Legislature(2005 - 2006)HOUSE FINANCE 519
04/23/2005 10:00 AM House FINANCE
| Audio | Topic |
|---|---|
| Start | |
| SB141 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | SB 141 | TELECONFERENCED | |
| += | HB 187 | TELECONFERENCED | |
| += | HB 13 | TELECONFERENCED | |
HOUSE FINANCE COMMITTEE
April 23, 2005
10:17 A.M.
CALL TO ORDER
Co-Chair Meyer called the House Finance Committee meeting to
order at 10:17:24 AM.
MEMBERS PRESENT
Representative Mike Chenault, Co-Chair
Representative Kevin Meyer, Co-Chair
Representative Bill Stoltze, Vice-Chair
Representative Richard Foster
Representative Mike Hawker
Representative Jim Holm
Representative Reggie Joule
Representative Mike Kelly
Representative Carl Moses
Representative Bruce Weyhrauch
MEMBERS ABSENT
Representative Eric Croft
ALSO PRESENT
House Speaker John Harris; Representative Ethan Berkowitz;
Representative David Guttenberg; Senator Bert Steadman;
Senator Lyda Green; Melanie Millhorn, Director, Division of
Retirement and Benefits, Department of Administration; Traci
Carpenter, Staff, Senator Lyda Green; Miles Barker, Staff,
Senator Bert Steadman; Kevin Brooks, Deputy Commissioner,
Department of Administration; Katie Shows, Staff,
Representative Paul Seaton.
Also in Juneau:
Kevin Ritchie, Executive Dir., Alaska Municipal League
Jerry Patterson, NEA-Alaska
Bruce Ludwig, APEA/AFT
Tim Parker, NEA-Alaska, Fairbanks
Tom Richards, Fairbanks Education Association
Jamie Marks, Teacher,
James Conley, Anchorage Police Department
Paul Honeman, Lieutenant, Anchorage Police Department
Mike Coutirer, Officer, Anchorage Police Department
Everett Rollins, Officer, Anchorage Police Department
Gerard Asselim, Officer, Anchorage Police Department
Michelle Bucher, Sergeant, Anchorage Police Department
Debra Seely
Dave Boddy, Alaska Professional Firefighters
Debbie Hull, Teacher
Mike Davidson, Alaska Professional Firefighters
Dominic Lozano, Alaska Professional Firefighters
Jeff Manns, Public Safety Employees Association
Craig Persson, Public Safety Employees Association
Keith Perrin, Public Safety Employees Association
Deedie Sorensen, Teacher
Amy Martin, Teacher, Juneau School District
Linda Frame, Teacher, Juneau School District
Julie Van Driel, Educator, Juneau Public School
Margo Waring, Juneau
Jim Ashton, Public Employees Association
Sam Trivette, Juneau
Tom Harvey, NEA-Alaska
Kristina Tornquist
Mary Graham, Juneau
Carol Comeau, Superintendent of Schools, Anchorage
Cindy Spanyers, APEA/AFT
PRESENT VIA TELECONFERENCE
Anchorage:
John Dickens,
Marian Taylor
Duane Moran, APEA/AFT
Ada Gleason,
Tyler Grosshuesch, Alaska Public Employees Association
Mania cookson, Anchorage
Sarah Grosshuesch, NET-AK AEA
Dave Campano,
Pat Luby, AARP Gerry Guay
John Dickenson
R. Lorriane Campbell
Robin Swinford
Delta Junction:
Jackie Nelson, Teacher, Delta Junction
Whitney Aillaud, Teacher, Delta Junction,
Cindy Lou Aillaud, Educator, Delta Junction,
Fairbanks:
James Orr,
Irene Matheis
Tammy Smith, Fairbanks Education Association
Dave Parsons, ESSA
Laura Petrovich
Patricia Cramer, FEA
Jim Fiorenzi
Karen Eddy
Ketchikan:
Charlie Arteaga,
Sara Justine Black
Kenai:
Fred Sturman, Soldotna
John Wesley, KPBSD
Ed Martin Sr., Cooper Landing
Matsu:
Kathy Summers, Matsu Education Association
Lynn Kracke, Matsu Education Association
Glen Ramos, Matsu Education Association
Bette Reed, NEA-Alaska
Contessa Gossett MatSu Division of Juvenile Justice
Andrea Andrews, MatSu Division of Juvenile Justice
Offnets:
Kathy Christopherson, Bethel
Vi Jerrel, Anchor Point
Ronnie Stanford, Alaska Teacher of the Year
CS FOR SENATE BILL NO. 141(FIN)
An Act relating to the teachers' and public employees'
retirement systems and creating defined contribution
and health reimbursement plans for members of the
teachers' retirement system and the public employees'
retirement system who are first hired after July 1,
2005; relating to university retirement programs;
establishing the Alaska Retirement Management Board to
replace the Alaska State Pension Investment Board, the
Alaska Teachers' Retirement Board, and the Public
Employees' Retirement Board; adding appeals of the
decisions of the administrator of the teachers' and
public employees' retirement systems to the
jurisdiction of the office of administrative hearings;
providing for nonvested members of the teachers'
retirement system defined benefit plans to transfer
into the teachers' retirement system defined
contribution plan and for nonvested members of the
public employees' retirement system defined benefit
plans to transfer into the public employees' retirement
system defined contribution plan; providing for
political subdivisions and public organizations to
request to participate in the public employees' defined
contribution retirement plan; and providing for an
effective date.
10:20:01 AM
SENATOR BERT STEADMAN, SPONSOR, provided the Committee with
a handout, "Retirement Security Act, SB 141 - Presentation
to the House Finance Committee". (Copy on File).
He highlighted the handout, which demonstrates how a
retirement system works, the current status of Alaska's
system, comments on what went wrong and the conclusions
indicating a need for SB 141.
10:22:13 AM
Senator Steadman referenced Page 4, which describes how the
retirement system works, explaining the three main
components:
· Funding policies
· Investment policies and
· Benefit policies
He pointed out that all three systems must be working in
balance in order to have an adequate and secure retirement
system.
Page 5 provides a graphic illustration of how the retirement
system works. The employee and member contributions flow
into the net system assets, driven by the funding policies.
The investment gains and losses are driven by investment
policies. The administrative and investment expenses are
driven by benefit policies. He pointed out that the net
system assets must be sufficient to pay future benefits.
10:25:12 AM
Senator Steadman noted that Page 6 indicates the status of
the Alaska system, which Page 7 provides the status of the
current system as of June 2004. The employee and employer
contributions are indicated at roughly $175 million each.
Investment results have brought forth approximately $1.6
million dollars. The Public Employee Retirement System
(PERS) and the Teacher Retirement System (TRS) total a
combined $5.7 billion dollar unfunded liability. Last year,
the portfolio provided only a 15% growth rate. Liabilities
continue to outstrip assets, due to the calculation of the
increases and the maximum raised at 5%. He reiterated that
PERS and TRS combined equal a $5.7 billion dollar unfunded
liability.
10:30:11 AM
Senator Steadman referenced Page 8, which provides a
historical chart of the PERS and TRS funding ratio. The
system has gone from 28,000 active employees to 43,000. He
pointed out the substantial change since the 1970's,
suggesting that the State should be concerned because of the
magnitude of the differential.
10:32:38 AM
Senator Steadman continued, Page 9 charts the PERS payroll
contribution trend and provides the forecast. The employer
pays the majority of normal costs and all of past service
costs. He noted the fixed costs and mentioned that normal
service costs could be enough to cover all liabilities.
Contributions today are set at a normal service cost and are
expected to pay all future liabilities.
Representative Joule pointed out that in 1987, the changing
line and asked if it was due to a tier change. Senator
Steadman explained that when there is an adjustment to the
contribution amount, it must be held neutral, acknowledging
the tier change.
10:35:31 AM
Senator Steadman stated that the 1998 funding status
estimation of liabilities was questionable. He commented on
the anticipated expectation by not addressing the unfunded
pension liability concerns now. It will become the
employer's responsibility to meet that obligation. The
increase is shown as an actuarial rate change. The
employers are capped at a 5% increase. The under-funding
amount is amortized over a 25-year period. He added that it
is important to distinguish between normal and past service
costs.
