Legislature(2025 - 2026)ADAMS 519
02/03/2026 01:30 PM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| Presentation: Funding Status of Public Employees' Retirement System and Teachers' Retirement System | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| + | TELECONFERENCED |
HOUSE FINANCE COMMITTEE
February 3, 2026
1:48 p.m.
1:48:58 PM
CALL TO ORDER
Co-Chair Josephson called the House Finance Committee
meeting to order at 1:48 p.m.
MEMBERS PRESENT
Representative Neal Foster, Co-Chair
Representative Andy Josephson, Co-Chair
Representative Calvin Schrage, Co-Chair
Representative Jamie Allard
Representative Jeremy Bynum
Representative Alyse Galvin
Representative Sara Hannan
Representative Nellie Unangiq Jimmie
Representative Elexie Moore
Representative Will Stapp
Representative Frank Tomaszewski
MEMBERS ABSENT
None
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; Chris Murray, Acting Deputy
Director of Health and Acting Chief Health Administrator,
Division of Retirement and Benefits, Department of
Administration; Representative Dan Saddler.
PRESENT VIA TELECONFERENCE
David Kershner, Consultant, Gallagher.
SUMMARY
PRESENTATION: FUNDING STATUS OF PUBLIC EMPLOYEES'
RETIREMENT SYSTEM AND TEACHERS' RETIREMENT SYSTEM
Co-Chair Josephson reviewed the meeting agenda.
^PRESENTATION: FUNDING STATUS OF PUBLIC EMPLOYEES'
RETIREMENT SYSTEM AND TEACHERS' RETIREMENT SYSTEM
1:50:13 PM
KATHY LEA, DIRECTOR, DIVISION OF RETIREMENT AND BENEFITS,
DEPARTMENT OF ADMINISTRATION, introduced herself.
CHRIS MURRAY, ACTING DEPUTY DIRECTOR OF HEALTH AND ACTING
CHIEF HEALTH ADMINISTRATOR, DIVISION OF RETIREMENT AND
BENEFITS, DEPARTMENT OF ADMINISTRATION, introduced himself.
Ms. Lea provided a PowerPoint presentation titled "State of
Alaska Department of Administration Division of Retirement
and Benefits: Presentation to the House Finance Committee:
Funding Status Update: Public Employees' Retirement System
(PERS), Teachers' Retirement System (TRS)," dated February
3, 2026 (copy on file). She began on slide 2 and detailed
that the Public Employees' Retirement System (PERS) and
Teachers' Retirement System (TRS) were organized amongst
three components. The Department of Revenue (DOR) Treasury
Division handled the investments for the defined benefit
(DB) plans and helped determine investments available to
members in the defined contribution (DC) plan. The division
employees were staff to the Alaska Retirement Management
Board (ARMB) and had an internal and external investment
team. Second, ARMB was charged with the fiduciary duty over
the investments. The board set the contribution rates and
invested all of the retirement system assets including the
health insurance for retirees. The board had an investment
advisory committee and had a secondary actuary to review
the primary actuary's assumptions and work on rate setting
for the plans. Third, the Division of Retirement and
Benefits (DRB) was housed under the Department of
Administration (DOA). The DRB fiduciary was the DOA
commissioner, who was the plan sponsor by statute. The
division administered the retirement and health benefits.
The division had the valuation actuary (the primary
actuary) and several third-party administrators it worked
with for the retiree health plans and for record keeping.
Additionally, DRB conducted audits of the employers to
ensure they understood how they were supposed to report
salary and service information to the division to maintain
compliance.
1:53:12 PM
CHRISTOPHER NOVELL, CHIEF FINANCIAL OFFICER, DIVISION OF
RETIREMENT AND BENEFITS, DEPARTMENT OF ADMINISTRATION,
addressed noted that DRB's principal actuary David Kershner
with Gallagher was available online. He reviewed the layout
of the presentation. He would speak about PERS and TRS. Mr.
Murray would address the health funds. Lastly, Ms. Lea
would address the e-reporting outage that occurred in
November 2024 and restoration, which took until July 2025.
Mr. Novell reviewed slide 3 titled "Membership (as of June
30, 2025)." There were 105,471 [PERS and TRS] members. He
detailed that active participants in PERS DB plans versus
PERS DC plans were split 20/80 and the TRS split was 25/75
DB and DC respectively. The DB plan closed to new
enrollment in 2006; therefore, the membership split was
expected to increase favorably to the DC plan.
