplemental    appropriations;       and    making                                                                   
          appropriations   under   art.   IX,   sec.   17(c),                                                                   
          Constitution of the  State of Alaska; and providing                                                                   
          for an effective date."                                                                                               
                                                                                                                                
          HB 81 was HEARD and HELD in Committee for further                                                                     
          consideration.                                                                                                        
                                                                                                                                
HB 83     "An Act making appropriations for the operating                                                                       
          and capital expenses of the state's integrated                                                                        
          comprehensive mental health program; and providing                                                                    
          for an effective date."                                                                                               
                                                                                                                                
          HB 83 was HEARD and HELD in Committee for further                                                                     
          consideration.                                                                                                        
                                                                                                                                
1:36:04 PM                                                                                                                    
                                                                                                                                
BUDGET OVERVIEW - PERS/TRS UPDATE                                                                                               
                                                                                                                                
ANNETTE KREITZER, COMMISSIONER,  DEPARTMENT OF ADMINISTRATION                                                                   
presented  her  staff  and previewed  the  handouts  for  the                                                                   
committee (copies on file).                                                                                                     
                                                                                                                                
1:39:34 PM                                                                                                                    
                                                                                                                                
Co-Chair  Stoltze noted  that the Department  of Revenue  was                                                                   
available for questions.                                                                                                        
                                                                                                                                
PAT  SHIER, DIRECTOR,  DIVISION OF  RETIREMENT AND  BENEFITS,                                                                   
DEPARTMENT   OF   ADMINISTRATION    provided   a   PowerPoint                                                                   
presentation  on   the  basic  overview  of   the  retirement                                                                   
system,  State   of  Alaska,  Public  Employees'   Retirement                                                                   
System,  Teachers'  Retirement  System, Presentation  to  the                                                                   
House  Finance Committee  on PERS/TRS  2009  (copy on  file).                                                                   
He  reported on  the history  of  PERS/TRS and  on those  who                                                                   
were  covered by  the system  (page 2-3).  He mentioned  that                                                                   
the  State of  Alaska  serves  as both  an  employer and  the                                                                   
entity, under SB125,  that has agreed to pay  a large portion                                                                   
of the  unfunded liability.  Mr. Shier  explained that  three                                                                   
governing  boards  had  been  consolidated  into  the  Alaska                                                                   
Retirement  Management Board  (ARMB) (page  4). He named  the                                                                   
plan  categories  in The  PERS  system, the  Defined  Benefit                                                                   
(DB)  and the  Defined  Contribution Retirement  (DCR)  (page                                                                   
5).  He referred  to the  constitutional prohibition  against                                                                   
diminishment  of   the  retirement  system  in   Article  12,                                                                   
section 7 of the Alaska constitution (page 6).                                                                                  
                                                                                                                                
1:45:02 PM                                                                                                                    
                                                                                                                                
Co-Chair Stoltze  asked theoretically  if future  legislators                                                                   
did  not fund  the retirement  system could  the courts  take                                                                   
money  out  of  the  permanent  fund.  Commissioner  Kreitzer                                                                   
preferred not to give a legal opinion on the subject.                                                                           
                                                                                                                                
1:46:35 PM                                                                                                                    
                                                                                                                                
Mr. Shier  explained how  the retirement  system works  (page                                                                   
7).  He elaborated  that  contributions  to the  system  were                                                                   
from three  sources, the  employee, the  employer and  SB 125                                                                   
(page 8). He  broke down the employee contributions  into the                                                                   
defined   benefit   (DB)   and   the   defined   contribution                                                                   
retirement  (DCR-Hybrid)  (page  9).  Mr.  Shier  noted  that                                                                   
employer contributions  were defined  at one adopted  rate by                                                                   
the  ARMB but  the legislature  capped  employer rates  lower                                                                   
therefore,  the difference  is now  paid by  the state  (page                                                                   
10).                                                                                                                            
                                                                                                                                