10:37:59 AM
Senator Steadman highlighted Page 11, indicating what went
wrong for the State system. The actuary adjusts the asset
market value in an effort to bring more order and
predictability to the employer contribution rate and to
smooth out year-to-year market fluctuations. Prior to 2002,
Mercer used a "corridor method". Beginning in 2002, they
switched to a 5-year smoothing method. The State has been
understating their liabilities for the past several years.
He reiterated the $5.7 billion dollar shortfall.
10:39:52 AM
Senator Steadman stated that Page 12 highlights what went
wrong in the retirement system. He pointed out that the
change in 2000 claimed that the employees wanted to lower
their contribution rate below the normal service costs. The
manner in which assets are calculated was changed, pushing
the value of the assets down. There was an audit in 2000,
with adjustments on the growth rates, leading to an
adjustment of liabilities. Unfortunately, at the same time,
the equity markets experienced downward pressure. The
question remains where did the under-funding come.
10:43:36 AM
Senator Steadman stated that the slide on Page 13
demonstrates a combination of factors, which create the
current situation:
· Inaccurate assumptions
· Historical understatement of system liabilities
· Rising health costs
· 3-year bear market
· Declining interest rates
· Unfavorable demographic changes
· Timing of the recognition of market losses
· Artificially low contribution rates in good times
· Legislation that has increased benefits
· Awarding of post pension retirement adjustments
10:45:43 AM
Senator Steadman stated that SB 141 was never intended to
deal with the unfunded pension liability. The first issue
was to address structural changes within the system and then
deal with the under-funding status. The restructuring of
the unfunded liability is a separate concern.
10:47:09 AM
Senator Steadman explained that the slide on Page 14
highlights the factors contributing to the 10.83% PERS
employer rate increase. From 1998 to 2004, there was a
10.8% change in the required employer contribution. Most of
that change [35%] came from the actuary assumption changes.
10:49:17 AM
Senator Steadman referenced Page 16, identifying the
conclusions and the control system drivers. The funding
drivers are:
· Retiree medical costs
· Mortality rates
· Retirement turnover rates
· Past service liabilities
The investment drivers are:
· Inflation
· Market performance
· Economic performance
· Risk tolerance
The benefit drivers are:
· Health care costs
· New legislation
· Salary increases
· Recruitment & retention goals
· Age of the workforce
· Cost-of-living-adjustment (COLA)
Senator Steadman pointed out that the constraints in place
because of the statutory provisions through the Alaska
Constitution, the system cash requirements, the federal
regulations, the bargaining agreements and the size of the
asset pool, which are difficult to control.
10:51:05 AM
Senator Steadman noted that the slide on Page 17 addresses
the board structure and that SB 141 provides for a board
consolidation. The bill moves the PERS/TRS board. Under
the current structure, the two boards establish the
contribution rates; contributions are set in statute. The
chart indicates the PERS/TRS controls and oversight:
· PERS/TRS Boards
· Tier Structure and statutes
· Alaska State Pension Investment Board (ASPIB) and
Division of Retirement and Benefits
· ASPIB
· Tier Structure, Legislature & Statues
The responsibility and oversight is fragmented among to many
different entities.
10:54:49 AM
Senator Steadman stated that the slide on Page 18 indicates
the current retirement system organization. The chart
highlights that the Department of Administration, housing
the TRS & PERS Boards, and the Department of Revenue, houses
the Alaska State Pension Investment Board (ASPIB). ASPO+IB
establishes the investment policies while managing and
investing retirement funds.
10:56:29 AM
Senator Steadman noted that the slide on Page 19 indicates
the manageable system drivers, consisting of:
· Funding drivers, including the targeted funding
ratio, the employer contribution rates and the
actuarial assumptions
· Benefit drivers, including the new legislation,
waivers and appeals and the tier benefits
· Investment drivers, including the asset allocation
policy, asset/liability equation, and the
investment expenses
Senator Steadman foresaw the need for system parts to be
better managed. He added that the manageable controls
consist of the retirement boards, some statutory provisions,
plan provisions, department regulations, and management
structure.
10:58:06 AM
Senator Steadman discussed Page 20, highlighting important
conclusions:
· System assets & liabilities must be jointly
managed
· System volatility needs to be reduced
· Cost predictability and controls must be improved
· Employer contribution rates must be stabilized
· Liability growth must be contained
· Existing liability must be reduced
10:59:17 AM
Senator Steadman addressed the slide on Page 22 - the key
elements in SB 141:
· Replaces the existing boards with a new 9-member
Alaska Retirement Management Board (ARMB);
· Provides more employer representation on the
board; strengthens the board's fiduciary
responsibilities; gives the board responsibility
for setting employer contribution rates and for
adopting actuarial assumptions
· Transfers the responsibility for hearing waivers
and appeals to the Office of Administrative
Hearings
· Increases payroll contributions for existing
employees by 0.5% annually until employers and
employees share normal costs 50/50
· Establishes a defined contribution (DC) Plan,
Retiree Medical Benefit and Health Retirement
arrangement for new employees
11:05:51 AM
Senator Steadman continued, the slide on Page 23 highlights
the organization of the Alaska Retirement Management Board
(ARMB). Their responsibilities include:
· Manage and invest the Trust
· Assets in a manner that is sufficient to meet the
liabilities and obligations of the system
· Establish investment policies and options
· Set annual PERS/TRS employer contribution rates
· Review and adopts actuarial assumptions
The Department of Administration would be in charge of the
Office of Administrative Hearings and the Division of
Retirement and Benefits. The Department of Revenue would
house ARMB and the Treasury Division.
11:10:49 AM
Senator Steadman referenced the slide on Page 24, which
provides a side-by-side analysis of the defined contribution
system and the defined benefit system. In the defined
benefit system, the active member and employer contribute to
the pooled investment account; in the defined contribution
system, the active member and the employer contribute funds
to the employee's individual account.
11:14:53 AM
Page 25 defines the contribution plan and provides the FY06
normal cost comparisons for the TRS Tiers II and PERS Tier
III versus the SB 141 proposals. Senator Steadman noted it
is important that the system remain attractive to the
employees, guaranteeing employee retention.
11:17:59 AM
In conclusion, Senator Steadman discussed the slide on Page
26, which stipulates the primary objectives:
· Maintain the ability to recruit and retain talent
· Maintain the attractiveness of the public sector
employment
· Ensures the solvency of Alaska's retirement system
He added that SB 141 could:
· Strengthen management and fiduciary oversight
· Improve the State's ability to predict and control
costs
· Constrains the growth of the unfunded liability
· Provide near term financial relief to employers
· Pave the way for developing a long-term financial
fix
11:19:57 AM
Senator Steadman provided a brief overview of the sectional
analysis. (Copy on File).
REPRESENTATIVE ETHAN BERKOWITZ asked if there was an
analysis provided by Legislative Legal. Senator Steadman
said there was not.
11:20:47 AM
Senator Steadman overviewed the handout, outlining the
changes made to the House State Affairs version of the
legislation.
