Legislature(2023 - 2024)SENATE FINANCE 532
01/30/2024 09:00 AM Senate FINANCE
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| Audio | Topic |
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| Start | |
| Pers/trs Update | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| + | TELECONFERENCED |
SENATE FINANCE COMMITTEE
January 30, 2024
9:02 a.m.
9:02:41 AM
CALL TO ORDER
Co-Chair Stedman called the Senate Finance Committee
meeting to order at 9:02 a.m.
MEMBERS PRESENT
Senator Lyman Hoffman, Co-Chair
Senator Donny Olson, Co-Chair
Senator Bert Stedman, Co-Chair
Senator Jesse Kiehl
Senator Kelly Merrick
Senator David Wilson
MEMBERS ABSENT
Senator Click Bishop
ALSO PRESENT
Ajai Desai, Director, Division of Retirement and Benefits,
Department of Administration; Kathy Lea, Chief Pension
Officer, Division of Retirement and Benefits, Department of
Administration; Kevin Worley, Chief Financial Officer,
Division of Retirement and Benefits, Department of
Administration.
PRESENT VIA TELECONFERENCE
David Kershner, Retirement Actuary, Buck Global LLC,
Florida.
SUMMARY
^PERS/TRS UPDATE
9:05:09 AM
AJAI DESAI, DIRECTOR, DIVISION OF RETIREMENT AND BENEFITS,
DEPARTMENT OF ADMINISTRATION, (DOA) introduced himself.
9:05:33 AM
KATHY LEA, CHIEF PENSION OFFICER, DIVISION OF RETIREMENT
AND BENEFITS, DEPARTMENT OF ADMINISTRATION, introduced
herself.
9:05:50 AM
KEVIN WORLEY, CHIEF FINANCIAL OFFICER, DIVISION OF
RETIREMENT AND BENEFITS, DEPARTMENT OF ADMINISTRATION,
introduced himself.
Mr. Desai discussed the presentation, "State of Alaska
Department of Administration Division of Retirement and
Benefits" (copy on file). He looked at slide 2,
"Organization PERS / TRS":
Dept. of Revenue, Treasury Division
Invests retirement system assets
Staff
General Consultants
Internal Investment Team
External Investment Management
Alaska Retirement Management Board (ARMB)
Sets contribution rates, invests retirement
system assets
Investment Advisory Committee
Reviewer Actuary (GRS)
Dept. of Administration, Division of Retirement and
Benefits
Administer retirement and benefits system
Staff
Valuation Actuary (Buck/Consultants)
Third Party Administrators (TPA)
External Audits
Mr. Worley looked at slide 3, "Membership (as of June 30,
2023)." He discussed slide 4, "Investment Experience":
The actuarial value of assets was reinitialized to
equal, fair value as of June 30, 2014, with the $3
Billion infusion from HB 119.
Beginning in FY 2015, the valuation method recognizes
20 percent of the investment gain or loss each year
for five years ("Smoothing").
Co-Chair Stedman queried more detail about the "smoothing",
and the importance of fair market value.
Mr. Worley deferred to Mr. Kershner.
9:10:11 AM
DAVID KERSHNER, RETIREMENT ACTUARY, BUCK GLOBAL LLC,
FLORIDA (via teleconference), replied that they do not
market value of assets to determine the funding
contributions because of the volatility of the market
value.
Co-Chair Stedman stated that it was similar to the
Permanent Fund with a five-year payout.
Mr. Worley pointed to slide 5, "Funded Status Valuation
Results ($000's)."
Co-Chair Stedman wondered why the overfunding in health
care could not be used for the underfunding of the
pensions.
Mr. Worley replied that they were separate trusts.
Co-Chair Hoffman looked at the unfunded actuarial occurred
liabilities, and wondered whether the difference was
concerning for the department.
Mr. Worley stated that there were some slides that would
address the question.
9:16:32 AM
Mr. Worley addressed slide 6, "Funded Status Pension
($000's)."
Co-Chair Stedman asked about the draft numbers of PERS
versus TRS.