1:49:25 PM                                                                                                                    
                                                                                                                                
Representative   Fairclough    questioned   how   often   the                                                                   
arbitrator  reviews  the  employer  contribution  percentage.                                                                   
Mr.   Shier   replied   that   it   is   reviewed   annually.                                                                   
Representative  Fairclough asked  for  the current  shortfall                                                                   
number.   Commissioner  Kreitzer   responded   it  would   be                                                                   
discussed later in the presentation.                                                                                            
                                                                                                                                
1:50:23 PM                                                                                                                    
                                                                                                                                
Mr.  Shier remarked  that  the process  in  the ARMB  adopted                                                                   
rate is based  on 25 variables including the  investment rate                                                                   
of return and  assets value, life expectancy,  payroll growth                                                                   
and  future healthcare  costs  (page  11). He  revealed  that                                                                   
normal cost  is the actuary's  estimate of how much  money to                                                                   
collect this  year for only  this year's benefit  accrual. He                                                                   
noted  that   past  service  cost   pays  for   the  unfunded                                                                   
liability (page 12).                                                                                                            
                                                                                                                                
1:52:47 PM                                                                                                                    
                                                                                                                                
Commissioner  Kreitzer revealed  the 2007 unfunded  liability                                                                   
for  PERS is  $4.6  billion and  TRS is  $2.8  billion for  a                                                                   
total of $7.4  billion. She added that when  factoring in the                                                                   
last calendar year losses it approaches $9.4 billion.                                                                           
                                                                                                                                
1:54:04 PM                                                                                                                    
                                                                                                                                
Representative  Fairclough   declared  that  the   market  is                                                                   
affecting  long  term  projections. She  understood  that  $1                                                                   
billion had  already been  put in  the retirement system  but                                                                   
asked  for clarification  if there  was  also tax  financing.                                                                   
Representative  Fairclough inquired  if there  were plans  to                                                                   
buy down the  debt, and if so, at what  percent. Commissioner                                                                   
Kreitzer  remarked  that  the  state came  close  to  issuing                                                                   
pension obligation  bonds but chose not to  take that action.                                                                   
Representative   Fairclough  repeated   what  would   be  the                                                                   
trigger to issue  state pension obligation bonds  and at what                                                                   
percentage or cap would be used.                                                                                                
                                                                                                                                
1:56:18 PM                                                                                                                    
                                                                                                                                
Commissioner  Kreitzer referred to  Jerry Burnett.  She added                                                                   
in reference  to Representative  Fairclough's first  question                                                                   
of why is the  fund still behind after adding  $1 billion she                                                                   
remarked that although  there have been short  term losses in                                                                   
the   market;  the   board  invests   for   the  long   term.                                                                   
Commissioner Kreitzer  reported that historically  good rates                                                                   
are returned in long term investment.                                                                                           
                                                                                                                                
Co-Chair Stoltze asked  if this was similar to  a credit card                                                                   
bill out  of control. Commissioner  Kreitzer replied  that is                                                                   
a short term versus long term view.                                                                                             
                                                                                                                                
JERRY  BURNETT, DEPUTY  COMMISSIONER,  DIVISION OF  TREASURY,                                                                   
DEPARTMENT  OF REVENUE  answered that  the targeted  interest                                                                   
rate  would be  in the range  of 5.5  to 6  percent with  the                                                                   
actuarial rate of 8 percent. He  did not want to speculate on                                                                   
a trigger target.                                                                                                               
                                                                                                                                
1:59:47 PM                                                                                                                    
                                                                                                                                
Representative  Fairclough expressed  her  delight that  they                                                                   
were not  in the  market. She  questioned if  the 80  percent                                                                   
funding ratio would be determined  by the administration. She                                                                   
wondered if the department was  able to take the funding rate                                                                   
down further  than 80 percent.  Mr. Burnett replied  that the                                                                   
legislation   authorized  up   to  $5   billion  in   pension                                                                   
obligation  bonds.   He  added   that  there  have   been  no                                                                   
discussions  that  indicated   any  plans  to  go  beyond  $2                                                                   
billion.                                                                                                                        
                                                                                                                                
