Legislature(2023 - 2024)SENATE FINANCE 532
05/13/2023 10:00 AM Senate FINANCE
Note: the audio ![]()
and video ![]()
recordings are distinct records and are obtained from different sources. As such there may be key differences between the two. The audio recordings are captured by our records offices as the official record of the meeting and will have more accurate timestamps. Use the icons to switch between them.
| Audio | Topic |
|---|---|
| Start | |
| HB39 | |
| HB41 | |
| SB88 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| += | HB 39 | TELECONFERENCED | |
| += | HB 41 | TELECONFERENCED | |
| += | SB 88 | TELECONFERENCED | |
SENATE FINANCE COMMITTEE
May 13, 2023
10:44 a.m.
10:44:45 AM
CALL TO ORDER
Co-Chair Stedman called the Senate Finance Committee
meeting to order at 10:44 a.m.
MEMBERS PRESENT
Senator Lyman Hoffman, Co-Chair
Senator Donny Olson, Co-Chair
Senator Bert Stedman, Co-Chair
Senator Click Bishop
Senator Jesse Kiehl
Senator Kelly Merrick
Senator David Wilson
MEMBERS ABSENT
None
ALSO PRESENT
Pete Ecklund, Staff, Senator Bert Stedman; Alexei Painter,
Director, Legislative Finance Division; Senator Cathy
Giessel, Sponsor; Ajay Desai, Director, Division of
Retirement and Benefits, Department of Administration;
Kevin Worley, Division of Retirement and Benefits, In room;
Neil Steininger, Director, Office of Management and Budget,
Office of the Governor.
PRESENT VIA TELECONFERENCE
David Kershner, Pension Actuary, Buck Global LLC, Florida;
Steve Oats, Buck Global, New York; Gene Jawlarski, Cheiron,
Virginia
SUMMARY
CSHB 39 am(brf sup maj fld)(efd fld)
APPROP: OPERATING BUDGET/LOANS/FUND; SUPP
SCS CS HB 39(FIN) was REPORTED out of committee
with four "do pass" recommendations, two "no
recommendations", and one "amend"
recommendations.
CSHB 41(FIN) am
APPROP: MENTAL HEALTH BUDGET
SCS CS HB 41(FIN) was REPORTED out of committee
with five "do pass" recommendations and two "no
recommendations."
SB 88 RETIREMENT SYSTEMS; DEFINED BENEFIT OPT.
SB 88 was HEARD and HELD in committee for further
consideration.
CS FOR HOUSE BILL NO. 39(FIN) am(brf sup maj fld)(efd fld)
"An Act making appropriations for the operating and
loan program expenses of state government and for
certain programs; capitalizing funds; repealing
appropriations; amending appropriations; making
reappropriations; and making supplemental
appropriations."
10:45:52 AM
Senator Kiehl MOVED to ADOPT the committee substitute for
CSHB 39 am(brf sup maj fld)(efd fld), Work Draft 33-
GH1347\T (Marx, 5/12/23).
Co-Chair Stedman OBJECTED for discussion.
10:46:38 AM
PETE ECKLUND, STAFF, SENATOR BERT STEDMAN, explained the
CS. He stated that version T had a document titled
"Document A" (copy on file), which he will reference in his
explanation. He stated that there was an addition of
$100,000 in the Department of Administration (DOA) as an
increment as an "OTI" of UGF.
Co-Chair Stedman requested as definition of "OTI."
Mr. Ecklund replied that an "OTI" was a one-time item. He
explained that it would be for an appropriation that would
occur for one year, and would not be automatically in the
budget the following year.
Mr. Ecklund explained that there was an OTI of $125,000 to
the Palmer Emergency Food Services in the Department of
Commerce, Community and Economic Development (DOCED). He
noted a fund source change in the Division of Corporations,
Businesses and Professional Licensing of $2.195 million
reduction in UGF, and increase in other funds. He noted
that there was approval of other funds for an executive
director of an OTI of $160,000 for the Big Game Board. He
shared that in the Department of Corrections (DOC), there
was intent language added for Regional and Community Jails.
