Legislature(2021 - 2022)ADAMS 519
05/16/2022 09:00 AM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| HB55 | |
| HB322 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | HB 31 | TELECONFERENCED | |
| + | HB 66 | TELECONFERENCED | |
| += | HJR 1 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | SB 72 | TELECONFERENCED | |
| += | SB 204 | TELECONFERENCED | |
SENATE FINANCE COMMITTEE
May 16, 2022
9:04 a.m.
9:04:42 AM
CALL TO ORDER
Co-Chair Bishop called the Senate Finance Committee meeting
to order at 9:04 a.m.
MEMBERS PRESENT
Senator Click Bishop, Co-Chair
Senator Bert Stedman, Co-Chair
Senator Lyman Hoffman
Senator Donny Olson
Senator Natasha von Imhof
Senator Bill Wielechowski
Senator David Wilson
MEMBERS ABSENT
None
ALSO PRESENT
Representative Andy Josephson, Sponsor; William "Flick"
Fornia, Pension Trust Advisor; Tom Wescott, Former
President, Alaska Professional Firefighters Association;
Kerry Crocker, Staff, Representative Louise Stutes.
SUMMARY
CSHB 55(FIN)
PEACE OFFICER/FIREFIGHTER RETIRE BENEFITS
CSHB 55(FIN) was HEARD and HELD in committee for
further consideration.
CSHB 322(TRA)
AK MARINE HWY FUNDS, HIGHER ED INVES FUND
CSHB 322(TRA) was HEARD and HELD in committee for
further consideration.
CS FOR HOUSE BILL NO. 55(FIN)
"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."
9:06:04 AM
REPRESENTATIVE ANDY JOSEPHSON, SPONSOR, introduced the
legislation. He stated that HB 55 aims to create a new
hybrid retirement plan option for state and municipal peace
officers and firefighters under the Alaska Public
Employees' Retirement System (PERS) with new protections
for the state against unforeseen future liabilities. Alaska
ended the defined benefit plan in 2006 after we discovered
that those accounts were too underfunded to meet
anticipated retiree obligations. Since these plans were
eliminated, one of Alaska's greatest public safety
challenges has become employee retention and recruitment.
Alaska is one of the few jurisdictions that does not
presently offer a defined benefit type retirement for new
public safety employees. Additionally, many municipal
public employees do not participate in Social Security or
the Supplemental Annuity Plan (SBS-AP). HB 55 is crafted to
retain and attract quality peace officers and firefighters
while protecting the state from unnecessary financial risks
in the future. The proposed option would allow future peace
officers and firefighters under the PERS system and current
ones under the PERS Tier IV plan to join the defined
benefit plan. The proposal includes several safeguards
modeled after the most fiscally responsible plans in the
nation. These safeguards provide stability and would
provide the state with fiscal certainty about their ability
to maintain adequate funding for this plan into the future.
These provisions include a minimum retirement age of 55
with 20 years of service, flexibility setting employee
contribution rates, minimum 12 percent employer
contribution rates, mechanisms to prevent costly "pension
spiking," and the ability to withhold post-pension
retirement adjustments should the plan's funding drop below
90 percent. The new tier will closely mirror Tier III of
PERS for public safety employees, with the exception of two
cost saving measures: the continued inclusion of the Tier
IV defined contribution retirement plan's health
reimbursement arrangement (HRA) and the absence of cost-of-
living adjustments. HB 55 will be a step toward making
Alaska more attractive to public safety employees. The
nature of the jobs that peace officers and firefighters
hold are uniquely physically demanding and hazardous
compared to other public employees, and all Alaskans pay
the cost for understaffed public safety agencies.
9:14:56 AM
Co-Chair Bishop wondered what other state did not have a
defined benefit for firefighters.
Representative Josephson replied that he did not know.
9:15:26 AM
AT EASE
9:16:00 AM
RECONVENED
9:16:25 AM
WILLIAM "FLICK" FORNIA, PENSION TRUST ADVISOR, introduced
himself.
9:16:38 AM
TOM WESCOTT, FORMER PRESIDENT, ALASKA PROFESSIONAL
FIREFIGHTERS ASSOCIATION, introduced himself.