2:01:03 PM                                                                                                                    
                                                                                                                                
Representative  Salmon wondered how  the program  had changed                                                                   
since  enacting   the  bill  for  the   defined  contribution                                                                   
retirement. Commissioner  Kreitzer replied that  the state is                                                                   
making significant  contributions  above what is  actuarially                                                                   
required to fund the system but  she stressed that 75 percent                                                                   
of the  money needed  is from  investments. The  Commissioner                                                                   
noted that  the down market had  a significant impact  on the                                                                   
value of the  funds which is why  the money is invested  on a                                                                   
long term basis.                                                                                                                
                                                                                                                                
2:02:46 PM                                                                                                                    
                                                                                                                                
Representative  Salmon questioned  if things  were better  or                                                                   
worse since  passing the bill.  Commissioner Kreitzer  had no                                                                   
immediate answer during this overview meeting.                                                                                  
                                                                                                                                
2:03:45 PM                                                                                                                    
                                                                                                                                
Mr. Shier  continued the  presentation  with another  view of                                                                   
the  ARMB  adopted   rate  (p.  13).  Commissioner   Kreitzer                                                                   
interjected  that this page  shows again  the state  pays the                                                                   
difference in the ARMB adopted rate and the statutory rate.                                                                     
                                                                                                                                
2:05:02 PM                                                                                                                    
                                                                                                                                
Representative  Austerman asked if  the 22 percent  statutory                                                                   
rate  was  for  all participants  or  just  state  employees.                                                                   
Commissioner  Kreitzer answered it  was for all  participants                                                                   
not just  Alaska state  employees. Mr.  Shier clarified  that                                                                   
this  is  the same  rate  paid  on all  defined  benefit  and                                                                   
defined  contribution   retirement  employees  in   the  PERS                                                                   
system.  Mr. Shier  defined  investments  as assumptions  and                                                                   
asset  allocations (page  14). He  remarked that  determining                                                                   
the  rate  of  return  and  life  expectancy  are  considered                                                                   
assumptions.  Asset allocations  are  the difference  between                                                                   
how much  of the  fund is  in stock,  bonds, real estate  and                                                                   
other choices  for investments. He declared  that assumptions                                                                   
and asset  allocations are executed  using a long-term  view.                                                                   
Mr.  Shier remarked  that  for the  2008  calendar year  PERS                                                                   
losses amounted to  22.24 percent of the assets  on hand; the                                                                   
DCR amounted  to 35.46  percent. He  signified that  for PERS                                                                   
alone  there was a  calendar year  decline  in value of  $2.7                                                                   
billion and  for the DCR, a  $9.8 billion decline.  Mr. Shier                                                                   
added  that  the DCR  plan  was  newer  and immature  so  the                                                                   
percentage is higher.                                                                                                           
                                                                                                                                
2:07:42 PM                                                                                                                    
                                                                                                                                
Co-Chair Stoltze  asked how much  of the decline is  based on                                                                   
the shorter time that defined  contributions had been in play                                                                   
in  the volatile  market. Mr.  Shier replied  the market  did                                                                   
play  a  part but  hard  to  tell to  what  extent.  Co-Chair                                                                   
Stoltze   requested    accurate   statistics    for   greater                                                                   
understanding. Representative  Kelly asked for  the impact on                                                                   
the unfunded  liability loss in  the investment value  on the                                                                   
defined benefit  versus the defined contribution  retirement.                                                                   
Mr. Shier  replied that  there is no  affect on the  unfunded                                                                   
liability from  the losses  in the DCR,  all the  losses came                                                                   
from the DB side.                                                                                                               
                                                                                                                                
2:09:43 PM                                                                                                                    
                                                                                                                                
Mr. Shier  stressed the need  for the investment  returns for                                                                   
cash  flow   because  contributions  alone  would   never  be                                                                   
sufficient  to   make  the   required  payments   (page  15).                                                                   
Representative   Kelly  remarked   that  "smoothing"   is  an                                                                   
accounting term  but he did not  think it described  the hits                                                                   
in 2000 and  2008. He believed this could never  be smoothed.                                                                   
Mr. Shier  agreed that 5-year  smoothing tries to fold  in 20                                                                   
percent at a time the effects  of both extraordinary earnings                                                                   
and losses.  He cautioned  that it would  be hard  to predict                                                                   
how much over  the 8.2 percent  line it would be in  the long                                                                   
term after these recent volatile times.                                                                                         
                                                                                                                                
