Good morning, everybody. I'd like to go ahead and call the Senate Finance Committee to order the 9th of February
Monday
2026 with me today is Senator Hoffman
Senator Olson's their keels and her marics and our coffins are cronk and myself stedman. We have a full contingent today
We're gonna have to be done a few minutes early like maybe 20 minutes. Early because we've got another meeting
We've been summoned to
So today we're going to have the public employees retirement system better known as purrs and the teacher's retirement systems tours update
Presenting today as Christopher novell is the chief financial officer division of retirement and benefits in person if he can come forward
He's out there somewhere
Melinda
Voig
Chief pension officer Division of Retirement and Benefits in-person
And then we have Chris Murray, Acting Chief Health Administrator, Division of Retirement
and Benefits telephonically, and also available on-lines for actual questions, as David Kirschner
principal consulting actuarial Gallagher benefits, this isn't the issue concerning
defined contribution subject matter, but it's the status of our current
retirement program and programs. So then go ahead and introduce yourself for the record,
who you represent, and then take us through your presentation. We will go once slide at a time as
our normal process so you can finish your thought process on that particular slide.
I'll watch the clock and we'll try to be done on time.
Okay, go ahead.
So thank you, Chair.
Good morning, everyone.
My name is for the record.
My Name is Christopher Novell.
I'm the Chief Financial Officer for
the Division of Retirement and Benefits and with me.
For the Record, my name
is Mindy Voigt.
I am the chief pension officer for
the division of retirement and benefits.
Okay, so the plan format of our presentation is for me to spend some time speaking to the peers and tears funds
Chris Murray who is online will be spending a little time on the health funds and
Lastly I'm going to
Talk a bit about the e-reporting outage that occurred in November 24 and the restoration efforts which went into July
So this first slide outlines the organization of four person tours
So the first column is the the Department of Revenue the Treasury Division
This division handles investments for the defined benefit plans and helps determine the investments
for defined
contribution plans
Where members can put their funds?
The hour
They are also staffed to the Alaska Retirement Management Board and they also have internal
and external investment management teams.
The middle entity is the Alaskan Retirement management board.
They're charged with a fiduciary duty of the pension plans and to set contribution rates.
They invest overtime system assets, including health insurance.
They're also assisted by an investment advisory committee, and they also have a secondary
or a reviewing actually called GRS.
And lastly, the Department of Administration is the home for us, The Division of Retirement
Our fiduciary is the Commissioner for the Department of Administration who is by statute
the planned sponsor.
We administer the retirement benefits and health benefits.
We hold the contract with the primary evaluation actuary, Gallagher.
of retiree health plans and for record keeping.
And we also conduct employer audits
to ensure our peers,
tears employers are compliant
in administration of the payroll systems
as relates to our retirement systems.
We probably want to pick the pace up here.
Okay.
So the first slide is relating to the membership of person tears as you can see on this slide
We have a grand total of across all the statuses of 105 471
The the active participation split between defined benefit and defined contribution for person tours is 21
present 79% which is an increase a movement of 2% on on last year
So slide four speaks to the investment experience.
The FY 25 valuation is still in draft form
to be officially submitted to
the Alaska Retirement Management Board in March this year.
The assumed actual earnings rate has remained at 7.25%
since 2022 for pairs and tours.
Basing ironings on the fair or market value of assets for 2025, we see
person tours at 10.8% and 10,9% respectively. The last row shows that the
valuation, the actuarial valuation of acids, which the draft valuation puts at
9.3% for person tiers. This valuation uses a five-year
smoothing method with the intent of eliminating any market volatility.
So if you can just briefly explain why you do a smoothing and what it is so we can
You can remind them
So excuse me. Yeah through the chairs, so the smoothenes are actually take the gains and losses of the last
five years
2020 24 and we just recognize 20% of these gains to the idea that is to
Smooth out any peaks and troughs in the market
And then if you could talk a little bit about your f-white your 25 draft is that calendar year fiscal year or
delay and
The yet to the chat the years there are fiscal years
Go ahead next slide
So the next slide we're taking a look at the funding status of our pensions
The the purist pension liability for 2025 again in draft form stands at 17.3 billion
and the actuarial valuation of assets is a 12.2 billion which leaves the Paris Define
benefit fund at 5.1 billion unfunded or 70.3 percent funded. The TERS liability for 2025
again in draft form stands at 8. 1 billion with the AVA is 6.4 billion, which leads to
And the pattern across the last few years shows both funds increasing their funding ratio.
And how does it look if we go back ten years, have that roughly or what our liability was
if you go to back at ten year?
