HB 78-RETIREMENT SYSTEMS; DEFINED BENEFIT OPT.  1:33:46 PM CHAIR BJORKMAN announced the consideration of CS FOR HOUSE BILL NO. 78(FIN) am(efd fld) "An Act relating to the public employees' retirement system and the teachers' retirement system; and providing certain employees an opportunity to choose between the defined benefit and defined contribution plans of the public employees' retirement system and the teachers' retirement system." 1:35:00 PM CHAIR BJORKMAN opened public testimony on HB 78. 1:35:20 PM NILS ANDREASSEN, Executive Director, Alaska Municipal League, Juneau, Alaska, testified with concerns on HB 78. [Original punctuation provided.] Thank you for this opportunity to provide testimony today. HB 78 has a direct and significant impact on local governments, who as employers are a minority within PERS but bear the consequence of the State's decision making. This means that for the promise and potential of strengthened recruitment and retention, our members also feel the weight of the net pension liability that accrues when the State doesn't get it right, and a high actuarial rate that limits other kinds of investments that they might make in employees. Yes, the State carries the burden beyond 22 percent - a compromise that acknowledged that local governments had no control for the conditions that created the unfunded liability - but we often talk about how, for many local governments, they can't afford to stay in, nor get out. With that in mind, AML would like to offer three ways in which this committee could alleviate the challenges that employers face and improve the conditions in our communities. First, we would encourage you to remove the provision that establishes the 2008 salary floor. This anachronistic measure was intended to stabilize a system in freefall but at this point leaves employers little flexibility to adjust their payroll based on circumstances that have changed in the last 18 years. The effect is that if an employer reduces their payroll below that 2008 number, they continue paying as if they were stuck in time. This would make much more sense as something like 75 percent of a rolling 3-year average. It allows the system to withstand shocks and for employers to adjust based on lost revenue, governmental efficiencies, etc. Second, there are many reasons for employers to become delinquent in payments, but for those who truly can't afford to remain in, the accrual of payments is considerable and for some insurmountable. Law currently requires these employers to be exited from the program, but this process somehow hasn't been as efficient or effective as it needs to be. Ultimately, what is needed is for a mechanism that more quickly halts accrual, which means the employer stops collecting or being responsible for collecting and remitting soon enough that debt doesn't accrue beyond their means. It could be something like, if an employer falls behind in more than two payrolls it is required to pause participation in PERS until it can remedy the situation. For current delinquencies, they make up so little from a systems perspective that if you waived - or the State assumed - their liability, it would be better than letting it continue to grow. 1:37:33 PM NILS ANDREASSEN continued with his testimony of HB 78: Finally, we understand that termination studies are well-intended from a systems perspective but they are also a barrier to local decision-making. Especially for small employers, whose few employees are likely not going to affect the actuarial rate or net pension liability much at all, the State's actuaries could determine a threshold under which termination studies don't apply. You could give discretion to the department to exit employers who simply can't afford to remain, nor leave at this point, so that they can address their local circumstances without the burden of a liability that would otherwise continue for years to come but without a public benefit within that community. Thank you again to the bill sponsor for being willing to consider these issues along the way. To reiterate, we're willing to work with you to: -Remove the salary floor - it doesn't help the system 20 years on -Allow communities facing delinquency to exit the system, and -Create an offramp that doesn't always require termination studies. 1:38:52 PM JOELLE HALL, President, Alaska American Federation of Labor/Congress of Industrial Organizations (AKAFL-CIO), Anchorage, Alaska, testified by invitation on HB 78 and stated that for over 20 years, the Alaska Public Pension Coalition has warned that closing the state's defined benefit pension would harm recruitment and retention. Those concerns have become reality, with high vacancies, workforce turnover, and uncompetitive pay and benefits. She said the current system places no risk on the state but creates poor incentives and undermines workforce stability. A defined benefit plan encourages retention and benefits both employees and the state by supporting effective public services. HB 78 proposes a modern shared risk-defined benefit system, developed using national best practices, to address these challenges. Lawmakers have tried other solutions without success. 1:43:01 PM CHRIS HEIDEMANN, representing self, Juneau, Alaska, testified in support of HB 78 and urged support for restoring a defined benefit pension for public employees. He argued it would significantly improve teacher recruitment and retention. As a TRS III member with nearly 20 years of service, they are only 23 percent toward a retirement goal and would need to work 44 years to reach it. Proposed alternatives like SBS remain inadequate and fail to help long-serving employees. With TRS III and PERS IV members nearing retirement and facing financial insecurity, he stressed that Alaska, currently the only state without a defined benefit option, should restore a defined benefit pension. 