2:11:41 PM                                                                                                                    
                                                                                                                                
Mr. Shier continued  to Pay-Retirement incomes  (page 16). He                                                                   
asserted that there  were 32,500 retirees, 60  percent in the                                                                   
state of Alaska, 40 percent out  of state. He noted that this                                                                   
translates  into $60  million  per month  in retiree  income.                                                                   
Mr. Shier remarked that if you  added health care it would be                                                                   
another  $25  million per  month.  He  added that  there  are                                                                   
26,000 dependents associated with  the 32,500 retiree figure.                                                                   
Representative   Austerman  questioned   if   there  is   any                                                                   
statistical difference  between the present retirees  and new                                                                   
employees heading toward retirement  or will it remain 32,500                                                                   
forever.  Mr.  Shier warned  that  this  plan is  still  very                                                                   
immature and the retiring population is growing.                                                                                
                                                                                                                                
2:13:36 PM                                                                                                                    
                                                                                                                                
Representative Fairclough  asked for a tier  breakdown of the                                                                   
32,500  retirees. Mr.  Shier replied  that the department  is                                                                   
working   on  fact   sheets   that  will   include   detailed                                                                   
information on the tier breakdown.  He reported that the fact                                                                   
sheets  would   also  be  available  on  the   ARMB  website.                                                                   
Representative Fairclough  commented that she  was interested                                                                   
in knowing the tier breakdown  numbers to see if this creates                                                                   
less liability and obligation  for the state in the long run.                                                                   
                                                                                                                                
2:15:06 PM                                                                                                                    
                                                                                                                                
Representative  Joule wondered  if  those in  the system  who                                                                   
retired before  the present PERS/TRS system were  included in                                                                   
the 32,500 number. Mr. Shier responded  that some retirees in                                                                   
the prior  system, as well as  those in the  judicial system,                                                                   
were not included in the number.                                                                                                
                                                                                                                                
2:16:25 PM                                                                                                                    
                                                                                                                                
Mr. Shier referred to the PERS  Funding Ratio History and the                                                                   
TRS  Funding  Ratio  History  graphs  (copies  on  file).  He                                                                   
mentioned that the  funding ratio is a measurement  of assets                                                                   
compared  to liabilities.  He alleged  that during  2001-2002                                                                   
there  was a  decline  in the  investment  market (page  17).                                                                   
Before that  time PERS/TRS enjoyed  funding rates at  or near                                                                   
100  percent.  He  defined  the  term  OPEB  as  "Other  Post                                                                   
Employment Benefits."  Mr. Shier  remarked that Alaska  is in                                                                   
good  shape in  this respect  as the  state has  consistently                                                                   
prefunding those  liabilities where many other  states have a                                                                   
pay-as-you-go  philosophy. This  is one  of the fast  growing                                                                   
components  of  the  liabilities  for  the  retirement  fund.                                                                   
Commissioner  Kreitzer  interjected   that  OPEB  equates  to                                                                   
health  costs.  Mr.  Shier remarked  that  trust  funds  were                                                                   
calling for significant additional  contributions but because                                                                   
of limitations in law of only  being able to put in 5 percent                                                                   
more.  That restriction  has since  been  removed. Mr.  Shier                                                                   
remarked that the rates today  are what the actuary indicates                                                                   
the trust  fund needs  this year to  meet its obligations  by                                                                   
paying  down  a  25  year  mortgage  on  unfunded  liability.                                                                   
Alaska's response  was to  create the  DCR-Hybrid plan  in SB
141, a new retirement plan plus  a new employer-funded health                                                                   
benefit plan.  This was followed  by SB 123, a  clean-up bill                                                                   
that allowed the  system employers to assess all  pay roll at                                                                   
the statutory 22 percent rate  for PERS and 12.56 percent for                                                                   
TRS to assist  in the pay  down of the unfunded  liability in                                                                   
future periods  (page 19). Mr.  Shier reiterated that  SB 125                                                                   
has  the state  of  Alaska  pay  the difference  between  the                                                                   
statutory rate and the ARMB rate.                                                                                               
                                                                                                                                