To the chair, there is a slide a little bit later on which shows the history of the funding
Don't make it forward to that
Yeah, and we'll come back to
That because the concern that some of us have is the amount of money being spent to deal with their unfunded liability versus the decline
in the in that liability because
since
2015 the liability is
Increased
294 million and then we spent two billion to do it
So there is a concern with that issue
So we'll cover that in your later slides, if you would like.
To the chair, is there's a detailed slide on that coming up?
OK.
So slide six speaks to the funding status of the health care.
Here we have the opposite story where the negatives on line C and F.
showed health care to be overfunded, with a funded ratio of 132.1 per cent,
AVA on PERS and TERS, the AVI is 140.6 per Cent. Any questions on that?
Was that good or bad?
To the chair, an over funded
Any and any other overfunding is it has presents its own challenges
Regarding the
Regarding health care funds the the other funding is largely regarding to regard its
by the
The egg whip the employee group wave a program and at any time that could be removed and would
Bring our funding status closer to 100% so
So there is some risk that you'll go over later on when you get into that subject of that this overfunding could be
Eliminated or declines substantially
There is
There are some more projections going through this
presentation on the funding status for the health care and the risk associated with it, okay, and then touch on
Why we can't just take this or funding and apply it to the underfunding of the pension
to the chair. They're completely separate funds and there are statutes which say we
can't do that. I'll have to get back on to you what those are.
Short answers, you don't want to go to jail.
To the Chair, I do not. Okay, sounds good.
The graph on slide seven shows the funding status
for the PERS pension and health care side by side.
Just as Senator Stebman pointed out,
the pension health-care funds are completely separate
and cannot be used to offset each other.
So this side-by-side chart is just
for visual information purposes only.
So but proceeding with that caveat,
this chart shows PERAs pension in blue.
And healthcare in orange, as you can see, the per suspension is below 80%, whereas healthcare is over 130% consistent with the data represented on the earlier slide.
So on this slide, just for history, for those watching back in 2006, one of these new tears were put in.
The pension, excuse me, the health care,
not so much the pension.
The healthcare being the funding ratio shown here
at that right over 40%.
So that was a significant concern.
We thought that the,
the a pension would be more easily worked out
and as we went forward,
but it turned out that our most conservative estimate
conservative meaning everything was
was far too optimistic, which is kind of shocking
as we look back 20 years,
because the problematic child here turned out
to be the pension plan,
and we were able to fix the healthcare.
So that is just some history of what we dealt with.
Senator Kauffman.
Thank you to the Chair.
So what what were looking at here is a closed system.
There's not additional units of demand in terms of
People coming into the system so that from 2006 onwards. It's essentially a closed system
Correct, but you can
You correct. That's a close system, But the current employees don't pay for them funded liability
Senator keel thank you, mr. Novell. Maybe you could
It could help us because prior to I think 15 or maybe 17, we didn't account separately for our assets in health and pension, right?
So can you tell us how you reconstructed funded ratios going back before the GASB statements had started requiring that?
We always accounted for them.
Other states didn t, but we always account for liabilities.
But we did not separately account our asset, so how did we go back and apply to create these funded ratio?
To the chair to Senator Keoh, I if I'm correct you're referring to our prior Actories
Mercer
Who who did combine?
The two assets and in answer to your question our current Actuaries through other data
estimated going back prior to
2014 2015 like you said
Go ahead and continue
So slide eight is tears telling the same story as pairs an overfunded health care fund and underfunded
pension fund
This slide I'm slide nine we're on the next but actually next two slides show the correlation
between the actual rate of return and the funded ratio.
For ease of viewing, I've put the fund to bold
where the funding ratio has increased in the prior year.
So this slide is for the prescription only.
The right three columns show the assets and liabilities
over the last 25 years since 2000.
our assumed actual earnings rate has changed on three occasions, most recently in 2022
to 7.25. The 30-year average is shown on the last line. So also in analysing this data,
it's important to consider the impact of the 3 billion infusion in 2015 when looking
Break that down if you would please
To the chair I don't have that day to riff me just yet there was a we put one billion in the in
the pension
Purrs and we've put two billion inters
That included that current year's contribution
So it wasn't like if we take purrs. It wasn't a billion extra
It was the billion total so there is the there's the normal funding that would have taken place, but it did make a difference
obviously to control the liability growth.
That was done here at the finance table.
So, and then talk a little bit about funding ratios.
Can you give us an idea on that?
And then for those watching at home,
is there any reason they should be concerned
about not getting a check?
