Legislature(2025 - 2026)
02/05/2025 09:01 AM House FIN
| Audio | Topic |
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| Start | |
| Overview Funding Status Pers and Trs | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SENATE FINANCE COMMITTEE
February 5, 2025
9:01 a.m.
9:01:15 AM
CALL TO ORDER
Co-Chair Hoffman called the Senate Finance Committee
meeting to order at 9:01 a.m.
MEMBERS PRESENT
Senator Lyman Hoffman, Co-Chair
Senator Bert Stedman, Co-Chair
Senator Mike Cronk
Senator James Kaufman
Senator Jesse Kiehl
Senator Kelly Merrick
MEMBERS ABSENT
Senator Donny Olson, Co-Chair
ALSO PRESENT
Kathy Lea, Director, Division of Retirement and Benefits,
Department of Administration; Christopher Novell, Chief
Financial Officer, Division of Retirement and Benefits,
Department of Administration; Senator Cathy Giessel.
PRESENT VIA TELECONFERENCE
David Kershner, Lead Actuary for the Division of
Retirement and Benefits, Arthur J. Gallagher and Company,
South Carolina.
SUMMARY
^OVERVIEW FUNDING STATUS PERS and TRS
9:02:34 AM
KATHY LEA, DIRECTOR, DIVISION OF RETIREMENT AND BENEFITS,
DEPARTMENT OF ADMINISTRATION, (DOA) introduced herself
9:02:41 AM
CHRISTOPHER NOVELL, CHIEF FINANCIAL OFFICER, DIVISION OF
RETIREMENT AND BENEFITS, DEPARTMENT OF ADMINISTRATION,
introduced himself.
9:02:58 AM
Ms. Lea discussed the presentation, "Funding Status Update"
(copy on file). She looked at slide 2, "Organization PERS
/ TRS." She pointed to slide 3, "Membership(as of June 30,
2024) She addressed slide 4, "Investment Experience":
The actuarial value of assets was reinitialized to
equal, fair value as of June 30, 2014, with the $3
Billion infusion from HB 119.
Beginning in FY 2015, the valuation method recognizes
20 percent of the investment gain or loss each year
for five years ("Smoothing").
Mr. Novell discussed slide 5, "Funded Status Pension
($000's)
Co-Chair Stedman requested information about the $5.45
billion unfunded liability, and whether it was increasing
or decreasing over time.
Mr. Novell replied that he recalled that it was around that
marked for some time.
9:09:38 AM
Co-Chair Hoffman wondered whether the information was
considered at a critical stage, or normal compared to other
retirement funds.
Mr. Novell replied that Alaska was toward the bottom third
of the nation in terms of a funded liability.
Co-Chair Hoffman asked whether that was a cause for
concern.
Mr. Novell deferred to Mr. Kershner.
9:11:14 AM
DAVID KERSHNER, LEAD ACTUARY FOR THE DIVISION OF
RETIREMENT AND BENEFITS, ARTHUR J. GALLAGHER AND COMPANY,
SOUTH CAROLINA (via teleconference), explained that the
funded ratio was a point in time, so it was not an overall
picture.
9:16:23 AM
AT EASE
9:20:45 AM
RECONVENED
9:20:49 AM
Co-Chair Stedman remarked that examining the history of the
defined benefit plan, and remarked that there was a current
concern about pension.
Co-Chair Hoffman asked for the history of the pension and
health care information.
Ms. Lea agreed to provide that information.
Co-Chair Stedman asked about the actuarial issue as well.
Mr. Kershner agreed to provide that information.
9:27:19 AM
Senator Kiehl remarked that the 2014 changes by the
legislature were a conscious decision to make the payments
in the future. He queried the impact of that decision.
9:28:07 AM
Mr. Kershner agreed, and stated that in 2014, the
amortization method had changed by that decision.
Senator Kiehl appreciated the full picture.
9:30:26 AM
Mr. Novell looked at slide 6, "Funded Status HealthCare
($000's) He pointed to slide 7, "Funded Ratio PERS
Pension and HealthCare(Based on Actuarial Valuation
Reports) He addressed slide 8, "Funded Ratio TRS Pension
and HealthCare(Based on Actuarial Valuation Reports)
9:32:24 AM
Mr. Novell addressed slide 8, "Funded Ratio TRS Pension
and HealthCare(Based on Actuarial Valuation Reports) He
displayed slide 9, "Correlation between Actual Rate of
Return and Funded Ratio Pension only PERS
9:35:58 AM
AT EASE
9:36:31 AM
RECONVENED
9:38:22 AM
Senator Kiehl wondered whether the difference in
methodology accounted for 50 basis points or more.
Mr. Kershner replied that he was not sure if the slide was
accurate.
9:40:30 AM
Co-Chair Stedman looked at slide 9, and requested a
footnote because of the confusion.
Co-Chair Hoffman specified that the years 2000 and 2001 did
not show the actual figures.
Senator Kaufman asked for the target and the relationship
to the target.
