Legislature(2019 - 2020)ADAMS ROOM 519
05/15/2019 09:00 AM House FINANCE
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| Audio | Topic |
|---|---|
| SB10 | |
| SB43 | |
| HB79 | |
| SB16 | |
| HB79 | |
| SB16 | |
| Adjourn | |
| SB16 | |
| Start |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| += | SB 43 | TELECONFERENCED | |
| += | SB 10 | TELECONFERENCED | |
| += | SB 16 | TELECONFERENCED | |
| += | HB 79 | TELECONFERENCED | |
HOUSE FINANCE COMMITTEE
May 15, 2019
8:59 a.m.
8:59:36 AM
CALL TO ORDER
Co-Chair Wilson called the House Finance Committee meeting
to order at 8:59 a.m.
MEMBERS PRESENT
Representative Tammie Wilson, Co-Chair
Representative Jennifer Johnston, Vice-Chair
Representative Dan Ortiz, Vice-Chair
Representative Ben Carpenter
Representative Andy Josephson
Representative Gary Knopp
Representative Bart LeBon
Representative Kelly Merrick
Representative Colleen Sullivan-Leonard
Representative Cathy Tilton
MEMBERS ABSENT
Representative Neal Foster, Co-Chair
ALSO PRESENT
Kris Curtis, Legislative Auditor, Alaska Division of
Legislative Audit; Sara Chambers, Director, Division of
Corporations, Business and Professional Licensing,
Department of Commerce, Community and Economic Development;
Representative Chuck Kopp, Bill Sponsor; Erika McConnell,
Director, Alcohol and Marijuana Control Office, Department
of Commerce, Community and Economic Development; Senator
Peter Micciche, Sponsor; Kent Truitt, Staff, Representative
Chuck Kopp; Bob Mitchell, Chief Investment Officer,
Department of Revenue.
SUMMARY
HB 79 PEACE OFFICER/FIREFIGHTER RETIRE BENEFITS
HB 79 was HEARD and HELD in committee for further
consideration.
SB 10 EXTEND SUICIDE PREVENTION COUNCIL
SB 10 was REPORTED out of committee with a "do
pass" recommendation and with one new fiscal
impact note from the House Finance Committee for
the Department of Health and Social Services.
CSSB 16(FIN)
ALCOHOL LIC:FAIRS,THEATRES,CONCERTS;BONDS
HCS CSSB 16 (FIN) was REPORTED out of committee
with a "do pass" recommendation and with two
previously published fiscal notes: FN2 (REV), FN3
(CED).
CSSB 43(FIN)
EXTEND BIG GAME BOARD; OUTFITTER LICENSE
HCS CSSB 43(FIN) was REPORTED out of committee
with a "do pass" recommendation and with one new
fiscal note by the Department of Commerce,
Community and Economic Development.
Co-Chair Wilson relayed the agenda for the day. The
committee had a full schedule.
SENATE BILL NO. 10
"An Act extending the termination date of the
Statewide Suicide Prevention Council; and providing
for an effective date."
9:01:19 AM
AT EASE
9:01:40 AM
RECONVENED
Co-Chair Wilson drew attention to the new fiscal impact
note from the Department of Health and Social Services
(DHSS)/House Finance Committee, Behavioral Health, OMB
Component Number 2651. She read directly from the comments
box on the first page:
This revised fiscal note reflects a funding level of
$400.0 for pass-through grants in FY20. Additionally,
the following intent language will be added:
It is the intent of the legislature that grant funding
be divided 50% to rural school districts and 50% to
urban school districts. Further, it is the intent of
the legislature that the Suicide Prevention Council
and the Department of Education and Early Development
work together to develop a long-term sustainability
plan for suicide prevention training. The plan should
include implementation of a "Train the Trainer" model
so districts can provide ongoing training. The plan
should be submitted to the Presiding Officers of the
legislature and the Legislative Finance Division by
December 1, 2019
Co-Chair Wilson thanked Representative Tarr for her
comments regarding the language. She reported that
obtaining detailed information about the grants was
difficult, and she wanted to ensure the grantees were
getting the right type of training. She had spoken to
Commissioner Johnson, Commissioner, Department of Health
and Social Services (DHSS) and with his permission put his
comments on record: "He commits to working during the
interim on transparency and accountability with the school
districts on these grants going forward to ensure that when
a suicide happens the right team would respond and focus
more on the prevention portion and help students identify
when they might be experiencing major issues and identify
who receives the reporting. She noted that the grant was
made a one-time increment. She requested that the
department testify to the committee in the following
session to discuss the improvements regarding the intent
language and whether it implemented the "Train the Trainer"
model. Currently, the program consists of online training
for teachers and others. She envisioned the program aimed
more directly at the students. She thanked the House and
Senate bill sponsors for assisting with the changes and
felt the changes were positive.
