Legislature(2015 - 2016)SENATE FINANCE 532
02/18/2015 01:45 PM Senate FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| Presentation: 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
SENATE FINANCE COMMITTEE
February 18, 2015
1:47 p.m.
1:47:30 PM
CALL TO ORDER
Co-Chair Kelly called the Senate Finance Committee meeting
to order at 1:47 p.m.
MEMBERS PRESENT
Senator Anna MacKinnon, Co-Chair
Senator Pete Kelly, Co-Chair
Senator Click Bishop
Senator Mike Dunleavy
Senator Lyman Hoffman
Senator Donny Olson
MEMBERS ABSENT
Senator Peter Micciche, Vice-Chair
ALSO PRESENT
Sheldon Fisher, Commissioner, Department of Administration;
John Boucher, Deputy Commissioner, Department of
Administration; Randall Hoffbeck, Commissioner, Department
of Revenue.
SUMMARY
^PRESENTATION: PUBLIC EMPLOYEES' RETIREMENT SYSTEM AND
TEACHERS' RETIREMENT SYSTEM
1:48:55 PM
SHELDON FISHER, COMMISSIONER, DEPARTMENT OF ADMINISTRATION,
discussed the PowerPoint, "Public Employees' Retirement
System (PERS) Teachers' Retirement System (TRS) Update."
Commissioner Fisher looked at slide 1, "Agenda":
I. Basic Facts
II. Investments
III. SB119/HB 385
Commissioner Fisher highlighted slide 2, "Section 1":
PERS/TRS BASIC FACTS
A. Membership
B. Organization
C. Balance Sheet
D. Health Cost Trends
E. Funding Ratio History
F. Employer Contribution Rates
Commissioner Fisher looked at slide 3, "Basic Facts: PERS
Membership":
PERS:
159 Member Employers
3 Defined Benefit (DB) Tiers
31,267 retirees
18,447 terminated members entitled to future
benefits
19,270 actives (74.55 percent)
68,984 total members
1 Defined Contribution (DC) Tier
9 retirees
7,876 terminated members entitled to future
benefits
16,545 actives (46.2 percent)
24,430 total members
Senator Dunleavy queried the number of employees that were
employees of the state, as opposed to municipalities and
other entities. Commissioner Fisher replied that there was
approximately 60 percent of former state employees. He did
not have the number of active employees, but agreed to
provide that information.
Senator Dunleavy restated that it was a 60 percent to 40
percent ratio. Commissioner Fisher replied that the ratio
was for current retirees.
Senator Dunleavy wondered if the TRS was strictly a state
issue. He asked for further information for TRS.
Commissioner Fisher replied that TRS was the teacher's
retirement system. He stated that it was historically
funded by the state, but they were mostly employees of the
local school boards.
Senator Dunleavy requested a breakdown of active PERS
employees. Commissioner Fisher agreed to provide that
information.
Co-Chair MacKinnon queried the current system to provide
the health care benefits. Commissioner Fisher replied that
the nine retirees were not eligible for health care. He
stated that the plan would be in place at a future date.
1:53:48 PM
Commissioner Fisher discussed slide 4, "Basic Facts: TRS
Membership":
TRS:
58 Member Employers
2 Defined Benefit (DB) Tiers
12,077 retirees
3,044 terminated members entitled to future
benefits
6,055 actives (59.0 percent)
21,176 total members
1 Defined Contribution (DC) Tier
0 retirees
1,777 terminated members entitled to future
benefits
4,206 actives (41.0 percent)
5,983 total members
Co-Chair MacKinnon wondered if the University was a
separate pension, and requested a breakdown of the
contributions by state outside of the University's budget.
Commissioner Fisher replied that it was a separate budget,
and agreed to provide further information.
Co-Chair MacKinnon asked if the legislature had any input
in where the money would be delivered, or if the
legislature would only provide the funding.
1:55:52 PM
AT EASE
1:56:55 PM
RECONVENED
1:57:01 PM
Co-Chair MacKinnon was attempting to determine the
legislature's control of cost in negotiations for state
benefits.
JOHN BOUCHER, DEPUTY COMMISSIONER, DEPARTMENT OF
ADMINISTRATION, responded that the local school districts
subscribed to the TRS plan. The state had control over the
total benefit package, but the state did not negotiate
wages for the employees.
Co-Chair MacKinnon wondered if the state controlled health
care coverage. Mr. Boucher replied that the state did not
control health care coverage.