To the Chair, to your earlier question regarding the actuarial funding ratios, the purpose
of this is to show a side-by-side against the actual rate of returns and what pattern
there is.
And I think to you're second question relating to the strength of the funds, if we look at
currently just looking at pairs at 70.3% if everyone was to retire at this point we
can look after 70 point 3% of them or another way to look at that if 70
point three percent retired we could take care of
them so that's so the situation are very
right so so
the point being for those watching at home even back in 2013 when we're at a
54% funding ratio there's zero probability of
All, there's ample liquidity within our retirement plan has always been there.
We've struggled with, for the last 20 years, retiring the unfunded liability.
But folks that are retired and are going into retirement have no reason to be concerned
that there is any delay in receiving their benefits because there are ample funds available.
We'll work at the table here to retire that unfunded liability, but that's a separate issue.
And it's also in the event that there was some catastrophic liquidation.
It's back, their benefits are backed up by the Constitution, the requirement, and
the full faith and credit of the state, which is taxing authority and the permanent fund.
So there's zero probability of it ever happening.
Funding ratio is a lot more comfortable than a 54%
And I would also like to note that 103 in the beginning and 102 for PERS
The reason those funding levels look so high as they were misstated and
We never when we redid the plans we never went back and had our
Have our accounts restated like you would if a corporation and you needed to restate your earnings
We figured it'd be just a waste of time and money
But in retrospect, maybe we should have done that.
Because people will look at this and think it was a one year
decline.
And then I don't think its accurate at all.
It was underfunded back in 2000 and 2001.
We had funky data.
So the 86.8 is much more accurate.
Reflection of where we were at the time.
Unfortunately, we've been dealing with this for two decades.
Go ahead and continue.
So slide 10 is providing the same data relating to the Terrace Fund.
And as you can see, as we look towards the bottom 24 and 25,
we're seeing an increase in the actuarial fund ratio.
moving towards the 80% mark.
So the other point I'd like to make is when we look at both the tours and the purrs and we
look our assumed actuarial earnings rate, which is our targeted future rate of return.
We've expressed concern at this table many, many times over the years that the rates were too high when there were seven or eight and a quarter.
And even when they turned to eight, the markets were deteriorating looking forward and were expressing a concern that there was a delay, they should have been lowered.
And then they moved them to 738 and now we're down to seven and a quarter and financial
markets change as the economy changes.
But many, many times we've had presentations here in the past where they've like back in
2008 or 706, pick your dates, 1213, when they have taken those targeted rates of return
and shut the portfolio forward at those growth rates and we never hit them.
And you have it recalculated a couple years later and we never hit them and a
couple of years we've never had them.
And we have asked for those charts to be submitted to the committee several times.
And I think we should have that redone so they can take the portfolio that we
have and grow it at 7 and 1 quarter percent with other adjustments and see if
we hit that 7 1 1 corner targeted rate.
I don't know if we're going to hit it or not.
Last year, obviously, we did it showing here at 10.12,
which is good.
And I think for the current calendar year ending in 25,
the retirement portfolio has returned about 13%.
So that's good, and I would like to thank,
while we were getting into this,
I'd like thank the department for doing a good job
on administering the assets.
We're going to get into that in a little later in another meeting, but the performance
has been really good. We see it in our SPS accounts, supplemental benefit accounts
or deferred compensation accounts and the defined contribution accounts.
And we'll also be looking at the define benefit rate or return on that portfolio relative to
everybody else. But the department has done a very good job. And I'd just like to thank the
accolades for the hard work and performance they actually do so I don't
want to you know the questions that come down the table are not
derogatory at all to the department they're actually doing a good job and we
should thank them for it we just need to make another six billion dollars and
we're out of the hole but go ahead and continue okay to
So, moving on to slide 11, we've got the unfunded actuarial liability for PERS.
This is showing it in dollars rather than as a percentage of funded ratio since 2006.
Pension funding in blue, health care in orange, underwater is underfunded, and as you can
see from 2018 onwards, healthcare moved from an over to, sorry, a move from a under to
The pension fund has remained relatively flat and has been hovering around about five billion unfunded since 2018
So if we take a look the point I want to bring to the table not a fun point
But if you look at 2015 at the end of 2015 that's after we put in the billion dollars
We're at four billion four hundred million in liability
that's again at 2015. Now we're at 2025 we are at 5 billion one and I think the
current number I have for FY 25 is pretty close to that here a little over 5
billion so. So we went from 4 billion for to negative to
negative 5 and in that time we've added two billion dollars in funding so that
that we're not retiring that debt, at least I think we need to recognize we are not
retiring debt and it costs money, of course, as quick as some of this would like.