9:04:44 AM
Representative Carpenter appreciated the new language in
the fiscal note. However, he was concerned with being able
to measure the effectiveness of the program. He noted
that the suicide rate had hardly decreased in the seven
years the program was operating. He questioned whether the
program was effective in preventing suicides. He wanted
some sort of a gauge to ensure the training reduced
suicide. He opined that the state provided training was
unable to address the real issue that existed at the family
and community level. He thought the state would be spending
a significant amount of money yet, not address the root
cause of the problem.
9:06:41 AM
Co-Chair Wilson did not believe some of his statements were
accurate. She spoke of her experience with being a part of
the state education taskforce when the program was
initially implemented. The taskforce traveled to a
community and created a student taskforce in the school
district that were trained to communicate with other
students. The school had the highest suicide rate in the
state and currently had the lowest rate of suicide. The
students learned to identify when a classmate was
experiencing problems and had a reporting mechanism. She
indicated that Representative Carpenter could be correct.
However, the changes added parameters to the grant program
and alerted the council to the committees concerns. She
knew of programs that were effective in lowering the rate
of suicide. She agreed the problem began at home, but the
student brought the issues to school and expressed them to
their peers. She advocated for providing proper training to
students to be able to recognize when their peers were in
trouble and how to respond. She believed in making the
program accountable and enable the collection and analysis
of statistical data that was available. She had had
personal discussions with folks in communities and the
legislature and emphasized that all wanted to reduce the
number of suicides in the state.
9:09:06 AM
Representative Carpenter wanted to see the data showing the
effectiveness of the program. He agreed and understood the
need to prevent and reduce suicide in the state and that
some type of training was warranted. He relayed his
personal experience of receiving suicide prevention
training for over 20 years. He had not heard about the
effectiveness of the states program. He was looking
forward to seeing the results of the program the following
session.
Co-Chair Wilson thought the committee had made it clear to
the commissioner he would be held accountable. She related
that the grant had previously been a pass through grant and
the commissioner was aware that the committee wanted
details by school district. She intended to hear from each
member of the council regarding implementation of the
changes in the following session.
9:11:12 AM
Vice-Chair Johnston MOVED to report SB 10 out of Committee
with individual recommendations and the accompanying fiscal
note.
There being NO OBJECTION, it was so ordered.
SB 10 was REPORTED out of committee with a "do pass"
recommendation and with one new fiscal impact note from the
House Finance Committee for the Department of Health and
Social Services.
9:11:28 AM
AT EASE
9:14:15 AM
RECONVENED
CS FOR SENATE BILL NO. 43(FIN)
"An Act extending the termination date of the Big Game
Commercial Services Board; relating to a person's
eligibility to hold a registered guide-outfitter
license, master guide- outfitter license, class-A
assistant guide license, assistant guide license, or
transporter license; and providing for an effective
date."
9:14:15 AM
Co-Chair Wilson explained that the sponsor of the bill
allowed for the addition of the Barbers and Hairdressers
Board that would otherwise sunset in June 2019 with a
perfect audit. She noted that the bill granted the Big Game
Commercial Services Board (BGCSB) a five year extension.
9:15:07 AM
Representative Knopp MOVED to ADOPT Conceptual Amendment 1.
Co-Chair Wilson OBJECTED for discussion.
Representative Knopp explained his Amendment. He pointed to
Page 1, Line 12 of the bill and wanted to delete 2024 and
insert 2022. He had concerns regarding the issues with the
board and believed another three year extension was
appropriate to ensure the board was rectifying the
problems. He shared that his intent was to support a full
term the following sunset.
Co-Chair Wilson clarified that a written amendment had been
distributed to the committee that was the same except the
year was changed to 2023. The committee was addressing the
conceptual amendment.
Vice-Chair Ortiz asked whether the date change would affect
the extension for Barbers and Hairdressers. Co-Chair Wilson
responded in the negative and indicated the Barbers and
Hairdressers board received an 8 year term.
Representative Tilton commented that the cost of the audit
was $70 thousand, and the auditors initially recommended a
six year extension. The audits concerns were
administrative and not directed at the boards actions. She
opposed the amendment.
9:17:49 AM
Vice-Chair Johnston surmised that the amendment would
initiate the audit process in two years. She relayed that
the issues were with the investigations versus the
administration. She wondered what Representative Knopp
hoped to discern from the audit. Representative Knopp
responded that some of the conflict was between the
administration and the boards responsibilities and
liabilities. He thought there were larger issues with the
board. He questioned having to wait until another sunset
audit occurred before being able to address issues that
were presently known. He noted the lengthy process it took
to initiate a performance audit through the Legislative
Budget and Audit Committee (LBA). He wanted to ensure that
the issues were addressed.
