03/23/2009 03:15 PM House LABOR & COMMERCE
| Audio | Topic |
|---|---|
| Start | |
| HB30 | |
| Adjourn |
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 30 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
HOUSE LABOR AND COMMERCE STANDING COMMITTEE
March 23, 2009
3:19 p.m.
MEMBERS PRESENT
Representative Kurt Olson, Chair
Representative Mike Chenault
Representative John Coghill
Representative Bob Lynn
Representative Robert L. "Bob" Buch
Representative Lindsey Holmes
MEMBERS ABSENT
Representative Mark Neuman, Vice Chair
COMMITTEE CALENDAR
HOUSE BILL NO. 30
"An Act repealing the defined contribution retirement plans for
teachers and for public employees; providing a defined benefit
retirement plan for teachers and public employees; making
conforming amendments; and providing for an effective date."
- HEARD AND HELD
PREVIOUS COMMITTEE ACTION
BILL: HB 30
SHORT TITLE: REPEAL DEFINED CONTRIB RETIREMENT PLANS
SPONSOR(s): REPRESENTATIVE(s) HARRIS, HAWKER, MUNOZ
01/20/09 (H) PREFILE RELEASED 1/9/09
01/20/09 (H) READ THE FIRST TIME - REFERRALS
01/20/09 (H) L&C, STA, FIN
03/18/09 (H) L&C AT 3:15 PM BARNES 124
03/18/09 (H) Heard & Held
03/18/09 (H) MINUTE(L&C)
03/23/09 (H) L&C AT 3:15 PM BARNES 124
WITNESS REGISTER
PAT SHIER, Director
Division of Retirement & Benefits
Department of Administration (DOA)
Juneau, Alaska
POSITION STATEMENT: Testified and answered questions during the
discussion of HB 30.
REPRESENTATIVE CATHY MUNOZ
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Testified as one of the joint prime
sponsors of HB 30.
KEVIN BROOKS, Deputy Commissioner
Office of the Commissioner
Department of Administration (DOA)
Juneau, Alaska
POSITION STATEMENT: Testified and answered questions on HB 30.
JOSEPH MINNICK
Kenai, Alaska
POSITION STATEMENT: Testified in support of HB 30.
TOM BOUTIN
Juneau, Alaska
POSITION STATEMENT: Testified during the discussion of HB 30.
PATRICK OWEN
Juneau, Alaska
POSITION STATEMENT: Testified during the discussion of HB 30.
BOB DOLL, State President
Retired Public Employees Association (RPEA)
Juneau, Alaska
POSITION STATEMENT: Testified on behalf of the RPEA in support
of HB 30.
HOLLY ABEL, Psychologist
Kenai Peninsula Education Association (KPEA) (NEA-AK)
Kasilof, Alaska
POSITION STATEMENT: Testified during the discussion of HB 30.
GARY MILLER
Juneau, Alaska
POSITION STATEMENT: Testified during the discussion of HB 30.
CLIFFORD COLE
Juneau, Alaska
POSITION STATEMENT: Testified during the discussion of HB 30.
LEE BUTTERFIELD
Anchorage, Alaska
POSITION STATEMENT: Testified during the discussion of HB 30.
JILL SHOWMAN, President
Mat-Su Education Association (MSEA)
Wasilla, Alaska
POSITION STATEMENT: Testified during the discussion of HB 30.
SHAWN ARNOLD, Teacher
Wasilla, Alaska
POSITION STATEMENT: Testified during the discussion of HB 30.
BARB ANGAIAK, President
National Education Association, Alaska (NEA-Alaska)
Anchorage, Alaska
POSITION STATEMENT: Testified in support of HB 30.
REPRESENTATIVE CHRIS TUCK
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Testified during the discussion of HB 30.
LADAWN DRUCE
President
Kenai Peninsula Education Association (KPEA)
Soldotna, Alaska
POSITION STATEMENT: Testified during the discussion of HB 30.
MELODY DOUGLAS
Chief Financial Officer
Kenai Peninsula School District
Soldotna, Alaska
POSITION STATEMENT: Testified during the discussion of HB 30.
DON GRAY, Volunteer
Alaska Retired Educators Association (AREA)
Fairbanks, Alaska
POSITION STATEMENT: Testified in support of HB 30.
CHARLEY WALTON, Representative
Alaska Local 302 and Local 71
Fairbanks, Alaska
POSITION STATEMENT: Testified during the discussion of HB 30.
RYAN MARQUIS
Kenai, Alaska
POSITION STATEMENT: Testified in support of HB 30.
FRANCIS MCLAUGHLIN
Anchorage, Alaska
POSITION STATEMENT: Testified in support of HB 30.
DAMON JACKSON, Police Officer
Anchorage Police Department
Anchorage, Alaska
POSITION STATEMENT: Testified during the discussion of HB 30.
JAMES DOKKEN
Wasilla, Alaska
POSITION STATEMENT: Testified during the discussion of HB 30.
LAWRENCE WEISS, Executive Director
Alaska Center for Public Policy
Anchorage, Alaska
POSITION STATEMENT: Testified during the discussion of HB 30.
PAT LUBY, Advocacy Director
AARP
Juneau, Alaska
POSITION STATEMENT: Testified in support of HB 30.
ACTION NARRATIVE
3:19:40 PM
CHAIR KURT OLSON called the House Labor and Commerce Standing
Committee meeting to order at 3:19 p.m. Representatives Buch,
Chenault, Coghill, Holmes, and Olson were present at the call to
order. Representative Lynn arrived as the meeting was in
progress. Representatives Doogan, Kelly, and Seaton were also
in attendance.
HB 30-REPEAL DEFINED CONTRIB RETIREMENT PLANS
3:20:17 PM
CHAIR OLSON announced that the only order of business would be
HOUSE BILL NO. 30, "An Act repealing the defined contribution
retirement plans for teachers and for public employees;
providing a defined benefit retirement plan for teachers and
public employees; making conforming amendments; and providing
for an effective date."
3:21:10 PM
REPRESENTATIVE BUCH referred to a letter he received dated
February 12, 2009 from the Legislative Research, but noted that
he did not have any backup for the $202 million in savings the
consultants indicated the state has saved under the defined
contribution (DC) plan in the past three years.
3:21:58 PM
PAT SHIER, Director, Division of Retirement & Benefits,
Department of Administration (DOA), explained that any savings
would be due to the difference in the contributions the state
must make on behalf of municipalities and the state to bridge
the gap between the 22 percent statutory rate and the rate
calculated by the actuary. He reiterated that calculations for
savings post Senate Bill 141 were determined by taking the 22
percent public employers' rate and any additional amount that
the actuarial projects.
3:24:15 PM
CHAIR OLSON recalled that in 2007 - 2008 the City of Fairbanks
rate was 124 or 125 percent. He stated that the state paid the
difference between 22 percent and the 124 percent figure. He
offered his belief that 2007 was the last year for individual
rates. After that the rates are blended rates, he opined. He
further recalled that the amounts varied between political
subdivisions throughout the state. He mentioned that the
committee anticipates receiving a breakout that will provide
additional details. He stated that the Fairbanks rate was
124.66, with the 2008 rate of 135.91, and the 2009 rate would
have been 140 percent but it was a blended rate. Thus, the
state picked up a significant portion of the cost.