Defined Contribution Plan Elements
Required contributions
· Employee / 8%
· Employer / 4.5%
Optional contributions
· A member may elect to contribute additional
earnings not to exceed the limits established by
the Internal Revenue Code
Rollovers
· Employees can take their individual account with
them when they leave employment
· Employees can "roll" in other qualified funds when
they are hired
Vesting
· All members of the DC plan are immediately vested
in their own contributions and related earnings
· Members are generally vested in the employer
contributions and related earnings on a certain
scale
Investment of accounts
· The Alaska Retirement Management Board will
provide a range of investment options
· Participants direct the investment of their funds
Distribution of accounts
· Employee may elect a distribution of funds upon
termination of employment after 60 days
· Subject to IRC regulations
· May receive funds prior to 60 days for financial
hardship
11:26:01 AM
Senator Steadman referenced Page 2:
Medical Program elements
Required contribution by employer
· 1.75% of employee compensation
· Contribution is made to group health and life
insurance trust fund to be used for employer share
of retiree's monthly medical premiums
Eligibility
· Listed the criteria for a member to be eligible to
elect medical benefits
Benefits
· Medical benefits include access to major medical
insurance and the health reimbursement arrangement
(HRA)
· Access means that an eligible person may not be
denied insurance coverage except for failure to
pay the required premium
· An eligible person may participate in the medical
insurance, the HRA, or both
· An irrevocable decision to elect major medical
insurance must be made by age 70.5
Major Medical Insurance
· Insurance coverage for an eligible member includes
the member's spouse and the member's dependent
children
· Insurance coverage for a surviving spouse includes
the member's dependent children if they are
dependent on the surviving spouse
· Retirees who meet the required years of service,
but who are less than Medicare age eligible
(presently 65), must pay the full premium to
receive coverage
· Retirees who are Medicare age eligible will pay
only a portion of monthly medical premiums
depending on years of service
· Only one premium per retiree and family
· Different premiums developed for single retirees
and retirees with spouse and/or children
11:28:32 AM
Senator Steadman noted that Page 3 highlights the Medical
Program elements:
Health reimbursement arrangements (HRA)
· Employer fund
· Required contributions
· Termination of employment
· Reimbursements
11:32:26 AM
Senator Steadman referenced Page 4.
Other Plan elements:
Option to convert from DB to DC plan:
· Unvested, active members of PERS and TRS are
eligible to convert to DC plan
· Employer must first make the choice to offer the
option to all their employees.
· Participation in DC plan is in lieu of the DB
plan; all rights to DB plan are forfeited
· A member's individual account balance will be
rolled into a new account under the DC plan
· A member's employer shall make a 100% matching
contribution with new funds
· A member's years of service under the DB plan
would be counted toward the years of service
required for medical benefits eligibility
Participating employers:
· Mechanism is included for political subdivisions
and public organizations that do not currently
participate in PERS to join the DC plan in the
future
· Includes specific employers already participating
in PERS and TRS to allow their future employees to
participate in the DC Plan
11:34:08 AM
Changes to Existing Retirement system:
The employee and employer contributions to the defined
benefit plans:
· The employee contribution rate is changed to the
greater of the amount set in statute prior to
enactment of the bill or ½ of the normal cost rate
as determined by the ARM Board
· The employer contribution rate is changed so that
it may not be less than the difference between the
employee contribution and the normal cost rate
that is set by the ARM Board
Ad-hoc post retirement pension adjustments:
· Defines "financial condition of the retirement
fund" for the ad-hoc post retirement pension
adjustment as a 110% ratio of assets to
liabilities
11:34:57 AM
Senator Steadman moved to Page 5, addressing changes to the
existing retirement system.
University optional retirement program (ORP):
· Changed statute giving the Board of Regents
flexibility to design both optional and mandatory
retirement programs for future University
employees
· Specifies the University's retirement programs are
not subject to collective bargaining
· Provides one-time option for current employees who
chose to participate in PERS and TRS to transfer
into the existing ORP
Consolidation of Boards:
· Eliminates PERS and TERS Board & the Alaska State
Pension Investment Board (ASPIB)
· Creates a new Alaska Retirement Management Board
(ARM Board)
Powers and Duties of ARM the Board:
· Manage the assets and set the investment
objectives of the defined benefit trust fund to
meet pension liabilities
· Annual actuarial valuation of system plans,
coordinating with the retirement system
administrator
· Analysis of actuarial assumptions experience,
including a second opinion
· Audit of actuary not less than every four years
11:36:40 AM
Senator Steadman moved to Page 6, noting the powers and
duties of the ARM Board:
· Rate setting
· Provide a range of investment options for all
employee-directed accounts
Other duties of the former PERS and TRS Boards transferred:
· To the Commission of the Department of
Administration
· To the Office of Administrative Hearings
Conditional Service Retirement Benefits:
· Changes the credited service requirements to 120-
days for legislative employees
Repeal:
· Refunded prior members
Fiscal note:
· Appropriates $69.5 million dollars directly to the
retirement trust funds on behalf of all PERS
participating employers (includes small amount of
TRS). The amount represents a 5% increase in PERS
employer costs from FY2005 to FY2006
· PERS and TRS for school districts is rolled into
the BSA at $4,919
11:38:13 AM
Representative Holm voiced appreciation for the work done on
SB 141. He asked about goals for balancing assets and
liabilities. Senator Steadman responded that an acceptable
variance would be plus or minus 5%; outside of that, there
are State issues. Unlike the private sector, the State does
not have the option to declare bankruptcy. Alaska has
ability to secure wealth from Permanent Fund access.
Senator Steadman noted that he had asked the State Pension
Board if they could "grow" the State out of the current
problems. They said no and consequently, a shift resulted
in the portfolio risk. It is impossible to put political
pressure on that board to close the gap.
11:42:35 AM
Representative Holm questioned the intent for changing the
board. Senator Steadman responded that the board would be
lucky this year to make 8.25% interest.
11:43:29 AM
Representative Berkowitz commented on the focus of the
unfunded liability, making a proposal to shift to a defined
contribution. He asked what that shift would do to member
contributions needed for funding the existing system.
Senator Steadman replied the intent is not to deal with the
unfunded issue. He admitted that the concern is complicated
and confusing but must to be addressed.
11:45:25 AM
Senator Steadman commented that when a new tier is created,
outside the current structure, would it be adversely
affecting cash flow. The new employees will not be required
to pay off the liability. The liability accrued are for
benefits promised in the past and that will not change the
cash flow, only the percentage. He reiterated that there
would be no effect on the cash flow shift.
11:47:20 AM
Representative Berkowitz asked what will happen in 20-years
if there is a shift to a defined contribution system. It is
important to be able to quantify the impact.
Senator Steadman responded that the State couldn't expect an
st
employee hired in July 1, 2005 to pay for the retirement
benefits of current retirees - that would be unfair. It
should be clear that the financial burden is not being
shifted to the future population. The obligation is bore
solely on the employer - the State of Alaska.
11:50:01 AM
Representative Berkowitz requested numerical statistics.
Senator Steadman stated he did not have that but was willing
to provide it at a later date.
Co-Chair Meyer understood that the new system would not be
burdened with paying for Tier I, II or III employees.
Senator Steadman agreed.
11:51:41 AM
Representative Berkowitz estimated that there would be a
cost to the State of Alaska and asked what it would be.
Senator Steadman replied, $5.7 billion dollars.
Representative Berkowitz concluded that a shift to a defined
contribution plan would have no impact on solving the
State's unfunded liability problems. Senator Steadman
disagreed, noting that shifting to a defined contribution
plan will alleviate potential impacts to the employer and
that a future "surprise" would be taken off the table.
Under SB 141, health insurance remains, requiring actuarial
work.
Senator Steadman stressed that the new board will be
mandated to formulate and rank options to provide the
Legislature goals for restructuring that liability. There
are options in addressing these problems.
11:56:47 AM
In response to Vice-Chair Stoltze, Senator Steadman
acknowledged that there is still work to be done on the
issues in the legislation.
11:58:09 AM
Representative Hawker pointed out that the pension
obligation bond authority does not currently exist. He
wondered if it would be appropriate to place that authority
in statute.
Senator Steadman provided examples of an obligation bond
option with a strategy that has been used around the
country. He stated that he was inclined to let the new
board do the work through the process including pension
obligation bonds, but that he would not "fall on his sword"
if that were included.
12:01:34 PM
Representative Hawker clarified that he is not proposing
offer bonds, but to grant the municipal bond banks to offer
bonds if the municipality has gone through a due and
diligent process.
Senator Steadman acknowledged the need to give the
municipalities "breathing room"; however, stressed the need
to "work through this process".
12:03:57 PM
Co-Chair Meyer referred to a chart comparison of other
states. (Copy on File.) Senator Steadman observed that the
defined benefit plan is more popular than the defined
contribution plan. Most public entities have defined
benefit plans and that Alaska rests somewhere in the middle
of the chart.