Mr. Fornia discussed the presentation, "Shared Risk Hybrid
Retirement Program for Public Safety, HB 55 Actuarial
Implications" (copy on file). He looked at slide 2,
"William B. Fornia, FSA Credentials":
? Highest Actuarial Credentials
Fellow of the Society of Actuaries (1986)
Enrolled Actuary under ERISA (1984)
Member of the American Academy of Actuaries
(1983)
Elected to Board of Directors of 35,000-member
Society of Actuaries
Author and Frequent Speaker
"Still A Better Bang for the Buck" (with
National Institute on Retirement Security), 2014
"Are California Teachers Better off with a
Pension or 401(k)" University of California
Berkeley Labor Center and Journal of Retirement,
2016
Frequent Testimony to Legislatures and City
Councils
Regular Expert Witness (Detroit, Stockton)
Mr. Fornia pointed to slide 3, "Sample Work History":
? Corporate actuary for Boeing 1980-1984
? Founded Pension Trustee Advisors in 2010
? Alaska related experience
ARMB first ongoing review actuary 2005-2006
Audited Alaska PERS/TRS actuarial valuations
2009
Former leader of Buck Consultants' Denver
retirement practice
Advisors to labor groups since 2011, including
testimony
? Consulting services for 23 statewide retirement
systems in Alaska,
Colorado, Missouri, North Dakota, Oklahoma, Puerto
Rico, Utah, Texas,
Wyoming and others.
Served as system actuary for most of these
(including CO, MO, ND, OK, WY)
Ongoing consultant to Ohio Retirement Study
Council, including reform
? Expert testimony and consulting for governments,
pension systems, and labor groups
? Other clients have included the US Department of
State, Cities of Baltimore, New York and Philadelphia,
IBM, US WEST and Ford
9:18:38 AM
Mr. Fornia addressed slide 4, "Shared-Risk Hybrid
Retirement Program for Public Safety":
? How did we get here?
? Why is change necessary?
? Actuarial Implications
? Illustration of Financial Projections
Mr. Fornia pointed to slide 5, "Shared-Risk Hybrid
Retirement Program for Public Safety."
Co-Chair Bishop stated that he would manage the table.
Mr. Fornia addressed slide 6, "Illustration of hypothetical
police/fire benefits: $80,000 Final Average Salary."
9:23:16 AM
Senator von Imhof queried the findings within the private
sector for workers with only a 401K retirement account.
Mr. Fornia replied that the answer was mostly related to
the amount of money saved in a 401K. He stressed that those
making a median or lower income level who would see the
most impact.
Senator von Imhof wondered what private companies were
doing for their employees.
Mr. Fornia replied that those companies were putting 6
percent of pay into social security.
9:25:35 AM
Senator von Imhof felt that the public safety employees
should be considered separate from other public employees,
because they put their lives at risk. Therefore, she found
aspects of the bill attractive. She pointed out, however,
that defined benefits were very expensive. She wondered
whether there could be a reentry into social security
contributions.
Mr. Fornia replied that he did not know.
Co-Chair Stedman recalled that at the time of establishing
the Tier IV system, it was comparative to Tier III in order
to avoid multiple contrasting tiers. He wondered whether
there was an alternative way to enter into social security,
specifically whether it could be optional.
Mr. Fornia replied that a person could not opt out of
social security.
9:31:52 AM
Co-Chair Stedman asked for a summary of the supplemental
benefits system.
Mr. Fornia replied that the supplemental benefit system was
similar to social security, which was a defined benefit
plan. He remarked that individuals within social security
could not opt in, unless they get another job that paid
into social security.
Co-Chair Stedman remarked that the stated had a
supplemental benefit system, because the state had opted
out of social security.
9:36:32 AM
Senator von Imhof recalled that the teachers union
conducted a study about what it would take to opt in to
social security, which found that it required a vote from
the local school board. She stated that any single district
could allow a vote to opt back into social security.
Senator Wielechowski wondered what happened when a person
retires during a time of low market, and how it impacted
the Tier IV defined contribution benefit.