3:25:07 PM
REPRESENTATIVE CATHY MUNOZ, Alaska State Legislature, recalled
the discussion of the $200 million figure at the last meeting.
She stated that it is very difficult to ascertain the
information source. She said this is the first time she has
heard reference to the contribution rates throughout the state.
She reviewed the Buck Consultant's projections and the actual
fiscal note, which do not match. Thus, she was not certain
about the $200 million.
CHAIR OLSON reiterated that the committee will receive
additional information. He offered his belief that the bulk of
the amount is what the state is absorbing from various political
subdivisions.
3:26:23 PM
KEVIN BROOKS, Deputy Commissioner, Office of the Commissioner,
Department of Administration (DOA), introduced himself.
3:26:41 PM
REPRESENTATIVE HOLMES comparing the Buck Consultants' letter
related her understanding that the TRS plan cost more than the
defined benefit (DB) plan, but it does not seem to mesh with the
fiscal notes. She asked to have the fiscal notes explained. In
response to Mr. Brooks, Representative Holmes referred to the
February 12, 2009 letter from Buck Consultants.
MR. BROOKS opined that it is important to note that the letters
from Buck Consultants are responses to very specific questions.
He stated in the first one, the state asked for a comparison of
cost between two tiers: the new tier and the last defined
contribution (DC) tier. He explained that in subsequent memos,
the state asked for the cost to the state in order for the
division to have the ability to prepare the fiscal notes on the
bill. Thus, the matter becomes somewhat complex because Buck
Consultants uses the total DB payroll, which is significantly
higher than the DC system. Thus, different rates are assessed
against both of them, with different normal cost for each
employee.
MR. SHIER referred to Buck Consultants letter dated February 12,
2009, to last sentence of the first paragraph, which read: "The
rates were determined using the payroll applicable to each group
and are not based on total payroll." He referred to page 2 of
the letter, to the Teachers' Retirement System to the total of
8.96 percent. He explained that is 8.96 percent divided by the
TRS DB payroll only. He further explained that on page 2, the
Defined Contributions Retirement Plan (DC) is a sum of the
contributions in that column. Thus, the total is 11.40 percent
which is applied to payroll. However, he pointed out that these
are only the normal cost rates, without any consideration of
past service cost, which is a feature of the DB plans. More
important, the denominator is separate.
MR. SHIER explained that in arriving at the overall rate for the
DC plan, the DCR payroll is included in the denominator. He
noted that the denominator ranges from $1.5 billion to $1.9
billion for the combined systems. He reiterated that Mr. Brooks
aptly pointed out that when the division asked the consultant
the question, "Can you compare the rates for us?" that it
received this letter. Thus, the division soon realized that it
was not useful to help determine the actual fiscal effect.
Therefore, the division asked the next question, "What are the
fiscal effects using the current method of arriving at employer
rates, keeping in mind that the statutory rate is 22 [percent];
that the state is on the hook for everything above 22 [percent].
Tell us that number for a fiscal note period of significance."
3:31:12 PM
MR. SHIER stated that those numbers are reflected in the fiscal
note. He highlighted that Buck Consultants performed a
calculation, as actuaries do, which is to take the entire
payroll and attempt to project the DB rate. Under the current
scenario, the consultant used an assumed level of 75 percent for
the anticipated DB, and calculated how that would affect the
actuarial calculation of the rate. He opined the fiscal notes
are reflective of an increase between 22 percent and what the
actuarial rate would be in future periods.
3:32:38 PM
REPRESENTATIVE HOLMES related her understanding that the DB
system is closed. She recalled testimony with respect to
timelines for investing, that once the system is closed, that
rates of returns are reduced. Thus, for those employees in the
closed DB system, the state may actually end up funding more
over time since the system is closed. She inquired as to what
effect that has to counterbalance some of the differences in
cost between the two systems.
3:33:53 PM
MR. SHIER stated that if the DB plan were to close for new
participants, but also for new funds, that would have a dramatic
effect in having to rebalance asset allocation. However,
passage of Senate Bill 123 allowed the assessment in the
employer rate of an additional amount above the DC
contributions. He referred to the Buck Consultants' letter of
February 12, 2009, to the figure for Public Employees'
Retirement System (PERS) (All members) to the DC Plan Tier 4
total of 9.23 percent. Yet, employers are paying 22 percent,
for the total payroll. Thus, the difference between 9.23
percent and 22 percent continues to flow into the DB plans to
help pay down the unfunded liability. As the DB payroll
continues to grow, currently at 20 percent of the PERS payroll,
the funds are a constant source of new investment and new cash,
which delays any need to reallocate assets. He highlighted that
"there are a lot of other moving parts". He surmised that if
the current markets dictate that assets should be reallocated,
it could result in a different assumed rate of return.
Additionally, changes could affect the actuarial projections
such that 8.25 percent might be considered too high.
3:35:43 PM
MR. SHIER recalled a conversation with the department's chief
investment officer. The investment officer recalled asking Buck
consultants when asset reallocation might take place and the
consultants projected that might happen in 2025, based on this
change alone. Thus, he related he did not want to suggest that
asset allocation will never change. He surmised that it could
not be predicted. He further surmised that as a result of the
state changing to a DC plan that asset reallocation is far in
the future, if at all, and depends on a variety of factors.
3:36:57 PM
REPRESENTATIVE BUCH stated that some information in members'
packets suggests that the DB investments out perform the DC
investments. He inquired as to whether the most current fiscal
note (FN) reflects this.
MR. SHIER explained that the FN is a description of the impact
on the General Fund for the state's contribution above 22
percent in the event of this change. He offered his belief that
it is a best guess and discusses a 75 percent rate of
individuals choosing to participate. He opined there are
differences, with respect to the rates of return comparatively
between the hybrid DC and the DB plan.
3:38:40 PM
REPRESENTATIVE BUCH opined that he has been calculating those
differences as a function of performance. He stated that one
component of the discussion when reviewing cost analyses should
be to review the impact that investments have on retirees as
well as the state, the board, and the ending balance.
MR. SHIER advised that losses that individuals in DC plan have
sustained are not included in the fiscal note.
3:39:27 PM
REPRESENTATIVE DOOGAN referred to the fiscal note dated 3/16/09,
labeled "Statewide". Per the fiscal note, for FY 2011 the
operating expenditures are projected at $15.6 million. He
related his understanding that the figure represents the
difference between actuarial projections and the 22 percent
employer rate cap for PERS and the 12.56 percent employer rate
for TRS. He asked the reason for such a large difference.
MR. BROOKS explained that the Division of Retirement and
Benefits asked the actuaries for the cost impact on the systems
if the changes are made. He highlighted that one of the biggest
changes going back to DB system is the impact of health care
costs for retirees. Currently if an individual retires from the
DC plan, the retiree must be 65, or retire from the system.
Depending on years of service, there is a co-pay portion, but
the health care benefits are limited by the DC plan. Thus, by
returning to the DB plan, the state must also cover health care
costs for anyone 60 years and older with 10 years of service.
Thus, the additional health benefits for returning to a DB plan
will cost the state. He opined that health insurance is the
largest driving factor. He related the state covers the full
cost of retirement between 60 and 65 years of age for anyone
with 10 years of service. Thus, a person can work from 50 to 60
years of age and retire, or work from 20 to 30 years of age, and
leave the state. However, once the person turns 60 they are
eligible for health care coverage at 100 percent, until he/she
reaches 65 years of age and the state's system becomes secondary
to Medicare. He reiterated that the increased cost associated
with the DB plan contributes significantly to the increased
annual cost reflected in the fiscal note.