2:20:15 PM                                                                                                                    
                                                                                                                                
Representative  Austerman asked  for a  projection for  2008.                                                                   
Mr. Shier remarked  that states around the United  States are                                                                   
going  to see  some improvement  in  their condition  because                                                                   
states started to respond to these  economic circumstances in                                                                   
the early 2000.  Mr. Shier added that because there  is a lag                                                                   
time coupled with  the 5-year smoothing it might  be possible                                                                   
to  see the  improvement  in the  funding  ratio although  he                                                                   
believed it will be temporary.                                                                                                  
                                                                                                                                
KEVIN    BROOKS,   DEPUTY    COMMISSIONER,   DEPARTMENT    OF                                                                   
ADMINISTRATION  remarked that there  were losses  in calendar                                                                   
year  2008 but  2007 produced  some  significant returns.  He                                                                   
reminded the legislators that  the department takes a 25 year                                                                   
overview  because  despite the  rise  and falls,  the  market                                                                   
tends to level out over time.                                                                                                   
                                                                                                                                
2:22:50 PM                                                                                                                    
                                                                                                                                
Representative  Austerman asked  if the prior  10 to  15 year                                                                   
level spread  will be followed  by 10  to 15 down  years. Mr.                                                                   
Shier believed that to stay down  that long should not be the                                                                   
goal of any  retirement system but emphasized  the importance                                                                   
of trying to get back to a higher  level in any way possible.                                                                   
Representative  Austerman wanted to  know the reality  of the                                                                   
situation. Mr.  Brooks replied, the actuary  determined rate,                                                                   
all things  being equal, that  if the contribution  amount is                                                                   
equal  to paying for  normal costs  as well  as past  service                                                                   
costs then over a 25 year period  there should be an increase                                                                   
tending closer  to 100 percent. He  added there is no  way of                                                                   
predicting future markets and  health care costs but here are                                                                   
25  assumptions  that  help  the actuary  arrive  at  a  good                                                                   
estimate.                                                                                                                       
                                                                                                                                
2:24:49 PM                                                                                                                    
                                                                                                                                
Vice-Chair Thomas  discussed a  special teacher  situation in                                                                   
his community.                                                                                                                  
                                                                                                                                
KATHY  LEA, RETIREMENT  MANAGER, DIVISION  OF RETIREMENT  AND                                                                   
BENEFITS,  DEPARTMENT  OF ADMINISTRATION  replied  that  when                                                                   
combining  PERS and  TRS  time  it is  necessary  to look  at                                                                   
whether  it is  in reference  to  the DR  or DCR.  In the  DR                                                                   
program there is a public service  provision that would allow                                                                   
teaching  time to  be incorporated  into the  PERS system  as                                                                   
long as  the combined time  equaled five years.  She informed                                                                   
there is no provision for such a benefit in the DCR plan.                                                                       
                                                                                                                                
2:27:11 PM                                                                                                                    
                                                                                                                                
Representative  Joule  wondered  if the  transferability  was                                                                   
tied to  being vested or  not. Ms. Lea  replied that  for the                                                                   
public service benefit in the  defined benefit plan it is not                                                                   
necessary  to  be vested  in  either  one just  the  combined                                                                   
service has  to equal five years.  She added that there  is a                                                                   
conditional service benefit plan  that requires the recipient                                                                   
to be  vested in  one system and  a minimum  of two  years of                                                                   
service  in  the  other  in order  to  be  eligible  for  the                                                                   
benefits.                                                                                                                       
                                                                                                                                
2:28:10 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  CARL   GATTO  speculated  on   a  theoretical                                                                   
PERS/TRS  situation. Ms.  Lea responded  that in the  defined                                                                   
benefits plan for  the public service benefit  it is specific                                                                   
to  people  who are  not  vested  in  either system.  In  the                                                                   
conditional  service benefits,  it  is only  necessary to  be                                                                   
vested in  one system and a  minimum of two years  of service                                                                   
in the other to be eligible for  a benefit. The years are not                                                                   
combined but a  benefit is received based on  TRS service and                                                                   
salaries  and PERS service,  with the  associated rules.  Ms.                                                                   
Leas explained the only connection  between the two is if the                                                                   
employee  is vested  TRS and the  TRS salary  is higher  then                                                                   
PERS,  then the  TRS  salary can  be  used  to calculate  the                                                                   
benefits.                                                                                                                       
                                                                                                                                
