SB 159-PERS/TRS DISTRIBUTIONS  4:58:19 PM CHAIR MEYER announced the consideration of SB 159. 4:58:56 PM COMMISSIONER-DESIGNEE LESLE RIDLE, Alaska Department of Administration, Juneau, Alaska, explained that SB 159 was a straight forward bill that Kathy Lea, chief pension officer, will discuss with the committee. 4:59:15 PM KATHY LEA, Deputy Director and Chief Pension Officer, Division of Retirement and Benefits, Alaska Department of Administration, Juneau, Alaska, disclosed that the bill comes at the request of the Alaska Retirement Management Board (ARMB). She explained that the board is considering options for distribution from the defined contribution plans that will enhance the retirement readiness for members. She referenced slide 2 in her presentation, "Proposed Change" as follows: • The Alaska Retirement Management Board (ARMB) must be able to add or change distribution options easily and in a relatively short timeframe. • The proposal is to move disbursement options from the Alaska Public Employees' Retirement System (PERS) and the Teachers' Retirement System (TRS) defined contribution statutes into regulation to allow for a faster response to participant needs. • The ARMB unanimously approved the proposal. She referenced slide 3, "The Issue" as follows: • The PERS/TRS DCR (Tier IV) plans to use the statutes as the plan document. • Any changes to modernize options or to meet new Internal Revenue requirements require a statutory change. • Statutory changes can take several sessions to accomplish, if at all. • Meanwhile, participants' needs are not being met. • This bill would give the DCR plans the same flexibility as the supplemental benefits system (SBS) and Deferred Compensation plans. MS. LEA summarized that the bill will move the referenced statutes into regulation, provide the board with more flexibility to add, change or delete options. She noted that the referenced flexibility already exists in the SBS and Deferred Compensation plans where their statutes authorize the plan, but they are governed by a plan document. 5:01:25 PM She referenced slide 4, "PERS/TRS Need," as follows: • The PERS/TRS DCR plans have vested employees who are retiring and need help facing the challenges of retirement. • The ARMB Defined Contribution Subcommittee is exploring options that will help participants: o Not outlive their retirement savings, o Address purchasing power over time, and o Protect against market uncertainty. She commented as follows: These are in the form of what's called a Qualified Longevity Annuity Contract that addresses the longevity risk when spending down a defined contribution plan by deferring payment to age 80 or 85, a portion of the assets can be a maximum of $125,000 or 25 percent of the assets of the account, and it is to ensure that you don't out live your assets; however, that type of a plan is not included in the current statute. Another type of withdrawal is a Guaranteed Lifetime Withdrawal Option, and what this does is the participant can elect to enter that anytime between 10 years prior to their retirement and they pay an insurance premium and they insure their balance and this deals with the uncertainty of how much money am I going have to live on, because with that insurance whatever is their highest balance during that tenure period or beyond is what their monthly withdrawal benefit is based on. So, it protects them from the downside of the investments, but allows them to have the benefit of the upside, this is also not an option that is covered by the statutes. MS. LEA explained that by moving the statutory requirements into regulation, the public process will remain. She referenced slide 4, "Transparent Process for Change," as follows: • Discussions regarding disbursement options are done in a public forum during the selection process. • Participants and groups representing participants will have input during subcommittee and ARMB committee meetings. • The process remains public and transparent but allows for faster adoption of needed change. • All interested parties are notified of any changes through the regulation process. She pointed out that when regulations are noticed, the notice must be for 30 days. She detailed that the notices will occur in newspapers and online on the department's website. She emphasized that the change will allow for a faster process for needed change. She summarized that approximately 60 days would be needed to implement a change after ARMB adoption rather than one or two legislative sessions. 5:04:28 PM CHAIR MEYER asked if the bill will result in everything being done by regulation rather than having to come before the Legislature. MS. LEA answered correct. She specified that the department would proceed through regulation on the recommendation from ARMB. SENATOR WILSON asked if she knew the percentage of people that retire and take their entire balance in a lump sum. MS. LEA answered that she will get back to Senator Wilson with an answer. SENATOR COGHILL asked if the bill would provide departmental regulatory authority and put ARMB in charge of policy makeup. MS. LEA answered correct. She detailed that ARMB would make recommendations for changes in options and the department would do the regulations and public notice. She added that for visibility reasons the Legislature would receive notice for all regulations that the retirement system promulgates. SENATOR COGHILL asked what the difference was in how the supplemental benefit system management works outside of ARMB. MS. LEA explained that the SBS works the way that the bill proposes for the defined contribution retirement plan and added that ARMB has oversight for those as well as the public employee's deferred compensation plan. SENATOR COGHILL pointed out that a practicing, working model exists. He asked if there have been pushback issues. 5:07:07 PM MS. LEA replied that she is not aware of any pushback items. She said the department's intent is to improve the defined contribution retirement plans and improving the options for spend-down. She noted that the options can be added as soon as ARMB approves them into the SBS plan. SENATOR COGHILL explained that his first thought was the Legislature would give up authority; however, he noted that flexibility might be required for management purposes. He said he has not heard of problems within the Legislature regarding SBS. He continued as follows: The other thing is in the management style, this will probably fall into the question of diminished benefit issues and as long as it is done through a management to look out for the best interest of that particular fund, is that how you get out of problem there? MS. LEA replied that there would not be a diminishment of benefits because the option is a dispersement, dispersement to the participant is not being denied. She summarized as follows: What we are doing is trying to add dispersement options to them, but even if we in the future were to take away a dispersement option, that still would not be a diminishment of their benefit, they are still allowed to take their whole benefit. SENATOR COGHILL replied as follows: I was searching for a way that it might happen, but I just couldn't think of one, so it's just the options. 5:09:09 PM SENATOR WILSON said he had a similar question on the dispersement. He noted that there was a recent study showing that in the PERS Tier IV options that most folks would not receive enough to live upon. He asked if drawing down over a longer period would still allow a person to accumulate more in their savings. He inquired if the department has an actuarial study or numbers on the stress test of the Tier IV program for current retirees. MS. LEA replied that the department has done analysis on the PERS and TRS defined contribution plans. She detailed as follows: What our analysis showed was that if a participant was participating in either social security or the SBS that they would have sufficient means to have a dignified retirement. The problem areas come in with those groups that do not participate in social security or SBS and that problem has been identified and that is something that ARMB is also looking at as well as the administration. SENATOR WILSON asked her to verify that the bill does not address the other need of giving more dispersement options. MS. LEA answered as follows: The plan is a little over 10 years old so it's hard to say what it will be doing at the end of a career for a person. What we are trying to do is put in place options for those who are going to look at a lifetime income from this at some point in the future. So, we are trying to improve those options so that they have more choices to address whether they feel it's a longevity risk, a market risk at the time they retire, or if they just want to take their money and do something else with it. SENATOR WILSON replied as follows: I appreciate that, speaking as the only millennial senator in the building and for other future staffers, this is a concern for folks that would like to make a career of any Tier IV governmental type of job. I do recognize the concern and appreciate the different options of looking at different strategies. CHAIR MEYER asked if the bill only pertains to the defined benefit plan. MS. LEA explained that the bill only applies to the PERS and TRS defined contribution plan. She specified that the other plans, the defined benefit plans, already have guaranteed lifetime benefits. 5:13:09 PM CHAIR MEYER held SB 159 in committee.