3:42:39 PM
MR. BROOKS related his understanding that there is not an
increase to the unfunded liability since the bill is written
such that an individual in a DC plan returning to a DB plan
would only be able to bring whatever service he/she could afford
with their prior earnings. He related a scenario in which a
person works under a DC plan for two years. In the event that
HB 30 passes, the individual's account would only buy him/her
one year in a DB plan. Therefore, the change in systems would
not increase the state's unfunded liability. Instead, the state
would accrue increased costs by returning to a "richer"
retirement plan.
3:43:46 PM
REPRESENTATIVE DOOGAN related his understanding that the fiscal
note is based on a certain number of retirees, which is not
reflected in the analysis section of the fiscal note since the
$15.6 million increment for FY 2011 would only reflect the
additional cost of reverting to a DB plan.
MR. BROOKS agreed that the fiscal note reflects the increased
cost. He explained that the actuaries would provide an employer
rate as a percentage of the state's payroll that would result in
a $15.6 million increase.
REPRESENTATIVE DOOGAN asked if that increase would be due to
health care benefits.
MR. BROOKS answered that overall health care benefits is a
significant factor. He explained that the model used actually
accounts for each person's age, and health.
REPRESENTATIVE DOOGAN related his understanding that big cost
causers were Tier 1 and Tier II retirement plans. He related
his understanding that according to the fiscal note the
difference between the Tier III costs and the DC plan is nearly
$16 million.
MR. SHIER explained that earlier tiers appear on the actuarial
report. The actuarial was specifically asked to compare costs
between the most recent tiers for PERS and TRS, and DCR. Thus,
the fiscal note reflects an increment over the current
retirement costs. He offered his belief the costs are due to
the DCR returning to the most recent tier. Thus, the fiscal
note reflects an increment between the DC and the Tier III
retirement plan, for example.
3:46:57 PM
REPRESENTATIVE HOLMES asked whether a breakout is available for
the health care.
MR. SHIER referred to a letter from Buck Consultants that break
out the effects on normal cost of health care for both pensions.
CHAIR OLSON requested the information. He announced that he
would take public testimony and asked testifiers to indicate if
they are participants of a DB or DC plan, and if so, which tier.
3:48:18 PM
JOSEPH MINNICK stated that he is a state employee under the Tier
IV retirement plan. He offered his support for HB 30 and urged
the committee to support the bill. In 2006, he applied for
employment with the State of Alaska under the DB, Tier III
retirement plan. He received an invitation for training and
relocated to Alaska at his own expense. He stated that as
training began he learned that the retirement system was changed
and new hires as of July 2006 would fall under the Tier IV, DC
plan.
MR. MINNICK mentioned that he is cannot participate in the
Social Security system. Thus, he is denied yet another
opportunity to establish a DB plan. He related upon retirement
under his Tier IV DC plan, that he will have a 401(k) investment
after 25 years of service, without health benefits or DB
retirement. He informed members that he and his wife have
decided that they need to have a DB retirement plan such as
those offered in Tiers I, II, and III service. He related that
as of March 2009, contributions to his Tier IV retirement plan
total $20,482. He highlighted that his Tier IV retirement plan
is currently valued at $12,433, which reflects a 66 percent
loss. He opined that the current benefits do not outweigh the
future losses in a poor retirement system. He surmised that on
his fifth anniversary of state employment in 2011 that he will
reevaluate his employment if a DB plan is not restored.
MR. MINNICK further opined that the longer a peace officer works
the more valuable he/she becomes to the public's safety. He
related that the years of service that an officer invests has
real monetary value. He offered his belief that losing a public
safety employee is similar to losing a valuable asset. The loss
is exacerbated since more funding must be spent to select,
train, and prepare a replacement. The Department of Public
Safety (DPS) indicates that it costs approximately $9,500 to get
a prospective trainee to the police academy. He pointed out
that only 74 percent of trainees complete the academy, and of
those 84 percent finish field training. He surmised that
training a recruit could easily cost $150,000 when academy and
field training costs are considered. He emphasized that a DB
plan that includes health care coverage is a valuable tool to
attract and retain quality police officers. He stated for the
financial well-being of his family that he will be forced to
evaluate the retirement plan to determine if he will continue to
work for the state. He urged members to consider voting in
favor of HB 30 and return to a DB retirement plan.
3:51:56 PM
REPRESENTATIVE BUCH asked Mr. Minnick about any personal
experience he has had with co-workers who are in the same
situation.
MR. MINNICK stated he could not speak for anyone else, but
related his understanding that his co-workers have also
expressed concern about the DC Tier IV retirement plan.
3:52:30 PM
TOM BOUTIN stated that he is a retired Tier I public employee.
He stated that he has been an Alaskan for 27 years, primarily
working in the private sector. He noted he also worked for
state. He mentioned he listened to last week's hearing twice.
He asked to clarify several points. He opined that paying
employer contributions as a percentage of payroll is merely a
convention. He further opined that the unfunded liability and
risk of it growing now or after DB is a red herring and leads to
poor decisions. He offered his belief that the actual unfunded
liability would be lower today if Senate Bill 141 had not been
enacted.
MR. BOUTIN stated that despite DB not accepting new enrollees,
the unfunded liability continues to grow. He emphasized there
is no way any proper accounting could show that DC is saving
money, in fact, an audit would show a net cost, which are
demonstrated by the letters from Buck Consultants. However,
there are greater costs with DC. He recalled that
Representative Munoz described one of the larger ones last week.
He further recalled that DC proponents state that wages need to
be raised to private sector levels. However, the public sector
has job types that the private sector does not, such as police
officers, correctional officers, and firefighter. He opined
that people would need to work longer and it is not feasible for
older people to climb ladders. He further opined that adopting
DC sends the message that when their knees give out they need to
look to Wal-Mart for jobs. He stated that he operated logging
camps for many years, and when people became too old to fell
timber, the people qualified for disability. He recalled that
when the employer provides health insurance, that workers will
get treatment for pneumonia. If the same worker does not have
health insurance, he discovers he has a "bad back" and goes to
town on a Workers' Compensation claim and still gets treated for
pneumonia. He emphasized that DC sets up the same situation.
He surmised that too often, government claims savings but a full
accounting provides unaccounted cost. He urged members to move
HB 30 to the next committee.
3:57:23 PM
PATRICK OWEN explained that he is a 45 year Alaska resident and
has worked in construction and merchant marine employment. He
stated that he is a retired Tier 1 employee. He opined that a
lot of good people need DB and suggested reverting back to the
DB plan. He offered his belief that the state would be able to
hire good employees and retain them.
3:58:34 PM
BOB DOLL, State President, Retired Public Employees Association
(RPEA), on behalf of the RPEA, stated that he is a Tier IV
retiree from his service to the Department of Transportation &
Public Facilities (DOT&PF) in 2003, but that he has less than 10
years of service. He applauded his representative for
sponsoring HB 30. He asked to speak in support of HB 30. He
explained the RPEA represents 2,200 retired teachers and other
public employees. He offered that RPEA believes that Alaska's
public policy should be to support Alaska's families from young
to old. Alaska's leaders should encouraged Alaskans who built
careers and raised families in Alaska to remain active members
of the community as retirees.