12:06:04 PM
Senator Steadman spoke to the disadvantages of the defined
contribution plan. The current system is inflexible. He
added that in solving the problems, the State is better off
concentrating on the short-term rather than long-term
concerns.
12:07:55 PM
Co-Chair Meyer asked if Senator Steadman was specifically
proposing a new Tier 4, using the defined contribution plan.
Senator Steadman replied yes and that in any event, the
State could always add a defined benefit component to
attract workers. Components can always be added in the
future.
Co-Chair Meyer pointed out that the last time the system had
been changed was in 1996. He asked if demographics was a
driver for the change. Senator Steadman commented that the
actuary was slow at updating the mortality rate and that the
retirement system cost calculations could be misinterpreted.
12:10:32 PM
Co-Chair Meyer suggested that rising health care costs are
the biggest driver.
Representative Berkowitz said he was confused by the
response made to Representative Hawker, regarding the
defined contribution and the defined benefit plan. He asked
about hidden costs to the general fund.
Senator Steadman addressed the funds running short. When
the Senate Finance Committee (SFC) requested the
Administration to address the situation, tier reviews were
undertaken. Rather than starting from scratch, SFC chose
the hybrid plan with the 100% defined contribution plan.
The process was then started. The SFC Committee decided to
move forward with the 100% defined contribution plan as it
provides more flexibility. That plan provides the
individual more flexibility to self-direct. A major concern
with the hybrid plan was that the benefit portion could not
be removed.
The current system is very inflexible and issues are handled
by selection. Normally, a retirement system would not want
an employee who works for 25 to 30 years to run out of money
and live a substandard life. There is nothing in the bill
to put retirement money into something that guarantees
income. At some point, the individual has to take
responsibility without disadvantaging himself or the State.
Representative Berkowitz disagreed. He referenced problems
resulting in the State of Nebraska from such changes. He
asked if there had been an analysis done regarding the
number of people on a defined contribution system, who use
up their contributions and then what costs are placed on the
State as a result.
12:18:37 PM
Senator Steadman thought that would be impossible to
calculate. He mentioned the Permanent Fund "blessing",
while making comments on the Supplemental Benefit System
(SBS) pension system. He thought that there could be
similar results with a defined contribution plan.
12:20:50 PM
Representative Hawker requested more information on the
general circumstances with less detail. He pointed out that
the State's pension program is being funded at a 70% funding
ratio; nationwide the average is about 74%, placing Alaska
in the top third. He agreed that in terms of absolute
numbers, Alaska is in a situation, which needs to be
addressed. Representative Hawker stated it is a disservice
to create the image of immediate crisis.
Senator Steadman responded that depending on the definition,
there is not a cash flow problem for paying benefits and
that is not the issue. He thought that they could look at
how to meet the cash flow crunch with increased employer
contribution rates. Responding to that increase, without
cutting back services, or reducing payroll increases, would
place it on to the local level. That would be expensive,
about a $350 million dollar shift of cash flow to pay the
increased cost of the unfunded liability. To get a revenue
shift would require roughly half of the general fund. He
admitted that it is not a crisis, however, the liability is
sitting over $6 billion dollars. He stated that the
obligation should not be shifted to the next generation.
12:27:14 PM
Representative Hawker addressed increased employer rates as
mentioned in a "crisis" nature. He thought that was the
right objective as long as the system is still working and
added that the State could deal with the situation over
time. "Time target funding" is appropriate but needs to be
worked out over time. Representative Hawker recommended
that the easiest way to come up with the $6 billion dollars
would be through the Permanent Fund.
12:29:41 PM
Senator Steadman believed that the issue of the funding
target was more applicable to the private sector than the
public sector and that the State does not have the ability
to lower the funding target.
Representative Hawker commented it could be changed
statutorily. Senator Steadman did not agree.
RECESSED: 12:32:17 PM
RECONVENED: 1:12:49 PM
KATIE SHOWS, STAFF, REPRESENTATIVE PAUL SEATON, referred to
the handout: SB 141 Bill Version Comparison" and explained
the changes between CSSB 141 (STA) and the House Finance
Committee substitute (CS) for SB 141. She noted that the
House State Affairs Committee (HSTA) held extensive hearings
on SB 141. She noted that the HSTA Committee was concerned
with changes to medical coverage, which only allowed
coverage of employees who were of the Medicare eligible age
of 65. The 2004 Mercer study of employers and employees
identified medical coverage as the number one most important
element of a retirement plan. The HSTA Comimttee wanted to
allow medical coverage before the age of 65. The HSTA
version of SB 141 allows access to the medical plan for
those that are pre-Medicare eligible: age 60 or 60 months (5
years before Medicare eligibility). Medicare eligibility is
defined as age 65 and 60 months; pre-Medicare eligibility is
defined as age 60. The terms Medicare and pre-Medicare
eligibility were used to prevent an unfunded liability
should the federal government change the eligibility age.
The state retirement system will move with federal changes.
The HSTA Committee felt that the Senate version, which
provided a 70 percent subsidy after 10 years of service
favored short-term employees. The Committee changed the
subsidy percentages from 70 percent at 10 years of service
to 30 percent. The percentage increases to 90 percent at 30
years of service.
1:16:59 PM
Ms. Shows explained that increases in health care costs are
shared between the retiree and the plan through a subsidy
base. She explained that the subsidy base would be set at
the same rate as the premium (approximately $6,000) when the
legislation is enacted. The subsidy base would be increased
to no more than 5 percent annually and the percentage
premium received by the retiree is taken from the subsidy
base. The retiree will absorb the portion of health care
increases over 5 percent. The structure would be for both
pre and post Medicare eligibility. The percentage subsidy
[for the state] will decrease after Medicare eligibility
begins, since there is a 50 percent federal match. She noted
that Mercer anticipates that health care premiums would be
$42,000 a year in 30 years. Increasing health care benefits
would increase the cost by 2 percent for the declared
medical plan (3.75 percent for TRS and 3.5 percent for
PERS). She noted that combined employer contribution under
the HSTA version of SB 141 would be 10.25 percent for TRS
and 10 percent for PERS, which is below the 24-year average
of employer costs. The normal cost has been 11.11 percent
for TRS and 10.86 percent for PERS. Employer contribution
groups support the provision.
1:20:27 PM
Ms. Shows contrasted the differences in the health
reimbursement arrangement (HRA). In the original version,
employees would forfeit access to their HRA if they left
employment for over five years. If an employee returned
before the five-year lapse, their account would be
reinstated to the balance at termination. The provision was
changed to eliminate any time limit between times of
service, since the funds belong to the employee. Any changes
in market value would be included. Members would be allowed
to access their HRA with 10 years of service at their normal
retirement age. The intent is to encourage employees to work
at least 10 years of service.
1:22:13 PM
Ms. Shows referred to the Alaska Retirement Board. An
amendment was introduced to increase the number of PERS and
TERS representatives from one to two retired members in
each. The Committee acknowledged that the members should
have a voice in their retirement system. These members would
also have to meet stringent professional requirements. It
was felt that the original proposal for three members of the
general public that were not or had not been a member of
PERS or TRS would eliminate too many people. The HSTA also
changed the legislation from appointments by the governor to
elected participation of the member group. The term limits
were extended from 3 - 6 years, staggered by three years, to
allow a continuous Board.
Ms. Shows discussed changes to existing Tiers. The increase
in employee contribution for current employees would be
repealed. An amendment was adopted, which put a limit on the
employer contribution rate of 10 percent for PERS and 11
percent for TRS. She spoke to fraud and noted that, under
current law, fraud is handled differently in PERS and TRS.
Fraud would be a class A misdemeanor under both programs.
Provisions to forfeit all rights to any future benefits were
deleted from the TRS program.
1:25:49 PM
Ms. Shows noted that Department of Labor and Workforce
Development instructors would remain TRS, regardless of
whether or not the teaching position required a teaching
certificate.