1:58:18 PM
Commissioner Fisher looked at slide 5, "Basic Facts:
Organization":
Department of Revenue: Treasury Division
Invests retirement system assets
Investment Advisory Committee
General Consultant
Staff
External Investment Management
Internal Investment Management
Alaska Retirement Management Board
Sets contribution rates, invests retirement
system assets
Department of Administration: Division of Retirement
and Benefits
Administers retirement and benefits system
Staff
Actuary
Third Party Administration
Commissioner Fisher discussed slide 6, "Basic Facts:
Balance Sheet-Roll Forward":
PERS DB:
Assets (6/30/15 Roll-Forward): $16,196,195,000
Accrued Liability (6/30/15 Roll-Forward):
22,554,455,000
Unfunded Liability: $6,358,260,000
Funding Ratio: 71.8 percent
TRS DB:
Assets (6/30/15 Roll-Forward): $8,078,743,000
Accrued Liabilities (6/30/15 Roll-Forward):
10,487,584,000
Unfunded Liability: $2,408,841,000
Funding Ratio: 77.0 percent
2:01:54 PM
Senator Bishop wondered if the ARM Board felt that the $3
billion appropriation was a "good move." Commissioner
Fisher responded in the affirmative.
Senator Bishop shared that he had read a newspaper article
that stated that the ARM Board did not support the $3
billion. Commissioner Fisher stated that there was a
universal expression of appreciation for the $3 billion
from the ARM Board. He remarked that there may be some
individuals with differing views.
Co-Chair MacKinnon remarked that the person quoted in that
article was taken out of context. She looked at slide 6,
and noted that the anticipation of the funding ratio had
yet to receive and additional deposit of $1 billion
separated in the same way between PERS and TRS. She
wondered if that explanation applied to the "roll forward"
cost in the slide. Commissioner Fisher replied that "roll
forward" referred to the anticipated assets and liabilities
in both PERS and TRS as of June 30, 2015. It included the
$2 billion TRS and $1 billion in PERS.
Co-Chair MacKinnon noted that $1 billion had yet to be
deposited, so the slide referred to the anticipated
forecast of the fund. She stressed that it took time to
move the money, and it was anticipated that that last $1
billion would be added around March 1, 2015. Commissioner
Fisher agreed.
Commissioner Fisher discussed slide 7, "Basic Facts: Health
Cost Trends." He remarked that health care costs was a
major component to the unfunded liability. He noted that
the far right column showed that the health care costs in
2014 was substantially higher than inflation at 9 percent.
He shared that the state had kept the costs low, and he
shared that the current year would have a zero percent
increase in annual cost. He shared that the state recently
selected AETNA as the third party administrator for its
health care, to attempt to take advantage of AETNA's
network. It was anticipated that there would be
approximately $50 million in savings versus the prior
health administrator. He shared that there were some issues
with the delivery of AETNA's service, but DHSS was working
to ensure more timely delivery of service.
Commissioner Fisher addressed slides 8 and 9, "Basic Facts:
PERS and TRS Funding Ratio History." The slide showed the
funding ratios that existed prior to most recent $3 billion
investment. He remarked that the anticipated funding ratio
for PERS and TRS would be 70 percent by June 30, 2015. He
stressed that it was a remarkable improvement in the
funding, as a result of the recent $3 billion investment.
2:08:03 PM
Co-Chair MacKinnon wondered if there was an employee
contribution option. She shared that she was willing to pay
a monthly fee to help alleviate the unfunded liability. She
also queried the amount of contribution money, and wondered
how those funds were negotiated. Commissioner Fisher
replied that negotiations were solid, and reflected in the
collective bargaining agreements.
Mr. Boucher thought that the contribution rate was the same
since the inception of the plan, and agreed to provide
further information.
Commissioner Fisher presented slide 10, "Basic Facts:
Contribution Rates."
Co-Chair MacKinnon announced that she had submitted a list
of questions to the presenters. Local municipalities had
asked for relief from different offices, and hoped that she
would hear some information about the termination study.
Commissioner Fisher replied that he had heard from many
municipalities about the challenge of the termination
study. Sometimes the termination studies result in a
liability that make an otherwise good decision a challenge.
He stated that he was working with the governor and OMB to
evaluate different approaches. The department was
attempting to find a balance between providing flexibility
for the municipalities while ensuring the viability of the
fund.
Co-Chair MacKinnon remarked that the budget eliminated many
positions in the state. She wondered if there was a study
for the effect of losing 300 contributing employees.
Commissioner Fisher replied that there was no termination
study. He stated that the study was not mandated, because
there was no elimination of an entire classification.
2:13:42 PM
RANDALL HOFFBECK, COMMISSIONER, DEPARTMENT OF REVENUE,
displayed slide 11, "Section 2: Investments."
Commissioner Hoffbeck looked at slide 12, "Investments:
ARMB Assets Under Management." He announced that the Alaska
Retirement Management Board was the fiduciary for the fund.