Representative Sullivan-Leonard echoed comments from her
college, Representative Tilton. She pointed to a letter
included in the legislative audit [titled A Sunset Review
of the Department of Commerce, Community, and Economic
Development, Big Game Commercial Services Board, September
14, 2018, Audit Control Number 08-20114-19] (copy on file)
from the board chairman, Henry D Tiffany IV, dated January
2, 2019 that acknowledged the concerns outlined in the
audit. The letter indicated that the board and division
were implementing significant changes. She felt assured the
issues were being addressed and favored the bills sunset
date.
9:20:39 AM
Vice-Chair Ortiz asked Representative Knopp about the time
change in the amendment and whether he would effectively be
able to address his concerns with his constituents or if
his assessment depended on the audit. Representative Knopp
responded, "not necessarily." He referenced Ms. Curtiss
testimony noting that some issues were not subject to an
audit via statute. He mentioned that some of his concerns
could not be addressed in an audit, which was the reason
for his amendment.
Co-Chair Wilson invited Ms. Curtis to comment about whether
there was some other mechanism to look at specific issues
being reviewed without requesting an earlier audit date.
9:22:28 AM
KRIS CURTIS, LEGISLATIVE AUDITOR, ALASKA DIVISION OF
LEGISLATIVE AUDIT, observed that in the past legislators
had reached out to the board and posed questions that
addressed concerns or provided additional information that
was not part of the sunset process. She continued that the
purpose of an audit was limited to an extension and roughly
85 percent of the bills were clean and merely requested
an extension. Concerns that required statutory or policy
changes were better addressed though a separate bill that
could be introduced at any time. She stressed that the
division and board would be open to providing the
legislature its desired information.
9:23:41 AM
SARA CHAMBERS, DIRECTOR, DIVISION OF CORPORATIONS, BUSINESS
AND PROFESSIONAL LICENSING, DEPARTMENT OF COMMERCE,
COMMUNITY AND ECONOMIC DEVELOPMENT, offered that she
appreciated feedback. She assured the committee that her
office took concerns extremely seriously. She had heard
rumors and viewed letters based on rumor and incomplete
facts with a political spin regarding SB 43. She had
sought out necessary facts to discover whether there was
actually a problem. She was keenly aware of best
practices and the divisions approach was grounded in law
and administrative process. She reiterated that the rumors
were not based on facts, but she took the issue very
seriously. She indicated that she did not wait for an
audit or sunset to address concerns that were brought to
the divisions attention. She intended to immediately
address any concerns regarding the Big Game Commercial
Services Board.
Representative Knopp had no idea what rumors had been
expressed to Ms. Chambers. He had heard concerns and wanted
to further investigate the issues on his own as soon as
time permitted. He did not want to report rumors or
innuendo to the department. He requested a shorter length
of time in case the legislature wanted to address issues
before waiting another 5 years but was aware another bill
could address any desired statutory changes.
Co-Chair Wilson interjected that the question was whether
the issue was better handled through an audit request or a
review by the department. She suggested that a departmental
review might best address the concerns.
Representative Knopp WITHDREW Conceptual Amendment 1. He
conceded that he had other options including requesting an
LBA audit.
Co-Chair Wilson suggested that during the interim
Representative Knopp investigate the issues and the
committee could discuss the matter without introducing
legislation in the following session.
9:28:27 AM
Representative Josephson expressed concern. He noted that
the department was attempting to improve its processes. He
mentioned an email (copy on file) from Jason Bunch, member,
BGCSB, that accounted for the current 56 open cases. He
also cited a letter from Ms. Chambers dated March 10, 2019
[copy on file] that stated, during the three-year audit
period, this investigator opened 382 cases and closed 450
cases. He thought that the amount of complaints was
extraordinary and troubling.
Ms. Chambers responded that based on its resources the
division was complaint driven and Representative
Josephson's concerns were valid. However, many of the
opened cases were administrative relating to document
delays and was not egregious. She noted there was a
significant amount of paperwork that had to be submitted by
the guides. However. even minor complaints were counted.
Complaints generally came through the Alaska Wildlife
Troopers. There was a significant amount of activity that
did not rise to a disciplinary level. She indicated that in
2018 there were 118 activities, only 16 of which required
disciplinary actions due to wildlife, regulation, or
statute violation. The activities were complaints,
investigations, monitoring, and probation. The board only
had one investigator and prioritized and managed
complaints. Administrative complaints were managed
differently than criminal activity. Representative
Josephson provided an example in his own office of hiring
staff for the interim and forgetting to submit the proper
paperwork. He asked whether the administrative issues were
similar and were merely a technical flaw. Ms. Chambers
concurred with his scenario. She indicated that the
division had to identify whether the administrative
complaints were a wanton violation or a mere mistake by a
busy individual in the field that missed a deadline.
