SENATE STATE AFFAIRS COMMITTEE April 20, 1994 9:21 a.m. MEMBERS PRESENT Senator Loren Leman, Chair Senator Mike Miller, Vice Chair Senator Jim Duncan Senator Johnny Ellis MEMBERS ABSENT Senator Robin Taylor COMMITTEE CALENDAR CS FOR HOUSE BILL NO. 494(STA) am "An Act changing the Alaska State Pension Investment Board to the Alaska Pension Investment Authority and relating to the authority; and providing for an effective date." SENATE BILL NO. 378 "An Act relating to permanent fund dividend program notice requirements and to dividends of individuals convicted of felonies or misdemeanors; and providing for an effective date." PREVIOUS SENATE COMMITTEE ACTION HB 494 - See State Affairs minutes dated 4/18/94. SB 378 - See State Affairs minutes dated 4/18/94. WITNESS REGISTER Laraine Derr, Deputy Commissioner Department of Revenue P.O. Box 110400, Juneau, AK 99811-0400¶465-4880 POSITION STATEMENT: in favor of HB 494 Robert Storer, Chief Investment Officer Treasury Division Department of Revenue P.O. Box 110406, Juneau, AK 99811-0406¶465-4399 POSITION STATEMENT: in favor of HB 494 David Skidmore, Aide Senate Finance Committee State Capitol, Juneau, AK 99801-1182¶465-3709 POSITION STATEMENT: sponsor of SB 378 Tom Williams, Director Permanent Fund Dividend Division Department of Revenue P.O. Box 110460, Juneau, AK 99811-0460¶465-2323 POSITION STATEMENT: testified on SB 378 ACTION NARRATIVE TAPE 94-29, SIDE A Number 001 CHAIRMAN LEMAN calls the Senate State Affairs Committee to order at 9:21 a.m. Number 010 CHAIRMAN LEMAN brings up HB 494 (ALASKA PENSION INVESTMENT AUTHORITY) as the first order of business before the Senate State Affairs Committee and calls the first witness. Number 020 LARAINE DERR, Deputy Commissioner, Department of Revenue, introduces Mr. Prussing and Mr. Storer. Number 029 CHAIRMAN LEMAN asks if present employees will shift over from the Department of Revenue to the state pension authority. Number 042 MS. DERR responds that is essentially what the department believes will happen. Number 052 CHAIRMAN LEMAN asks if there will continue to be some sharing of staff between the department and the authority. Number 059 MS. DERR replies there will continue to be sharing of staff during the transition, but that at some point in time that will cease. Number 062 CHAIRMAN LEMAN asks Ms. Derr if she has an estimate on how long that transition will take. Number 064 MS. DERR responds the board has not yet addressed the question of transition. Number 067 SENATOR MILLER mentions the Executive Life investment, and asks what responsibility or obligation the state would have to make up losses incurred by the state pension board under HB 494. Number 087 MS DERR replies there continues to be a question as to whether the state was liable for the losses under Executive Life. Under a deferred compensation plan, those assets really belong to the state. When a person puts their assets into a deferred compensation plan, they are basically giving over control of those assets to the state. However, with retirement funds, those funds are a defined benefit, and if the money is not there to pay that benefit, that would have to be made up by the state. Employer liability is inherent in a retirement system. Number 108 ROBERT STORER, Chief Investment Officer, Department of Revenue, states the investment board does have fiduciary responsibility. In that context, it would be determined if the board was functioning with all knowledge and best interest of the plan, and or functioning under their responsibility of the "prudent investor rule". One of the points the department is trying to do with the investment authority is to further define who has fiduciary responsibility and accountability. Number 118 SENATOR MILLER asks Mr. Storer if he is saying he is not sure who would be responsible. MR. STORER responds it would depend on the invents. The state has an obligation to make the retirement plan whole, if an event occurs. But if the board was functioning outside it's fiduciary responsibility, there would be accountability, and ways to pursue that accountability. Number 129 MS. DERR adds that the main thrust of HB 494 is accountability. The board has fiduciary responsibility at this time. As an example of that responsibility, Ms. Derr states that Mr. Storer is the Chief Investment Officer for the board, but he is not accountable to the board. He is accountable to the Commissioner of the Department of Revenue. The board has fiduciary responsibility for everything, but Mr. Storer is not accountable to the board. That is one of the prime concerns of the board: that the staff of the board be accountable to the board. Number 145 CHAIRMAN LEMAN asks if there are further questions or if anyone else wishes to testify. Hearing none, the chairman calls a brief at ease. Number 155 CHAIRMAN LEMAN calls the Senate State Affairs Committee back to order. The chairman asks the pleasure of the committee. Number 168 SENATOR ELLIS makes a motion to discharge HB 494 from the Senate State Affairs Committee with individual recommendations. Number 170 CHAIRMAN LEMAN, hearing no objection, orders HB 494 released from committee with individual recommendations. Number 175 CHAIRMAN LEMAN calls a brief at ease. Number 176 CHAIRMAN LEMAN calls the Senate State Affairs Committee back to order and brings up SB 378 (NO PFD:PERSONS JAILED FOR FELONY OR MISD.) as the next order of business before the committee. The chairman calls Mr. Skidmore to speak to the amendment and the proposed committee substitute. Number 178 DAVID SKIDMORE, Aide, Senate Finance Committee, states the amendment would do two things: it would exempt non-incarcerated misdemeanants from forfeiture of their dividend, and it would also add the Department of Public Safety to a statute that requires cooperation in determining which individuals would be ineligible. Number 193 SENATOR MILLER makes a motion to adopt the Senate State Affairs committee substitute for SB 378. Number 196 CHAIRMAN LEMAN, hearing no objection, states the committee substitute has been adopted. The chairman states there is a proposed amendment, and a proposed amendment to the amendment. SENATOR DUNCAN asks what the amendment to the amendment is. MR. SKIDMORE replies that the amendment to the amendment was suggested by Mr. Williams, Director of the Dividend Division. Number 206 CHAIRMAN LEMAN asks Mr. Williams to speak to the amendment to the amendment. Number 207 TOM WILLIAMS, Director, Permanent Fund Dividend Division, Department of Revenue, states the amendment to the amendment is just some clarifying language stating the Department of Public Safety would supply the Dividend Division with a list of the people meeting the criteria under AS 43.23.005. Number 212 CHAIRMAN LEMAN asks if there is any objection to the amendment or the amendment to the amendment. Hearing none, the chairman states the amendment to the amendment, and the amendment itself has been adopted. Number 215 SENATOR MILLER makes a motion to discharge SB 378 from the Senate State Affairs Committee with individual recommendations. Number 217 CHAIRMAN LEMAN, hearing no objection, orders SB 378 released from committee with individual recommendations. Number 219 CHAIRMAN LEMAN adjourns the Senate State Affairs Committee meeting at 9:37 a.m.