As of 12/31/2014, ARMB managed $28 billion across 18
plans
PERS: $15,793,229,447
Retirement Trust:
$8,180,039,233
Retirement Health Care Trust:
$6,857,761,831
Defined Contribution Retirement Plan-PERS:
$533.183.662
Health Reimbursement Arrangement:
$170,136,265
Retiree Medical Plan:
$34,893,611
Occupational Death and Disability - PERS:
$11,555,919
Occupational Death and Disability - Police
and Fire:
$5,658,926
Teachers' Retirement System (TRS): $7,421,696,010
Retirement Trust:
$4,686,628,145
Retirement Health Care Trust:
$2,441,460,292
Defined Contribution Retirement Plan - TRS:
$224,927,793
Health Reimbursement Arrangement:
$52,199,779
Retiree Medical Plan:
$13,412,619
Occupational Death and Disability:
$3,067,382
Judicial Retirement System (JRS): $168,171,985
Defined Benefit Plan Retirement Trust:
$141,816,866
Defined Benefit Retirement Health Care
Trust:
$26,355,119
National Guard/Naval Militia Retirement System
(MRS): $37,061,451
Supplemental Annuity Plan - SBS: $3,355,137,119
Deferred Compensation Plan: $798,722,221
Co-Chair MacKinnon queried the status of the JRS funding
ratio. Commissioner Hoffbeck agreed to provide that
information.
Commissioner Hoffbeck discussed slide 13, "Investments:
Asset Allocation." He shared that the ARMB received capital
market assumptions from Callan Associates. The assumptions
included the expected rates of returns for each asset class
over the upcoming ten years, and expected standard
deviation on the returns. He shared that an efficient
frontier was then developed which showed the likely return
and standard deviation for the various asset class mixes.
The frontier and the recommendations from the chief
investment officer the board would then adopt a strategic
investment plan with the target asset allocations. The
slide displayed the target allocations. He noted that
approximately 50 percent resided in domestic and global
equities overall. He stated that the slide represented the
PERS allocation, but the TRS allocation was similar. He
remarked that the fund was aggressively invested. He noted
that the actual asset allocation and target asset
allocation were fairly similar.
Commissioner Hoffbeck highlighted slide 14, "Investments:
US Stock Market Historical Return." The slide showed 226
years of returns from the U.S. Stock Market, and put into a
bell curve. He noted that, since the selloff in 2008, there
were six years of returns on the positive side of the bell
curve. He specifically remarked that the 2013 return was
32.1 percent.
2:18:38 PM
Commissioner Hoffbeck addressed slide 15, "Investments:
Fiscal Year Returns":
The 5 year annualized return for the period ending
FY2014 was:
•12.58 percent for PERS
•12.68 percent for TRS
•11.54 percent for APFC
•18.84 percent for S and P 500
The 20 year annualized return for the period ending
FY2014 was:
•8.01 percent for PERS
•8.09 percent for TRS
•8.01 percent for APFC
•9.79 percent for S and P 500
2:19:54 PM
Co-Chair MacKinnon wondered if there was a consideration
for hiring a corporation to manage the assets. Commissioner
Hoffbeck replied that there was no current formal
consideration, until they saw the question. He explained
that there was legislation in 1990 to form a corporation
for the retirement fund, but it did not pass. The subject
was examined a couple more times, but it was not found to
be a more efficient way than the status quo. It would
require additional administrative overhead, salary
inflation, and some staff redundancies.
Co-Chair MacKinnon wondered if Commissioner Hoffbeck
supported the Permanent Fund. Commissioner Hoffbeck replied
in the affirmative.
Co-Chair MacKinnon remarked that the Permanent Fund held no
GF dollars, and paid all of the dollars from Permanent Fund
earnings. She expressed further analysis of the cost of the
administrative overhead in the corporation. Commissioner
Hoffbeck agreed to provide that information.
Commissioner Hoffbeck looked at slide 16, "Section Three:
SB119/HB 385 $3 Billion Appropriation to Pension Funds." He
explained the function of SB 119 and HB 385, which were
passed in the previous legislature.