9:34:12 AM
Vice-Chair Johnston MOVED to REPORT SB 43 out of committee
with individual recommendations and the accompanying fiscal
note.
HCS CSSB 43(FIN) was REPORTED out of committee with a "do
pass" recommendation and with one new fiscal note by the
Department of Commerce, Community and Economic Development.
9:34:32 AM
AT EASE
9:41:08 AM
RECONVENED
HOUSE BILL NO. 79
"An Act relating to participation of certain peace
officers and firefighters in the defined benefit and
defined contribution plans of the Public Employees'
Retirement System of Alaska; relating to eligibility
of peace officers and firefighters for medical,
disability, and death benefits; relating to liability
of the Public Employees' Retirement System of Alaska;
and providing for an effective date."
9:41:14 AM
REPRESENTATIVE CHUCK KOPP, BILL SPONSOR, indicated the
hearing was the second for HB 79 in the House Finance
Committee. He explained that the since the prior hearing he
had met with individuals from the Division of Retirement
and Benefits and the Attorney Generals office, which
resulted in a committee substitute version. He also had
received an actuary report from the state's actuary, Buck
Consultants. In addition, the states Chief Investment
Officer, Bob Mitchell, Department of Revenue, was available
to testify. He indicated that Mr. Mitchell had performed
modeling on the current effectiveness of the plan for the
peace officers and firefighters. The brief presentation
would put into perspective why HB 79 was important. He
wanted to also hear from the states actuary.
9:43:10 AM
AT EASE
9:45:23 AM
RECONVENED
CS FOR SENATE BILL NO. 16(FIN)
"An Act relating to certain alcoholic beverage
licenses and permits; relating to the bond requirement
for certain alcoholic beverage license holders; and
providing for an effective date."
9:45:28 AM
Vice-Chair Johnston MOVED to ADOPT proposed committee
substitute for CSSB 16(FIN), Work Draft 31-LS0283\H (Bruce,
5/14/19)(copy on file).
There being NO OBJECTION, it was so ordered.
Co-Chair Wilson commented on the changes. She noted that
the committee substitute (CS) addressed surrendering a
license for renewal and removed the proposed Fair license.
The bill was solely a bill that grandfathered in the 11
licenses where renewals were revoked due to new statute
interpretations by the Alaska Alcoholic Beverage Control
(ABC) Board.
9:46:44 AM
ERIKA MCCONNELL, DIRECTOR, ALCOHOL AND MARIJUANA CONTROL
OFFICE, DEPARTMENT OF COMMERCE, COMMUNITY AND ECONOMIC
DEVELOPMENT, introduced herself.
Co-Chair Wilson spoke of an undisclosed business with a
unique problem that she had discussed with Ms. McConnell.
She asked whether the establishment would be allowed to
sell one of its licenses even if it took a year or two and
would not be an issue for the board. Ms. McConnell
responded that it would not be an issue.
Representative Knopp asked whether the CS contained a new
fair license. Co-Chair Wilson commented that the new fair
license was removed because the Palmer Fair was
grandfathered in with their current recreational license in
the CS and did not desire a new type of license. They would
remain under the recreational license.
Representative Knopp noted that Section 4 of the CS dealt
with fair license language.
9:48:44 AM
AT EASE
9:51:16 AM
RECONVENED
Co-Chair Wilson explained that the fair license was in the
bill and she was incorrect. The language allowed the fair
to do what it had previously done and was moved from
regulation and placed in statute. The bill disallowed any
new entity to participate or any new type of activity. She
noted the date had been changed to ensure that the
businesses would be allowed to renew as a recreational
license instead of the fair license if preferred. The fair
license only allowed for specific activities. She provided
a clarifying example.
Representative Josephson learned that recreational site
licenses for ski areas and bowling alleys lack all the
benefits proposed under the fair license. He believed that
the provision should be cleaned up.
9:53:23 AM
SENATOR PETER MICCICHE, SPONSOR, introduced himself.
Co-Chair Wilson asked whether there was another bill that
cleaned up alcohol statutes and dealt with the issue
identified by Representative Josephson.
Senator Micciche responded in the affirmative but cautioned
that unless the bill passed in the current session the fair
issue would not be addressed and that eliminating the ski
areas and bowling alleys would significantly impact the
current businesses.
Co-Chair Wilson indicated that the state currently had 11
businesses that under no fault of their own were revoked.
Representative Josephson asked whether the CS included
provisions dealing with pub licenses to allow them to move
within noncontiguous areas on a campus. Co-Chair Wilson
responded in the negative.
9:54:57 AM
Representative LeBon MOVED to ADOPT Conceptual Amendment 1.
Co-Chair Wilson OBJECTED for discussion.