So that is a concern.
I just want to point that out to the committee members.
We'll have we'll be working on that subject and we see it in the upcoming operating budget submission
The arm board has asked for one level of funding on doing with some amortization
The administration suggested a lower number of Funding and
we need to have that in a table and talk about that and and
And decide what we want to recommend
So, moving on to slide 12, this is telling more or less the same story for the Terrace
retirement system.
Well, let's stop there because it's so much fun that I can't help but slow down.
After $2 billion of funding in Terres in 2015, we took the liability from $3 billion, one
down to $1 billion $6, $29, 1 billion 629 million and $25,000 a year.
We're at $1,629 million.
So for a decade, we worked very hard,
not to sink the ship.
But I think we put in another billion, too,
or some number into this.
We can refine that number, but we're in the same spot.
So we need to recognize that, even though the funding
Let's not forget that things are getting better on a funding ratio because the portfolio is growing in dollars
Relative you know to the liability and percentages, but the the dollar unfunded liability
Still needs to be serviced and it's still at the same amount as it was in 2015
Shall I proceed yes go ahead
So here we are on slide 13 and this shows a history of the legislative bills towards
the additional state contributions from 2006 through 2026 and includes the 3 billion infusion
into the plans in 2015 and at House Bill 119.
When we went put that money in in 2015 as referenced earlier, there's the one billion and the two billion one for PERS and two for TERS
It dropped our
Liability, but if we look down our payment schedule
Relative to where we were previous to that
We've seen a substantial decline
And if you look at the last several years, it's really dropped off
And we can work with different amortization schedules
and do all kinds of fancy mathematics,
but I think that rubber hits the road
on your unfunded liability dollar amount.
And if that unfunted liability
dollar mount isn't moving to be eliminated,
we need to review our policy,
what we're doing and recognize that.
Just like we recognize the overfunded health care, which is a positive in the lottery specs
but
This will come in, the operating budget discussion
This year what we want to put in their retirement system
And I think the governor dropped it maybe 25 million or some number
From the arm board we'll have the armed board they made a presentation on that they just delivered it to the office here a few minutes ago
But it's far too extensive and complicated just to slip in right before a meeting. We need to have a separate I think
The members want we need have separate presentation and discussion on that
What we want to do
Or what we'd like to recommend to the administration they approve because we recognize we can appropriate and the governor could veto
So it is a it. Is a concern that we're
But you can look at these columns here and add these numbers yourself and compare it to the
the unfunded liability and
See the point I'm trying to make as far as the additional dollars or spending
I don't think we're getting as much bang for our buck or we need to do more dollars to get a bang
for a buck
Go ahead and continue
So slide 14 is showing the Additional State contributions
Yeah, sorry, so slide 14 is shown the additional state contributions projected from 2027 through
2039.
This is based on a scenario of an amortization that is yet to be finalised and our entries
But it runs with the assumption on the goal for person chairs to be a hundred percent funded by 2039
So can you help me with
additional contributions because there's
the state and then there is
Other non-state entities that are in our retirement system, so what definition of additional
Contributions did you use to create this chart?
To the chair, the next couple of slides in large this but the additional state contributions
here, we're talking about the appropriation by the states from the general fund towards
the past service cost.
But the slides do talk to that a little more.
The next two slides here, 15 and 16,
they expand on the projections
which I've just shown on slide 14.
This shows the projection for the additional state contribution
alongside the contributions from non-state employers
and the state as an employer for
the past service costs and for these,
we use the same amortization scenario as slide fourteen.
So, let's define at this first column some clear because the numbers get confusing.
The non-state employers, city of Anchorage, City of Kuchkan, the City Juno, there's some
hospitals.
There's all kinds of entities in this system that are non state employees.
Retire the unfunded liability correct. That's not your ongoing normal cost
To the chair you're correct this is not a normal costs
This is all towards the past service cost
So can you define those two terms so I don't get them backwards or I?
Don't misunderstand what they are
To The chair let me try and the normal Cost is is funding the current
Pensions as they Are and a past Service cost is generally towards thee
Towards the um funded liability
to essentially catch up.
But if you want a more coherent explanation,
I do have David Kushner from Gallagher, I think.
That's fine, we don't need the actuary to do this.
What we're trying to is make sure the folks at home
follow what we are talking about.
So the normal service cost is the cost
to the employer every year for that year's benefits accumulated.
And in a perfect world, if there is no unfunded liability,
unfunned liability there'd be no past service costs.