1:45:51 PM ZACHARY CHRISTENSEN, Managing Director, Reason Foundation, Provo, Utah, testified in support of HB 78 and stated that he supports benefits that attract public workers while remaining affordable and sustainable. He cautioned that HB 78, which would reinstate a defined benefit pension for new employees, could add significant long-term costs. He said his company's actuarial modeling estimates an additional $1.4 billion over 30 years in a best-case scenario, and up to $7 billion under more typical investment returns, creating financial risk for future budgets. He noted that Alaska's public employee turnover rate is already lower than the national average, suggesting a defined benefit plan may not significantly improve retention. 1:49:24 PM JAYNE ANDREEN, representing self, Douglas, Alaska, testified in support of HB 78 and stated that she was able to retire 11 years ago after 21 years with the State of Alaska, joining in 1994 without prior retirement savings. She said Tier 2 provided a defined benefit pension that created financial security. She said during her career, recruiting and retaining employees grew increasingly difficult as state salaries and benefits lagged behind the private sector after pension changes. She urged support for HB 78 and notes that retirement security allows them to remain in Alaska, volunteer, work, and contribute to the local economy. 1:51:36 PM DOMINIC LOZANO, President, Alaska Professional Firefighters Association, Fairbanks, Alaska, testified in support of HB 78 and stated that he first testified in 2005 and has since worked with others to develop a sustainable retirement system for Alaska's workforce. He said HB 78 reflects years of research, modeling, and collaboration with legislators, drawing on best practices from other states. The plan includes features such as minimum retirement ages, required contributions (8 percent from employees and at least 12 percent from employers), and a sliding scale to adjust for market conditions. He said unlike previous systems that placed all risk on employers or employees, HB 78 creates a shared-risk model. 1:55:39 PM JENNIFER SCHMITZ, Director, Alaska Educator Retention and Recruitment Center/ Alaska Council of School Administrators (AERRC/ACSA), Anchorage, Alaska, testified in support of HB 78 and stated that retention, not recruitment, drives Alaska's main workforce challenge, and retirement security plays a central role. Replacing a teacher costs districts over $20,000, due to onboarding, mentoring, and lost instructional momentum. She said Alaska also faces high teacher turnover, especially in rural areas, with 729 current vacancies statewide. Surveys of school leaders identify the lack of a defined benefit retirement plan as the primary reason educators leave. She said HB 78 would strengthen retention, reduce costly turnover, and provide students with consistent, experienced teachers. 1:58:25 PM HEIDI DRYGAS, Executive Director, Alaska State Employee Association/American Federation of State, County and Municipal Employees (ASEA/AFSCME) Local 52, Juneau, Alaska, testified in support of HB 78 and read the following testimony: [Original punctuation provided.] My name is Heidi Drygas, and I am Executive Director of the Alaska State Employees Association. Prior to this position, I had a career as a labor attorney and served as Commissioner of Labor and Workforce Development for Governor Bill Walker. More importantly, I am a lifelong Alaskan, the daughter of two proud public servants, and I have witnessed firsthand the deterioration of our state workforce over the past 20 years. ASEA represents more than 8,000 employees in the general government unit- Alaska's rank and file workers. We are the beating heart of state service. Alaska has seen an unprecedented outmigration of workers for more than a decade. Growing up here, it was a point of pride to work for the State of Alaska. Fast-forward to the present, and we struggle to recruit and retain workers, and it is taking a toll on those who remain. We are asking more of state employees and giving them less. Some employees are doing the work of two and three, sometimes more, employees. We are losing workers faster than we can replace them. Our wages and retirement system no longer attract and keep workers the way they used to. The recruitment and retention crisis is costing us real dollars. Fines of over $16 million from the US Dept of Health due to a persistent, yearslong backlog in the processing of SNAP and Medicaid applications, massive errors in submitting the annual STIP to the US Department of Transportation. A crisis in payroll we couldn't even pay our own employees on time. These are just some of the most basic of state functions that we are failing to do. And it's simply because we cannot attract workers. The state is paying millions upon millions of dollars in premium pay, and contracting out work to outside firms to stop the bleeding and temporarily fix the problem, while violating contractual agreements in the process. 2:00:10 PM MS. DRYGAS continued with her testimony for HB 78: It's hard to overstate the toll the recruitment and retention crisis has taken on our existing workforce. When I began my tenure at ASEA, I learned quickly the state's response to dealing with the ongoing recruitment and retention crisis is with a patchwork of Letters of Agreement- exceptions to our collective bargaining agreements to address ongoing workforce needs. I've signed dozens of these agreements: Incentive pay to retain workers, recruitment pay to entice new workers, travel premiums, and overtime pay to employees that are otherwise overtime exempt. Letters of Agreement are useful and necessary tools to address ongoing issues related to the workforce. But these are band aids and should be used sparingly. Instead, letters of agreement, and contracting to outside firms have been the primary tools used to address the crisis. These tools create friction in the workforce, as issues of disparity and concerns about fairness are commonplace. It's like playing Whack-A-Mole- you sign one of these agreements, and another problem pops up somewhere else, with workers fairly questioning- "Hey, wait a sec- why not me?" While we negotiated a strong contract for our members last year, wages are still far behind the increases suggested for most classifications by the long-delayed state salary study. And it's not clear if it will be implemented or what the next steps will be. Pensions for public service will return stability and predictability to our state workforce. Providing defined benefits is how the public sector competes with the private sector for the best and brightest workers. When surveyed, 89 percent of our members support a return to a Defined Benefit Retirement system. I believe it is possible for Alaska to be a premier place to live and work again. And one of the most important steps we can take is to provide pensions for public service. Alaskans deserve reliability and predictability in the delivery of public services. 