Representative LeBon explained his amendment. He
highlighted that the amendment was for music festivals in
rural unorganized boroughs to allow serving alcohol through
vendors that hold a restaurant or eating place license. He
specified that the event was held in Chicken, Alaska for
the last 12 years and a local restaurant called the Chicken
Goat Camp had been selling beer and wine during the event.
He welcomed committee comments.
Co-Chair Wilson indicated that the event was currently able
to use the catering license for Chena Hot Springs and had
the ability to sell beer and wine. She indicated that the
festival desired its own license and she believed the issue
was a policy call and should be entertained in the other
bill. She objected to the amendment.
Senator Micciche emphasized that the current bill was an
attempt to literally save the 11 business at risk. He
requested that the committee take into consideration that
it was the last day of the legislative session. He offered
to help the other businesses in the other bill but felt
that they could continue to operate another year without
interruption.
Representative LeBon asked if the Chicken Festival would
lose its ability to sell beer and wine to event attendees.
Senator Micciche responded that there were many other types
of Beverage Dispensary Licenses in the state and the
festival had other choices. He was focused on the other 11
businesses that did not have another choice.
Co-Chair Wilson MAINTAINED her OBJECTION.
A roll call vote was taken on the motion.
IN FAVOR: LeBon, Ortiz, Sullivan-Leonard
OPPOSED: Johnston, Knopp, Merrick, Tilton, Carpenter,
Josephson, Wilson
Co-Chair Foster was absent from the vote.
The MOTION to adopt Conceptual Amendment 1 FAILED (3/7).
9:59:24 AM
AT EASE
10:00:25 AM
RECONVENED
Vice-Chair Johnston MOVED to REPORT HCSCS 16(FIN) out of
committee with individual recommendations and the
accompanying fiscal notes.
There being NO OBJECTION, it was so ordered.
HCS CSSB 16 (FIN) was REPORTED out of committee with a "do
pass" recommendation and with two previously published
fiscal notes: FN2 (REV), FN3 (CED).
HOUSE BILL NO. 79
"An Act relating to participation of certain peace
officers and firefighters in the defined benefit and
defined contribution plans of the Public Employees'
Retirement System of Alaska; relating to eligibility
of peace officers and firefighters for medical,
disability, and death benefits; relating to liability
of the Public Employees' Retirement System of Alaska;
and providing for an effective date."
Co-Chair Wilson invited Representative Kopp to the table.
10:02:10 AM
AT EASE
10:04:16 AM
RECONVENED
BOB MITCHELL, CHIEF INVESTMENT OFFICER, DEPARTMENT OF
REVENUE, began the PowerPoint Presentation titled Target
Date Fund Simulation Exercise. He explained that in July
2006, the state moved from a defined benefit plan to a
defined contribution plan. He turned to slide 2 titled
Background:
In 2017, the Department of Administration requested
that the Department of Revenue build a stochastic
model that simulates the experience of defined
contribution employees enrolled in the Alaska Target
Date Retirement Trusts.
The purpose of the model was to test the likelihood
that 30-year employees will have sufficient assets to
last 30 years into retirement.
Four cases were tested: PERS with SBS, Police/Fire
with SBS, TRS, and TRS with 6.13% deferred
compensation contributions.
In 2019, the ARMB requested an update to this
analysis at the upcoming June defined contribution
committee meeting.
Also in 2019, Representative Kopp requested an update
to this analysis, incorporating additional
occupational scenarios, including Police/Fire without
SBS, 25-Year Career Police/Fire with SBS, 25-Year
Career Police/Fire without SBS.
Mr. Mitchell delineated that he built a Monte Carlo
simulation model. The model calculated, based on the
participants income each month, what the employee and
employer contributions were and how the investments grew
over time. The department used the target date fund
simulation exercise, which took a default investment fund
based on participants age and retirement date where the
asset allocation adjusted automatically. The division built
the model and ran it 10,000 times, called trials. The
trials were ranked from the lowest terminal asset value to
the highest. He indicated that if there was a positive
number, the trial was a success. The analysis occurred in
2017.
10:08:50 AM
He moved to slide 3 titled Target Date Fund Glide Path.
He elucidated that the slide showed a graphic depiction of
the target date glide path and was what the asset
allocation would look like over time beginning 30 years
prior to retirement. He noted that it began as 90 percent
equity and 10 percent fixed income allocation that became
more conservative as retirement approached; at retirement
equity was 30 percent. He highlighted slide 4 titled
Callan 2019 Return and Risk Assumptions. The slide
contained a chart of capital market assumptions, which were
estimates of returns and their volatility and the
correlation of the performance of each of the asset
classes. The information compiled by Callan and Associates
was used as the engine of investment performance.
Mr. Mitchell outlined slide 5 titled "Assumptions."