So the past service cost is something that materializes when the forward projections
become inaccurate for whatever reason, performance or healthcare changes, whatever.
So what I'm looking at here is 2.5 billion from now to 2039, or you can take any given
22% of the aggregate payroll, the state picks up anything above that.
So if the cost was 27%, the State would pick up the additional five from 22 to 27.
So they're capped at 22.
So that 182 million, all the assemblies in town councils have to put that in their budget
in any of our communities that I know of.
And we don't talk about it much.
We put the cost of the pension
in our operating budget every year.
When we're talking about a little bit today
that maybe we should be paying more, right?
To get the liability down.
But it's not, we discussed here a bit,
but it is very rarely ever mentioned.
So you can take your aggregate payroll at any community
You know pick your town. I'm just because we're sitting in June or set go whatever. They're all the same
The aggregate payroll roughly about 13% of the aggregate pay rolls go on to the unfunded liability and that's passed on
to every property taxpayer or
Sales tax payer somebody's got a pay city hall
So this is a significant amount of money 2.5 billion and then the state
as the employer, that's, we can't avoid that.
And we should have that bifurcated out,
everything above 22,
that 5% spread, so we could look at that,
but I guess that should be additional state contribution.
So that kind of in a nutshell,
I think what we're looking at here.
Is that correct?
To the chair those cracks. Yeah, it's not a status we'll go to the next page
It's a little bit different for those watching at home, but
So to do to to chair yeah, we're on we are on slide 16 this is showing a similar story with tears
but we don't have the breakout of
status employer versus non-state employers in this in the case of tears
But tears is somewhat different than purrs
because TERS is basically our schools and all of the past service cost of TERs has been
absorbed by the state.
And we did that 20 years ago because we end up paying for education anyway and we would
just have to fund it through the school funding mechanism so we just kept them at the normal
But it's you know, it still significant
So that's why there's a difference between person tours and how it is handled
We're under an obligation by the Constitution for education. We are not under the obligation
By the constitution to pay city halls payroll
they are
Senator keel
Thank you, mr. Chairman there may be a couple of other factors that have us help in city hall
But I wanted to ask about the
The previous slide and this slide together,
which amortization method do these slides have us using?
Is it 15 years, it's 25 year?
And do they assume that the arm board is going to leave
the earnings expectation, the target for our investors,
alone?
Or are they going do it assuming they're going
to keep moving it down?
to the chair to Senator Keel, I want to again stress this is is a scenario
That is still to be approved by the on board and it is of a 15-year layered amortization
To have us fully funded by 2039
regarding
The future of that I think I'd have to refer over to The on-board or we could speak to our actuary
There were two, Mr. Chairman, the first, I think, was about the amortization method.
Oh, that was the other one.
Did these two charts assume that the earnings expectation is going to stay where it is now,
seven and a quarter, or are we going keep moving our earnings target down, which the
Do you want to try to get him to answer that because that's going to come as a future presentation when we get into the
Amperization it's about a I don't know how the slide decks probably 20 pages 25 pages
We're going into that in greater detail, but
Do we want?
Thank you, mr. Chairman be good to know just which one which assumptions cooked into these two slides
They said 15 year correct
That's a chat that is correct
15 years, so we'll we will be running having these run at 25
So we can have that policy discussion here at the table and make a recommendation
Does that satisfy your question? Thank you. Mr. Chairman. That's that's very helpful in the first part and then you know the other is
Sticking with seven and a quarter when we look back at those earlier slides every time the return expectation goes down
The the unfunded moves up or or sometimes in a in great market year fails to move down
And that, I'm not suggesting that we should have stuck at eight and a quarter, but it's
a source of instability and it is a sort of some of the difficulty in getting this paid
off.
So I just want to make sure I know which assumptions are cooked into these slides.
Yeah, Mr. David Kirschner, maybe you can help with that.
It sounds like a part of a question to the actuarial part, the question of asset managers
for their projection.
But Mr Kirchner if you could identify yourself and tell us what goodness you have.
Good morning, David.
David Persian or actuaries in Gallagher. Can everyone hear me? Okay. Yes
Okay, so I think the question was the these projections on slides 15 and 16
What assumptions are being used this particularly the investor return? These assume that the current
7.25% assumption will continue on change into the future as as we consider not just that assumption, but
All of the current assumptions that have been used since the 2022 valuations are projected to continue.
We're in the process of updating the the assumptions as required by Alaska statutes for your experience study.
So it's possible that the arm board will adopt different assumptions beginning with the 2026 valuations.