Mr. Novell addressed slide 4 titled "Investment
Experience." The FY 25 valuation was still in draft form to
be officially submitted to ARMB in March. The assumed
actual earnings remained at 7.25 percent since 2022 for
PERS and TRS. Basing earnings on the fair market value of
assets for 2025, PERS and TRS were 10.8 and 10.9 percent
respectively. The draft valuation put the actuarial value
of the PERS and TRS assets at 9.3 percent. He noted that
the valuation used a five-year smoothing method with the
intent of eliminating market volatility or extreme peaks
and troughs. The assumptions were reviewed every four years
and submitted to ARMB.
Representative Bynum looked at the chart on slide 3 and
noted the chart specified tiers for PERS and TRS plans. He
asked for verification that the DC plans were Tier 4 under
PERS and Tier 3 under TRS.
Mr. Novell replied affirmatively.
Representative Bynum wanted to ensure it was clear to the
public.
1:57:14 PM
Mr. Novell turned to slide 5 titled "Funded Status -
Pension ($ thousands)." The PERS pension liability in draft
form was $17.3 billion and the actuarial valuation of
assets was $12.2 billion. The numbers left the PERS DB plan
at $5.1 billion unfunded or 70.3 percent funded. The same
calculation using fair market value of assets returned a
similar funded amount of 71 percent. The TRS pension
liability for 2025 was $8.1 billion and the actuarial
valuation of assets was $6.4 billion, leaving the plan at
$1.6 billion unfunded or 79.8 percent funded. The pattern
across the past three years showed that both funds had
increased their funded ratio each year.
Co-Chair Josephson thought it was noteworthy. He thought
there were substantial improvements. He observed that
funded portion was growing rather remarkably.
Mr. Novell confirmed there had been three years of year-on-
year improvement on the funded ratio. He moved to slide 6
titled "Funded Status - HealthCare ($ thousands)." He
highlighted that the negative numbers on rows c and f
showed DB healthcare to be over funded with a funded ratio
for PERS based on actuarial valuation of assets of 132.1
percent or 133.5 percent based on the fair value of assets.
The TRS DB healthcare actuarial valuation of assets was
140.6 percent or 142.2 percent based on the fair value of
assets.
Representative Bynum asked for detail about why the PERS
healthcare funded ratio was around 130 percent and the
pension funded ratio was about 70 percent. He believed both
had been implemented around the same timeframe. He asked
why one was performing very well and the other was not.
Mr. Novell replied that the primary reason was the EGWP
[Employer Group Waiver Plan] subsidy granted to Alaska in
2019. There was a chart later in the presentation showing
that the overfunded status for PERS and TRS coincided with
2019 and the EGWP subsidy.
2:01:14 PM
Mr. Novell moved to a chart on slide 7 titled "Funded Ratio
PERS Pension and HealthCare (Based on Actuarial Valuation
Reports)." He stressed that the pension and healthcare
funds were separate and could not be used to offset each
other. The side by side chart was for visual purposes only.
The chart showed pension in blue and healthcare in orange.
The PERS pension was shown below the 80 percent mark
whereas healthcare was over 130 percent. He pointed out
that healthcare moved into overfunded status around 2018.
2:02:19 PM
Mr. Novell moved to slide 8 titled "Funded Ratio TRS
Pension and HealthCare (Based on Actuarial Valuation
Reports)." The chart for TRS told the same story as PERS
with an overfunded healthcare fund and an underfunded
pension fund.
Representative Hannan asked if any of the healthcare growth
was indicative of all pension health plans as retirees
moved to Medicare eligibility. She was a TRS retiree and
had recently moved to Medicare. She assumed she was less
burden on the healthcare retiree because because Medicare
came first. She asked if it was impacted as retirees aged
into the Medicare demographic. She noted that many Tier 3
employees could not retire until they were 65 and were
immediately primarily Medicare recipients before drawing on
the health trust.
Mr. Murray answered affirmatively. He explained that when
retirees became Medicare eligible, Alaska statute required
the plan pay supplemental to Medicare. The retiree
population was aging (the DB retirees were starting to age)
and year over year there was a significant increase in the
number of retirees who were Medicare age eligible. The last
he heard it was about 80 percent of DB retirees. The number
had continued to increase and had reached a peak where it
was starting to level off and perhaps even decline for DB
retirees. He confirmed there was a lower burden on the
AlaskaCare retiree healthcare trust and plans for retirees
who were Medicare age eligible and Medicare paid primary;
however, it was a much less significant contributor to the
overfunded status of the plans than EGWP that was
implemented in 2018. He noted that EGWP reduced the
liability by about $1 billion. He pointed to the charts on
slides 7 and 8 and highlighted that the overfunded status
of the healthcare trust continued to increase. The
situation mentioned by Representative Hannan was a
contributing factor to a small degree, but it did not come
close to the impact of the EGWP implementation.
