SB 198-PERS/TRS RETIREMENT & MEDICAL ELIGIBILITY  2:34:16 PM CHAIR BJORKMAN reconvened the meeting and announced the consideration of SENATE BILL NO. 198 "An Act relating to the teachers' defined contribution retirement plan; relating to the public employees' defined contribution retirement plan; and providing for an effective date." 2:34:49 PM SENATOR JAMES KAUFMAN, District F, Alaska State Legislature, Juneau, Alaska, sponsor of SB 198 read the following: [Original punctuation provided.] The bill before you addresses two issues with the medical benefits our defined contribution employees receive when they retire. Our current system lacks important flexibility, penalizing employees who have dedicated their career to public service. The specifics of this bill mirror the March 2025 recommendations of the Alaska Retirement Management Board. You'll find their two resolutions in your bill packet. Specifically, this bill applies to public employees in PERS Tier 4 and teachers in TRS Tier 3. These are employees who were hired beginning July 1, 2006.  (Background on years of service)  For some background, when an eligible defined contribution employee retires, they can access the Retiree Major Medical Insurance Plan and the Health Reimbursement Arrangement. To do so, current statute requires they work 30 years (and 25 years as a peace officer or firefighter). Alternatively, if an employee reaches Medicare age after working 10 years they qualify for the benefits. The funds that support both the PERS and TRS DC healthcare plans are overfunded. PERS is at 121 percent and TRS is at 136 percent. Based on actuarial analysis, the ARM board found that the years of service required could be reduced while keeping the funds overfunded.  (Amending years of service)  So, taking one of the options recommended by the ARM board, SB 198 reduces the years of service required by 5 years. So public employees/teachers work 25 years and peace officers/firefighters work 20 years to be eligible for health benefits. Employee contributions are slightly increased, and the surplus more than covers the new liability. This way, we are able to improve our health care offer to DC employees, without jeopardizing the solvency of the funds. You can find the ARM board's full actuarial analysis in your packet. 2:37:24 PM SENATOR GRAY-JACKSON expressed hope for the return of a defined benefit plan and asked how requiring continued service in the final year aligns with the original goal of defined contribution plans, which aim to support non-linear career paths. SENATOR KAUFMAN replied that SB 198 primarily removes a barrier to increase flexibility for employees entering the system, and asked whether the question concerns that flexibility or the 12- month service requirement. 2:38:35 PM CHAIR BJORKMAN asked whether defined contribution plans support career mobility and why the previous plan required employees to retire directly from the system to receive health benefits. SENATOR KAUFMAN replied that he cannot explain the original requirement and stated that SB 198 removes the 12-month requirement to provide greater flexibility. 2:39:38 PM SENATOR KAUFMAN continued with the summary of SB 198: [Original punctuation provided.]  (Background on 12-month requirement)  Let me return for a minute to current statute to set up the second issue this bill addresses: Current law requires DC employees who have met their years of service, to retire directly into the health benefit plan. It further requires that they work 12 months immediately before they retire. This 12-month requirement imposes unnecessary rigidity on employees. For instance, an eligible employee who isn't ready to enroll in their retiree health plan is forced to either delay retirement or leave public service and come back 12 months before they want to take their benefits. There is no option for DC employees to strategically defer taking their health benefits. Pre-Medicare premiums for retirees are high, so this lack of flexibility poses a real problem for folks who've earned this benefit  (Amending 12-month requirement)  SB 198 removes this 12-month requirement for eligible DC employees. This change will give them the flexibility to strategically plan when they enroll in the health benefits they earned based on their personal medical and financial situation.  (Closing)  -In closing, since no members have yet reached the 25- or 30-year thresholds, now is the right time to address these eligibility requirements. -SB 198 makes important improvements to the DC healthcare plan to better serve the employees who have dedicated their career to public service. 