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." 2:04:46 PM AJAI DESAI, DIRECTOR, DIVISION OF RETIREMENT AND BENEFITS, DEPARTMENT OF ADMINISTRATION, (DOA) introduced himself. 2:04:57 PM KEVIN WORLEY, CHIEF FINANCIAL OFFICER, DIVISION OF RETIREMENT AND BENEFITS, DEPARTMENT OF ADMINISTRATION, introduced himself. 2:05:10 PM KATHY LEA, CHIEF PENSION OFFICER, DIVISION OF RETIREMENT AND BENEFITS, DEPARTMENT OF ADMINISTRATION, introduced herself. Co-Chair Olson remarked that the fiscal notes were quite large, which have caused some questions and concerns. Co-Chair Stedman asked about the fiscal note, and felt that there needed to be detail about how the unfunded liability percentage related to the municipalities. Mr. Desai deferred to Mr. Kershner. 2:08:43 PM DAVID KERSHNER, BUCK GLOBAL LLC, FLORIDA (via teleconference), explained the details of the actuarial analysis. 2:18:55 PM Co-Chair Olson acknowledged SENATOR BILL WIELECHOWSKI, in the gallery. Co-Chair Stedman asked how the bill affected the unfunded liability. 2:20:18 PM Mr. Kershner replied that the current unfunded liability would not be affected by SB 88. Co-Chair Olson wanted to know that the state would not have another unfunded liability. Mr. Kershner replied that the state received a benefit by shifting the risk from the state to the employees. He stated that the bill would take on some of that risk. Co-Chair Stedman looked at the fiscal note from May 11, and remarked that there may be an opening for the municipality to shift the responsibility to the state. 2:26:32 PM Senator Merrick queried how much of the unfunded liability was the result of the medical portion of the plan. Mr. Kershner replied that both PERS and TRS were overfunded in the health care portion. He shared that the issue was that the overfunding of the health care trust could not be used for pensions due to legal reasons. Senator Wilson wondered whether the actuarial assessments took into account the new tier outlined in SB 88. Mr. Kershner replied "no", and explained that the contributions were at the actuarial rate at no less than 12 percent, which included 3 percent for the HRA contributions. Senator Wilson wondered whether a 90 percent funded was a "funded pension plan." Mr. Kershner replied that a funded pension plan was 100 percent funding, and remarked that there were degrees of funding. Senator Wilson queried the 90 percent pension liability to the state of Alaska under SB 88. Mr. Kershner agreed to provide that information. 2:30:42 PM Co-Chair Stedman surmised that there would be an updated actuarial analysis. Mr. Kershner replied that there had been a request for alternative projections with different assumptions. Co-Chair Olson queried the expected completion date of the analyses. Mr. Kershner replied that the goal was to complete the materials by the end of February. Co-Chair Stedman wanted to know which fiscal notes were used in the bill. 2:33:53 PM KEN ALPER, STAFF, SENATOR DONNY OLSON, replied that there were three current fiscal notes. He stated that one fiscal note was conventional, and about the implementation of the bill and its impact to the department. He stated that the fiscal note may be slightly different, and require a replacement. He shared that the other two were based on the Buck actuarial analysis. Co-Chair Olson wondered how a current and updated fiscal note would be different. Mr. Alper replied that new fiscal notes based on the actuarial analysis would need to be replaced, because they were dated from the year prior. 2:37:39 PM SENATOR CATHY GIESSEL, SPONSOR, stated that Mr. Desai could speak in response to the fiscal notes. Mr. Desai stated that the department was working to produce new fiscal notes with the latest information. Co-Chair Stedman wondered whether the $1.6 billion was the cost of the bill. Mr. Desai replied that the $1.6 billion was the cost of the administration of the program. Co-Chair Stedman was trying to determine the cost of the bill. He wondered when the committee could expect the new actuarial analysis. Mr. Desai replied that a new fiscal note would be verified, and stated that there would only be minor changes. 2:40:06 PM Co-Chair Stedman queried the total fiscal note cost. Mr. Alper replied that the fiscal note was the conventional fiscal note, which would be the administrative cost of the bill that would have normal administrative costs. He stated that the remaining two would be tied to the actuarial analysis, which were potential costs of additional payroll and pension contributions from the state. Co-Chair Stedman asked for a ballpark number. Mr. Alper replied that the two fiscal notes that were tied to the Buck analysis totaled approximately $1.2 billion over 17 years. He stated that the cost over six years is $140 million, which would be the years covered in the fiscal note. He explained that most of the money was not additional costs to the bill, but rather was assumed that the retention would improve therefore the state payroll would increase. Senator Bishop wondered whether the payroll numbers were filling the vacant positions in the budget. Mr. Alper replied that there was a very large vacancy rate and it was his expectation that there would be a lower vacancy rate after the passage of the bill. Senator Giessel requested a quantification of the savings in recruitment. Mr. Desai agreed to provide that information. Co-Chair Stedman wondered when the exact numbers related to the calculation of over or under funding resulting from the passage of the bill. Mr. Desai replied that those numbers should be expected near the end of February. Co-Chair Olson stressed that he did not need a precise number, but more of an approximation. Senator Kiehl applauded the division, because the implementation cost seemed the same as the implementation of the current tier. 2:44:56 PM Mr. Desai explained that the reason for the cost differences, is due to the cost of the implementation. Co-Chair Olson queried comments on the legislation. Mr. Worley replied that the fiscal note for implementation included the actuarial analyses and evaluations. He explained the process to make a final determination of the cost of the bill. 2:49:55 PM Ms. Lea stated that she was able to deliver the benefits outlined in the legislation. Co-Chair Stedman wondered how TRS could be allowed into the supplemental benefits system. Ms. Lea replied that the statutes needed to be changed to accommodate that allowance. Co-Chair Stedman felt that there should be a discussion about that issue. 2:52:37 PM AT EASE 2:57:11 PM RECONVENED 2:58:07 PM Senator Giessel commented on some history of the bill, and encouraged passage of the bill. Senator Kiehl MOVED to REPORT SB 88 out of committee with individual recommendations and attached fiscal notes. 3:04:25 PM AT EASE 3:08:17 PM RECONVENED There being NO OBJECTION, it was so ordered. 3:09:05 PM AT EASE 3:11:17 PM RECONVENED CSSB 88(FIN) REPORTED out of COMMITTEE with one "do not pass" recommendation, three "no recommendations", and three "do pass" recommendations; and with two new fiscal notes from the Senate Finance Committee/Various Departments and the Department of Administration. Co-Chair Olson discussed the following day's agenda.