Representative Hannan asked for a reminder of what EGWP was
and whether it was annual or a one-time $1 billion
infusion.
Mr. Murray noted there were slides later in the
presentation on the topic. He offered to answer the
question immediately or to address it in the later slides.
[EGWP was addressed later on slide 21.]
2:06:08 PM
Mr. Novell advanced to a table on slide 9 titled
"Correlation between Actual Rate of Return and Funded Ratio
Pension only." He highlighted that the percentages in
bold showed a change in the assumed actual earnings rates.
Since 2000, the assumed actual earnings rate was changed
three times, most recently in 2022 to 7.25 percent. The 30-
year average was shown at the bottom of the table. He
remarked that in analyzing the data, it was important to
consider the impact of the $3 billion infusion in 2015 when
looking at the funded ratio.
Representative Stapp remarked that the table did not show
actual projected liabilities and how they had changed over
time. He asked why the information did not include the
number of times the accrued liability projections had been
changed as opposed to the rate of return projections.
Mr. Novell offered to follow up with the information to
show a side by side comparison.
Representative Stapp referenced Mr. Novell's remarks that
the assumed rate of return had been ratcheted down on three
occasions. He found it more interesting to see that the
total liabilities had doubled on a projected basis in the
past 20 years on a closed plan. He wondered why. He thought
it would be helpful to hear about the driving factor behind
the metric and to see it on a slide.
Mr. Novell deferred the question to Mr. Kushner online.
2:09:03 PM
DAVID KERSHNER, CONSULTANT, GALLAGHER (via teleconference),
stated his understanding of the question.
Representative Stapp agreed.
Mr. Kershner replied that the assumed investment return
rate was one element used to measure the value of future
benefits and liability. Alaska statute required an
experience study every four years, meaning that they
reevaluated all of the assumptions every four years. They
updated assumptions of how long people were anticipated to
live, when participants were expected to retire, the rate
salaries were expected to increase over time, etcetera. He
explained that every time an experience study was conducted
there was a resulting increase in the liability due to all
of the assumptions, not just the assumed investment rate.
The other factor was the actual experience of the plan.
Until the most recent year, there was a series of years
with very high inflation, meaning the post retirement
pension adjustment (PRPA) - the Consumer Price Index (CPI)
linked cost of living increases received by PERS and TRS
retirees - had been considerably higher than projected
based on inflation assumptions. Additionally, there had
been considerably larger increases in salaries,
particularly for PERS peace officers and firefighters,
which had contributed to larger than expected liabilities.
Mr. Kershner summarized that a combination of the factors
had caused the pension liability to increase more rapidly.
Whereas, in addition to the implementation of EGWP in 2018,
there were several successive years in the healthcare
liability where actual claims paid by the plan had been
less than assumed. He noted there had been a turnaround in
the past couple of years where claims were higher. Every
year it was a series of moving parts that all contributed
to the effects Representative Stapp was describing.
Representative Stapp asked for verification that every time
the experience study had been conducted, the projected
liability of the plan was more than assumed.
Mr. Kershner answered that it was correct in the past
several years.
Co-Chair Josephson stated that recently a national group
challenging reform of the pension system claimed that since
2001 Alaska's pension plans earned only 5.8 percent in
annual returns on average. He asked if it was consistent
with Mr. Kershner's knowledge and slide 9.
Mr. Kershner responded that he was not aware of the
statistic. Based on the calculations [shown on slide 9],
the average return over the period shown on the slide [2000
to 2025] was about 7.6 percent. The valuation reports also
included historical market rates and according to
Gallagher's calculations, the cumulative market return for
PERS and TRS was about 7.9 percent from 2005 to 2025. He
was not certain where the statistic cited by Co-Chair
Josephson came from.
2:14:29 PM
Representative Bynum asked Co-Chair Josephson to share the
information he had referenced.
Co-Chair Josephson responded affirmatively.
Representative Bynum asked for the information provided by
the department at Representative Stapp's request to be
shared with the committee.
Co-Chair Josephson asked if Representative Stapp had
requested follow up information.
Representative Stapp requested the items articulated by Mr.
Kershner that were not included in the slide deck. He noted
that the assumptive rate of return reflected one lever but
not the others that went into the cost basis.
Co-Chair Josephson recognized Representative Dan Saddler in
the room.
2:15:46 PM
Mr. Novell turned to a chart on slide 10 titled "Unfunded
Actuarial Liability PERS (in $millions)." The chart
showed the unfunded actuarial liability in dollars rather
than as a percentage of funded ratio (shown on slide 7)
since 2006. The pension fund was shown in blue and
healthcare was shown in orange. He highlighted that from
2018 going forward, healthcare moved to being overfunded.