2:41:43 PM EMMA TORKELSON, Staff, Senator James Kaufman, Alaska State Legislature, Juneau, Alaska, provided a summary of the sectional analysis for SB 198. [Original punctuation provided.] Sections 1 & 4 make changes for defined contribution  teachers and public employees  -It removes the requirement to retire directly into their retirement health benefits after working the preceding 12 months. -It also reduces the years of service required to qualify for benefits to. Teachers and public employees will qualify in 25 years (from 30 years). -Peace officers and firefighters will qualify after 20 years (down from 25). -Note that if any DC employee reaches retirement age after serving 10 years, they still have to meet the 12-month requirement. Section 2 & 5  -Amend the premium (cost subsidies) for Medicare eligible retired teachers and public employees based on the changes in Sections 1 and 4 Section 3  -Amends the Health Reimbursement Arrangement (HRA) account procedures so that defined contribution teachers and public employees returning to work after a gap will have yearly interest (instead of inflation) credited to their existing HRA account. The ARM board will set the interest rate based on yearly market performance. I'll make one note about Sections 3 and 5. When we were drafting this bill, these sections were added in as what we believed were conforming changes to change in the years of service. After the bill was introduced, however, we learned that the ARM board had intentionally not recommended changes to these subsidies as they have an actuarial impact on the health of the fund that was not studied. We would like to work with the committee to remove these sections in a future version of the bill. Additionally, after this bill was introduced last session, the ARM board made a few more recommendations for changes to the DC health benefit system. We are still reviewing those recommendations, so I am not prepared to go into depth on them at this time. But we would like to work with committee members after this hearing to see if there is a desire to incorporate them into the bill. 2:44:55 PM CHAIR BJORKMAN asked the Alaska Retirement Management (ARM) Board chair to outline the board's additional recommendations and explain how the changes in SB 198, along with those recommendations, improve the system and work together. 2:45:44 PM BOB WILLIAMS, Chair, Alaska Retirement Management (ARM) Board, Juneau, Alaska, answered questions regarding SB 198. He answered that the board's additional recommendations focus on improving system design by reducing service requirements for medical benefits and increasing member flexibility. Specifically, Resolutions 2025-02 and 2025-21 propose lowering the vesting period from 30 years for teachers and public employees to 25 years, and from 25 years for public safety to 20 years. He said the ARM Board explains that these recommendations and SB 198 are complementary. While SB 198 provides a simple, already-funded path to these lower service requirements, Resolution 2025-21 offers an alternative funding mechanism through forfeited HRA balances. He said together, these changes improve the system by removing rigid, 2006-era restrictions, such as the requirement to retire directly from a plan, and allowing employees to use their HRA accounts more flexibly to cover premiums before Medicare eligibility. This unified approach ensures the system remains over 100 percent funded while providing the flexibility necessary for modern retirement planning. 2:51:03 PM MR. WILLIAMS stated that the ARM Board rarely makes legislative recommendations and approaches them carefully and thoughtfully, aiming for broad agreement. The ARM Board believes its resolutions would improve the system. 2:51:56 PM CHAIR BJORKMAN asked Mr. Murray to explain the current fund balances within the retirement trusts and whether they can support these changes over time. 2:52:42 PM CHRIS MURRAY, Acting Chief Health Official, Division of Retirement and Benefits, Department of Administration, Juneau, Alaska, answered questions regarding SB 198. He responded that the trust funds are overfunded and deferred the question to Mr. Novell. 2:53:30 PM CHRIS NOVELL, Chief Financial Officer (CFO), Division of Retirement and Benefits, Department of Administration, Juneau, Alaska, answered questions regarding SB 198 and said that Mr. Murray is correct, the health care funds are over funded and projected to stay well-funded through 2039. He said SB 198 can adequately carry this. 2:54:13 PM CHAIR BJORKMAN stated that he is open to considering additional recommendations from the retirement board and notes that, regardless of future defined benefit policies, many state employees in the DC plan would benefit from this change, which aligns with the current bill. 2:55:02 PM CHAIR BJORKMAN held SB 198 in committee.