1:26:46 PM
Representative Hawker asked for the dollar effect on
employers and employees between the two versions. Ms. Shows
observed that there would be an increase of 2 percent to
cover the difference in the medical plan for the HSTA
version. Ms. Shows did not have the dollar effect; the
difference has been identified in percentages. She noted
that the 2004 Mercer study included the dollar amount and
offered to provide that information.
1:28:34 PM
MELANIE MILLHORN, DIRECTOR, DIVISION OF RETIREMENT AND
BENEFITS, DEPARTMENT OF ADMINISTRATION, provided members
with the Administration's perspective. She spoke strongly in
favor of a defined contribution plan. The TRS study began
about a year and a half ago and involved participation by
stakeholders: employers for PERS and TRS and the involved
union parties. A survey was collected, which asked the
questioned of employers: What do you want to see in the new
tier? Almost 90 of a 155 employers responded. She added
that 36 of 57 school districts participated. She discussed
the survey results. The survey concluded that the system
should provide medical benefits at retirement, which would
require employees to retire from the system in order to
receive the benefit. The benefit should favor long service
members. The employer contribution amounts need to be
predictable and stable. Employer and employee should share
health care inflation. Only one union elected to participate
in the survey. The department widely published the public
meeting held in November at Anchorage. She listed those
present at the meeting. Employers recognized that a new tier
would not provide immediate relief, but felt that a new tier
should go forward.
1:32:54 PM
Ms. Millhorn spoke about actuaries and audits regarding
health trends and rising health care costs, which are
difficult to predict. A defined contribution plan will lower
reliance on actuarial predictions. The Division spends $450
- $500 thousand a year on actuarial services. There are five
employees, which support the defined contribution SBS
system.
Ms. Millhorn spoke about past experiences counseling workers
on their retirement plans. She spoke in support of a defined
contribution plan.
1:37:48 PM
Co-Chair Meyer asked which cities were in support of a
defined contribution plan. Ms. Millhorn noted that Anchorage
and Kenai, the Kenai Peninsula Borough supported a pure
defined contribution plan. Other employers supported the
need to provide recommendations for a new tier.
1:39:05 PM
Representative Weyhrauch pointed out that the interests of
employers and employees need to be balanced. He questioned
how a defined contribution plan would be in the interest of
police, and firefighters. Ms. Millhorn responded that these
people move in their careers and often have multiple
retirement accounts. Individuals need to look at their
retirement plans; not every employer can provide for their
entire needs. There are differences between TRS and PRS.
1:41:38 PM
Representative Weyhrauch asked if a person should seek to
supplement their plans. He gave the example of a 28-year-old
man, with three kids, becoming a paraplegic by falling off a
fire-training center. Ms. Millhorn clarified that benefits
are available to members under a defined contribution plan.
Members can select supplemental benefits for accidental
death.
1:43:52 PM
Representative Weyhrauch asked if assets from PERS and TRS
could be used for startup costs. Ms. Millhorn replied that
those funds couldn't be used in that manner. The start up
costs will come from general funds.
1:45:07 PM
KEVIN RITCHIE, EXECUTIVE DIRECTOR, ALASKA MUNICIPAL LEAGUE,
observed that the League represents employers. There is a
$5.7 billion unfunded liability in the PERS system. He added
that 63 percent of the under funding belongs to school
districts, municipalities and the University. The League has
been working with communities and boards to educate people.
The League has identified three objectives: stabilize cost
for municipal employers, request two years of financial
assistance from the state, and find a method to reduce the
overall debt, such as pension bond authority. He stressed
that pension obligation bonds would be a useful tool for
municipalities.
1:47:54 PM
Mr. Ritchie opined that there is a crisis for municipalities
regarding budget increases for their retirement systems.
Municipal rates for public employee retirement systems are
increasing every year at 5 percent of salary, which
represents a 3 to 3.5 percent total budget increase every
year. He noted that TRS is one large system and every
district pays the same rate, but every municipal PERS system
is accounted individually. Municipalities are going from 7
percent of salary to 30 percent of salary, plus any
percentage for unfunded liability for their retirement
systems. The unfunded liability above the 30 percent is
averaging (an additional) 5 - 15 percent. The state charges
each municipality 8.25 percent on the unfunded liability. He
noted that the Fairbanks North Star Borough has an unfunded
liability of $21 million (2003). The Fairbanks North Star
Borough would be charged an additional 8.25 percent on the
$21 million each year. Municipalities can save money if they
can borrow at 5 percent to pay the 8.25 percent charged by
the state.
1:50:50 PM
Mr. Ritchie referred to written testimony indicating the
League's support of defined contribution systems for
municipalities. He also noted the need to control health
benefits, which are the largest part of the unfunded
liability. He reiterated the League's three objectives.
1:51:36 PM
Representative Hawker argued that the legislature does not
represent employers, but all employees. Mr. Ritchie
acknowledged that municipalities also represent employees.
Representative Hawker explained that the 8.25 percent
referred to by Mr. Ritchie, represents a lost opportunity of
an 8.25 percent increase that would have been realized if
the funds had been in the system to be invested. The state
is not charging, but is missing out on the ability to make
8.25 percent. Mr. Ritchie agreed with Representative
Hawker's remarks.
1:53:21 PM
JERRY PATTERSON, NEA ALASKA RETIRED, expressed concern with
SB 141 [see written testimony on file]. He noted that the
plan would close the defined benefit plan and observed that
closed funds are small and 100 percent funded. He stressed
that he knew of no model to follow. Normally there would be
a 25-year rolling amortization time period. He observed that
SB 141 requires that an active member's retirement be fully
funded before they retire. He gave an example of a person
close to retirement. He maintained that there has not been
accurate actuarial data and observed that SB 141 requires
that only active employees be covered. Current retirees will
be paid by direct appropriation. He listed numbers of
retiring employees and predicted PERS would be broke by
2026. He questioned the funding source. He noted that wages
times the contribution rate would shrink. There would be no
new employees entering the system. Non-vested members would
be allowed to move to the defined contribution plan, taking
their accumulated accounts plus and employer contributions
with them. He maintained that the plan would result in a
loss of a billion dollars a year and suggested getting the
best actuarial numbers possible.
1:58:08 PM
BRUCE LUDWIG, APEA/AFT, testified in opposition to the
legislation. He spoke of salary schedules compared to
inflation. He compared employees to capital assets. He
agreed with the structure of the administration of the fund.
He discussed the makeup of the board calling it a political
system. He addressed the defined contribution issue and
maintained that there is no data to support claims that it
is attractive to employees. In Ohio, which has an optional
defined contribution plan, only 10 percent of employees pick
the defined contribution plan. These employees have only
earned 1.86 percent on their funds over the last five years.
He maintained that professional investment officers could
earn more. He asserted that the amount going into the
defined contribution and medical benefits are inadequate. He
asked why university employees would be treated worse than
other employees. He recommended looking at this issue over
time and investigating the actuarial recommendation, time of
retirement, and reduction of abuses. He pointed out that the
state of West Virginia returned to a defined benefit rather
than defined contribution plan, which was too expensive.
2:05:10 PM
TIM PARKER, NEA-ALASKA, FAIRBANKS, testified against SB 141.
He suggested that the Committee remain focused on letting
public employees retire with dignity. He opined that this
bill leaves employees drastically short. He maintained that
the actuarial predictions don't fit Alaska. He observed that
teachers do not qualify for social security, which compounds
the problem. He stressed the need to show public sector
employees how a defined contribution plan would not
adversely affect employment.
2:08:26 PM
TOM RICHARDS, PRESIDENT, FAIRBANKS EDUCATION ASSOCIATION,
spoke of concerns with SB 141. He felt that the basic
premise of recruitment and retention of teachers would not
be met. He gave an example of a teacher comparing wages of
the defined contribution plan to private sector advantages.
He concluded that the private sector would win out. Teaching
suffers from a loss in the profession after 5 and 7 years of
employment. Teachers may not stay in Alaska with the defined
contribution plan. The defined benefit plan has the
incentive of a COLA. The defined contribution plan would not
provide the COLA incentive. He felt that defined
contribution would work toward the detriment of recruitment
and retention. He expressed concern with the analysis of the
$5.6 billion unfunded liability. He noted that there would
be no Tier II retirements during 2011 - 2016, yet
contributions would still go into the Fund. He felt that the
unfunded liability would decline during this time. He asked
the Committee to take the time necessary to answer these
questions.