MR. DOLL related that RPEA supports HB 30 because it will
restore incentives the state can provide to public employees to
continue to live in Alaska after retirement. He opined that
without the changes proposed in HB 30, there are few incentives
for state employees covered by DC plan to stay and contribute to
Alaska after retirement. Currently, over 18,000 retired public
employees reside in Alaska. According to a September 2006,
study by the University of Alaska's Institute of Social and
Economic Research (ISER), 23 percent of retirees were public
employees. The study found that in 2004, Alaska's retirees
brought an estimated $1.46 billion into the state, roughly equal
to what Alaska's fishermen were paid for their seafood harvest
or the value of resources mined in Alaska in 2004. He
summarized that Alaska retired public employees make a
significant contribution to Alaska's economy.
MR. DOLL stated that their spending creates many year round
jobs, from low wage jobs to high paying jobs in health care. In
addition to substantial financial contributions to the economy,
retirees provide significant volunteer work. If for no other
reason than the strength and health of Alaska's economy,
Alaska's public employees should be encouraged to live out their
retirement years in Alaska and not relocate to some other state
or country that would reap the economic benefits of their
retired investments. Others have testified about the DB program
and that it provides a financial safety net compared to what is
offered by the DC system. He asked to draw attention to the
potential to restore the 10 percent Alaska cost of living
allowance (COLA), post retirement pension adjustment and post
retirement health care benefits. Retired public employees under
the DB benefits receive the COLA established in 1966 as an
allowance to assist retirees who elect to remain in the state to
defray the higher cost of living in Alaska. He pointed out that
the COLA is not awarded to employees in the DC plan. The
retired employee under the DB plan is entitled to a post-
retirement adjustment when the cost of living increase is based
on a consumer price index for Anchorage. Like the COLA benefit,
current law does not provide a pension adjustment under the DC
program. In summary, 50 years ago Alaskans achieved a life-long
dream. Alaskans gained the legal status as a state and could
determine its own future and how its resources were developed.
He said, "To reach these goals, as it does today, required a
workforce that could make the case on Alaska's behalf." The
Alaskans of that day attracted and retained the talent necessary
to give us the advantages we now enjoy. That effort has not
ended. He said:
If we want to compete with our sister states, we need
to find the same kinds of talent. We're at a
disadvantage, however. A person starting a career
with the State of Alaska today is denied a reliable
retirement pension with very little limited access to
post-retirement health care coverage and no cost of
living adjustments. REPA asks that the Labor and
Commerce Committee move HB 30 out of committee with a
favorable recommendation. Thank you, Mr. Chairman,
for your time and attention.
4:03:49 PM
HOLLY ABEL, Psychologist, Kenai Peninsula Education Association
(KPEA) (NEA-AK), stated that she was born in Soldotna and was
raised in Kasilof. She explained that her parents were lifetime
educators who retired under the Tier I TRS system. She said she
was disappointed to learn about the retirement. She explained
that she was excited to come home. She stated that she does not
have social security and does not know what to expect. She
explained that this is unsettling and she wants to have
something secure for her retirement. She offered her gratitude
that her parents have a good retirement system. She related
that she worries about becoming a parent and what type of burden
her children would inherit. She said she considered private
practice to make more money. She apologized, explaining that
this is an emotional issue for her. She said, "I'm very scared
and anxious about how I'm going to, whether I can stay in my
home, which is Alaska, or if I should look somewhere else. It
would be really heartbreaking for me to have to leave. I
suppose it would be a possibility, but I prefer to stay. I'd
like to see HB 30 pass."
4:06:51 PM
GARY MILLER, stated he is a Tier I retiree. He offered his
belief that his retirement system is very good. However, he
noted that he just qualifies for social security, has 27.5 years
with the state and a year and a half with the City and Borough
of Juneau that his social security will be reduced. He related
that he does not have any deferred compensation since he paid
for his children and home. He stated that he has Supplemental
Benefits System (SBS) annuity. However, since the market
crashed he said he does not dare touch his SBS. He opined that
if he did not have a DB system, he would need to consider going
back to work. He urged members to vote yes and pass out HB 30.
4:08:20 PM
CLIFFORD COLE stated that he has been a Juneau resident for 45
years. He related he and his wife are retired public employees
and receive pension checks from their DB plan. He stated he
strongly endorses the DB plan and finds the stability of their
plan makes it possible to stay in Alaska. He opined that the DC
plan is more of lottery such that the retiree hopes to get a
return. He offered his belief that the defined benefit plan was
the reason they went to work for the state. He related that
their private sector experience in accounting and construction
management was a benefit to the state. In turn, they could
count on a retirement. He questioned where funds to keep the
retirement system solvent would come from if the DB plan is not
continued for new employees. He urged members to please move
the HB 30. He mentioned that he came to work at age 50, after
running his own companies. He stressed his inability to obtain
sufficient funds for retirement in the private sector. At that
time, health insurance plans were just developing in the private
sector. He also mentioned he had performed contracting for the
state so it was an easy transition. He said, "I would hate to
see this slip by and not be, and not have the benefits that I've
been able to acquire to stay in the state and keep working
here."
4:11:31 PM
LEE BUTTERFIELD stated that he currently teaches at Hanshew
Middle Schoolin Anchorage. He indicated that he was introduced
during the legislative session as a two-time combat veteran.
During that time, he suffered having his left arm paralyzed,
lost some motor function in his left hand, his right hip was
pulled from the socket during an explosion and he received eight
traumatic brain injuries during five days. He said, "If there
is any question on whether I know the true price of serving my
community, I hope they are now gone." He presented himself as
three identities: as a 28-year old father of a four-year old
who will attend the Turnagain Elementary School, as a homeowner
who pays property taxes, and as a Tier III TRS employee. He
offered his hope that the committee would move forward HB 30 to
address each of his identities. First, as a Tier III employee
his retirement is determined by the legislature's decisions,
which are sometimes "whims of people throwing paper around in a
room where I never see and I have no control over it." He
opined that he does not like putting a dollar into a slot
machine to risk receiving a return of seven cents.
MR. BUTTERFIELD related that as a homeowner, he recognizes
police and firefighters keep his community, neighborhood, and
family safe. He opined that someone who has worked in his
community for 20 years knows the area "like the back of their
hand" is going to keep it that way, rather than someone who is
present for three to five years and leaves due to deficient
retirement systems. He further opined that raises his property
values and taxes that he pays. He said he is willing to pay the
taxes. He related that as a father he wants his daughter to
have teachers who are willing to stay and learn to teach in
Alaska. He offered his belief that teaching in Alaska is
different. He explained that he came from Montana, and
graduated with honors from the University of Montana, Missoula.
He reiterated teaching is different in Alaska. He said he wants
his daughter to have teachers that understand that and are
willing to stay long enough to understand children in their
classrooms. He concluded by saying, "Policemen and firefighters
protect, are present in order to give a secure and safe future,
and teachers are responsible for bringing every person that
contributes to society up in this world, including those people
who run our state and federal governments. Thank you for
letting me be here. I'm honored to be in front of you."