Mr. Fornia noted that there would be some people that did
well under Tier IV if they retire at a point when the
market is at an escalation. He stressed that the bill would
cost employers much less than paying into social security.
9:40:56 AM
Co-Chair Stedman recalled that the supplemental benefit
system cost the state billions of dollars.
Senator Wilson wondered whether the bill would change the
benefits for the municipal public safety employees.
Mr. Fornia replied in the affirmative and stated that the
fiscal note identified additional cost, which would be
picked up by the state.
Co-Chair Bishop noted that Senator Olson had joined the
meeting.
Mr. Fornia continued to discuss the fiscal note and the
fiduciary risk to the state. He looked at slide 7, "Key
Considerations with Shared-Risk Hybrid Retirement
Programs":
? DB Plans are more cost effective at providing
retirement benefits
DB pension plans pool "longevity risks"
DB pension plans can maintain a better
diversified portfolio because, unlike
individuals, they do not age
DB pension plans achieve better investment
returns because of professional asset management
and lower fees
? DC Plans are more consistent with individual
responsibility
Benefit is a clearly defined contribution from
the employer and employee to a trust
Benefit is more under the control and full
ownership of the individual
Benefit is much more portable
No risk of unfunded liabilities to employer
? Shared-Risk Hybrid Plans have many features of both
Cost-effectiveness of DB plans
But not all of the actuarial risk is borne by
the employer
Mr. Fornia discussed slide 8, "Actuarial Implications of HB
55":
? Buck Fiscal note shows modest cost
? Risk to State is "Adverse Plan Experience"
? HB 55 Plan has Safeguards to mitigate this risk
? We have performed simulations to analyze this risk
Mr. Fornia displayed slide 9, "How does HB 55 strike a
compromise?"
? Start with 12 percent fixed employer contribution
and manage plan within that target as possible
? Design current target benefit levels
Consider benefits provided by DCR and latest DB
? Build in benefit and/or employee contribution
adjustment mechanisms
? These provide cushion against adverse experience
Mr. Fornia pointed to slide 10, "Safeguard 1: Reduce
benefits vis--vis Tier 3":
? Minimum Age 55 eligibility
? Five-year average salary
? Eliminate Alaska 10 percent COLA
? Eliminate pre-Medicare health coverage
Suspend Post-Retirement Pension Adjustment when not
well funded
? Increase employee and employer contributions up to 2
percent each if not well funded
Amended to permit employee increase by 4
percent
Mr. Fornia looked at slide 11, "Safeguard 2: Actuarial
Methods":
? Build in margin in actuarial assumptions
? Build reserves in good times to provide added
funding during bad times
? Compare 12 percent + 8 percent = 20 percent
contributions with costs above
16.35 percent cost for pension based on 7.00
percent returns
HRA and Medicare Supplement are another 2.92
percent
This provides cushion of 0.73 percent
Additional 8.04 percent available through PRPA
suspension and additional 4 percent+2 percent
employee and employer contributions
9:45:05 AM
Mr. Fornia discussed slide 12, "Safeguard 3: Reduced
Discount Rate":
? Target the pension benefits of the latest DB tier
and health care benefits of the current DC tier
? Determine the costs based on 7 percent discount rate
rather than 7.38 percent assumed by PERS actuary
? Seek additional funding for this level, and then
commit to this fixed employer contribution rate going
forward
This is 12 percent employer contribution for
Police and Fire employers
? Monitor experience and adjust benefits and/or
contributions as necessary going forward
Mr. Fornia addressed slide 13, "Benefit Plan Return
Thresholds":
? ARMB Actuary assumes 7.38 percent return
? We've built HB55 plan around 7.00 percent
? If we earn 6.62 percent each year, will not be below
90 percent funded for fifty years
? If we earn 6.49 percent each year, employee
contribution increases will be triggered
? If we earn 5.43 percent each year, will also have
frequent suspension of PRPA
Mr. Fornia looked at slide 14, "Benefit Plan Simulations -
2019 Baseline":
? We modelled how plan might have worked under various
returns
? If fund earns 6.6 percent for next ten years, as
ARMB investment consultant estimates, then 7.38
percent (consistent with long-term PERS actuarial
consultants) thereafter
Plan will grow to 107 percent funded by 20
years
Never below 100 percent funded
Funded ratios based on conservative 7.00
percent
? Current actuary uses 7.38 percent
Mr. Fornia discussed slide 15, "Benefit Plan Simulations -
Historical":
? We modelled how plan might have worked under various
returns consistent with PERS returns
? Considering each 20-year period from 1980-2000 to
2000-2020
Median case was if 1995-2015 was replicated
? 9.1 percent average return
? Never falls below 90 percent
Worst case was if 2000-2020 was replicated
? 8.6 percent average return
? Falls below 90 percent for 3 of those 20
years, by end would be 99 percent funded
75 percentile best case was if 1986-2006
replicate
? 10.2 percent average return
? Would be 133 percent funded after 20 years
Mr. Fornia addressed slide 16, "Benefit Plan Simulations -
Historical." He discussed the orange line which represented
50 percentile Median Case 1995-2015. He stressed that the
idea was to avoid being poorly funded. He spoke of the tech
bubble burst in 2000 and the recession of 2008. He said
that the plan had been stress tested.