Representative Bynum understood that 2018 was the year of
the influx of funding for the healthcare component. He
looked at the trend from 2010 going forward and highlighted
that the amount continued to decline and had been hovering
around a neutral point starting in 2015. He asked if the
trend would have continued without the influx of dollars in
2018.
Mr. Novell responded that he would have to follow up on the
question.
2:17:07 PM
Mr. Novell moved to slide 11 titled "Unfunded Actuarial
Liability TRS (in $millions)." The slide showed
healthcare for TRS as overfunded, beginning three years
earlier than PERS. Slide 12 showed historic additional
state contributions from 2006 to 2026 including the $3
billion infusion into the plans in 2015 under HB 119.
Co-Chair Josephson asked why the governor's budget had
about $35 million less than the contribution recommended by
ARMB.
Mr. Novell replied that DRB was not part of the discussions
related to the budgeted state contribution. He deferred the
question to ARMB.
Representative Bynum thought it was a great question. He
wondered if the committee could get a recommendation from
the professionals involved. He thought it was something the
state should be fully funding at the recommendation of the
ARMB. He wondered about the long-term impact.
Co-Chair Josephson asked his staff to take note of the
request.
2:19:11 PM
Mr. Novell advanced to slide 13 showing additional state
contributions projected from 2027 through 2039. He moved to
slide 14 showing the difference in additional state
contributions and employer contributions with the inclusion
and omission of the health plan normal cost. The difference
was $63.8 million. In recent years, the healthcare normal
cost was set at zero, which was influenced by overfunding
of the health plans.
Representative Hannan looked at the table on slide 13
showing the additional state contributions for PERS in 2039
were projected to be zero. She asked if it indicated the
plan was expected to be paid off by 2039.
Mr. Novell replied affirmatively. He noted that the
projections had yet to be finalized by ARMB and its
actuaries. The data reflected the assumption the plan would
be fully funded by 2039.
Representative Hannan asked if there was reason not to
anticipate that the TRS plan would be fully funded by 2039.
Mr. Novell answered that under the scenario PERS would be
paid off by 2039 whereas the TRS final payment of $81
million would be in 2039.
2:21:36 PM
Representative Hannan asked if TRS would show as paid off
in 2040.
Mr. Novell replied affirmatively.
Representative Stapp remarked that it was assuming that
current assumptions came to fruition. He wondered if he had
asked if the liabilities projected on the plan 10 years
back were accurate if the debt would have already been
paid. He thought the answer was yes.
Mr. Novell asked for a repeat of the question.
Representative Stapp stated that it was assuming the
assumptions were true. He thought the plan would be paid
off already if the liabilities projected in 2014 came to
fruition.
Mr. Novell replied that it was a fair assumption.
2:23:10 PM
Mr. Novell turned to slide 15 titled "Healthcare Trusts
Funded Level." The slide showed the actuarial projections
of the funded level of healthcare trusts over the next 14
years with and without the normal contributions.
Representative Bynum remarked that the fund was protected
and it was not possible to move funds away from the
healthcare trust. He asked what would happen when there
were no more participants receiving the benefit.
Ms. Lea answered that because the health funds also served
the DC funds, there was an option available when there were
no longer any participants in a fund, there could be some
movement [of funding] to a similar fund. She pointed out
that assumptions looked over the lifetime of a member and
their survivor. She detailed that when the last person
retired it was at least 40 to 60 years from then when they
may pass away. She explained it was very difficult to
project what the balances in the accounts would be. She
added that slide 15 also included EGWP, which was a federal
plan that was not guaranteed and could stop at any time.
She elaborated that at that point the funding for the
health plans would start to regress. The last she heard it
would be 6 to 12 years before the [healthcare] trusts were
down to 100 percent, but they would potentially continue to
trend downwards depending on claims and how long people
were living. She reiterated it was very difficult to give a
specific answer.
Representative Bynum stated his understanding that it was
complicated.
Ms. Lea agreed.
Representative Hannan remarked that they were continuing to
take contributions for people into a fund that was
overfunded. She looked at slide 15 and observed that it
showed growth to 220 percent overfunded in the TRS health
plan [by 2039]. She understood being conservative and
making sure there was sufficient funding to serve
beneficiaries; however, at some point it appeared they were
taking money to invest in what was perhaps not the best use
of the funds in perpetuity. She asked if ARMB was
recommending zero contributions from members.
2:26:43 PM
Ms. Lea replied that the slide reflected employer costs
[slide 15], not employee costs. She confirmed there was the
thought that no further contributions were needed for a
time because the plans were overfunded.