4:14:44 PM
JILL SHOWMAN, President, Mat-Su Education Association (MSEA),
stated that she is a Tier II TRS employee. She related that she
represents about 1,200 educators from Glacier View Elementary
School to Trapper Creek Elementary School. She recalled prior
testimony, that the community is concerned about retention and
recruitment of teachers. She offered that in the past three
years, teacher turnover is 90 to 100 teachers per year, which is
close to 8 to 10 percent turnover. She emphasized that the
school district is having a difficult time finding and keeping
educators, primarily due to the DC plan and the lack of social
security benefits. She highlighted that recruitment efforts
span many Lower 48 states, and in job fairs to supplement job
fairs held in Alaska. She opined each time the school district
hires a teacher who is new to the district that the district
must provide professional development including materials and
training that costs upwards of $100,000. She stressed training
is a burden to the school district.
MS. SHOWMAN provided personal information, reiterating that she
is a Tier II TRS employee, who has been in Alaska 12 and a half
years, relocating from Iowa. She highlighted when former
students ask her about teaching in Alaska that she tells them
with the current TRS retirement system in Alaska they should
look outside the state for employment or should choose a
different occupation. She said, "That is very disheartening to
me because education is the soul of our community. And without
good public schools we won't have a future. Thank you very much
for this opportunity." She urged members to pass HB 30 and
thanked them for their service.
4:18:01 PM
SHAWN ARNOLD stated that he is a Tier III TRS teacher. He also
stated he is currently an English teacher in the Matanuska-
Susitna Valley at Colony High School. He offered that he is in
his second year of teaching, but spent 12 years in the military
in Air Force and the Army. While he is not originally from
Alaska, he says he fell in love with the state when he first
arrived in Alaska. He mentioned that he joined the military to
complete his college education. He knew he wanted to be a
teacher. He reenlisted after 9/11 to serve his country for
another four years. However, once he began teaching, he
realized the retirement system had changed. He recalled the
military retirement such that after 20 years service he would
have been under a plan that is similar to a DB plan. He
stressed that the military takes care of their enlistees.
4:20:10 PM
MR. ARNOLD asked why troops and teachers should not be
supported. He opined that with the current DC retirement plan
the support is not there. He said, "The support for my country
would have been rewarded but now my support for my service in my
community, in my service there, isn't going to be rewarded and
helped out." He thanked members and urged the committee to move
the bill forward.
4:21:22 PM
BARB ANGAIAK, President, National Education Association, Alaska
(NEA-Alaska) stated that the NEA-Alaska has 13,000 members
statewide. She offered NEA-Alaska's support for HB 30. She
offered that NEA-Alaska is very concerned about new people and
for the future of our children. She related that she is a Tier
I TRS employee and a 28-year middle school math veteran. She
opined that she has a great retirement system. She expressed
concerned about the future, if the system is not repaired. She
noted that she served three years as a statewide mentor, a
program that helps first and second year teachers become
familiar with classroom teaching and to reduce time to become
comfortable in the classroom. She explained that research shows
it takes teachers five years to hit their stride and become
effective teachers. Good mentoring can reduce that time by two
to three years. She recalls young teachers who relate that five
years will give them a glimpse their overall career path.
However, she stressed that if teachers of five or less years
decide to leave Alaska our children will suffer.
MS. ANGAIAK provided her personal history. Her daughter was
born and raised in Bethel. She is currently attending Brown
University, an Ivy League college. She opined that her daughter
received a good public education in Alaska. However, she said
she worries about the future education of Alaska's students and
whether teachers will be able to offer high quality programs.
4:25:11 PM
CHAIR OLSON inquired as to the retirement plan that the National
Education Association (NEA) has for its own employees.
MS. ANGAIAK answered that NEA offers two plans, depending on
when employees came into the system.
CHAIR OLSON remarked that is similar to the state's retirement
system which is based on when employees enter the system.
MS. ANGAIAK noted her agreement. She pointed out that the
difference is that NEA also offers social security benefits to
employees, which provides a safety net.
CHAIR OLSON mentioned that the state also provides the
Supplemental Benefits System (SBS).
4:25:57 PM
REPRESENTATIVE SEATON asked for clarification. He related his
understanding that any new NEA employees have a DC retirement
plan.
MS. ANGAIAK responded that new NEA employees have a 401(k), but
also have social security benefits.
4:26:22 PM
REPRESENTATIVE CHRIS TUCK, Alaska State Legislature, stated that
he is not in the state retirement system. He related that he
has a DB plan through the International Brotherhood of
Electrical Workers (IBEW) Local 1547. He further related that
he has both a DB retirement plan and a DC plan both of which are
paid on his behalf through his employers. He stated that IBEW
members vote on the total package of benefits that are
negotiated. He said he is proud of the membership since it
votes in favor of a DB plan. He opined that it is "the most
bang for the buck per participant." He offered his belief that
it is almost like putting money in a slot machine. He recalled
after 9/11, many plans were hard hit. He explained that the
IBEW has a partnership between employers and employees. He
acknowledged some adjustments were made such as for past service
credit, health plan, and the definition of the contribution and
amount paid out. Fortunately, by making those adjustments and
by recognizing the potential for unfunded liability, the fund
has grown and IBEW has been able to add additional employee
benefits. He said, "So it never made sense to me when the state
had a $6, 7, 8 billion in unfunded liability it was facing why
you would stop future contributions into a defined benefit plan
by rolling it into a defined contribution." He opined that if
it continued the DB plan, the state could continue investing,
continue its support, and bail itself out. He stated that in
serving in the legislature that he takes a three month absence
from his IBEW job, which results in a 25 percent reduction to
his retirement. He concluded by stating that he would like to
see Alaskans retire with dignity without being a burden on
society.
4:30:06 PM
REPRESENTATIVE SEATON related his understanding the IBEW has a
DB plan but due to unfunded liability, the union voted to cut
some benefits for awhile.
REPRESENTATIVE TUCK agreed for future contributions. He related
under the Taft-Hartley Act, also known as the Labor-Management
Relations Act, the IBEW has an obligation.
REPRESENTATIVE SEATON recalled that the amount of benefits
evened out for employees.
REPRESENTATIVE TUCK stated that if he understands the question,
for the unfunded liability obligation that future contributions
will benefit the plan
REPRESENTATIVE SEATON asked how IBEW structures its plan and
pays beneficiaries when the plan has an unfunded liability. He
further asked who incurs the liability.
4:31:54 PM
REPRESENTATIVE TUCK answered that the plans are federally
regulated and federally backed similar to banks that have FDIC
insurance. He stated that the IBEW has a Pension Benefit
Guarantee Corporation (PBGC). He recalled that until 2004 that
PBGC has not changed its rate due to the stability of the DB
plans.
CHAIR OLSON offered his belief that the initial portion of the
bailout funds into industries that had significant shortfalls on
their DB programs, such as the auto and airline industries. He
recalled that 30 percent of the funding went to fund plans that
were collapsing.
4:33:09 PM
REPRESENTATIVE BUCH related that his retirement plan is similar
and financially allows him to be in the legislature. He related
that his union uses a system that assesses about a dozen
actuarial services that project 100 years. He offered that
since 2002 instead of paying a thirteenth check to retirees, the
union reduced retiree's benefits by eliminating the check.
Additionally, in 1998, one option was to provide a supplemental
to be 401(k). He recalled some members wished to be active in
control of their money. Thus, retirees can opt to select
investment strategies. He opined that some accounts have lost
half their value and the union is working to rebuilding the
funds. He offered his belief that the accounts are viewed as
savings accounts and not retirement accounts.