He explained that within the Department of Education and
Early Development (DEED) there was Alyeska Reading Academy
Institute appropriation for $5 million to replace a
structure. He noted the Career and Technical Education
Grants of $1.5 million as an OTI. He shared the existing
appropriations as listed in the document.
10:54:03 AM
Co-Chair Stedman WITHDREW the OBJECTION. There being NO
OBJECTION, it was so ordered.
Co-Chair Hoffman MOVED to REPORT SCS CS HB 41(FIN) with
individual recommendations. He also directed the
Legislative Finance Division and Legislative Legal to make
any necessary technical and conforming changes. There being
NO OBJECTION, it was so ordered.
SCS CS HB 41(FIN) was REPORTED out of committee with four
"do pass" recommendations, two "no recommendations", and
one "amend" recommendations.
CS FOR HOUSE BILL NO. 41(FIN) am
"An Act making appropriations for the operating and
capital expenses of the state's integrated
comprehensive mental health program; and providing for
an effective date."
10:55:42 AM
Co-Chair Hoffman MOVED to REPORT SCS CS HB 39(FIN) with
individual recommendations.
10:56:21 AM
AT EASE
10:57:01 AM
RECONVENED
Co-Chair Hoffman MOVED to REPORT SCS CS HB 39(FIN) with
individual recommendations. He also directed the
Legislative Finance Division and Legislative Legal to make
any necessary technical and conforming changes. There being
NO OBJECTION, it was so ordered.
10:59:20 AM
ALEXEI PAINTER, DIRECTOR, LEGISLATIVE FINANCE DIVISION,
explained stated that the available revenue numbers had not
changed since he most recently presented on the bill. He
noted that the Agency Operations on line 5 did not include
the $40 million government shutdown contingency, but did
include the $600 Base Student Allocation (BSA) equivalent
outside the formula. He noted that line 11 showed the
additions, which showed that the Statewide Items, capital
budget, and Permanent Fund Dividend (PFD) numbers showed no
change. He stated that the surplus remaining before the
additions was $108.8 million. He remarked that the
additions as discussed by Mr. Ecklund totaled $7.6 million
of UGF. He remarked that the fiscal note number increased
slightly with the inclusion of SB 22. He remarked that the
potential conference committee additions had decreased
slightly as some items adopted were already reflected in
the House budget.
Co-Chair Stedman queried the net available for
appropriations.
Mr. Painter related that line 15 should be $63.7 million -
down to $23.7 million with a government shutdown.
Co-Chair Stedman thanked the committee and staff for their
work on the FY24 Operating Budget. He noted that the budget
was balanced.
SCS CS HB 41(FIN) was REPORTED out of committee with five
"do pass" recommendations and two "no recommendations."
11:02:36 AM
AT EASE
11:06:44 AM
RECONVENE
Co-Chair Stedman HANDED the GAVEL to Co-Chair Olson.
SENATE BILL NO. 88
"An Act relating to the Public Employees' Retirement
System of Alaska and the teachers' retirement system;
providing certain employees an opportunity to choose
between the defined benefit and defined contribution
plans of the Public Employees' Retirement System of
Alaska and the teachers' retirement system; and
providing for an effective date."
11:06:56 AM
SENATOR CATHY GIESSEL, SPONSOR, introduced herself.
11:08:38 AM
DAVID KERSHNER, PENSION ACTUARY, BUCK GLOBAL LLC, FLORIDA
(via teleconference), shared that Buck had been partnering
with the state since 2006, and he had been a part of the
state's retirement and benefit actuaries since 2015. He
shared that Buck performed annual actuarial evaluations for
all of the Alaska retirement systems to determine the rates
that were ultimately adopted by the Alaska Retirement
Management Board (ARM Board). He explained that the day's
discussion would be about the Public Employee Retirement
System (PERS) and the Teacher Retirement System (TRS).