2:29:47 PM                                                                                                                    
                                                                                                                                
Vice-Chair  Thomas asked  when  former Tier  1 employees  who                                                                   
left service must return to work  in order to get vested. Mr.                                                                   
Shier   replied  that   a  Tier   1   employee  must   refund                                                                   
contributions and return to service by June 30, 2010.                                                                           
                                                                                                                                
2:31:02 PM                                                                                                                    
                                                                                                                                
Commissioner  Kreitzer indicated  that  the department  would                                                                   
be  willing to  come to  individual offices  to help  provide                                                                   
more   information.  She   mentioned   that  information   is                                                                   
available  on  the  department's  website.  Co-Chair  Stoltze                                                                   
wondered  how Alaska's  situation would  look if health  care                                                                   
costs  were removed  from  the ratio.  Commissioner  Kreitzer                                                                   
indicated  that   the  department   always  looks   if  state                                                                   
comparisons  are just  for pensions  or  also include  health                                                                   
care benefits.                                                                                                                  
                                                                                                                                
2:33:15 PM                                                                                                                    
                                                                                                                                
Representative Austerman  commented that a  retiring employee                                                                   
signs up for  a different medical plan than  the active plan.                                                                   
He noted there  is a fee after retiring for  the medical plan                                                                   
which is  taken out of their  retirement check.  He continued                                                                   
that when the retiree reached  the mandatory age for Medicare                                                                   
the fee remains the same even  though the state only picks up                                                                   
a  portion of  the  health costs.  Mr.  Shier  noted that  in                                                                   
earlier  tiers there  was system-paid  health  care. In  this                                                                   
system,  prior to  Medicare, the  state system  picks up  the                                                                   
entire  premium amount.  He continued  that when the  retiree                                                                   
reaches the age of 65, Medicare,  by federal law, becomes the                                                                   
primary  payer, but  when looking  long term,  60 percent  or                                                                   
more of the entire health care  spending will be for the post                                                                   
Medicare  group.  Representative  Austerman wondered  if  the                                                                   
costs to  retirees needed to  be raised. Mr.  Shier explained                                                                   
that the reference  only applied to the  system-paid coverage                                                                   
where there is no cost to the employees.                                                                                        
                                                                                                                                
2:36:30 PM                                                                                                                    
                                                                                                                                
Commissioner Kreitzer  signified that the  department's focus                                                                   
has been  trying to find ways  to control health  care costs.                                                                   
Representative Austerman indicated  that costs for later tier                                                                   
retirees can be significant.                                                                                                    
                                                                                                                                
2:37:54 PM                                                                                                                    
                                                                                                                                
Representative  Crawford   projected  that  if   an  employee                                                                   
retires  at 60  under the  defined contribution  and sets  up                                                                   
retirement to last a certain amount  of years, he wondered if                                                                   
the health  care benefits  would also  cap out.  Commissioner                                                                   
Kreitzer said health care benefits  would continue. Mr. Shier                                                                   
reiterated that  when the life  of the annuity runs  out, the                                                                   
health  care  benefits  should  continue.  He  noted  in  the                                                                   
defined  contribution  retiree health  plan  there  is a  ten                                                                   
percent premium  that the retiree  would have to  continue to                                                                   
pay  in  order   to  receive  the  benefits.   Representative                                                                   
Crawford  asked ten  percent of  what. Commissioner  Kreitzer                                                                   
replied ten percent  of the annual costs of  the monthly plan                                                                   
premium. He added that there is  a substantial balance in the                                                                   
health reimbursement  account which could be used  to pay the                                                                   
ten percent premium and the co-pays  not covered in the plan.                                                                   
Representative  Crawford  asked   if  money  for  the  health                                                                   
reimbursement  account  was  being  taken  out  of  employees                                                                   
paychecks.  Mr. Shier  replied  it is  paid  entirely by  the                                                                   
employer.                                                                                                                       
                                                                                                                                