4:35:51 PM
LADAWN DRUCE, President, Kenai Peninsula Education Association
(KPEA), stated that the KPEA is an affiliate of the National
Education Association (NEA). She related that she is a Tier II
public employee and her husband is a Tier I public employee.
She asked the committee members to move HB 30 to the next
hearing. She thanked the bill sponsors. She opined that
members obviously know her position as president of the KPEA.
She recalled speaking to Chair Olson and Representative Chenault
on several occasions. She mentioned that she received an e-mail
today from a Tier III teacher who would like to have a
conversation with her about social security and her retirement.
She related that with respect to social security benefits, the
NEA is fighting at the national level to right the injustice.
She said she would love to report that her legislators are
anxious to "do the right thing" and return Alaska to a DB
system. She agreed with the sponsor's statement that the bill
would provide an affordable retirement plan, that it would help
reduce employee turnover. She said she would really like to
keep people like Holly Abel and her expertise in the Kenai
Peninsula. Further, she would like to keep Matt Johnson, who is
a second year teacher in Soldotna who just took the basketball
team to the state playoff last Saturday for the first time in
Soldotna's history. She stated that these are the people she
would like to keep in Alaska, teaching and working with students
in the school. She also appreciated Representative Buch's
statement of the necessity for a cost analysis for all parties,
including retirees. She asked to characterize the DC plan as a
failed experiment. She concluded by urging members to move HB
30.
4:39:05 PM
REPRESENTATIVE SEATON recalled statistics that indicated that
the last two years in which there was a DB plan only, the state
experienced a 59 percent two-year retention rate for teachers.
For those hired under the first two years of the DC plan the
state experienced a 64 percent retention rate. He asked if the
Kenai Peninsula is experiencing the same level of teacher
retention.
4:39:54 PM
MS. DRUCE asked for clarification that the statistics are
showing teachers are staying longer with a DC plan.
REPRESENTATIVE SEATON answered yes. He reiterated that from
July 2003 to June 2004 the retention rate for teachers was 59
percent, while those who were hired between July 2006 and June
2007 under the DC plan had a retention rate of 64 percent.
MS. DRUCE stated she did not have statistics. However, she
related from her own experience as a member of the education
community that it takes teachers a couple of years to get
settled. She opined that once they have three to five years of
experience, they tend to think about their retirement. She
mentioned this year, the district as a whole is "not non-
retaining non-tenured people." Thus, the statistics for the DB
plan, the Kenai district was not retaining non-tenured
employees. She surmised a lot of people probably left the state
for that reason and not due to the DB plan. She offered her
belief that it is not really sufficient time to provide proof.
She said, "What I can tell you is people are looking long and
hard after that second and third year and saying, "I may not be
able to afford to stay in education in Alaska"."
4:42:18 PM
MELODY DOUGLAS, Chief Financial Officer, Kenai Peninsula School
District, stated on behalf of the Kenai Peninsula School
District (KPBSD) that she has been actively communicating the
KPBSD's concerns with the PERS and TRS retirement plans since
2003. She related that the missing component in the discussion
is how to limit the growth of debt and the ability to pay the
debt. She asked the committee to consider her letter as part of
the official record concerning maintaining the DB and blended DC
currently in place. She read:
My comments will focus on the district's general fund
using audited FY 08 information. Thank you for the
$19.3 million dollar: $17.2 TRS and $2.1 for PERS, in
on behalf retirement funding provided to KPBSD in FY
08, and similar funding planned for FY 09. Continued
legislative support for supplemental funding is
critical for KPBSD to maintain the current education
program.
KPBSD is proud of making [adequate yearly progress]
(AYP) as a district in FY 07 and FY 08 and is pleased
to note that the Kenai Peninsula Borough funds Kenai
schools to the maximum allowed per state statute.
KPBSD FY 08 employer percentage rates for TRS relative
to on-behalf approximate for TRS 41.7 percent and for
PERS 14.48 percent. KPBSD had 596 fulltime
equivalency certified teaching staff in FY 08. Had
the legislature not provided on-behalf payments the
most likely method of addressing a $17 million
shortfall in TRS funding would be to reduce staff
since approximately 80 percent of our budget consists
of salary and benefits. A $17 million reduction would
mean a loss of approximately 274 teaching positions or
46 percent of general teaching staff. This means that
without the on-behalf funding class sizes would have
practically doubled and AYP would have probably
vaporized for the district. This picture for KPBSD is
the same on a go forward basis for as long as an
unfunded liability exists in the retirement systems.
My guess is all school districts in Alaska are in the
same boat. I concur and support the testimony
provided by Larry Semmens to this committee on March
18, 2009. I will not reiterate his points but instead
talk about the DC plan relative to hiring staff at
KPBSD. Frankly, I believe it is premature to evaluate
the effect of implementation of the DC plan on July 1,
2006 on hiring as we are in year three of the DC plan.
However, in discussing this matter with the district's
HR department, the DC plan has not been an issue in
hiring. KPBSD is actively involved in recruiting
statewide and by traveling outside annually to several
job fairs. The district hired 76 teachers in FY 08,
107 teachers in FY 98, and is expected to hire
approximately 75 teachers for FY 10. To date, none of
the teachers hired has expressed concern to HR over
the DC plan. It will be a surprise if this matter is
an issue in the upcoming hiring season, particularly
in light of teachers being laid off by many outside
school districts.
4:46:24 PM
MS. DOUGLAS read:
In addition, none of the interviews conducted with
exiting teachers included concerns about the DC plan.
In conclusion, much work has been done to implement a
blended DC plan, managed by knowledgeable investment
professionals. This arrangement benefits employees
more than a straight DC plan would. Essentially, by
the next time the numbers are released all the various
changes to the retirement plans, skyrocketing health
care cost, and unrealized investment earnings over the
years have created what will likely be a $10 billion
debt that now must be paid. Employers, including
school districts cannot function viably under
retirement rates like 54 percent for TRS, and 36
percent for PERS indicated for KPBSD in FY 08, until
the unfunded liability is finally paid some 25 years
or more down the road. The public sector can no
longer fund a DB plan. The course of action
implemented July 1, 2006, is the best solution to the
problem. Please stay the course set at that time.
Thank you, Mr. Chairman, for the opportunity to
comment on a matter of such importance to Alaska's
economic future and to the students who are committed
to paying the debt already incurred.
4:47:48 PM
DON GRAY, Volunteer, Alaska Retired Educators Association
(AREA), stated that he has been a resident since 1970. He
provided his work history, noting that he taught at Lathrop High
School for twenty-three years, was a financial advisor for two
brokerage firms for 11 and a half years, then retired. He
related that he is a Tier I TRS retiree. He related that he is
a volunteer for the Alaska Retired Educators Association (AREA),
and is also the legislative chair of the AREA's education
committee.
MR. GRAY stated that he is speaking in favor of passing HB 30.
He said that he thinks the state should examine the reason for a
pension plan. He stated the whole idea is to maintain a similar
standard of living. He opined that teachers in Alaska do not
have social security. He related the goal is to have a pension
plan effectively that provides the lowest cost to taxpayers yet
still maintains adequate retirement benefit. He recalled last
week's testimony raised concerns about the growing and
unpredictable retirement obligation, and projecting an enormous
unfunded liability. He offered his belief that describes the
future cost of health insurance which is not known. The
retirement benefit components are the pension plan, DB pension
plan for Tier I and Tier II, and health care. He mentioned that
health care is provided under that plan until Medicare is
provided at age 65, at which time the PERS/TRS health care
becomes secondary. He explained that when he began teaching he
only had a DB plan. In the mid-1970s since teachers were
leaving to work on the pipeline construction, the state
negotiated health care benefits for retirement.