11:14:01 AM
Mr. Kershner continued that there was a determination,
according to the text with SB 88, that there was a pension
through liability if the members in the defined benefit
(DB) plan and compare it to their DB account balances on an
individual basis. He explained that if there was enough in
their account to cover the liability, there was a credit of
service to be transferred into the DB plan. He stated that
if an individual only had, for example, 75 percent of the
liability was in their balance there was a credit of 75
percent of their service. He explained that the bill
allowed for the participants to purchase up to 100 percent
of their service by creating an indebtedness that they
would pay back into the trust. He stated that the fiscal
note analysis did not reflect any indebtedness.
11:19:15 AM
Senator Kiehl queried the return expectation.
Mr. Kershner replied that the most recent assumptions that
were adopted by the ARM Board included an investment return
assumption of 7.25 percent.
Senator Kiehl noted the example of the option to buy a
percentage of their service time, and wondered how typical
that scenario would be.
Mr. Kershner replied that the information was shown in
detail of the Buck letter (copy on file). He stated that
the accounts did not perform well in FY 22. He stated that
the account balances used in the calculations were somewhat
depressed than they would be on a better performing year.
Co-Chair Olson wondered whether the report would have been
different had it been done a year earlier.
Mr. Kershner replied that there would have been assumptions
and data from the time, which would have included the
investment return assumption of 7.38 percent. He stated
that lowering the investment return assumption results in
higher liabilities.
Co-Chair Stedman recalled 2009 and the rate of return from
then to 2021. He remarked that nearly one-third of the
compounded return would disappear, due to the downturn. He
noted that the unfunded liability also increased by about
$1 billion in that timeframe. He requested an analysis run
ending in 2021 rather than 2022 to see the numeric
differences. He remarked that the bill had the default to
hold the money in the account for retirement, and wondered
whether that instance would be better than moving to the
proposed plan.
11:25:58 AM
Mr. Kershner replied that the data could be provided, but
it would be inappropriate to use those account balances
without the other data.
Co-Chair Stedman stressed that they were measuring on one
of the lowest market reductions in a decade.
Co-Chair Olson agreed.
Mr. Kershner replied that he would provide that
information.
Co-Chair Stedman asked for further explanation about
someone who might have an "excess" in PERS, and wondered
whether those people would be better in the proposed plan.
Mr. Kershner replied that the valuation must be made on an
individual basis.
11:30:25 AM
Mr. Kershner explained some sections of the letter. He
remarked that there was a projected cost of potential
impact for FY 25 through FY 39. He stated that FY 39 was
the last year of the current state contribution for the
plans. He detailed the charts on page 3 of the letter.
11:35:14 AM
Co-Chair Stedman asked for more references of the numbers.
He stressed that the first fifteen years was $1.3 billion
additional dollars.
Mr. Kershner agreed. He explained that the additional state
contributions for the fifteen years, the total projected
increase was $480 million for PERS. The total increase in
state contributions for TRS was projected to be $37.5
million. He stated that combining those two showed an
increase of about $517 million.
Senator Bishop queried the return rate for the projection.
Mr. Kershner replied that they used 7.25 percent.
Co-Chair Stedman surmised that the employer was uncapped
and unlimited.
11:39:44 AM
Mr. Kershner replied that all non-state PERS employers were
maxed out at 22 percent both currently and under SB 88. He
stated that all TRS employers were capped out at 12.56
percent of pay currently and under SB 88. He shared that
the state as an employer paid the full actuarial rate. he
stated that all calculations assumed all future experiences
matched the assumptions, including the graphic and economic
assumptions. He stated that the ultimate cost of SB 88
depended on whether after June 30, 2022, there were any
future adverse experiences that could increase the plan.
Senator Bishop remarked that the mentioned assumptions were
not used, and wondered whether the totals would look
different with those assumptions.
Mr. Kershner replied in the affirmative.
Mr. Kershner looked at page 4, and walked the committee
through several examples of potential state impact.
Mr. Kershner turned to page 5, which offered numbers for FY
35, to illustrate future numbers.
11:45:55 AM
Mr. Kershner continued to discuss the letter, and the
actuarial analysis. He outlined the payroll of the
participants.
Senator Kiehl wondered why the total payroll number was
different for SB 88 than for the status quo in the same
fiscal year.