A blend of Callan's 2019 10-year & long-term capital
market assumptions were used. 10-year assumptions
were assumed during the first 10 years, were scaled
linearly to the long-term assumptions during the next
10 years, and the long-term assumptions were assumed
thereafter. Callan's generic fixed income assumption
was used in place of the specific fixed income mix
employed by the target date funds.
Inflation was set at 2.25%/year, with employee
salaries assumed to grow at 2.75%/year. Initial
consumption in retirement was set at 70% of earnings
at retirement. Consumption was assumed to grow with
inflation thereafter.
10,000 trials were used for each simulation. The
trials were rank-ordered, and the simulations that
represented the 25th-, 50th-and 75th-percentiles of
the distribution of outcomes are displayed.
A summary of the scenarios examined can be found in
the table below.
Mr. Mitchell explained that given the model focused on
replacement income, the model results was not overly
sensitive to the salary assumption.
10:10:38 AM
Vice-Chair Ortiz asked how important the accuracy of the
2.5 percent estimated inflation rate was and its impact.
Mr. Mitchell answered that 2.5 percent had been chosen
because it was the inflation number used by Callan. He
delineated that the rate was important because it made the
model internally consistent. He expected that if inflation
was materially different, asset class performance would
move in a similar direction over a long period of time. The
actual number should not overly impact the results.
Co-Chair Wilson cited the 2.75 percent salary assumption
amount and wondered whether it reflected the contractual
amount or were the steps incurred over the years. Mr.
Mitchell explained that the 2.75 percent was the number
discussed with the Division of Retirement and Benefits and
was not connected to salary schedules. He noted that given
that retirement consumption was a percentage of final
salary, if changes were made over time it would not be
directionally different than what was experienced. He
stated that the definition of success was a percentage of
final salary. He did not think there would be a very
different result using different numbers.
Co-Chair Wilson surmised that unlike the prior tiers, the
outcome was accumulated over years and was not based on the
earnings of the participants top 3 or 4 years. Mr. Mitchell
responded that she was correct.
10:13:27 AM
Representative Carpenter suggested that if a random number
was used such as 2.75 percent and an employee's salary was
much higher than what their rate had been over their
lifetime of employment, a spike in liability would occur at
the time of retirement. He deduced the 2.75 percent was not
reflective of what would happen at retirement for the
employee.
Co-Chair Wilson asked Mr. Mitchell if Representative
Carpenter's statement was accurate.
Mr. Mitchell responded in the affirmative. He indicated
that a model was simplification of reality. He provided an
example of an employee with compensation higher than the
assumption over the several years of employment. The
question became whether the 70 percent was still a relevant
number of the much higher income. He voiced that a model
had difficulty with the scenarios. The utility of a model
was to provide a directional sense of the effectiveness of
the program.
Representative Carpenter ascertained that that the plan
incentivized maximizing earnings in the final years before
retirement in order to gain the most amount out of
retirement. He thought it was counterproductive when
forecasting costs and risks from the state's perspective.
10:15:39 AM
Representative Kopp did not believe Representative
Carpenter was correct. He clarified that the model was
based on Tier 4 and compared it to what a new program would
look like. He suggested that the new model would disallow
the spiking that occurred in Tier 4. The model was designed
to prevent income spiking because it was spread out over a
longer time period and had to be averaged. Representative
Carpenter was only referring to the slide and information
presented to the committee presently. He wanted to point
out the fallacy to the thinking.
Mr. Mitchell pointed to the table at the bottom of slide 5.
He noted that the table reflected the information requested
by Representative Kopp. He pointed out that for each case
the information portrayed the level of employee and
employer contribution as a percentage of the participants
salary that was summed on the bottom line. He viewed the
data as a reference to determine the percent of salary that
was invested for retirement ranging from 25 percent to 13
percent.
10:18:00 AM
Mr. Mitchell moved to slide 6 titled Illustration of
Simulated Outcomes. The slide showed the simulated initial
retirement balance and the balances over time for 250
cases. He pointed to the very high cases and viewed them as
unrealistic. He offered that for that reason he ranked
the outcomes at the fiftieth percentile, the twenty-fifth
percentile, and seventy-fifth percentile as guiding data.
10:19:02 AM
Mr. Mitchell addressed slide 7 titled Results. The graph
reflected a PERS and SBS retirement 30-year retirement. The
participant had an estimated $1.86 million in retirement
assets, which grew to about $2.5 million over 30 years and
was the median case. The lower green line showed the
twenty-fifth percentile and the higher green line
represented the seventy-fifth percentile. He noted that not
all the trial outcomes were successful. The amount of
contribution based on percentage of income and the number
of years were the variables of all the plans.
Vice-Chair Ortiz asked Mr. Mitchell to define what it meant
to be unsuccessful. Mr. Mitchell responded that success was
defined as a participant consuming at 70 percent of their
final income that grew with inflation over a 30 year
period.