Co-Chair Bishop felt that the wrong people had been bailed
out by the federal government in 2008.
Senator Wielechowski thought that the bill was timely and
reasonable.
9:50:36 AM
Co-Chair Bishop asked whether the slide had been modeled on
the entire state workforce.
Mr. Fornia said that it would not matter the size of the
group.
Co-Chair Stedman voiced concern that adding a new tier that
shifted the risk to an employee could de detrimental to
future employees and retirees.
Mr. Fornia thought that Co-Chair Stedman made a good point.
He said that the retirees would have skin in the game
Co-Chair Bishop asked about the other clients.
Mr. Fornia said they were public sector.
Senator Wilson asked how many other states fared with
retention of public safety employees.
Mr. Wescott replied that public safety employees had left
the state because of retirement and benefits.
Senator Wilson asked about retention of new officers and
firefighters nationwide.
Mr. Wescott said that people who were leaving were not
leaving service but moving to other states.
9:58:37 AM
Co-Chair Stedman stressed that it was voluntary for
communities to buy into the state system.
Mr. Wescott believed that there had been legislation that
required PERS members to stay in the system.
10:00:44 AM
Co-Chair Stedman felt that a community could start their
own retirement tier.
Senator von Imhof requested an analysis of the turnover
rate of the employees.
Senator Wielechowski stressed that the public safety
employees were taking a risk everyday at work. He wondered
whether the bill would cost the state additional money.
Mr. Fornia replied that the fiscal note that it would cost
approximately 2 percent of the employer pay.
10:06:17 AM
Senator von Imhof stressed that felt that the cost was
small to keep people safe.
CS HB55 (FIN) was HEARD and HELD in committee for further
consideration.
CS FOR HOUSE BILL NO. 322(TRA) am
"An Act relating to the Alaska marine highway system
fund; relating to the Alaska marine highway system
vessel replacement fund; relating to the Alaska higher
education investment fund; and providing for an
effective date."
10:07:29 AM
KERRY CROCKER, STAFF, REPRESENTATIVE LOUISE STUTES,
introduced the legislation. He stated that the bill would
move the Alaska marine highway system fund and the vessel
replacement fund to the state treasury from the general
fund.
Senator Wilson wondered whether the bill would create
winners and losers about which funds would be sweepable.
Mr. Crocker replied that the process showed that the
product added two funds to the list.
Senator Wilson felt that eleven more funds could be added
to the list.
10:10:47 AM
Co-Chair Stedman felt that the marine highways funds had
specific requirements, so there should be a different
determination of those funds.
Senator Wilson felt that the crime victim compensation
funds was more important for his district. He felt that
there were many funds in the account that benefitted many
Alaskans.
Co-Chair Bishop OPENED and CLOSED public testimony.
10:13:51 AM
AT EASE
10:14:14 AM
RECONVENED
Co-Chair Bishop discussed the afternoon meeting's agenda.
CSHB 322(TRA) was HEARD and HELD in committee for further
consideration.
ADJOURNMENT
10:14:37 AM
The meeting was adjourned at 10:15 a.m.