Commissioner Hoffbeck addressed slide 17, "$3 Billion
Appropriation: PERS Pension." He felt that the previous DOR
commissioner had made a prudent decision by transferring
funds:
July 15 Transfer
Amount Transferred: $333,333,333
Percent Return: 0.51 percent
Cash Return: $1,700,762
November 13 Transfer
Amount Transferred: $333,333,333
Percent Return: 0.68 percent
Cash Return: $2,267,308
2:25:24 PM
Commissioner Hoffbeck discussed slide 18, "$3 Billion
Appropriation: TRS Pension":
July 15 Transfer
Amount Transferred: $554,233,333
Percent Return: 0.32 percent
Cash Return: $1,753,783
November 13 Transfer
Amount Transferred: $554,233,333
Percent Return: 0.67 percent
Cash Return: $3,739,538
Commissioner Hoffbeck highlighted slide 19, "$3 Billion
Appropriation: TRS Health":
July 15 Transfer
Amount Transferred: $112,433,333
Percent Return: 0.36 percent
Cash Return: $400,505
November 13 Transfer
Amount Transferred: $112,433,333
Percent Return: 0.67 percent
Cash Return: $758,316
Commissioner Hoffbeck looked at slide 20, "$3 Billion
Appropriation: Total":
July 15 Transfer
Amount Transferred: $1,000,000,000
Percent Return: 0.51 percent
Cash Return: $3,855,049
November 13 Transfer
Amount Transferred: $1,000,000,000
Percent Return: 0.68 percent
Cash Return: $6,765,163
Total Cash Return: $10,620,212
Co-Chair MacKinnon recalled an article that addressed the
decision to use a flat percentage versus a fixed cash
amount. She wondered if the administration had proposed
that idea. She remarked that the state would pay over $200
million to meet the percentage obligation, which was major
cost driver in the limited budget. She wondered if there
was an actuary analysis to determine if another cash
infusion was appropriate, or if it was more valuable to
maintain the money in the savings account. She felt that
the idea should be examined immediately, because the state
would face a $3.5 billion revenue shortfall prior to July
1, 2015. She stressed that there would be an additional
$3.5 billion to $4 billion revenue shortfall, if the oil
prices continued to decline. Commissioner Hoffbeck
responded that DOR would have needed to pay $1.175 billion
for the required payment into the fund. The legislature's
passage of the bills in the previous session allowed for
the payments to reduce to $256 million into the fund. He
remarked that the cash infusion allowed for a substantial
window moving forward. He stated that the idea for adding
another $1 billion required a comparison for the need of
that $1 billion. He explained that an additional $1 billion
in FY 16 would reduce the PERS from $117 million to $55
million.
2:29:19 PM
Co-Chair MacKinnon wondered if there were any new
assumptions regarding interest rate returns or actuarial
recommendations to modify the plan, and how the
implementation would affect the plan. Commissioner Fisher
replied that the actuarial assumptions were continually
upgraded. The actuary came forward at the end of the
previous year, and made a number of recommendations. The
greatest impact was related to the mortality rate, and
there was some impact associated with the assumptions
around termination rates and salary scales. In total, the
assumptions decreased the funding ratio by approximately 2
percent, but the assumptions were prior to the recent
investments. He felt that DOR was implementing the
actuarial recommendations, so the presentation reflected
the recommendations. He was not aware of additional
actuarial recommendations.
Co-Chair MacKinnon stressed that people were living longer.
She wondered if the roll-forward on slide 6 reflected the
new assumption. Commissioner Fisher replied that the
actuarial assumption included the revised mortality rates.
Commissioner Hoffbeck furthered that the revision was
conducted every three years.
Co-Chair MacKinnon requested confirmation. She wanted to be
confident in the assumption of an interest rate of return
over a 30-year period of 6 percent. Commissioner Fisher
replied that the rate of return of 8 percent.
Co-Chair MacKinnon remarked that the presentation was based
on a group of assumptions.
Senator Dunleavy queried DOR's position regarding the
return to a defined benefit program. Commissioner Hoffbeck
responded that DOR did not have an official position. He
shared that he did not believe that the state could afford
a defined benefit program.
Senator Dunleavy wondered if buyout concepts were
contemplated to remove people from the program.
Commissioner Fisher asked for further clarification of the
question. He wondered if Senator Dunleavy referred to
active employees for early retirement, or a pension.
Senator Dunleavy stated that he wondered if there was a
cash pension opportunity. Commissioner Fisher replied that
there had been some consideration of a cash pension. He
shared that the challenge was in an adverse selection. Some
people may perceive that they may not take advantage of a
long-term pension may take the buyout, and others may not
take the pension because of health reasons.
Senator Dunleavy recalled a discussion at a local level for
PERS and TRS, with no caps on the negotiations. He wondered
if the administration had considered a cap on local
negotiations. Commissioner Fisher replied that the local
negotiations did not negotiate the retirement benefits,
they focus on the wage and health benefits.
2:35:57 PM
AT EASE
2:36:09 PM
RECONVENED
ADJOURNMENT
2:36:25 PM
The meeting was adjourned at 2:36 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| 021815 SFC DOA-DOR PERS-TERS.pdf |
SFIN 2/18/2015 1:45:00 PM |
PERS-TRS |