Mr. Kershner responded that when projecting payroll figures
the projections were based on the actuarial assumptions for
members in the DB plan. He furthered that the payroll for
the DCR members was projected using the assumptions that
the ARM Board adopted for those participants. He explained
that there were different assumptions in some cases for DB
and DCR participants. He stated that the most obvious
difference was the determination rates.
Mr. Kershner said that the highest turnover was generally
in DC plans rather than DB plans. He relayed the reasons
for the difference in turnover. He continued to discuss
slide 4.
Senator Kiehl remarked that it reflected a year of service
aggregated for every employee. He queried the size of the
retention benefit with a 2 percent increase in payroll the
first year of implementation.
11:51:34 AM
Co-Chair Olson wondered whether there was a $24 million
uptick for the DB plan within SB 88.
Mr. Kershner replied in the affirmative. He noted the
potential differences in the salary increase assumption
between members of the DCR plan and members of the DB plan,
which was not the case for PERS.
Co-Chair Stedman asked about the delta on line 7.
Mr. Kershner said that the amount would be paid by the
state.
Co-Chair Stedman asked about line 5.
Mr. Kershner replied that the bottom half was not under
SB55, he pointed out the difference
Co-Chair Stedman assumed that the state paid the
outstanding
11:55:29 AM
Mr. Kershner referred to the top half of page 3, he relayed
that the FY 25 column showed the net increase of $9.560
million.
Mr. Kershner continued on page 4, he relayed that all of
the percentages on the tables were on a total payroll
basis. He said for the current DB plan there were two cost
elements, normal costs, and unfunded liability
amortization. He shared that the only unfunded liability
would be for the pension trust or line d.
Mr. Kershner continued to discuss page 4. He noted the
elements included in line 2.
12:01:08 PM
Mr. Kershner discussed line 3, and the SB 88 Contribution
Rates.
Mr. Kershner continued to discuss page 4. He pointed out
that on line 1, d the percentage was reduced. He spoke
further on the SB 88 column of the boxes on page 4.
12:05:49 PM
Mr. Kershner continued to discuss the SB 88 columns on page
4. He pointed out that pension and healthcare benefits were
provided at a greater cost in the SB 88 column because more
people would be receiving the benefits.
Mr. Kershner noted the third component of the SB 88 rate,
which was the 3.8 percent SBS contribution rate.
Mr. Kershner relayed the total actuarial rate was 28.75
percent, and employers would continue to contribute 22
percent.
12:10:24 PM
Senator Kiehl asked for a sense of the health benefit cost
for a new tier and how many more people would be expected.
Mr. Kershner said he could provide the numbers. He said
that some of the assumptions considered retirement age and
the age of covered members.
12:12:25 PM
STEVE OATS, BUCK GLOBAL, NEW YORK (via teleconference),
spoke to Senator Kiehl's question. He stated that the
compounding effect of the turnover assumption was very
meaningful. He remarked that the turnover rates were
slightly less than half for the DB evaluation and SB 88
employees. He stated that there was an expectation of a
significant number of people to reach retirement and use
those medical benefits.
Senator Kiehl asked about demographic differences.
Mr. Kershner said that the issue was discussed at the
bottom of page 1 of the letter. He said that eventually
turnover rates declined. He noted that the DB plan closed
in 2006, which meant that there were no employees that were
within their first 5 years of employment.
12:15:42 PM
Mr. Kershner thought that a different set of turnover rates
could be crafted, and related the assumptions could be
developed in the process.
Senator Kiehl thought that the numbers used in the
evaluation looked into a different demographic pool.
Senator Wilson asked about previous data used and wondered
whether Buck had looked at turnover rates in other states
that had a defined benefits plan.
Mr. Kershner replied in the negative. He said that the data
could be looked into and the numbers could be run.
Senator Wilson appreciated an answer to the generational
gap in the workforce.
Co-Chair Stedman agreed that analysis should be done on the
turnover rate in the state.
12:20:12 PM
Mr. Kershner moved to the bottom half of page 4. He
continued to page 5, which offered the same calculations as
page 4, but for FY35. He discussed the projected
differences.
12:26:07 PM
Mr. Kershner noted that the bottom half of page 4 and 5
compared the total actuarial rate by the total payroll.