4:51:08 PM
MR. GRAY related that he was a young teacher and did not pay too
much attention. After he retired he realized how important it
was to have the health care benefit. He opined the DB pension
is predictable and it is not too difficult to calculate the
benefit. He recalled testimony from the researcher at the
National Institute on Retirement Security that longevity risk
pooling can be used. Thus, all the contributions are lumped
together. While one cannot predict when people will die, it is
possible to predict when a group will die, which is the basis
for life insurance. He explained with investment
diversification, that the state can invest for the maximum
return. Therefore, the two elements make the cost predictable.
He concluded by stating that the goal is to provide the benefit
and does not cost too much. He pointed out that health
insurance component is separate from DB. He offered his belief
that more discussion needs to happen, that changes at the
national level will address the health care costs. He surmised
that we do not know what the health care cost will be in 25
years. He mentioned that 25 years ago hip transplants that are
commonplace were not being done.
4:53:38 PM
CHARLEY WALTON, Representative, Alaska Local 302 and Local 71,
stated that he is a 45 year resident, and lifetime member of
Local 302, and Local 71. He related that he has been a union
steward and a lifetime union member. He offered his belief that
he is fortunate to have a pension, social security benefits, and
Tier III pensions. He also mentioned he had a DB plan to cover
costs of heart bypass surgery three years ago. He opined that
without a DB plan that the public sector is losing workers. He
said, "You can't outlive social security, but you can outlive a
contribution plan." He stated that was a quote from Ann
Seacrest. He related statistics such that 29 percent of the
women who reach 65 years of age will reach 90 years of age. He
said 18 percent of men who reach 65 years of age will reach 90.
He asked, "What will Alaska do with all these teachers, police
officers, firefighters, public works people when they have
outlived their contributions. Alaska's got the largest growing
seniors per capita in the United States." He explained that is
due to the pipeline workers who are relocating their aging
parents. He surmised that at some point the health care issues
will be put forth to the Alaskans. He stated that the cost of
retaining someone in his department at the Fairbanks
International Airport is enormous. He detailed the skills and
training that are safety related. He emphasized that it takes
five to six years to train people and that the airport cannot be
a revolving training ground or have unqualified people that
cannot be trained. He opined that the DC plan is "not a way to
do it." He said, "I support HB 30 very, very highly."
RYAN MARQUIS stated that he is a public employee of the Kenai
Peninsula Borough and a PERS Tier IV employee. He expressed
concern with the DC system. He related his fear of the negative
impacts of a DC system on the future of the public sector. He
stated that he has discussed the retirement plans with some of
the newer employees that he works with and the responses are
less than comforting. He opined that there appears to be two
different groups of people in the workplace. The first group
does not realize what type of system they are in such that may
did not realize they would outlive their retirement and their
retirement security is in someone else's hands. They do not
understand how they can retire on what amounts to a savings
account when they do not have an option to choose how much they
can contribute. Many believe that chances are slim that their
retirement will provide them with secure future. Others have
expressed they do not intend to work until retirement.
MR. MARQUIS stated that the second group likes the DC plan.
They plan on working for five years until they are vested and
then plan to work some place else for a more secure retirement,
either in a DB plan or in a job with higher wages. He surmised
that these people will leave the system with all the investments
that the employer has invested in training and the employer
contributions made over those five years. He stated that he
does not want to pick either group since he loves his job and
the satisfaction gained from providing public service. However,
he noted that he must be mindful of his future. He stressed
that his concerns are more about Alaska's public sector. He
expressed concerned that with employees leaving the state with
employer contributions and training, that the public sector will
have a hard time attracting quality employees. He urged
legislators to work to help secure Alaska's future.
4:58:57 PM
FRANCIS MCLAUGHLIN stated that he would like to speak in support
of HB 30. He explained that it is time to repeal Tier IV. It
is about fiscal responsibility in that a pension system such as
Tier I, II, and III only work when younger people pay into the
system while retirees draw retirement funds. Since Tier IV
employees are not paying into the pensions system it has become
a "giant Barney Madoff Ponzi scheme." The pension system will
be depleted unless the Tier IV DC system is repealed and the
Tier IV employees are put back into the DB system. He offered
his belief that the Tier IV created the unfunded liability
problem for the state. He further opined that it would be
cheaper to place the Tier IV employees into the DB system than
to bail out Tier's I, II, and III. He stated that he was born
in North Pole, has a Master's degree in community planning, and
has worked as an urban regional planner. He was educated
Outside and always planned on returning home. He explained that
he was hired by the Municipality of Anchorage Planning
Department three years ago and bought his first house in
Anchorage. He said, "I'm stuck in a Tier IV category which only
encourages me to take my 401(k) and move to another state when
I'm vested in two more years. My boss is hopeful that I will
make my career in the Anchorage Planning Department and take up
the slack when the senior planners begin to retire next year."
He offered his belief that he will not be able to do so unless
Tier IV is repealed. He related his intention to move to
another state such as New York, that offers a pension and health
insurance upon retirement. He related that he does not have any
incentives to work for Anchorage since he has a 401(k) plan
without a pension or health insurance. He highlighted that if
he works for 35 years in Anchorage that he still would not have
guaranteed health insurance. Instead, he would have to buy
health insurance for the rest of his life. He said, "That is
not a risk that I am willing to take. That is not a choice that
Tier III employees have to make since they obtain health
insurance upon retirement. Furthermore, Tier III employees also
get a pension." He offered his belief that this is about being
fair to employees in the long run. He emphasized that Alaska
should try to recruit and retain the best qualified public
servants. He recalled his best friend in New York City is an
urban planner, whose retirement is the same as PERS Tier III.
Thus, he will have a pension and health insurance in retirement.
He said, "That's what I want. That is what I'll get when I move
to New York City or another similar city." He urged members to
support for HB 30. He said, "It is good public policy, the only
fiscally responsible thing to do, and simply the right thing to
do for the future of the state."
5:02:14 PM
DAMON JACKSON, Police Officer, Anchorage Police Department,
stated that he is a PERS Tier IV police officer and works the
swing shift patrol at the Anchorage Police Department. He
explained that he is also a Staff Sergeant in the Alaska
National Guard. He provided a brief history, explaining that he
was born in Los Angeles and started his career there. He said
he loved his job but could not complete education due to his
schedule. He joined the U.S. Air Force, completed his degree,
as well as obtained a Master's degree in Human Resource
Management. After ten years of service he was deployed to
Kuwait. He move to Anchorage in 2004, and joined the APD in
November 2007 but was not aware that he had DC plan and not a DB
plan. He related that with a single family income and two
special needs children that it is especially important for him
to have a DB plan. He opined that the current DC plans place he
and others like him in tough positions. He emphasized that the
military took care of us. He offered his belief that a change
in the retirement system would show support for law enforcement.