Mr. Worley replied that the present value of future pension
benefit was a five year smooth asset value, and the
unfunded liability was the difference at that particular
time.
Co-Chair Stedman queried the history of the fund, and the
liability.
Mr. Worley stated that there would be a slide addressing
that question.
9:20:18 AM
Co-Chair Stedman wondered whether there was a forward or
backward movement on the unfunded liability.
Mr. Worley looked at slide 7, "Funded Status HealthCare
($000's)."
Co-Chair Stedman asked when to pay attention to the
overfunding and underfunding ratios.
Mr. Worley replied that the ARM Board was a topic of
discussion.
Co-Chair Stedman requested a record of result of the ARM
Board's discussion.
Mr. Worley replied that he would provide that information.
Mr. Desai displayed slide 8, "Funded Ratio PERS Pension
and HealthCare(Based on Actuarial Valuation Reports)."
9:25:26 AM
Co-Chair Hoffman noted the dramatic changes in health care
costs, with that continuing for many years. He stressed
that the money was taking from the individual paychecks. He
wondered whether there was an adjustment a decade prior to
address that issue.
Mr. Worley replied contributions of 6.75 percent that were
deducted from an employee's paycheck on the defined
benefits side went into the pension trust. He furthered
that the health contributions were deposited by the
employer, so there was no impact on the membership on the
health side.
Co-Chair Hoffman stressed that the employer was the State
of Alaska, and felt that an adjustment was necessary
because of the overfunding at the same time that the state
was in financial straits.
Co-Chair Stedman wondered whether there would be a specific
financial number within the presentation.
Mr. Desai agreed to provide that information.
Co-Chair Stedman stressed that the pension fund needed to
be addressed and fixed in the same way that the health fund
has found solution.
Mr. Worley replied that one of the levers in the health
care program was the switch to the employer group waiver
plan, which was a reduction of the liability by
approximately $1 billion
9:31:06 AM
Mr. Desai highlighted slide 9, "Funded Ratio TRS Pension
and HealthCare(Based on Actuarial Valuation Reports)."
Mr. Desai discussed slide 10, "Funded Ratio Combined
PERS/TRS (Based on Actuarial Valuation Reports Information
Only)."
Senator Kiehl queried the first year that was skipped for
the normal contributions for health care.
Mr. Worley replied that it was 2021.
Co-Chair Stedman asked for a definition of "normal cost.
Mr. Worley explained that "normal cost" was the cost to
fund the benefits of the membership in that year.
Co-Chair Stedman asked how the funds resulted in
liabilities and surpluses.
Mr. Worley replied that in a "perfect year" each fund was
at 100 percent. He stated that deviations from the
assumptions resulted in liabilities and surpluses.
Senator Kiehl queried the first year that a normal cost
contribution was not made for the health side.
Mr. Worley replied that it was 2022.
9:35:16 AM
Senator Kiehl was concern about the history of the funds,
because the health fund and pension funds originated as
blended plans.
Co-Chair Stedman wanted to discuss the reason for the
combination.
9:36:51 AM
AT EASE
9:37:28 AM
RECONVENED
9:37:33 AM
Co-Chair Stedman remarked that there would be a
conversation with the department on the history and reason
for the dividing of the funds.
Senator Kiehl wanted the full picture of the reason for all
changes.
Mr. Worley explained that there was language in the ARM
Board statutes that appeared to be in slight conflict with
the state statutes.
9:40:10 AM
Co-Chair Stedman remarked that there would be clarity in
the future on the issue.
Mr. Desai pointed to slide 11, "Correlation between Actual
Rate of Return and Funded Ratio (Information Only)."
Co-Chair Stedman recalled an error from the actuary which
resulted in many issues and problems. He asked why there
was still no elimination of the debt.
9:45:00 AM
Ms. Lea replied that there were two things that could not
be controlled in the valuing of the plans: the market
experience and the length of payment of benefits.
9:46:55 AM
Senator Wilson wondered whether a beneficiary of the Tier 1
or Tier 2 could give any unused benefit back to the trust.