Senator Wilson summarized the difference between the state
and non-state employers combined in the FY 35 projection
was $104 million additional cost to the state.
Mr. Kershner responded that the total difference was 102.6
million.
Mr. Kershner moved to page 6, which offered the TRS figures
for FY25 and FY35. He noted that line 5 compared the
portion paid by employers. AHe moved down to the lower
graph, which showed the TRS numbers for FY35. He shared
that there was a shift from employers to the state that
increased overtime. $4 million.
12:31:05 PM
Senator Kiehl asked whether FY35 was used because after
that past service liability would be paid off.
Mr. Kershner said that would be in FY39. He related that
when stature changed in 2014 the amortization was changes
in statute. He said that the ARM Board adopted it in 2018 -
but FY35 was used arbitrarily.
Senator Kiehl thought that the numbers reflected a lower
cost in the out years under SB 88.
Mr. Kershner thought that was an accurate assumption. He
thought that some years could fluctuate. He felt that based
on the assumption, once beyond the unfunded liability, the
rate would be 11.42 percent, which would be an increase but
the state would not be paying the unfunded liability and
employers would cover the increase.
12:36:04 PM
Mr. Kershner expressed the importance of understanding and
considering where employee contribution dollar amounts were
going. He noted commentary on pages 7 and 8 of the letter.
He noted the top of page 7 and the three key reasons:
1. Total payroll is projected to increase because the
payroll for SB 88 members and future hires is
projected using DB assumptions (SB 88 column) vs DCR
assumptions (Current column).
2. The DB contribution rated for current SB members
decreases as a percentage of total payroll under SB 88
because (i) the Normal Cost rehire load that is
included in the current projects was removed for the
SB 88 projections.
3. The key reasons for projected State contributions
to change under SB 88 are a combination of:
a. The decrease in DB contribution rates for current
DB members described in 2 above.
b. The increase in annual costs for SB 88 members
under the DB plans vs the DCR plans.
c. The shifting of employer contributions between the
various trusts.
Co-Chair Stedman asked about legal work for the trust.
Mr. Kershner replied that that could be found on the bottom
of page 10:
SB 88 states that pension sub-trusts will be
established within the DB plans, but healthcare
benefits for SB 88 members will be funded via the
current DCR healthcare trusts. We are unsure if
healthcare benefits of members of the DB plan can be
funded through a trust that belongs to another plan
(i.e., the DCR plan). Since this is more a legal issue
rather than an actuarial issue, we recommend this
issue be further discussed with the State's legal
department. For the purposes of this analysis, we have
assumed that separate pension and healthcare sub-
trusts will be established within the DB plans, and
these sub-trusts will be used exclusively to fund the
pension and healthcare benefits of SB 88 members.
12:40:48 PM
Mr. Kershner said that there was a rule about the money
coming out of the trust to pay beneficiaries. He understood
that separate healthcare trusts within the DB plan would
possibly be necessary. He though that the state should
investigate further. He said that the interpretation was a
legal one and not actuarial.
Senator Wilson hoped to have Legislative Legal review the
questions of the committee.
Mr. Kershner discussed pages 11 and 12 of the letter. He
noted that the rest of the letter was actuarial disclosure
information.
12:44:40 PM
Senator Wilson asked about page 11. He wondered about
assets transferred to the pension. He asked for the percent
of projected state employees that would meet the 100
percent plus threshold.
Mr. Kershner said that all current DCR members were assumed
in the letter.
Senator Wilson asked how many employees would meet the 100
percent funded.
Mr. Kershner replied that the fourth bullet, page 13,
showed a transfer of $205 million of those balances which
was almost 100 percent of the total account balances.
Senator Kiehl referred to a previous Buck analysis from the
previous year on a similar bill, it was twice as many at
that time.
Mr. Kershner replied that the previous analysis used the
balances from the year prior, but the market was higher. He
also shared that the previous analysis used the actuarial
assumptions that were in effect at that point, but the ARM
Board adopted new assumptions since the previous analysis.
12:50:51 PM
Co-Chair Stedman wondered whether the two plans were
linearly equal in their accumulation.