2:12:51 PM
JAMIE MARKS, TEACHER, DZ MIDDLE SCHOOL, related his
experience as a teacher. He noted that poor investments and
planning could result in more demand on the welfare system
and stressed that he has no time to manage personal
investments. He acknowledged that the defined contribution
plan would benefit the state, but maintained that employees
should be able to expect good benefits when they retire.
High quality persons need reasons to become teachers. He
felt the defined contribution system would be one more
roadblock.
2:16:13 PM
JAMES CONLEY, ANCHORAGE POLICE DEPARTMENT, REPRESENTS POLICE
DEPARTMENT EMPLOYEE ASSOCIATION, expressed concern with the
lack of death benefits for police officers. He showed a
photograph of a young girl whose father was killed in duty.
The man mentioned had a death benefit, but would not be
covered under the proposed plan.
2:19:39 PM
PAUL HONEMAN, LIEUTENANT, ANCHORAGE POLICE DEPARTMENT,
representing himself, spoke against the defined contribution
plan. He stressed that he would not continue working in the
public system under the plan and noted that he would not
recommend that his son follow him into the profession under
the defined contribution plan.
2:22:24 PM
MIKE COUTIRER, SERGEANT, ANCHORAGE POLICE DEPARTMENT,
testified against the legislation. He spoke of recruiting
and retention issues. The present program poses a problem
for recruiting. The observed that the current plan does not
compete nationally and the Tier IV plan would be the worse
in the nation. Applicants would seek employment elsewhere.
He spoke in opposition to SB 141.
2:25:54 PM
EVERETT ROBBINS, PRESIDENT, OFFICE, ANCHORAGE POLICE
DEPARTMENT EMPLOYEES ASSOCIATION, spoke against the
legislation. He acknowledged the problem. He provided
members with a fact sheet demonstrating that defined
contribution plans cost more (copy on file). He maintained
that Mayor Beigich is not in favor of a 100 percent defined
contribution plan. He felt more time was needed to come up
with a better plan. He referred to the stat of Florida's
plan where 90 percent of employees have chosen a defined
benefit plan.
2:31:06 PM
GERARD ASSELIM, OFFICER, ANCHORAGE POLICE DEPARTMENT,
testified in opposition to the legation. He spoke about non-
sworn support employees, which accounts for one-third of
their membership such as dispatcher, clerks, and
technicians. It has been a huge challenge to hire and retain
dispatchers. He maintained the legislation would hurt
recruiting efforts.
2:34:13 PM
MICHELLE BUCHER, SERGEANT, ANCHORAGE POLICE DEPARTMENT,
testified in opposition to SB 141. She spoke of injuries
incurred on duty, responsibilities as an officer, and
hazards of the job. She related stories of on-duty police
injuries. This bill would eliminate disability benefits for
police officers and leave out medical coverage for a family
of a disabled officer.
2:38:24 PM
DEBRA SEELY, wife of a police officer killed in duty, spoke
in opposition to SB 141. She noted the legislation would
eliminate the pension and death benefits for families. She
spoke of personal concerns about paying bills after the
death of her husband and how families count on the security
of having death benefits.
2:44:13 PM
CHARLIE ARTEAGA, KETCHIKAN, PRESIDENT OF NEA ALASKA-RETIRED,
testified via teleconference, in opposition to SB 141. He
maintained that the bill would not protect the future of
teachers. He stressed the need to prevent teachers from
leaving service after 5 or 6 years. He stressed that SB 141
would not retain and attract employees or provide security
for future employees.
2:47:59 PM
SARA JUSTINE BLACK, KETCHIKAN, testified via teleconference
in opposition to the legislation. She urged legislators to
slow down and reconsider this legislation. She stressed that
she would not want to have to manager her own retirement.
2:49:20 PM
KATHY CHRISTOPHERSON, BETHEL, testified via teleconference,
in opposition to SB 141. She spoke of her experience as a
teacher in Bethel. She spoke of the promise of a defined
benefit program and the advantages that it provided. She
related the high rate of teacher turnover and suggested that
the bill would increase the rate.
2:52:29 PM
VI JERREL, ANCHOR POINT, testified via teleconference,
against SB 141. She spoke in opposition to a new board being
formed. She noted that members were not able to vote.
2:55:38 PM
RONNIE SANFORD, 2005 Alaska Teacher of the Year, testified
via teleconference in opposition to the legislation. He
stressed that teachers are the single most important factor
in education. The defined contribution plan would further
erode teachers' retirement system and result in a loss of
teachers. He maintained the defined contribution plan is not
a reliable way to provide for retirement. Alaska is falling
behind in recruitment and retention of teachers.
2:57:33 PM
JOHN WESLEY, KPBSD, KENAI, testified via teleconference in
opposition to SB 141. He expressed concerns regarding the
proposed changes in the legislation. He suggested using the
interim to understand the retirement system and crafting a
plan that works.
2:59:39 PM
FRED STURMAN, SOLDOTNA, testified via teleconference in
opposition to SB 141. He suggested that the tiers be
developed more like a private enterprise. He stated that
there is no equity under the defined contribution plan.
3:01:44 PM
ED MARTIN, SR., COOPER LANDING, testified via teleconference
against the legislation. He agreed with Mr. Sturman's
testimony. He opined that everyone should be on social
security rather than create two classes of people. He felt
it was a matter of fairness.
3:04:30 PM
KATHY SUMMERS, PRESIDENT, MATSU EDUCATION ASSOCIATION,
testified via teleconference, in opposition to SB 141. She
suggested slowing down and working with NEAAlaska. She
pointed out that MatSu is the fastest growing area in the
state and would feel the impact the most. She quoted remarks
by Representative Kott regarding the loss of legislative per
diem and noted that the same concerns apply to teachers.
3:05:54 PM
LYNN KRACKE, MATSU EDUCATION ASSOCIATION, testified via
teleconference, against SB 141 and the changes in the
TRS/PERS board. She maintained that the defined contribution
plan would adversely affect retention and recruitment of
employees and suggested further analysis of the actuarial
numbers.
3:06:55 PM
GLEN RAMOS, SCHOOL PSYCHOLOGIST, MATSU EDUCATION
ASSOCIATION, testified via teleconference, in opposition to
SB 141. He stressed that he and other employees want to
retire with dignity. He compared the defined contribution
plan to "switching the deal in the middle". He suggested
slowing the process down and looking at Alaska data.
3:08:40 PM
BETTE REED, NEA ALASKA-RETIRED, testified via
teleconference, against the defined contribution plan in SB
141. She shared experiences in other states regarding such
plans. She maintained that a bad state retirement plan would
reduce previously earned social security benefits. She asked
that current retirement system not be changed.
3:10:52 PM
JOHN DICKENS, BETHEL, testified via teleconference, in
opposition to SB 141. He spoke of unintended consequences.
He felt that the legislation would be detrimental. He
related that Bethel is in a crisis concerning police
officers. He related problems in bush communities.
3:14:57 PM
MARIAN TAYLOR, SPECIAL EDUCATION TEACHER, ANCHORAGE,
testified via teleconference, against SB 141. She suggested
the Committee slow down and reconsider the bill. She
reported that she was disillusioned by the response she got
in Juneau from legislators regarding this bill. She opined
that the actuarial advice is wrong. She shared some of the
problems in education if this bill is passed.
3:20:21 PM
DUANE MORAN, APEA/AFT, testified via teleconference, against
SB 141. He argued a point made earlier by Ms. Millhorn,
regarding long-term disability. He pointed out that long-
term disability is not available to members of the Anchorage
st
school district. He questioned where Alaska fits in the 21
Century global economy. He related statistics about
graduation in Alaska. He compared salaries of Florida with
those of Alaska.
3:23:05 PM
ADA GLEASON, ANCHORAGE, RETIRED STATE EMPLOYEE, testified
via teleconference, in opposition to SB 141. She focused on
the restriction of ad hoc post retirement pension
adjustments. She suggested redoing this part of the bill.