2:02:40 PM WILLY KEPPEL, representing self, Quinhagak, Alaska, testified with concerns on HB 78 and asked committee members to declare if they accepted campaign contributions from state unions or listed officials. He stated that, during the 2006 pension debate, defined benefits did not improve teacher retention. Based on conversations with teachers in Quinhagak, many prefer portable benefits, higher wages, and access to Social Security. He urged the committee to reject the bill due to potential costs and instead strengthen defined contribution plans and investment returns. 2:06:17 PM SENATOR MERRICK directed Mr. Keppel to the Alaska Public Offices Commission website, where he can review campaign expenditures and contributions for any elected official. 2:06:49 PM BRETT HUBER, State Director, Americans for Prosperity, Anchorage, Alaska, testified in support of HB 78 and acknowledged the sponsor's effort to address recruitment and retention. He stated that his organization shares concerns raised by actuaries that poor investment returns could create up to $7 billion in future liability. The division recognizes workforce challenges yet emphasizes that many younger workers value portable benefits and expect multiple careers. Given these trends and broader labor shortages since COVID, the organization questions whether the recruitment gains justify the potential financial risk. 2:09:15 PM JACKIE HANSON, Superintendent, Craig City School District, Craig, Alaska, testified in support of HB 78 and reiterated the testimony of Mr. Heidemann. 2:11:17 PM MARGE STONEKING, Advocacy Director, American Association of Retired Persons (AARP) Alaska, Anchorage, Alaska, testified in support of HB 78 and stated that AARP advocates retirement security for older Americans. Research shows households without pensions face poverty at nine times the rate of those with pensions. She said Alaska's lack of defined benefit pensions weakens retirement security for public employees and harms recruitment and retention, which affects public services. 2:14:12 PM GORDON GLASER, representing self, Anchorage, Alaska, testified in support of HB 78 and stated that as a long-term state employee, he said the defined benefit pension created a modest and secure life for his family. He noted that the state struggles to hire and retain staff, harming public services. Thousands of employees live decent lives, contribute to their communities, and support families. 2:16:54 PM EMILY MOODY, representing self, Cordova, Alaska, testified in support of HB 78. She said the lack of retirement security harms recruitment and retention and forcing educators to leave Alaska. She stated that retirement stability supports public education and protects teachers from poverty after long careers. 2:20:51 PM ERICA BURR, representing self, Fairbanks, Alaska, testified in support of HB 78. She emphasized that defined benefits are essential for recruiting and retaining skilled educators who support Alaska's children and communities. She said teacher shortages force districts to hire abroad with potential of less committed teachers. Sustainable, rewarding careers attract and keep talent, ensuring students receive consistent, high-quality education. She urged investment in people and supports reinstating defined benefits. 2:23:32 PM CHAIR BJORKMAN closed public testimony on HB 78. 2:24:01 PM CHAIR BJORKMAN noted differing actuarial analyses: those from legislation supporters, neutral state fiduciaries, and groups opposing public employee pensions. He asked Representative Kopp to explain the reasons for these differences and what they entail. 2:24:39 PM REPRESENTATIVE CHUCK KOPP, District 10, Alaska State Legislature, Juneau, Alaska, answered questions regarding HB 78 on behalf of the sponsor. He responded that the Reason Foundation lacks actuarial expertise and relies on external entities motivated by 401(k) annuity profits, whereas the state actuary's primary duty is preventing pension liabilities. He noted that the state actuary's 25-year modeling, which accounts for market downturns like 2008, indicates HB 78 poses no realistic risk of new liability. While other contracted actuaries may align with their clients' interests, the state's trusted actuaries confirm that the safeguards within HB 78 make new liabilities highly unlikely. 2:28:14 PM CHAIR BJORKMAN asked how HB 78 would affect Alaska's annual cash flow, compared with current practices like Memorandum of Understandings (MOUs), letters of agreement, and overtime, based on the state's actuarial analysis. REPRESENTATIVE KOPP replied that HB 78 would generate net positive revenue for the state. Actuaries estimate annual costs of about $80$90 million, far below current spending driven by staffing shortages. He said premium pay alone has risen from $80 million in FY20 to over $200 million projected this year due to vacancies, overtime, and constant training of new staff. Workforce turnover also causes operational errors, missed federal funding opportunities, and loss of experienced mid-level employees. He concluded that stabilizing the workforce through HB 78 would reduce these costs. 2:31:49 PM CHAIR BJORKMAN held HB 78 in committee.