HB 83-TEACHERS & PUB EMPLOYEE RETIREMENT PLANS  5:23:07 PM CHAIR KREISS-TOMKINS announced that the final order of business would be the CS FOR HOUSE BILL NO. 83(L&C), "An Act relating to new defined benefit tiers in the public employees' retirement system 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 and the teachers' retirement system; and providing for an effective date." 5:23:29 PM EDRIC CARRILLO, Staff, Representative Sam Kito, Alaska State Legislature, read the changes to HB 83 from a document titled, "Explanation of Changes, HB 83, PERs/TRS, Version N to Version T, which read as follows [original punctuation provided]: Version T includes the following changes to HB 83 version N: ? Broadened the title to refer to more than the new tiers, use the more precise title "Public Employees' Retirement System of Alaska." ? Added a new Sec. 1 at the department's request, making it easier for teachers to return to work after recovering from a disability. The section will allow TRS to accept a certification of rehabilitation from other states' vocational rehabilitation offices. ? Changed Sec. 6 at the department's request to ease potentially burdensome exams for teachers getting a disability pension. ? Changed Sec. 7 at the department's request to allow TRS to accept vocational rehabilitation services in other states for teachers on a disability pension. ? Adjusted Sec. 9 at the department's request to clarify which retiree medical plan applies to teachers who retire in the new DB tier. Also updates the first risk adjustment to health care premiums to 2024, five years after the effective date. ? Removed from Sec. 12, at the Department of Law's request, the requirement that a teacher's spouse agree to the initial choice between the DB and DC plans. ? Adds a new Sec. 13 at the department's request so teachers appointed to disability in the DC plan can receive vocational rehabilitation in other states. ? Conforms Sec. 15 to the new effective date. 5:26:10 PM MR. CARILLO continued to read the changes to HB 83 from a document titled, "Explanation of Changes, HB 83, PERs/TRS, Version N to Version T, which read as follows [original punctuation provided]: ? Clarified Sec. 18 language covering non-occupational disability benefits, as requested by the department. ? Changed Sec. 19 at the department's request to allow PERS to accept vocational rehabilitation services in other states for those on a disability pension. ? Adjusted Sec. 20 at the department's request to clarify which retiree medical plan applies to employees who retire in the new DB tier. Also updates the first risk adjustment to health care premiums to 2024, five years after the effective date. ? Removed from Sec. 25, at the Department of Law's request, the requirement that a teacher's spouse agree to the initial choice between the DB and DC plans. ? Adds a new Sec. 26 at the department's request so teachers appointed to disability in the DC plan can receive vocational rehabilitation in other states. ? Sec. 29 has a conforming change to a section number within the bill. ? Sec. 30 has been changed so it does not alter the department's existing regulations process for the retirement systems. ? Section 31 has conforming changes to reflect the appropriate section numbers in the CS. ? Section 32 changes the effective date to July 1, 2019 MR. CARILLO stated those were all the changes to the bill. 5:27:42 PM REPRESENTATIVE LEDOUX made a motion to adopt the proposed committee substitute (CS) for HB 83 labeled as 30-LS0315\T, Wayne, 3/30/18, as the work draft. There being no objection, Version T was before the committee. 5:28:09 PM REPRESENTATIVE BIRCH said he was opposed to anything that would restore an undefined obligation. He was unsure if there was a fiscal note for the defined benefits (DB) program. He then remarked that there was not a fiscal note. He offered his concern that the state would be "saddled" with liability and long-term obligations, which he characterized as significant. He argued that the state currently has a $7 billion to $8 billion unmet obligation. He related his understanding that an evaluation must be completed to determine the cost of the plan. He indicated members would be voting on something unknown. He said he was not supportive of this. 5:29:13 PM CHAIR KREISS-TOMKINS offered a note on process. He related his understanding that the fiscal note would be completed when the bill reached the House Finance Standing Committee. At that point the Department of Revenue (DOR) would run an actuarial analysis, he said. He acknowledged that it does put members in the position of voting on policy issues rather than the fiscal issues. He acknowledged that Representative Birch's comments were noted and appreciated. REPRESENTATIVE BIRCH said he objected to the policy. 