Vice-Chair Ortiz asked whether "unsuccessful" meant the
money ran out. Mr. Mitchell replied in the affirmative.
10:21:38 AM
Mr. Mitchell described slide 7 that showed the total
contributions at 25 percent. He moved to slide 8 that
depicted the 30-Year Police/Fire Plan with SBS. He
explained that the success rate was similar, but the dollar
figures were slightly different. Directionally it was the
same from a success perspective. He discussed slide 9 that
showed the 30-Year Police/Fire Plan without SBS. He
recalled that PRS plus SBS comprised 25 percent and SBS
represented 12 percent of the amount. The slide depicted
the contributions at 13 percent resulting in the assets
being depleted over time in the median case depicted by the
dark blue line. He added that even the 75th percentile
showed a declining trend.
Co-Chair Wilson was concerned that if a new tier was
introduced what guaranteed that the state would not end up
with a huge unfunded liability. She mentioned concerns with
negative effects on bonding if the state implemented a new
tier. Mr. Mitchell thought it would be better to direct her
question to the ARM board and the states actuary. The key
distinction of the defined benefit plan was that the risk
for paying the benefits rested with the employers. The risk
in the defined contribution plan was born by the employees.
There was no additional unfunded liability as a result of
the defined contribution component. He deferred to the
actuary for detailed data.
10:25:10 AM
Co-Chair Wilson understood that the state placed a certain
amount of funds to offset the prior Tiers liability. She
asked if the obligation was the same with the proposed
plan. Mr. Mitchell could not directly speak to the
question. He offered that the proposed plan contained an
assessment on employers that was a function of total
payroll, which was comprised of defined benefit and defined
contribution employees and was an assessment on the
employer and the total number of employees. He noted that
the defined contribution employees were not subsidizing the
defined benefit employees.
Representative Knopp wondered what aspects had the
potential to negatively impact the model. He asked if age
or the number of participants were risk factors in terms
of success.
10:26:49 AM
Representative Kopp responded that the current presentation
only looked at the effects of Tier 4 and depicted that over
time the result was only slightly better than a retirement
based solely on Social Security. He advised that the
state's actuary could comment on the proposed new tier and
any risk for unfunded liability. He indicated that the
presentation was focused on the current Tier 4 and how it
impacted the class of employees. He was not proposing to
open the proposed plan to other employees. The bill
proposed the new plan for a small number of employees. He
furthered that the plan was a hybrid and had a lot of
parallels with the defined contribution plan that kept the
liability with the employees and contained self-correcting
levers to ensure the fund would not go unfunded.
10:28:32 AM
Vice-Chair Ortiz asked what slide 9 showed. Mr. Mitchell
observed that the assets were insufficient at retirement to
sustain a participant for 30 years.
Co-Chair Wilson asked how the investments were chosen. Mr.
Mitchell responded that the default plan was used, and
different investments would provide different outcomes.
Representative LeBon asked how self-correcting levers
would protect the state with the proposed plan and how had
they failed the state in Tiers 1 to 3.
10:29:57 AM
Representative Kopp replied that in the proposed bill used
annual true-ups to determine whether the employee
contributions should increase, and the employer
contributions could change. In addition, the post-pension
retirement adjustments and COLA would be eliminated if the
actuary showed that the plan was not maintaining a high
funding standard. He noted that the elements were totally
new and had never been implemented in any plan. He recalled
earlier testimony from Washington state with a very similar
program that was currently funded at 110 percent.
Representative LeBon asked whether the employee bore the
brunt of the obligation to self-corrected the plan.
10:31:27 AM
KENT TRUITT, STAFF, REPRESENTATIVE CHUCK KOPP, responded
that the employer contribution was a variable lever. He
indicated that if the ARM board found that the plan was
accruing liability, they would have the ability to increase
the employer contribution. Currently, the total employer
contribution was 22 percent. In the proposed CS [not
introduced] the total employer contribution was 22 percent
and about 13 percent went to the plan, while the remainder
went to the unfunded liability of the prior unfunded tiers.
Mr. Mitchell continued to slide 10. The slide showed TERS
for Tier 4 with similar conclusions as the prior slide but
at approximately 15 percent (versus 13 percent in prior
slide) of the total contributions.
Vice-Chair Ortiz conveyed that teachers no longer
participated in Social Security. Mr. Mitchell understood
that many members of the TRS opted out of Social Security
and did not participate in SBS, but most state employees
had access to SBS. Vice-Chair Ortiz noted that the term
opt out presumed that a teacher had a choice, but
teachers did not have the option to choose Social Security.
Co-Chair Wilson relayed that Vice-Chair Ortiz's statement
was accurate.
Representative Kopp had worked for a municipality for many
years that offered neither SBS nor Social Security. He
added that many municipalities operated in the same manner.