Representative Hannan clarified that she meant employers
when she used the word members. She highlighted that all of
the employer groups from school districts and
municipalities were struggling financially, but the state
was continuing to ask them to contribute to a plan that was
overfunded. She asked if ARMB was recommending taking a
brief timeout from continuing to fund at the current rate
or ratcheting it down substantially. She suggested it would
give some short-term economic relief without harming
beneficiaries.
Ms. Lea replied that slide 15 reflected what the effect
would be if there were no additional contributions taken.
Without additional contributions the trend was an increase
[in the funded level of the healthcare trusts]. She could
not speak for ARMB, but she knew it was something the board
was looking at. She noted ARMB passed a couple of
resolutions to expand benefits.
Representative Stapp stated that as recently as FY 21, the
healthcare portion of PERS was funded at 142.7 percent. He
pointed out that five years later in FY 26, it was still
overfunded, but it had declined to 131 percent. He asked
how it was possible to model linear growth in funded status
without contributions.
Ms. Lea replied that the figures were based on assumptions
known at present and potential trends. The numbers had been
determined by the actuaries. She remarked that claim
experience would change the numbers. For example, there had
been a $12 million claim in the employee plan in the past
year. She elaborated that new pharmaceuticals and medical
treatments were very expensive, which would impact the
ratio. She reiterated that the figures on the slide were
based on information known in the present day.
Representative Stapp agreed. He understood the numbers were
based on large claims, pharmaceutical experience, and the
experience of the plan. He referenced 2013 when the
healthcare projected liability was $2.2 billion. He was
concerned that without normal contribution to the plan
there was a chart showing that valuation would continue to
increase exponentially; however, it was evident that was
not the case even with recent experience in the plan. For
example, in FY 21 the funded level was 141 percent and it
had subsequently trended downward because of adverse plan
experiences. He did not want people on the committee to
think that the funded level would continue to increase
merely because it was shown on a slide. He stressed that
every time an experience study had been done on the pension
portion of the plan, it had been wrong and the state always
ended up owing more money. He emphasized that the
expectation that the healthcare portion would continue to
be overfunded even without additional contributions was
likely incredibly unrealistic.
2:31:48 PM
Mr. Novell moved to slide 16 titled "FY2027 Contribution
Rates - Defined Benefit Plans." The slide showed the FY 27
contribution rates for the DB plan and how they were
calculated to arrive at the total actuarial required
contributions for the employer and employee. The
calculation included employee rates for peace officers and
firefighters, all other employees, the school district
alternate option and TRS employees, employer rates (capped
by statute at 22 percent for PERS and 12.56 percent for
TRS), and additional state contributions including the DCR
contribution of 5.5 percent for PERS and 20.58 percent for
TRS.
Mr. Novell turned to slide 17 titled "FY2027 Contribution
Rates Defined Contribution Plans." He detailed that 8
percent of gross was paid by the employee with an employer
match of 5 percent for PERS and 7 percent for TRS. All of
the employer contribution rates were added and the
difference between that and the 22 percent for PERS and
12.56 percent for TRS went towards the DB plan's unfunded
liability.
2:33:02 PM
Mr. Novell advanced to two graphs on slide 18 showing
historical contribution rates for PERS and TRS. The slide
showed the difference between the statutory rates for PERS
and TRS and the actuarily determined rates. The spread
between the blue and orange lines on the two graphs
reflected the portion covered by additional state
contributions.
Mr. Novell addressed slide 19 titled Projected Pension
Benefit Recipients." The graph showed projected benefit
recipients through 2053. As more people retired, the
pension benefits were forecasted to rise to a peak in 2030
for PERS and TRS in 2031. He noted that new employees went
into the Tier 4 DC plan; therefore, DB recipients would
become less in number.
Representative Bynum referenced slides 16 through 18. He
asked if there was a historical side by side cost
comparison for what the state and employers were paying for
the DB plan cost including the 22 percent cap and the
state's share versus what employers paid for the DC plan up
to the 22 percent cap that also paid for the DB
[liability]. He requested a similar chart to those on slide
18 to show the comparisons.
Mr. Novell replied that he would follow up with the
information.
2:35:09 PM
Mr. Novell moved to slide 20 titled "Projected Pension
Benefits Payment ($ thousands)." The slide showed that TRS
would peak with $686 million in benefit payments in 2033
and PERS would peak with $1.5 billion in 2038. Recipient
dollars would gradually decrease to near zero at the end of
the century.