Mr. Novell replied that he would work with Department of
Revenue (DOR) and provide that information.
9:44:49 AM
Mr. Novell highlighted slide 10, "Correlation between
Actual Rate of Return and Funded Ratio Pension only TRS
He addressed slide 13, "Additional State Contributions
History (whole dollars)
9:49:12 AM
Co-Chair Stedman queried the total number selection.
Mr. Novell replied that the $8.5 billion was all the totals
up to 2006.
Co-Chair Stedman wondered whether the number was normal
cost or past service cost.
Mr. Novell replied that it was the past service cost.
Co-Chair Stedman surmised that it was the past service
cost.
Mr. Novell agreed.
Mr. Novell discussed slide 14, "Additional State
Contributions Projected (whole dollars) He pointed to
slide 15, "Additional State Contributions and Past Service
Cost PERS (whole dollars)
Co-Chair Stedman queried the 22 percent and what might
occur to claims above that percentage.
Mr. Novell replied that it was the statutory rate set by
statute.
9:56:48 AM
Mr. Novell addressed slide 16, "Additional State
Contributions and Past Service Cost TRS (whole dollars)
He displayed slide 17, "FY2026 Contribution Rates Health
Plan Zero Normal Cost Impact on Contribution Rates (whole
dollars)
9:58:31 AM
Mr. Novell pointed to slide 18, "HealthCare Trusts Funded
Level He addressed slide 19, "FY2026 Contribution Rates
Defined Benefit Plans
10:07:43 AM
Mr. Novell discussed slide 20, "FY2026 Contribution Rates
Defined Contribution Plans
Mr. Novell pointed to slide 21, "Contribution Rates
History
Senator Kaufman asked why the actuarial rate was large.
Ms. Lea replied that the employer rate was capped by
statute, and the actuarial rate was the cap needed to be
fully funding in the year.
10:09:49 AM
Mr. Novell addressed slide 22, "Projected Pension Benefit
Recipients
Mr. Novell looked at slide 23, "Projected Pension Benefits
Payment ($000's)
Co-Chair Stedman wondered why it was so long.
Mr. Kershner relayed that that the slide was for those who
were currently receiving and anticipated pensioners.
10:14:32 AM
Ms. Lea pointed to slide 24, "AlaskaCare Employer Group
Waiver Plan":
• An Employer Group Waiver Plan (EGWP) is a group
Medicare Part D prescription drug plan option.
• EGWP provides a direct subsidy which allows it to be
considered when calculating the Other Post-Employment
Benefits (OPEB) liability under both GASB & FASB
accounting schemes.
• The implementation of EGWP reduced 6/30/18
healthcare liabilities by $959M, which resulted in
lower projected liabilities, lower projected
contribution rates, and lower projected Additional
State Contributions ($752M for PERS, $266M for TRS).
Ms. Lea pointed to slide 25, "An Employer Group Waiver Plan
(EGWP) Subsidy
Ms. Lea looked at slide 26, "HealthCare Cost Trend Rates
Senator Kiehl stated that it was prescription spending.
Ms. Lea agreed.
Senator Kiehl surmised that the remaining columns were
total medical spending.
Ms. Lea agreed.
Co-Chair Stedman thanked the department for the positive
result in the health care portion.
10:19:01 AM
Mr. Novell addressed slide 27, "Employers and Additional
State Contributions, Process Timeline":
Allocation of Projected Employer and Additional State
Contribution Rates with Liabilities
"Rolled Forward" for two years, Assets "Rolled
Forward" for one year, and Smoothed.
Co-Chair Stedman queried the reason for the delay.
Mr. Novell deferred to Mr. Kershner.
Mr. Kershner explained that the information was provided
quarterly and then those were full valuations at later
dates. The lag allowed for the board to review the
information.
10:22:15 AM
Mr. Kershner looked back to slide 26, and stated that the
trend rates were the average per person costs.
Senator Kaufman queried the picture if a medication were
created to extend life span and drive up drug costs.
10:27:20 AM
Mr. Kershner explained the complication in 2022, which
changed the portion paid by the state by the employer / He
looked at slide 13, which showed the historical state
contributions. He pointed out the increase in 2022.
10:35:49 AM
Co-Chair Stedman appreciated the detail, and hoped for a
normal cost for a single employee in each tier within PERS
and TRS. He reiterated the importance of historic normal
cost rates for the past 20 years by employee type. He hoped
to work with the Legislative Finance Division and
departments.
10:36:59 AM
Co-Chair Hoffman stressed that the retirement systems would
be addressed in the current session. He remarked that the
different tiers would be examined in those meetings.
Ms. Lea agreed to make the presentation more comprehensive
based on the day's discussion.
Senator Kaufman remarked on the fund transfer and cloud
migration. He hoped to discuss that issue.
Co-Chair Hoffman discussed the following day's agenda.
ADJOURNMENT
10:39:52 AM
The meeting was adjourned at 10:39 a.m.
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