But these figures that you're looking at here.
are based on current somethings continuing in all future years.
Okay.
Thank you.
Okay, go ahead and continue.
I'm sorry, was there additional questions for me?
Nope, that's it.
You're off the hook for now.
We'll see if there's other ones later.
But you'll be, I am sure you will be back in to help us when we get into the 15 year
the policy recommendations that are in front of us
to make our own recommendation.
Go ahead.
Okay, thank you.
So now we're moving to slide 17
and we also move our attention to the funding level
projections for the healthcare funds.
This shows the actuarial projections
of the funded level of healthcare trusts
projected over the next 14 years.
with normal cost contributed and without normal costs contributed.
Slide 18.
The purpose of this slide is to demonstrate the difference in required additional state
of the health plan normal cost, the difference is 63.8 billion over both systems. In recent
years health care normal costs is set at zero, influenced by the Health Plans being overfunded.
Slide 19. This shows the FY27 contribution rates for the defined benefit plans and how they're
calculated to arrive at the total actuarial required contributions employer and employee.
So what we do is we take the various employer rates, the peace and fire officer,
And then we take the employer rates, which are capped by statute at 22% for PERS, and 12.56%
for TERS. Plus the additional state contributions,
which include DCR contribution of 5.5%
for peers and 20.58 for tears.
to the chair
And can I pass that to David Kushner for an eloquent answer right the answer is normally you'd pay it if their cities are
Captain 22% and we don't pay
It's not a trick question
I'm not throwing quick quick trick questions at you
I was trying to make sure that the public understands what we're looking at here because the meetings are for them
more so than us
So the
And I was using earlier, a 5% is rounding it off by memory,
but that's that additional contribution at City Hall.
And then holding the turs at 12.56 was the normal cost 20 years
ago, if I recall, when we set that.
And the state picks up everything over the top of it
for the teacher's retirement system.
Go ahead and continue.
So, slide 20 shows the FY27 defined contribution plan.
The tier 4 rates, 8% of gross is paid by the employee with an employer match of 5% for
are added in the difference between that and the PERS and TERS statutory rates goes towards
the defined benefit plans and funded liability.
It's a slight 21. This shows a difference
between the statutory rate for PARS and tERS
and they actually determined rate historically.
The spread between blue and orange lines.
is the portion covered by additional state contributions.
So, slide 22. This shows the projected benefit recipients.
Up there, go back to 21. I think it'd be nice if we had you add to this chart, if you could,
the dollar amounts on it, because we're dealing with percentages here, but if
we look at the percentages of the retirement system, we wouldn't recognize that our liability is stuck.
Right, because the percentages all look good, but the dollars are, the, dollars what makes the table run.
So that would be helpful.
And they're previous, in your previous slide,
but it'd be nice if they were on one slide and makes it much more,
I think, effective to show the issue between the percentage
being paid and the actual dollar movement and that unfunded liability.
To the chair, we can certainly arrange that.
So, slide 22, this shows the projected benefit recipients up until 2053.
As more people retire, the pension recipients have forecasted to rise to a peak for PERS
in 2030 and TERS in 2031.
As we know, all employees have joined a defined contribution system since 2006, so naturally
Slide 23. This shows a similar story to the prior slide but in a much free way and relating
to benefit payments. TERS will peak with 686 million benefit
payments in 2033 and PERS with 1.5 billion in2038. Gradually, of course, recipient dollars
To the chair
The the the graph it takes us to the end of the century
775 years. Yes, I'd like to remind the community that
Conversation we had here several years ago when the last silver war
widow
Passed away in the End of The Civil War pension checks. That was probably
Maybe a decade ago. When was that conversation here?
About a Decade ago
So there won't be anybody at this table that will be here to see if that's how accurate this projection is.
Anyway, it was shocking to us at the time that that the pension lasted that long or the Civil War pension.
Health Officer, he's hopefully on the line.
I wish you, Chris.
Chris Murray, if you could come on
the Line, walk us through next couple slides, I guess.
Certainly, good morning. Can everyone hear me okay?
Yes.
Thank you for the record,
Chris Murry, IMD Acting Deputy Director of Health
and Chief Health Official for
the Alaska Division of Retirement and Benefits.
The next few slides are related to the Alaska Care Employer Group Waiver Plan.
There's been significant discussion this morning about how the healthcare funds are overfunded
and we wanted to focus a little bit about this particular plan, as we call it, egg whip,
because it is the primary reason for the over-funded status of the health care assets.
So, an employer group waiver plan with is basically a group Medicare part D prescription drug plan.