Mr. Murray addressed slide 21 titled "AlaskaCare Employer
Group Waiver Plan." He explained that EGWP was a group
Medicare Part D prescription drug plan option. He detailed
that just as anyone who was Medicare-age eligible could
purchase their own Medicare Part D plans, EGWP was a plan
purchased by an employer/group that all of the state's
retirees were enrolled in. The EGWP plan, operated through
the Centers for Medicare and Medicaid Services (CMS),
provided direct subsidies to the plan on a monthly basis.
He noted that the subsidies changed from year to year. He
referenced Ms. Lea's earlier statement that there was no
guarantee EGWP would continue. When EGWP was implemented in
2018, it reduced liabilities in the retiree healthcare
plans by $959 million. He clarified that it was not an
injection [of funding], it was merely a reduction in future
liabilities for the retiree healthcare plans, specifically
pharmacy related.
Mr. Murray addressed EGWP subsidies on slide 22. The EGWP
plan provided multiple types of subsidies. The direct
subsidy typically came on a monthly basis. The catastrophic
reinsurance was a reinsurance program that was designed to
help with very high cost medications. He noted there were
various other subsidies. He pointed out that subsidies had
totaled $64 million in 2021 and had reached $107 million in
2025. He highlighted that in the earlier years the direct
subsidies were negative and the catastrophic reinsurance
was significantly higher due to the [federal] Inflation
Reduction Act. Some changes in the calculation of the
subsidy payments were made and CMS was paying a significant
increase in direct subsidies less catastrophic reinsurance;
however, there was no guarantee it would continue. He
pointed out that subsidy amount changed from year to year
and happened to have worked out in Alaska's favor thus far.
2:39:10 PM
Representative Stapp asked how the projected liabilities
and funded status of the healthcare portion of the plan
would be impacted if the federal government discontinued
EGWP.
Mr. Murray answered that he did not have specific numbers,
but it would be a significant blow to the funding
status/health of the plan. The primary reason for the
overfunding starting in 2018 was due to the EGWP subsidies.
He would have to take the question to the actuarial
consultant in order to provide specific numbers.
Representative Stapp stated it would be helpful to know
what the impact would be if CMS ended the EGWP subsidies.
For example, he wondered if the funded status would drop
below 100 percent.
Mr. Murray replied that he would follow up with the
information.
Co-Chair Josephson asked for the information to be provided
through his office.
Representative Hannan asked if every state's public pension
program participated or was eligible to participate in the
EGWP subsidies.
Mr. Murray replied that he did not have a direct answer to
the question. He relayed that some states participated in
EGWP, while others did not. He did not know whether all
states were eligible. He would follow up with the answer.
Representative Hannan would like to know the answer in
order to have an understanding whether Alaska was one of 10
states benefitting [from EGWP] or if all 50 states had
pressured Congress to continue the subsidies because
pharmaceutical costs had driven up healthcare.
Co-Chair Josephson liked the question because political
pressure was a powerful thing. He recognized that Social
Security could also be ended.
2:41:37 PM
Representative Hannan looked at the chart on slide 22,
particularly the drastic reduction to catastrophic
insurance in 2025. She referenced the footnote on the slide
reflecting that a true-up would occur. She thought the low
number for catastrophic reinsurance was likely because of a
lag time in billing and not due to a dramatic downturn in
the number of beneficiaries in need of cancer treatments
and oncology services. She surmised that the subsidy
matched what the state paid out.
Mr. Murray responded that the number was a result of the
Inflation Reduction Act. He explained that the federal
government changed the formula, which had increased the
direct subsidies and decreased the catastrophic
reinsurance. The intent was to incentivize plans to better
manage high cost drugs. He detailed that it shifted the
liability from the federal government to particular plans.
In 2025, the federal government significantly increased
direct subsidies and decreased the catastrophic reinsurance
reimbursement.
Representative Hannan asked if the state would be able to
meet the needs of Alaskans who need catastrophic
reinsurance. She queried whether the state was making the
payments to ensure they continued their medical treatments
that were "horrific and over the top."
Mr. Murray answered that the DB plan retiree health
benefits were robust. Retirees were currently paying either
a zero dollar premium, $4 premium, or $8 premium for a
medication that could cost tens to hundreds of thousands of
dollars. The retiree health trust funds were currently
overfunded. He stated that it certainly looked good at
present, but he was hesitant to say yes because it was
impossible to know what could happen in the future. He
noted that one of the upcoming slides showed healthcare and
pharmacy trends. He noted they increased year over year. He
remarked that care was very expensive in Alaska. They were
constantly reassessing and looking for ways to manage the
cost in order to ensure it [catastrophic reinsurance] was
available.
2:45:04 PM
Representative Bynum stated his understanding that EGWP was
an opt-in program that states could choose to participate
in. He asked if it was a guaranteed benefit the state was
required to provide. He asked if the state could opt out of
EGWP.