She spoke for future employees of the defined contribution
plan, which provides no floor. She spoke in favor of a death
benefit for police officers and against the defined
contribution plan.
3:26:27 PM
JAMES ORR, FAIRBANKS, testified via teleconference, in
opposition to SB 141. He suggested that Ms. Millhorn's point
about 6 different incomes coming in is not the norm. He
urged the members to reconsider this bill.
3:28:09 PM
IRENE MATHEIS, FAIRBANKS, testified via teleconference,
against SB 141. She spoke about recruitment problems and
suggested taking more time to reconsider this bill.
3:29:17 PM
TAMMY SMITH, FAIRBANKS EDUCATION ASSOCIATION, testified via
teleconference, against SB 141. She maintained that the
defined contribution plan would damage the quality education
that parents have come to expect. She concluded that the
defined contribution plan, which increases yearly is unfair.
3:32:10 PM
CONTESSA GOSSETT, PROBATION OFFICER, MATSU DIVISION OF
JUVENILE JUSTICE, MATSU, PALMER, testified via
teleconference, against SB 141. She maintained that the PERS
and TRS systems would be destroyed by the legislation. She
spoke against the loss of medical benefits and noted that
states that have changed to the defined contribution system
are now changing back. She spoke about reconsidering her
career if the bill passes. She spoke against changing the
board. She suggested developing an alternative plan.
3:34:37 PM
ANDREA ANDREWS, DIVISION OF JUVENILE JUSTICE, MATSU,
testified via teleconference, in opposition to SB 141. She
shared her concerns about the MatSu area. She felt that the
bill is being fast-tracked.
3:37:33 PM
DAVE BODDY, ALASKA PROFESSIONAL FIREFIGHTERS, JUNEAU, spoke
of a concern about the lack of death and disability
benefits. He shared a story about a firefighter who became
disabled in an accident. He said the bill would also affect
the ability to recruit new applicants.
3:40:18 PM
DEBBIE HULL, TEACHER, JUNEAU, testified against SB 141. She
spoke of personal experience managing costs when teachers
and other public employees bear the brunt of increased
costs. She said teachers are again being asked to bear the
brunt of reductions.
3:42:48 PM
MIKE DAVIDSON, ALASKA PROFESSIONAL FIREFIGHTERS ASSOCIATION,
testified in opposition to SB 141. He spoke of a concern
about lack of death and disability benefits in SB 141. He
related what would happen to families if there were an
accidental death. He said there is not another source of
funding for this benefit.
3:45:22 PM
DOMINIC LOZANO, ALASKA PROFESSIONAL FIREFIGHTERS, FAIRBANKS,
testified in opposition to SB 141. He noted that there are
large unknowns in the bill. He suggested taking more time to
study this bill.
3:47:30 PM
JEFF MANNS, PUBLIC SAFETY EMPLOYEES ASSOCIATION (PSEA),
expressed concerns about the bill and stated his opposition
to SB 141. He related that defined benefits provide a
variety of opportunities. It is currently difficult to
recruit state troopers. A defined contribution plan does not
encourage longevity.
3:49:57 PM
CRAIG PERSSON, POLICE OFFICER, PERAMEDIC, PUBLIC SAFETY
EMPLOYEES ASSOCIATION, asked the committee to slow down the
process. He maintained that police officers and firefighters
do not understand actuarials, but they do their job. He
spoke against SB 141.
KEITH PERRIN, RETIRED STATE TROOPER, PSEA, testified against
SB 141 and listed names of troopers who have died [in the
line of duty]. Officers put themselves in jeopardy every
day. He asked the committee to not abandon these officers.
3:53:47 PM
DEEDIE SORENSEN, TEACHER, JUNEAU SCHOOL DISTRICT, testified
in opposition to SB 141. She related that the quality of the
future in education and other areas would be detrimentally
impacted by this legislation. She shared a story about her
students and the need to be objective. She suggested the
legislators do the same.
3:55:49 PM
AMY MARTIN, TEACHER, JUNEAU SCHOOL DISTRICT, spoke against
the legislation. She related both private sector and public
education experiences and expressed concerns with the
removal of the death benefit. She urged the Committee to
reconsider the legislation.
4:01:15 PM
LINDA FRAME, TEACHER/ACTING PRINCIPLE, JUNEAU PUBLIC SCHOOL
SYSTEM, testified against the proposed legislation. She
expressed concerns that the legislation would be detrimental
to teacher recruitment and would pull teachers from rural
communities. She maintained that people of the State are not
supportive of the bill.
4:04:14 PM
JULIE VAN DRIEL, EDUCATOR, JUNEAU PUBLIC SCHOOL, spoke
against the legislation. She pointed out that it is not
uncommon for a teacher to spend 12 hours a day in the
classroom. She addressed the number of students that enter
the penal system. She pleaded that the bill not be moved
from Committee.
4:06:49 PM
JACKIE NELSON, TEACHER, DELTA JUNCTION, testified via
teleconference, against the proposed legislation. She
maintained that the calculations used in the Mercer
actuarial are faulty. She applauded efforts to seek a second
actuarial opinion. She acknowledged that the [retirement]
system is ill, but maintained that it could be made whole
and viable. She requested that the bill be slowed down and
asserted that defined contribution systems do not work.
4:09:22 PM
WHITNEY AILLAUD, TEACHER, DELTA JUNCTION, testified via
teleconference, in opposition to the proposed legislation.
He maintained the defined contribution plan was based on
bull market calculations and was poorly crafted and has not
had enough review. He felt that the legislation was being
railroaded through in a non-election year. He commented that
it would encourage educators to move out of state.
4:11:17 PM
Cindy Lou Aillaud, Educator, Delta Junction, testified via
teleconference, in opposition to the legislation. She stated
that the bill would be detrimental to teachers within the
system and it would drive public servants out of State. She
observed that NEA Alaska is willing to work in the summer
and fall to craft a better solution. She urged that the bill
not pass from Committee.
4:13:21 PM
TYLER GROSSHUESCH, ALASKA PUBLIC EMPLOYEES ASSOCIATION
(APEA), ANCHORAGE, testified via teleconference, on behalf
of school custodians. He understood that the House State
Affairs version removed areas of concern for school
custodians. He maintained that school custodians cannot
afford a pay cut and that the defined contribution plan
would not work for those toward the bottom of the pay wage.
He expressed concern with the effect the plan would have on
retaining quality faculty. The University has an optional
plan that is only available for the higher paid professors
and recommended that it be made optional to higher paid
state employees.
4:16:39 PM
SARAH GROSSHUESCH, NET-AK AEA, TEACHER, ANCHORAGE, testified
via teleconference, and voiced grave concern with the
proposed legislation. She spoke to the need for retiring
with a "quality of life". She urged that legislators
consider all state employees when determining the
consideration. She urged reconsideration and asked the
Committee to move more slowly with the legislation.
4:19:07 PM
MANIA COOKSON, ANCHORAGE, testified via teleconference,
against the legislation. She maintained that SB 141 does not
take the interest of State employees into account. She
pointed out that social security was removed in 1980. The
new proposal for the state system is moving too fast for
review. She encouraged legislators to seek a better
foundation that would benefit all citizens of Alaska.
4:22:09 PM
DAVE CAMPANO, STATE EMPLOYEE, ANCHORAGE, testified via
teleconference, in opposition to SB 141. He discussed the
benefits of state employees. He stated that the bill would
further remove the buying power of state employees. He
commented on the benefit package. He observed that the State
is currently having a difficult time recruiting employees.
The market forces of the past have established the current
problem. He stressed that SB 141 does not address how to
appropriately fund the system. He asked that some of the
health benefit experience be considered.