So just like anyone who is Medicare eligible to go out and purchase their own Medicare Part D Prescription Drug Plan,
this is one that is purchased by an employee or group.
It's open to any employer, group, public and private and pretty much anyone,
you know, any group payer could go in purchase one if they wanted to.
When this was implemented back in 2018, you'll notice this third bullet,
in one fell swoop, it reduced liabilities in this health care.
And these are prescription specific by nearly a billion dollars.
You can see that figure down there, 959 million dollars,
which of course resulted in the lower projected liabilities,
lower projective contribution rates and additional state contributions as well.
And it's the primary reason for the overfunded status.
of the health care trust at this time.
Slide 25.
So the employer group waiver planner, the egg whip,
essentially the administered by the Center for Medicare
and Medicaid, and essentially,
the way this works is they provide direct subsidies
to the elastic care plan that help offset the liability.
And this chart right here shows the subsidies
You've better been funneled through to the elastic care plans.
A couple that I'd just like to focus on briefly is a direct subsidy.
So that is, a monthly payment that comes to
the Elastic Care Plan.
So you'll notice that in 2021, 2022 and 2023,
those were negative subsidies.
But in 2024 and 2025, they increased significantly.
That is the direct result of the Inflation Reduction Act.
Essentially, what CMS did is they restructured the formula of subsidies, and you'll notice
that the catastrophic reinsurance is essentially the opposite, so what the CMS has done is
they have basically put the management of high-cost rows more onto payers and onto plans,
so they brought up the direct subsidy.
That is, you know, money that basically kicks in at a certain point.
And at this point in time, the federal government is responsible for less of that than we are.
But it has certainly worked out in our favor.
As you can see,
the total subsidies have increased over the years.
Now, this is dynamic and the formulas are done year by year.
And it is never a guarantee that we will give any particular amount in a given year.
But as you can see, these have continued to go up and I can say that, you know,
they've already made the decisions for 2026 and that the direct subsidy went up in 20, 26.
So, um, we can have those numbers a little bit later, but,
you Know, it's going to be continued.
this is never guaranteed, you know, this was one of the potential risks that we have is that these
subsidies could go away or they could change the formula again which could negatively impact
the health of health care trust. And then slide 26, we just put this slide in here to ensure
And, as you can see, the take-home message here is that, you know, they're not going
down.
Health care is expensive.
You know it's very expensive in the state of Alaska.
And you do not expect these to go down, one thing that I do want to note is the distinction
between medical pre-65 and medical post- 65, and the reason for that distinction is
The majority of those healthcare costs, whereas when a member becomes Medicare age eligible,
the plan is statutorily required to pay supplemental to Medicare, and so Medicare covers the lion's share of the cost of medical care after 65.
And then you'll also notice that the RX or prescription plans and the eggwood plan needs early projections in 2026 and 2027, 8.5 and 8 point two.
They do decrease some, but a lot of that, you know, initial higher projections here is due to GLP one usage for weight loss.
It will, you know, we do expect it will gradually go down,
but as you can see, there is none of this that,
you you it never goes down significantly.
Healthcare costs just keep going up and up.
And these projections, Mr. Murray,
or pretty accurate, or is there a cloudy Ouija board
on healthcare?
I'm the chair.
I am not an actuary, but.
I spent a lot of time with them.
I can tell you that in recent years, our health care
calls have been trending between 5% and 7%.
That's been in the past five years since I've been tracking
this.
And so I don't see any reason why these would not be accurate.
But as we all know, no one has a crystal ball.
And we cannot say specifically what will happen.
But, you know, I believe that these are certainly following past trends, and I've seen a reason why they would not continue as such.
Mr. Kirschner, could you help us with that?
Because these were significantly higher than the targeted inflation rate in the future.
And I don't think we have a very good long-term record on forecasting health insurance escalations.
Could you helped us for that.
Well, apparently you can't help with us.
So I guess we'll ask you some other time, but at some point I'm here. My line's been on unit. Can you hear me now?
Yes, go ahead and help us with the rate of growth and in health care relative to inflation relative
to our past performance
Yeah, well first of all, I just want to say I am not a healthcare actuary. I' m a pension act worry by training,
but in general we used to set the trend rates we have
a model, a standardized model that's from the society of actuaries.
But essentially, the theory is that medical trend rates cannot continue at the current
levels because they'll eat up a larger and larger share of GDP.
So the theory is, that over time, health care cost increases will come down approaching
inflation.