5:30:54 PM CHAIR KREISS-TOMKINS opened public testimony on HB 83. 5:31:23 PM CHRIS CAIRNS, Staff, Information Technology, Juneau School District; Representative, Alaska Public Employees Association (APEA), testified in support of HB 83. He stated that HB 83 represents a balm to the myriad of uncertainties for public employees. During a bargaining session he reviewed a chart of the number of employees that occupy each cell of the support staffs' salary schedule. He noticed many staff had served 1-6 or 15-25 years of service, but very few had 7-14 years of service. He later confirmed that more than half of all Juneau education support staff had seven or fewer years of service. MR. CAIRNS said that he could not definitively state this resulted from the 2006 switch from the DB to defined contribution (DC) plan. The timeline certainly fits. He stated that he and his co-workers have frequently discussed the concept of DB plan and the peace of mind it provides. He related at last night's APEA union meeting with the school board, a board member asked besides wages what the biggest challenge employees faced. The vice-president confidently identified the biggest challenge as retention. He stated that the APEA needed to bring back DB plans. Every head nodded in enthusiastic agreement, he said. 5:33:14 PM MR. CAIRNS, having spoken to management and labor organizations, offered his belief that nearby areas such as Spokane, Washington, would lure away the best employees. He reported these areas pay as much or more while the cost of living was much less than in Juneau. He also testified that these employers commonly mentioned a DB option as a mitigating enticement. MR. CAIRNS offered his belief that retaining staff represents the key to doing more with less. Currently, many public employees face this challenge, he said. He predicted that prior mistakes would be repeated, and training will reduce efficiencies due to lost institutional knowledge. As an example, he felt that if he left it would take a new employee replacing him about two to three years to learn the job. It takes time to build the necessary relationships and comprehending the complexities of APEA's mission, process and role. This would not include time to gain technical competencies specific to school district information technology needs or shaping policy and procedures in innovative and productive ways. 5:34:27 PM MR. CAIRNS offered that his job was not unique and other public employees would relate to his point of view. As many perceive it, since 2006 the Public Employees Retirement System (PERS) incentivizes five years of service, which coincides with the timeframe when employees have begun to excel at their jobs. He lamented that five years was the most inefficient timeframe in which to lose someone since they have learned their jobs and they leave. He urged members to support HB 83 for these reasons and many more that he does not have time to address. He appreciated committee members' time and thanked them. 5:35:06 PM REPRESENTATIVE BIRCH asked whether any private sector employees have a DB program. He recalled previously the sense was that most private sector employees were moving away from it because of the uncertainty of the liability. MR. CAIRNS responded no. He reported from an information technology perspective that the wage level was less in the public sphere than in the private sector. 5:36:01 PM REPRESENTATIVE KNOPP asked for an explanation on the five-year timeframe in terms of [employee retention]. MR. CAIRNS answered that employees receive a 25 percent vestment after 2 years of service and an additional 25 percent every additional year until the fifth year when employees become vested. 5:36:34 PM REPRESENTATIVE KNOPP asked whether employees lacked any incentive to stay after becoming vested at five years. MR. CAIRNS related that some employees in his department have left citing this as a specific reason. 5:37:18 PM ALICIA HUGHES-SKANDIJS, Member, Alaska State Employees Association (ASEA), urged member to support HB 83. She said she considers herself a poster child for the kind of state worker who would benefit from this bill. She identified herself as a Tier IV employee working for the Department of Health and Social Services (DHSS). In September she would become fully vested, she said. She has served as a grants administrator and she loves her work. She feels the programs she serves make a difference and benefit the state. She would like to keep doing this job. She pointed out that the incentive of receiving a pension would play a large role in her decision-making process. In the four years since she has worked for the state, significant turnover has occurred in her office. She reported that when staff reach vesting and leave, it means she must continually train people, which she felt was an inefficient use of staff time. She has experienced trained staff leave. She offered her belief that staff often left at the five-year mark after having built up their resumes. Those who leave after five years or more take institutional knowledge with them which adds to organizational instability, she said. 5:39:21 PM MS. HUGHES-SKANDIJS stated that she also serves as a union steward, so she comes into contact with numerous state workers in other departments. She speaks not only on behalf of herself but for many employees who want and support this. She remarked that the five-year vesting often comes up during conversations. 