4:27:03 PM
PAT LUBY, ADVOCACY DIRECTOR, ALASKA ASSOCIATION OF RETIRED
PERSONS (AARP), ANCHORAGE, testified via teleconference,
against the legislation. He stated that there is a 'fatal
flaw' in SB 141, in that it would be possible to out live
the defined contribution. He pointed out that, while other
private employers participate in a defined contribution
plan, they also participate in Social Security, which is
basically a defined benefit plan. The state of Alaska does
not participate in social security. You cannot outlive the
current PERS or TRS defined benefit plan. Without social
security or a defined contribution plan, employees will be
able to outlive their contribution plan. No one knows what
life expectancy will be in three or four years. Changing the
retirement system is serious business with serious
consequences. He noted that AARP encourages the Committee to
slow the bill down.
4:30:20 PM
DAVE PARSONS, EDUCATOR/ESSA, FAIRBANKS, testified via
teleconference, against the proposed legislation. He
stressed the legislation would have a devastating affect on
all support staff in the education system. He pointed out
that SB 141 does take into consideration the needs of public
employees. He maintained that adequate school funding is the
real crisis.
4:34:37 PM
LAURA PETROVICH, FAIRBANKS EDUCATION ASSOCIATION, testified
via teleconference in opposition to SB 141. She observed
that a defined benefit plan is one of the primary reasons to
work in the public sector as opposed to the better-paid
private sector. She suggested the people are the state's
greatest resource.
4:36:10 PM
PATRICIA CRAMER, TEACHER, FAIRBANKS, testified via
teleconference in opposition to SB 141. She noted the rate
of return. She felt it would be difficult to attract
certified teachers under a defined contribution plan. She
will not receive social security. There is no safety net for
teachers.
4:38:06 PM
JIM FIORENZI, FAIRBANKS, FAIRBANKS EDUCATION ASSOCIATION,
testified via teleconference, in opposition to SB 141. He
maintained that teachers are a human resource. He observed
that it is already difficult to replace employees.
4:42:12 PM
KAREN EDDDY, FAIRBANKS, testified via teleconference in
opposition to the legislation. She maintained that the
legislation needs revision. She noted that there is only one
public employees' retirement system in the state of Alaska.
She expressed concern that young people will leave the
state.
4:46:15 PM
GERRY GUAY, ANCHORAGE, testified via teleconference in
opposition to the legislation. He suggested that SB 141
would not value dedicated workers. The legislation assumes
that workers can invest as well as the current fund
managers. He observed that his $200 thousand in SBS after
almost 20 years would only last a few years. He questioned
how the state could be expected to entice dedicated workers
and felt that the legislation would jeopardize the system.
4:50:32 PM
JOHN DICKENSON, ANCHORAGE, testified via teleconference in
opposition to the legislation. He noted the difficulty of
finding qualified workers and maintained that the defined
contribution plan would reward portability at the cost of
long-term employment. He emphasized the expense of hiring
and training. He felt that the legislation would result in
inexperienced staff and unacceptable service, which would
result in high turnover.
4:53:16 PM
LORRIANE CAMPBELL, ANCHORAGE, testified via teleconference
in opposition to the legislation. She did not feel that the
situation was an emergency and asked the Committee to
further reflect on the problem. She observed that it takes a
quality retirement system to attract quality teachers.
4:56:01 PM
ROBIN SWINFORD, ANCHORAGE, testified via teleconference in
opposition to the legislation. She noted that all agencies
are under-funded, overworked and stressed. She maintained
that SB 141 would adversely affect all state agencies. She
urged the Committee to reconsider the legislation.
4:59:24 PM
MARGO WARING, JUNEAU spoke in opposition to the legislation.
She noted that state employees are prohibited from stacking
benefits such as social security. She spoke in support of
maintaining the Employees Retirement Board. She maintained
that SB 141 would tilt the power too far toward employers.
She urged members to study the options.
5:03:34 PM
JIM ASHTON, BUSINESS MANAGER, PUBLIC EMPLOYEES ASSOCIATION
LOCAL 71, testified against the legislation. He observed
that there are minimal employment qualifications, which are
becoming harder to find. He felt that the legislation would
make it virtually impossible to recruit new employees or
that employees would be hired and trained than leave for
better pay and better benefits. He asserted that the public
sector is losing employees to the private sector.
5:06:50 PM
SAM TRIVETTE, PRESIDENT, PUBLIC EMPLOYEES ASSOCIATION OF
ALASKA, JUNEAU, spoke in opposition to the legislation. He
acknowledged problems with the system but maintained that
benefits that are not fully funded should not be allowed at
all. See written testimony (copy on file.)
5:11:57 PM
TOM HARVEY, EXECUTIVE DIRECTOR, NEA-ALASKA, testified in
opposition to the legislation. He provided members with
written testimony (copy on file.) He spoke in support of the
House State Affairs Committee version. He referred to page
four of his testimony, which looked at a defined
contribution plan for a hypothetical Sitka teacher with a
starting salary of $35,571. He concluded that after 30 years
the employee would not have sufficient funds to cover
projected health insurance costs and would be in debt by the
age of 62. He maintained that employees would not be able to
retire in dignity, if they could retire at all.
Mr. Harvey recommended a highbred plan, such as one
suggested by the Tier Committee. He stressed that a solution
to the death and disability issue, needs to provide a death
and disability benefit. He hoped to find a real solution.
Mr. Harvey addressed what the total start up costs should
be. He commented on the issue of cost of closing the present
system. He observed that the state of West Virginia is now
indicating $1.4 to $1.8 billion dollars in savings after
going back to a defined benefit plan. He pointed out that a
solution needs to be done now and not in an election year.
5:21:25 PM
KRISTINA TORNQUIST, EDUCATOR, JUNEAU, spoke against SB 141.
She stated that it would not fund or give relief for past
service costs. It would have a devastating affect on future
retirees. Public school retirees do not have the option for
the Social Security. She noted that there are loopholes and
maintained that under-funded retirement incentive programs
have not served the system well. She stressed that
adequately funded schools and quality retirement system will
attract good teachers for the system and that the State of
Alaska can afford it.
5:26:10 PM
MARY GRAHAM, STATE EMPLOYEE, JUNEAU, spoke against the
proposed legislation. She noted that she was a hiring
manager. She maintained that with passage of the bill would
make hiring more difficult. It is a big job of hiring
managers and it is difficult to find qualified candidates.
She commented on the use of state resources. The retirement
package has always been an incentive for hiring employees.
State agencies function better when they can attract career
employees. She opposed the bill.
5:28:45 PM
CAROL COMEAU, SUPERINTENDENT OF SCHOOLS, ANCHORAGE SCHOOL
DISTRICT, recommended that SB 141 be separated from the base
school allocation issue. She maintained that the issues need
to be separated and solutions need to be found. She did not
feel that the life of the bill, one month, was not enough.
She pleaded that the legislation be carried into the interim
and stressed that the entire state should be part of the
solution. She reiterated that HB 1 must be separated from SB
141.
Co-Chair Meyer noted that they tried hard to fully fund
education this year. He noted that they did not concur with
the Senate changes.
5:31:23 PM
CINDY SPANYERS, APEA/AFT, JUNEAU, testified against the
legislation. She noted that APEA/AFT represents school
districts and state employees across the state. She
questioned if portability was a positive attraction for
state employment. She referred to a May 2004 Mercer report.
She noted that the report concluded employees do not prefer
defined contribution plans. She urged that the state stick
with a defined benefit plan. She noted that several states
have returned to defined contribution plans, while in other
states employees are opting not to participate in defined
contribution plans. She maintained that many employees could
not hope to retire under a defined contribution plan. She
noted that there are many occupations that have the risk of
injury, such as fish and wildlife technician, school
employees, social workers, child support enforcement, and
others. She urged that the Committee look at real life
situations in the state of Alaska. She asked that the
Committee support education.
5:36:40 PM
Senator Steadman acknowledged that it is expected that the
House Finance Committee will come forward with
recommendations. He spoke in support of the current
provisions for death benefits. He noted that testimony was
emotional, and stressed that there is no intention to put
the state at a disadvantage. There are population trends
affecting nationwide.
Representative Kelly thanked for all the work put into the
legislation.
SB 141 was HELD in Committee for further consideration.
ADJOURNMENT
The meeting was adjourned at 5:40 PM
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