Representative Kelly  stated that he had been  looking at the                                                                   
unfunded liability problem when  it was $4 billion and now it                                                                   
is around $10 billion. He asked  if the conversion to the new                                                                   
defined   contribution   plan   help  lessen   the   unfunded                                                                   
liability.                                                                                                                      
                                                                                                                                
2:42:26 PM                                                                                                                    
                                                                                                                                
Representative  Kelly  requested a  careful  response to  his                                                                   
question  be sent  to  the committee.  Commissioner  Kreitzer                                                                   
reported the information on the  unfunded liability would not                                                                   
be available until next week.                                                                                                   
                                                                                                                                
2:44:33 PM                                                                                                                    
                                                                                                                                
Representative Kelly commented  that if the retirement system                                                                   
had been  left as a  defined benefit  instead of moving  to a                                                                   
defined contribution  he wondered  if that would  have helped                                                                   
matters. Commissioner Kreitzer  replied that SB 123 did allow                                                                   
the state  to access all payrolls  from all employees  to pay                                                                   
down the unfunded liability. Representative  Kelly reiterated                                                                   
that he  wanted to know  the comparisons between  the defined                                                                   
benefit and the defined contributions system plans.                                                                             
                                                                                                                                
Mr.  Brooks stated  that  the  department's question  to  the                                                                   
actuary is to give an analysis  of the unfunded liability not                                                                   
speculate  if everyone  had stayed in  the deferred  benefits                                                                   
program.  He remarked it  cost a  lot of  money to run  these                                                                   
numbers. Representative  Kelly responded that he  would still                                                                   
like the answer to his question.                                                                                                
                                                                                                                                
Representative  Gatto  asked if  the  employer  picks up  100                                                                   
percent  of health care  premiums once  an employee  retires.                                                                   
Mr.  Shier responded  that once  an  employee retires  health                                                                   
care is  paid for  by the trust  funds. Representative  Gatto                                                                   
questioned  if the state  is required  to make an  additional                                                                   
contribution  to  health  care  when an  employee  reaches  a                                                                   
certain  age.  Deputy  Brooks  said  that  when  an  employee                                                                   
retires prior  to Medicare eligibility  age the  state covers                                                                   
the  full  premium  cost,  once  they reach  the  age  of  65                                                                   
Medicare becomes  the primary  insurance and the  state picks                                                                   
up the supplementary costs.                                                                                                     
                                                                                                                                
2:50:39 PM                                                                                                                    
ADJOURNMENT                                                                                                                   
                                                                                                                                
The meeting was adjourned at 2:52 PM                                                                                            

Document Name Date/Time Subjects
Actuarial101FINAL.pdf HFIN 2/5/2009 1:30:00 PM
HB 81
ARMB Fin Report.pdf HFIN 2/5/2009 1:30:00 PM
HB 81
Glossary of Terms and Acronyms FINAL.pdf HFIN 2/5/2009 1:30:00 PM
HB 81
PERS funding ratio 2007 diagram.pdf HFIN 2/5/2009 1:30:00 PM
SFIN 2/5/2009 1:30:00 PM
HB 81
PERS TRS Tier Comparison Charts FINAL.pdf HFIN 2/5/2009 1:30:00 PM
SFIN 2/5/2009 1:30:00 PM
HB 81
PERS TRS Tier Comparison Charts.pdf HFIN 2/5/2009 1:30:00 PM
SFIN 2/5/2009 1:30:00 PM
HB 81
Retirement Systems 101.pdf HFIN 2/5/2009 1:30:00 PM
SFIN 2/5/2009 1:30:00 PM
HB 81
TRS funding ratio 2007 diagram.pdf HFIN 2/5/2009 1:30:00 PM
HB 81
TRStimelineCONTACT INFO.pdf HFIN 2/5/2009 1:30:00 PM
HB 81
DOA Quiz.pdf HFIN 2/5/2009 1:30:00 PM
HB 81