10:35:38 AM
Co-Chair Wilson provided an example of a teacher working in
the summer and receiving Social Security. Mr. Mitchell
responded that the analysis did not take other employment
into consideration. Co-Chair Wilson wanted more information
regarding how outside employment would affect the plan.
Representative Knopp asked if most of the public employees
had bargaining units. He wondered if they participated in
retirement plans through the bargaining units.
Representative Kopp responded that all bargaining units
were different, it depended on the municipality.
Representative Knopp wondered the extent of who qualified
for the proposed plan. Representative Kopp responded that
volunteer firefighters would not be included in the plan.
epresentative Knopp asked about militia members.
Representative Kopp responded that militia members did not
fall under the definition of a peace officer.
Representative LeBon asked whether a participant in a
defined contribution plan who subsequently secured
employment accruing social security could receive both
benefits. He relayed his own experience where he was
entitled to both benefits. Representative Kopp responded in
the affirmative. He added that it was difficult to maintain
outside employment as a police officer and at retirement
age many police and firefighters had limitations due to
disabilities that limited other job opportunities.
Mr. Mitchell moved to slide 11 that graphically depicted
30-Year TRS + 6.13% Deferred Compensation teachers with a
deferred compensation amount that the employee would
otherwise pay if they participated in SBS. He relayed that
there was a match with SBS from 15 percent to 21 percent.
The outcome was materially better than slide 10 without
SBS.
10:42:12 AM
Mr. Mitchell reported that the following slides portrayed a
variation; working 25 years with or without SBS. He briefly
continued to slide 12 that graphically depicted 25-Year
Police/Fire + SBS and slide 13 illustrating 25-Year
Police/Fire w/o SBS. He noted that the shorter career and
lower contribution as a percentage of income demonstrated
unsuccessful outcomes. He emphasized that length of career
and contribution rate as a percentage of income were the
largest factors in the success of the plan.
Co-Chair Wilson asked where the 25 years came from.
Representative Kopp responded that Tier 3 with 25 years of
continuous service entitled the participant to full
retirement including medical benefits. Co-Chair Wilson
asked whether it was realistic to expect that most police
officers would make it to 25 years of employment.
Representative Kopp replied that 25 years could be a hard
lift for some officers. However, the cost of the plan had
to remain manageable and affordable.
10:45:33 AM
Vice-Chair Johnston asked if retirement was 25 years or the
age 55 to receive the medical benefits in tier 3 and tier
4. Representative Kopp answered that 20 years of work
qualified tier 2 for full retirement benefits and the tier
3 qualifier was 25 years or age 60.
Mr. Mitchell returned to slide 13 and highlighted that in
plans where a relatively low proportion of the participants
compensation was invested for retirement the probability
that their assets would last for 30 years after retirement
was below 50 percent.
10:47:39 AM
Mr. Mitchell turned to slide 14 titled Probability of
Success:
30-Year PERS + SBS = 69%
30-Year Police/Fire + SBS = 69%
30-Year Police/Fire w/o SBS = 22%
30-Year TRS w/o SBS = 31%
30-Year TRS + 6.13% Deferred Comp. = 56%
25-Year Police/Fire + SBS = 43%
25-Year Police/Fire w/o SBS = 6%
Success = retirement assets surviving 30 years into
retirement, assuming initial consumption level of 70%
of final take-home pay, increasing with inflation.
Representative Josephson referred to the top 2 bullets on
the slide. He surmised that the employee would not be able
to draw down their plan in order to achieve the results.
Mr. Mitchell answered in the affirmative. He added that
adjustments were not made for personal circumstances.
10:49:39 AM
Representative Carpenter asked why 70 percent of final take-
home pay was used in the model. Mr. Mitchell indicated the
number had been provided by the Division of Retirement and
Benefits as a reasonable goal.
HB 79 was HEARD and HELD in committee for further
consideration.
CS FOR SENATE BILL NO. 16(FIN)
"An Act relating to certain alcoholic beverage
licenses and permits; relating to the bond requirement
for certain alcoholic beverage license holders; and
providing for an effective date."
10:50:26 AM
Co-Chair Wilson MOVED to RECIND action taken on SB 16.
There being NO OBJECTION, it was so ordered. Co-Chair
Wilson explained that she wanted to make sure
Representative LeBon's concerns were addressed properly
10:50:54 AM
AT EASE
11:01:48 AM
RECONVENED
Co-Chair Wilson WITHDREW her RECENSION. There being NO
OBJECTION, it was so ordered.
11:02:48 AM
Co-Chair Wilson RECESSED TO THE CALL OF THE CHAIR [note:
the meeting never reconvened].
ADJOURNMENT
11:02:09 AM
The meeting was adjourned at 11:02 a.m.