Ms. Lea replied that a member could only leave their
pension to a spouse, or the spouse could waive it and give
it to an incapacitated child. Otherwise, all benefits cease
with the member's death.
Co-Chair Stedman recalled a concern about the spouse
benefits.
Co-Chair Stedman remarked that the current estimated rate
of returns were "better" than previous estimates.
Mr. Worley explained that there was a recent Supreme Court
cast that resulted in the allowance of those in the defined
contribution plan could return to their previous defined
benefit tier, which resulted in some unfunded liability.
9:50:34 AM
Co-Chair Stedman queried what controlled the diminishment
of benefits.
Ms. Lea responded that retirement and benefits were
guaranteed in the Alaska constitution. She stated that
those that were in effect when the employee begins work are
the benefits that they are entitled to upon retirement. She
explained that there were several court cases regarding
diminishment of benefits.
Co-Chair Stedman stressed that the diminishment of benefits
was important to understand.
Co-Chair Hoffman noted that Alaska had some of the highest
rates of common law marriages, but were not recognized in
the retirement system. He wondered whether other states
recognized those common law marriages. He also recalled a
court case about the LGBTQ community, and asked how that
impacted retirement and benefits.
Ms. Lea provided an overview answer, and agreed to provide
that information. She stated that there were other states
that recognized common law marriages, but Alaska did not.
She also explained that there was a court case resulted in
requiring LGBTQ couples to prove that they had assets in
common and were in a long term relationship, then those
benefits could be recognized for the partner. She furthered
that the current law recognized the legal marriage, so that
court case did not pertain to current law.
9:55:33 AM
Co-Chair Hoffman wondered why that case was not a precedent
for common law marriage.
Ms. Lea replied that the court case for the LGBTQ did not
include comments about common law marriage.
Co-Chair Hoffman wondered whether the decision was made
prior to the state recognized same sex marriage.
Ms. Lea replied in the affirmative.
Co-Chair Stedman requested more detail on that issue.
Senator Merrick wondered whether the courts ruled that
being forced to move to a defined contribution plan in a
previous defined benefit was considered a "diminishment."
Ms. Lea replied in the affirmative.
Co-Chair Stedman stressed that the issue was especially
important for Tier 1 employees.
9:58:27 AM
Mr. Desai looked at slide 12, "Unfunded Actuarial Liability
PERS (in $millions)."
Co-Chair Stedman wondered why in 2013 there was an unfunded
liability of $5.4 billion, and the current liability was $5
billion. He wanted to know why there was not a greater
reduction on that liability.
Mr. Desai deferred to Mr. Kershner.
Mr. Kershner agreed to provide specific information, but
pointed out that the actuarial earnings assumptions had
decreased over time.
Co-Chair Stedman understood that there had been a rate
assumption reduction, but wondered why there was not an
increase in contributions to eliminate the debt.
Mr. Kershner remarked that an increase in the liability
resulted in an increase in the contribution rate, but those
changes were not made immediately.
Co-Chair Stedman assumed the $1.736 billion was accurately
calculated after the actuary issue, but now the liability
had increased to $5.5 billion. He wanted to understand that
issue.
10:05:46 AM
Mr. Kershner replied that there were several factors.
10:09:41 AM
Mr. Desai discussed slide 13, "Unfunded Actuarial Liability
TRS (in $millions)."
Co-Chair Hoffman recalled that the legislature had
appropriated $3 billion for the liability, but the ARM
Board could not appropriate money. He wondered whether the
legislature could address the issue monetarily again.
Co-Chair Stedman wondered if all the cash could be directed
toward pension.
Co-Chair Hoffman felt that the money could not be directed
toward retirement but felt that a less amount could be
directed toward health care.
Co-Chair Stedman agreed.
Mr. Desai highlighted slide 14, "Unfunded Actuarial
Liability PERS / TRS ($000's)(Information Only)."
Co-Chair Stedman felt that the combined slides may result
in not recognizing the issue of the two trusts.
Mr. Desai agreed.
10:14:04 AM
Mr. Desai displayed slide 15, "Additional State
Contributions -History."