Mr. Murray replied that he did not know the answer and
would follow up with the information.
Representative Allard asked about the statement that the
[healthcare] plan was overfunded. She asked how much the
plan was overfunded.
Mr. Murray returned to slide 15 showing that as of 2026
PERS was overfunded to 131 percent and TRS was overfunded
to 140 percent.
2:46:30 PM
Representative Stapp asked about the amount of claim loss
until the reinsurance kicked in.
Mr. Murray answered that it was a percentage and it was
recently changed. He would follow up with the precise
numbers.
Representative Stapp referenced Ms. Lea's earlier statement
that there had already been a $12 million claim. He
believed it would clearly hit the catastrophic reinsurance
portion. He asked about the ramifications if there was a
claim valuation above the reinsurance numbers paid for by
EGWP. He highlighted that $15.7 million [shown on the
catastrophic reinsurance funding level line for 2025 on
slide 22] was relatively close to $12 million. He
considered the possibility of a couple of additional
catastrophic claims [which would reach $15.7 million]. He
assumed the state was on the hook for the cost because the
reinsurance would have to cap out at some point.
Mr. Murray answered affirmatively. He clarified that the
$13 million claimant was on the employee plan, not the
retiree plan and would not apply to the current discussion.
With the increase cost of drugs for genetic treatments paid
through the pharmacy plan and the low cost shares DB
retirees were paying - $0, $4, and $8 - a fair amount was
covered by CMS, but it had decreased in recent years. The
answer was yes; it would fall on the retiree health plan to
pick up the rest. Current projections still showed the
plans would remain overfunded, notwithstanding some
unforeseeable disastrous change in CMS or EGWP.
2:48:47 PM
Representative Stapp wondered how many catastrophic claims
it would take to have a material impact on the funded
status of the plan.
Mr. Murray answered that he would follow up with the
information.
Mr. Murray advanced to a table showing healthcare cost
trend rates on slide 23. He detailed that rates were
projected to increase annually. He highlighted that the
prescription rates in the column labeled "RX/EGWP" were
projected to increase by 8.5 percent in 2026 and 8.2
percent in 2027, eventually going down to 4.5 percent in
2050. He noted that the chart continued to go up and there
was no expectation that healthcare would get any less
expensive.
2:50:17 PM
Mr. Novell moved to the employers and additional state
contributions process timeline on slide 24. The slide
showed the process timeline from valuations to ARMB
resolution on additional state contributions to pay down
the unfunded PERS liability. The division was conducting
its four-year experience study in March to reassess the
demographics, economic assumptions, and payroll
assumptions.
2:50:54 PM
Ms. Lea turned to slide 25 titled "eReporting Outage - Key
Dates and Events." She shared that on November 4, 2024, DRB
was notified by the state security office of an attempted
intrusion into the agency's systems. Consequently, DRB
systems were shut down while the security investigation
occurred. The investigation showed no breach of the
division's information; however, it had been recommended
that the division move its systems to the state cloud to
provide additional protections. The agency followed the
recommendation but discovered its employer reporting tool
was not compatible with the cloud and needed some
reprogramming. As a result, DRB was unable to accept
employer contribution reporting from November 4 [2024] to
February 6 [2025]. In the intervening time, the division
developed a manual process to process some employer
contributions, but it was laborious and time consuming. She
relayed that eReporting came back online on April 9 [2025]
and from that point DRB had a three-phased process in order
to post all of the back contribution reports. She explained
that reports had to be submitted in order of date;
therefore, it took time to collect and post all of the
reports. The division was grateful for the cooperation it
received from employers while it caught up.
Ms. Lea explained that because DRB was not posting the
contributions timely into the DC members' accounts, there
was an assumed loss of gains/losses to their accounts for
that intervening time. The federal government required DRB
to make accounts whole; therefore, DRB requested a $2.6
million appropriation based on an estimate of what it
thought the amount would be. The division used the U.S.
Department of Labor Voluntary Fiduciary Correction program
calculator online. She detailed that as the division sent
in contributions it was processing, its partner and record
keeper Empower calculated the gains or losses and posted
them to the participants' account. Empower also
periodically notified DRB of the amount so DRB could
transfer the money to them. The total amount paid out was
$1.3 million including $692,000 to PERS, $552,000 to TRS,
and $64,000 to SBS. All employers but one were caught up on
their contributions. The division was still working to get
the contributions processed. There was a remaining balance
of $1.3 million, which would be returned to the state on
June 30, 2026.