5:04:59 PM
JAMES DOKKEN stated that he is a Tier IV PERS employee, employed
by the APD, and is a member of the Anchorage Police Department
Employees Association. He has resided in Alaska five years,
served in Iraq, and decided to remain in Alaska when his service
was completed. He applied for the Anchorage Police Department
and completed their academy. He said, "I felt I wanted to
contribute my skills to a more local standpoint than in the
[U.S.] Army, and I felt that Anchorage was a great place to
work." He liked the community. He recalled testimony today and
the main argument to return to a DB plan is the cost to the
state. He further recalled last week's testimony that there is
a cost with a DB plan, but it provides more at retirement. He
expressed concern that a 401(k) plan will not secure his future,
and he will have to reevaluate his position. He opined that if
he leaves Alaska to acquire a better pension that it is unlikely
he would return since it is isolated. He related one reason
people work as teachers, firefighters, and police officers is
for the security. However, a DC plan will not provide security
without raising salaries. He opined that a DC plan will attract
the wrong kind of people to public service. He offered the goal
should be to attract people who want to return something to
their community after retirement. He recalled another reason
for a DB plan is for stability as retirees spend in the
community. He thanked members of the committee.
5:09:22 PM
LAWRENCE WEISS, Executive Director, Alaska Center for Public
Policy, stated that he a Tier I retiree in TRS. He related that
he formerly taught at the University of Alaska Anchorage. He
related he wanted to discuss the approach many people have taken
with respect to a DB plan. He recalled that Mr. Semmens used
the concept of unfunded liability frequently. He offered his
belief that this method of viewing the pension plan obscures the
facts and the actual status of the plan. He characterized that
approach as a means of framing the issue as a scare tactic. He
described another way of viewing the issue. When a person buys
a house he/she owes $500,000 in a 30-year mortgage. He/she
could develop heart palpitations because he/she earns $70,000
per year and there is no way to come up with the $500,000 to pay
off that "unfunded liability." However, you owe $500 thousand
over 30 years, which comes out to a planned payment of $2,000
per month. He stressed that the only way to feel good about
taking out a mortgage is to look at the entire 30 years, not
just the "unfunded liability" at one point in time. He offered
his belief that unfunded liability is similar to pensions since
they must be analyzed over 25 to 30 years in order to really
understand what they mean. He said, "In fact, the definition of
unfunded liability is the amount by which the liabilities of a
program exceed program assets at a given date. The last phrase
is very important. What will the unfunded liability be in 10
years, or 20 years, or 30 years when perhaps it will be paid
off, he asked. Actuaries can tell you that, and it is far more
useful information than harping on the unfunded liability at one
point in time, particularly at this point in time. It really
does not carry the conversation forward in a productive way."
He provided an example. He asked to quote a note sent to him by
a colleague who was close to the actuarial reports that were
issued at the time.
5:12:38 PM
MR. WEISS said, "She says, Proponents of [Senate Bill] 141", of
course, [Senate Bill] 141 is the legislat[ion] that got us to
where we are now - destroyed the pension system. "Proponents of
[Senate Bill] 141 should have done a bit more homework before
imposing a defined contribution on new employees. They should
have paid more attention to funding ratios rather than dollar
amounts." By dollar amounts, of course she is referring to the
unfunded liabilities. "For the 2005 valuation performed by the
new actuary, Buck Consultants, the PERS funding ratio for total
benefits was 70 percent. In 1979 the funding ratio was 68
percent - less - yet the funds recovered without Draconian
measures." Thus, a crisis was framing the issue as an unfunded
liability, a huge scary figure, rather than a funding ratio,
with historical precedent, even here in Alaska. He opined that
it really was not a crisis at all. He offered his belief that
one additional way of viewing the cost is by evaluating the
various tiers and what they cost. He read: "The PERS Tier III
defined benefit employees are just slightly more expensive,
according to Buck Consultants than the new defined contribution
employees and the new TRS defined contribution employees are
very slightly more expensive than the TRS Tier II defined
benefit employees." This means that before Senate Bill 141 went
into effect, before it obtained a defined contribution system,
the problems had already been addressed.
5:14:40 PM
PAT LUBY, Advocacy Director, AARP, stated that lifetime
financial security is a cornerstone of the American dream. He
said, "If you work hard, follow the rules, you'll be able to
retire without financial worries." AARP has a major concern.
Most of our public employees do not participate in federal
social security. He said, "You cannot outlive social security."
He opined that in the past it did not matter so much that our
public employees did not participate since they had a DB plan
that would last as long as they live. However, now they are
without a DB plan and social security. He said:
The American dream of a secure financial retirement no
longer exists for Alaska's duly hired public
employees. It is possible to make a defined
contribution plan work for you as long as you don't
live too long. But, most of us will live into our mid
80s, many of us into 90s. If a defined contribution
plan is to work for you, you need to know your life
expectancy. If married, how long will your spouse
live. Will you be healthy right up until your heart
stops beating or will you need some form of long-term
care? Medicaid does not pay for home health or
nursing homes. You're responsible for that bill.
What will inflation be for the next 20 years? Defined
benefits and social security provide annual [Cost of
living allowances] COLAs. The new DC plan doesn't.
Will there be inflation in health care costs over the
next 20 years? Any chance your utility bills will go
up? What are the odds that fuel oil or natural gas
may cost more? How about gasoline? You better have a
crystal ball to make DC plan work. It is true that
many companies switched from defined benefits to
defined contribution plans over the past few years.
But all of all of us who work in the private sector
have social security. No matter how much or how
little we save in 401(k)'s or [Individual Retirement
Accounts] IRAs we will always have the defined benefit
plan of social security that will last as long as we
live. Our public employees used to have the same
financial security before Senate Bill 141. No matter
how long they lived, no matter what bad luck life
circumstances dealt them, they would not starve. They
would not end up on public assistance. AARP members
rely on our public servants. They teach our
grandchildren. They put out our home fires. They
respond when we call for police assistance. We don't
want these honorable public servants to help us their
entire career, then worry about their health coverage
and whether they will outlive their savings when they
retire. They deserve better than that. Please
support HB 30 and give them the security they deserve.
5:17:37 PM
CHAIR OLSON, after first determining no one else wished to
testify, closed public testimony on HB 30.
5:17:49 PM
ADJOURNMENT
There being no further business before the committee, the House
Labor and Commerce Standing Committee meeting was adjourned at
5:17 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| 32 HB30-DOA-DRB-03-20-09 admin costs.pdf |
HL&C 3/23/2009 3:15:00 PM |
HB 30 |
| 33 HB30 Letter of Support - Cole 3-17-09.pdf |
HL&C 3/23/2009 3:15:00 PM |
HB 30 |
| 34 HB30 Letter of Support - AARP 3-18-09.pdf |
HL&C 3/23/2009 3:15:00 PM |
HB 30 |
| 36 HB30 Written testimony Melody Douglas 3-23-09.pdf |
HL&C 3/23/2009 3:15:00 PM |
HB 30 |
| 37 HB30 Written testimony Bob Doll L&C 3-23-09.pdf |
HL&C 3/23/2009 3:15:00 PM |
HB 30 |
| 38 HB30 Written testimony Tom Boutin L&C 3-23-09.pdf |
HL&C 3/23/2009 3:15:00 PM |
HB 30 |
| 39 HB30 Written testimony Clifford Cole L&C 3-23-09.pdf |
HL&C 3/23/2009 3:15:00 PM |
HB 30 |