5:39:52 PM MS. HUGHES-SKANDIJS stated she grew up in West Virginia before moving to Alaska. They moved away from the DB to DC plan, which lead to turnover problems, retention, quality of employees, and the cost to the state. She reported that West Virginia did not find it was a cheap way to administer. Not only did they have an unfunded liability, but it was not working out for the state. Since then, West Virginia has returned to a DB plan and 79 percent of public employees switched back. The DB plan was not only better for employees but also better for employers, she said. 5:40:35 PM MS. HUGHES-SKANDIJS offered to provide some facts and figures to the committee. She argued a DB plan has perks when best practices were followed due to higher returns and risk sharing. She offered her belief that this reflects the values of this great state to compensate people who provide a lifetime of service to Alaska with stability. She felt these people would continue to participate in the economy when their standard of living was higher at the end of their careers. 5:41:43 PM REPRESENTATIVE BIRCH asked whether she had any information of private sector entities that have moved to a DB program. He said he was not aware of any. He expressed concern on unconstrained costs due to actuarial estimates. 5:42:39 PM REPRESENTATIVE LEDOUX asked for further clarification on how many of the 49 other states have DC or DB plans. MS. HUGHES-SKANDIJS offered her belief that Alaska may be the only state without a DB plan for teachers. She further remarked that benefits were better for public safety officers than for educational employees. She was unsure of states that offer DB plans for all employees. She stated that West Virginia does. 5:43:31 PM REPRESENTATIVE TUCK asked whether she had social security benefits in West Virginia. MS. HUGHES-SKANDIJS said she was unsure. She recalled receiving a letter from the Social Security Administration that she had not contributed enough into the system to be eligible to receive social security benefits upon retirement. REPRESENTATIVE TUCK thanked the two testifiers. 5:44:18 PM TIM PARKER, President, NEA-Alaska, stated he was also a former teacher. He said more than half of the educators in Alaska fall into the DC retirement system. This bill would allow them to select a DB plan. MR. PARKER stated that younger teachers were leaving Alaska in numbers never seen before and replacing them has become more difficult. Last year Alaska had 250 open teaching positions. Last month the job fair that used to attract thousands only had 171 candidates. Over the past 3 years numbers have dropped about 20 percent per year. 5:45:58 PM MR. PARKER said that Alaska teachers hired after 2006 have no access to DB plans or to social security benefits. Due to penalties any social security benefits teachers have earned in any previous jobs have been drastically reduced by the government pension offset. He characterized this as creating a crisis in education. Educators have referred to Tier III and Tier IV as the death tiers because they cannot realistically retire on their wages. Many of them have gone onto other states websites to calculate how much more money they need to put into their retirement system monthly in order to retire at age 65. He reported some have said it was up to $4,000 per month in additional contributions. 5:46:55 PM MR. PARKER expressed concern about losing quality educators at such an accelerated rate. He estimated it may cost the state $20 million per year. 5:47:11 PM CHAIR KREISS-TOMKINS announced that some members were receiving only about 50 percent or less of his comments due to the audio quality. 5:47:47 PM MR. PARKER offered to submit his comments in writing to the committee. He reported that Alaska's teachers were the only ones without access to a DB contribution system. He further reported that Alaska was one of only 16 states without access to social security benefits or supplemental benefits, which he felt was a critical point. 5:48:31 PM CHAIR KREISS-TOMKINS, after first determining no one wished to testify, closed public testimony on HB 83. He announced that HB 83 would come back before the committee at a later hearing.