Mr. Worley explained that that there was a bill that
required the state to pay the full actuarial rate, which
contributed to the decrease between 2022 and 2023.
Co-Chair Stedman queried the total additional payments made
for the pension.
Mr. Worley agreed to provide that information.
Co-Chair Stedman wanted a focus on cash flow to the
unfunded liability.
Mr. Desai pointed to slide 16, "Additional State
Contributions Projected."
Co-Chair Stedman remarked that the complexity of the issue
always "had a moving target" from inflation, market
reductions, and longer life expectancies.
10:21:15 AM
Mr. Worley looked at slide 17, "FY2025 Contribution Rates
Health Plan Zero Normal Cost Impact on Contribution
Rates."
Co-Chair Stedman wanted to explore the redirection of the
cash flow.
Co-Chair Hoffman agreed.
10:25:13 AM
Co-Chair Stedman wanted an appropriation for anything that
was due on the unfunded liability.
Mr. Worley pointed to slide 18, "HealthCare Trusts Funded
Level."
Co-Chair Hoffman stressed that the legislature contributed
to get to the place in the market.
10:30:09 AM
Senator Kiehl remarked that health care predictions was
extremely volatile, and felt that there should be further
normal cost contributions.
Co-Chair Stedman stated that there would be discussions
about appropriate overfunding, but stressed that the
overfunding of health care was successful.
Mr. Worley commended the employees that were instrumental
in running the program.
Co-Chair Hoffman pointed out that there were four members
on the committee that were around 17 years prior.
Mr. Desai discussed slide 19, "FY2025 Contribution Rates
Defined Benefit Plans."
10:35:00 AM
Co-Chair Stedman corrected his statement related to TRS.
Mr. Desai highlighted slide 20, "FY2025 Contribution Rates
Defined Contribution Plans."
Mr. Desai pointed to slide 21, "Contribution Rates
History."
Co-Chair Stedman wondered whether the slide related to
nonstate employers.
Mr. Desai replied that it was for all state and nonstate
employers.
Mr. Desai looked at slide 22, "Projected Pension Benefit
Recipients."
10:40:38 AM
Mr. Desai addressed slide 23, "Projected Pension Benefits
Payment ($000's)."
Co-Chair Stedman wondered whether the projected went to the
year 2100.
Mr. Desai explained that there were 11,000 active members
in the defined benefits program. It was assumed that the
retirees would continue to receive payments through the end
of the century.
Mr. Desai displayed slide 24, "AlaskaCare Employer Group
Waiver Plan"
• An Employer Group Waiver Plan (EGWP) is a group
Medicare Part D prescription drug plan option.
• EGWP provides a direct subsidy which allows it to be
considered when calculating the Other Post-Employment
Benefits (OPEB) liability under both GASB & FASB
accounting schemes.
• The implementation of EGWP reduced 6/30/18
healthcare liabilities by $959M, which resulted in
lower projected liabilities, lower projected
contribution rates, and lower projected Additional
State Contributions ($711M for PERS, $248M for TRS).
10:46:49 AM
Mr. Desai discussed slide 25, "An Employer Group Waiver
Plan (EGWP) Subsidy."
Mr. Worley pointed to slide 26, "HealthCare Cost Trend
Rates."
Mr. Desai highlighted slide 27, "Employers and Additional
State Contributions Process Timeline."
10:50:56 AM
Co-Chair Olson looked at slide 24, and wanted to know how
the $1 billion savings were the result of an additional
option.
Mr. Desai replied that the previous program were expensive.
Co-Chair Olson surmised that there was also a federal
inducement of funds.
Mr. Desai agreed.
Co-Chair Stedman discussed committee business.
ADJOURNMENT
10:55:24 AM
The meeting was adjourned at 10:55 a.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| 013024 DOA PERS TRS Overview SFC.pdf |
SFIN 1/30/2024 9:00:00 AM |
PERS/TRS Overview |
| 013024 FY24-FY25GovSwoopGraphwithEnergyRelief.pdf |
SFIN 1/30/2024 9:00:00 AM |
PERS/TRS Swoop Graph |