Mr. Kershner replied that generally the DB assets performed
better than the DCR assets.
Co-Chair Stedman thought that the DB plan offered a
percentage of the salary based on the number of years
worked in the position. He felt that the DCR would equal
the DB plan in the beginning.
12:54:37 PM
Senator Wilson referenced the letter from the Alaska Public
Pension Coalition (copy on file), which said that the
purpose of SB 88 was to save money. He asked for Buck's
opinion.
Mr. Kershner responded that the data and assumptions showed
that the proposed benefits under SB 88, which included the
lifetime defined benefit pension and cost of living
increase adjustments were a richer level of benefit than
the current benefits.
Senator Wilson surmised that SB 88 was a greater cost to
the state and not a cost saving to the employer.
Mr. Kershner agreed, and spoke to the investment risks and
returns.
Mr. Kershner continued to discuss the risk to the state and
making up excess cause because of future adverse
situations.
12:59:43 PM
Senator Kiehl understood that everyone was bound by the
assumptions. He expressed interest that there were only
downside risks.
Mr. Kershner said that healthcare trusts were currently 100
percent funded. He said that contributions had gone into
the pension trust.
Mr. Kershner said different projections could be run under
different assumptions.
Senator Kiehl asked about the unqualified statement about
cost. He asked about the decreased turnover and non-state
employers.
1:04:33 PM
Mr. Kershner walked through the increasing cost in the
scenario. He noted that life expectancy was considered
within the scenario.
Senator Kiehl remarked that the answer was limited in the
bounds of the system.
Senator Bishop asked about the TRS side of the equation. He
wondered whether SB 88 offered revenue neutrality.
Mr. Kershner spoke to the projections on page 3 of the
letter. He spoke to the 50 year projections for PERS and
compared TRS.
1:11:52 PM
GENE JAWLARSKI, CHEIRON, VIRGINIA (via teleconference),
offered a rebuttal to the projections offered by the
previous actuarial. He noted page 3. He disagreed on the
health cost numbers.
Mr. Jawlarski spoke to retention and signing bonuses. He
said that 1 out of 5 jobs in the state were vacant. He said
that using one set of assumptions.
1:15:01 PM
Senator Wilson asked about government jobs in west coast
states.
Mr. Jawlarski replied that he did not have the numbers.
Senator Wilson wondered about job vacancies factors as well
as data about DB program retention rates over the past two
decades.
Mr. Jawlarski replied that he could provide data to the
committee.
1:17:44 PM
AT EASE
1:22:04 PM
RECONVENED
AJAY DESAI, DIRECTOR, DIVISION OF RETIREMENT AND BENEFITS,
DEPARTMENT OF ADMINISTRATION, introduced himself.
KEVIN WORLEY, DIVISION OF RETIREMENT AND BENEFITS, IN ROOM,
discussed FN OMB component 2866.
1:24:51 PM
AT EASE
1:25:50 PM
REVONVENED
Mr. Desai discussed the fiscal note.
1:27:02 PM
NEIL STEININGER, DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET,
OFFICE OF THE GOVERNOR, discussed the fiscal note for all
agencies that covered the cost of the state as the
employer, and was spread across several fund sources.
Senator Kiehl asked about the fiscal impacts of turnover.
Mr. Steininger replied that turnover was not in the fiscal
note.
Senator Kiehl spoke of testimony from departments and
numerical expectations.
Mr. Steininger replied that he would provide some analysis.
Senator Bishop asked whether termination costs were tracked
by agency.
Mr. Steininger replied not discreetly - that the costs
would be based on assumptions.
Senator Bishop thought that the costs should be considered
by both the legislative and executive branches.
1:31:39 PM
Co-Chair Giessel offered closing comments. She was struck
by the differing actuarial analysis, which she felt
represented worst and best case scenarios. She thought that
the numbers should be rerun by Buck using 2021 data.
Senator Bishop offered some closing comments.
SB 88 was HEARD and HELD in committee for further
consideration.
ADJOURNMENT
1:36:31 PM
The meeting was adjourned at 1:36 p.m.