2:55:00 PM
Ms. Lea moved to slide 27 and thanked the DRB staff for
their collaboration with the communications team and
counseling resources to keep members and employers notified
about what was transpiring with their accounts. The
division posted frequent updates on its website and sent
letters to employers and employees so they understood they
would be made whole. Empower provided the resources to do
the work quickly and without its help she was not certain
DRB would be returning money. She noted that it would have
taken the division a very long time. She added that Empower
deployed resources to the project free of charge.
Consequently, everyone was caught up and DRB would return
$1.3 million to the state.
Representative Hannan asked how communications to impacted
employees were made. She asked how calculations were done
to determine amounts to be received by employees and
whether employees could challenge the number if they
thought it was inaccurate.
Ms. Lea answered that employees had been notified that they
could challenge the amount if they did not agree it was
accurate. Upon request, Empower would provide the actual
calculation that came from the federal Department of Labor
calculator. The information was sent to members by letter
and included on the DRB website.
Representative Hannan asked if the initial notification to
employees was by letter only. She asked if there were other
communications to employees that their contributions were
not accruing to their accounts. She reasoned that Empower
statements did not go out monthly and unless someone was
checking their online portal, it may be an entire quarter
before they knew a contribution had not been made.
Ms. Lea believed the first couple of notifications were
given to employers and employers were asked to pass the
information on to all of their employees participating in
the plan.
Mr. Novell added that the information was also posted on
the DRB website.
2:58:07 PM
Representative Hannan noted that putting it on the website
meant that a beneficiary would have to be looking at the
website for some reason. She remarked that many employees
knew the process took place at payroll and only saw the
numbers quarterly when they observed their account was
growing. She was looking to determine if it was just a
piece of mail sent and DRB instructed school districts and
municipalities to inform their employees, but how they did
so was up to them. For example, if employers only included
the information in one line of a newsletter, it was a
fairly passive method. She remarked that the system had
been set up in a way that unless employees were reached out
to, they would not look to see there was a problem posted
on the DRB website. She asked if certified mail had been
sent.
Mr. Novell replied that the division had only communicated
with employers and put the responsibility on them to
contact their employees.
Representative Bynum asked if employees were still able to
go to the portal to make decisions based on where they
wanted their contributions to go at the time the
contributions were not occurring. He asked if employees
were made whole based on where their elections would have
been.
Ms. Lea responded that members still had full access to
their accounts to make any changes they wanted. The
correction was made taking into account where an employee's
funds were at any particular time. She elaborated that if
an employee made a change in between, Empower would have
noted that and made the calculation up to the point of
change and again from the point of change until completed.
3:01:26 PM
Representative Bynum had heard historically there had been
some challenges with confidence from employees on how their
assets were being managed. He reasoned that the hiccup with
how contributions were made into the system, although
employees were made whole, could create a shaky confidence
from employees in the system. He asked if there had been
any efforts from Empower or employers to better educate
employees to make good, wise decisions and to build
confidence in the current systems used for investments.
Ms. Lea replied there had been no official notice in that
regard provided to employees. She shared that DRB staff and
Empower representatives made sure to stress that the
situation was an anomaly and there had not been a similar
situation in the 30-plus years she worked for the agency.
The agencies communicated that the situation was caused not
by a system failure, but by an attempted intrusion.
Representative Bynum thanked the division for the
presentation. He was interested in the budget process to
talk about employee retention and when employees left, why
it was happening. He assumed the current meeting was not
the forum but there would be time for the discussions in
the future. He asked if his assumption was correct.
Ms. Lea responded that the Division of Personnel was the
correct agency to speak to the issue, they conducted exit
interviews when employees left state employment. She noted
that state employees represented over half the members in
the system. Otherwise, DRB had no idea why an employee was
leaving or why they wanted to make a disbursement.
3:04:23 PM
Co-Chair Josephson noted that the Division of Personnel had
recently presented to the committee.
Representative Bynum referenced legislative concerns with
vacancies and recruitment. He remarked that the committee
had talked about the compensation and pay study the
previous day and had been told there would be another
opportunity to talk about it in more detail in the future.
He thought it was important for the committee to have a
better understanding of the issue when considering the
health of state employees and the services provided.
Co-Chair Josephson shared the concern and noted that
Representative Bynum had raised the issue the prior day. He
noted that it was calendar sensitive and he would ask his
staff to take note of the request.
Co-Chair Josephson reviewed the schedule for the following
day.
ADJOURNMENT
3:05:47 PM
The meeting was adjourned at 3:05 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| DOA_PERS_TRS_Overview_HFC-2026.pdf |
HFIN 2/3/2026 1:30:00 PM |
|
| DOA PRS TRS HFIN referenced article 020326 re House Bill 78 .pdf |
HFIN 2/3/2026 1:30:00 PM |