And you can see here, we're using an ultimate rate of 4.5%, which is the real GDP growth rate
of 2%, plus our 2.0% inflation that gets us to a long-term trend increase of 0.2%.
But as Chris said, there's no crystal ball.
We, as statutes require,
that we're assuming and these trend rate increases,
we evaluate these annually.
And as I mentioned, we are in the process
of evaluating all of the assumptions
for the upcoming spring study,
and we'll probably be modifying these trends slightly,
but the trend that you're seeing here
grating down to 4.5% will not be changing.
Great, thank you.
We'll go on to, I guess, the next slide.
So, back on the record, it's Christopher Nivel, Chief Financial Officer for the Division
of Retirement and Benefits.
It's a slide, pardon me, slide 24 shows the process timeline from valuation to the onboard
resolution on additional state contributions to pay down the unfunded liability for PERS.
We're conducting our four-year experience study.
The experience studies conducted every four years by statutes for powers, it assesses the
demographics, economic assumptions, and payroll assumptions.
Can you go a little bit more detail on this?
It's confusing the delay and one of the challenges we have with these type of retirement plans
actuarial analysis and setting the rates,
it's the calendar delay.
To the check.
On the first line, you've got 2024 evaluation
and then go to the right-hand side,
it is FY2027, employer and additional state contribution.
There's quite a gap there,
so help us with that process.
To The Chair, can I defer that to David Kirschner?
Mr. Kirchner.
If you can come back on, I know you've explained this several times with the committee. I think
every year. Yeah. A few years. Help us with that again, please.
Sure. David Herscher, actually from Gallagher. So if we focus on the very, the top one that's in
the outline there, we in March of 2025,
we reported to the arm board the value rate that the June 30, 2024 valuation results.
And that time frame that when we receive data right around Labor Day of 2024, we do the
evaluations.
We send everything to the Armed Boards Review Actuary, GRS, they review everything that
we did.
And then, so that takes some time, some March of 2025.
We prepared, presented the evaluation results to
the armed board and GRs reviewed them.
In September of 2025, we prepared the contribution rates to be adopted for FY27,
that the starting in 2014, the process for setting contribution rate was set
to what we call the two-year roll forward.
So we take the results from the 2024 evaluation and we roll them forward two years
which is the beginning of FY27, and then that's followed for all successive years.
So we collect in that two-year roll forward,
we could collect actual assets that performed during that first year in 2025,
then we assume the assets will earn the expected rate,
which was 7.25 for FY26,
and that gets us to the begining of the FY 27.
And then the same process follows in each successive year.
So the 2025 valuation results, which we are in the process of fund
lighting and discussing, we'll be discussing with the arm board next month,
we will then use those results to set the FY 28 contributions in September of 2026.
So it's a two-year look forward or two year look back.
Between the evaluation and the year for which the contributions are being set. Okay
Thank you
It's just the delay is a challenge
So just what we have to work
Okay, we'll go on the next slide before you jump into this issue
this issue. Thank you, Mr. Kirchner. Before you jump into this
issue, I just want to back up a little bit and just make another
comment I forgot to make when we were talking about the 10-year
lag and or the ten- year horizon and the liability
being constant. In fact, we had the same number
and thank tourists. But the concern is
as an example that I guess trying to put it in a
format why I'm so concerned about, not the only one, a lot of us are concerned
about the liability in getting it retired and getting in under control.
If you were a young Alaskan and you are born in 1980, as an example, you're born 1980.
Go to school 2005. You're coming into the workforce.
You are 25 years old.
Take a look at this unfunded liability issue and start marching down that road with burdening
the state and the non-state employers with this unfunded liability at 13% of their aggregate payroll.
You're now in 2026. You are halfway through your working career.
errors and omissions and problems or whatever you want to pin on the old pension plan, but
the benefits accumulated in the previous 2006, mainly 70s, 80s and 90s.
You're halfway through your working career.
Then on a table today, we go forward another 20 years on unfunded liability.
If you were born in 1980 and you're in Alaskan, your entire working career, you've been burdened
by the sudden funded liability from your grandparents or your parents.
So it is a significant issue when we get into this amortization schedule, 15, 25 years,
whatever issue it, is to try to get a handle on this.
An entire working career for somebody that started in 2005 is something that should not go unnoticed
and you can pick your year when you come into the
Into the
System, but 13 percent of the aggregate payroll at City Hall is a lot of money and a lotta tax burden
So that's why we've been
Bringing this subject up and we'll schedule that that
discussion with the armed board over amortization and we'll talk about it amongst ourselves and figure out what we want to do
Senator coffee
Thank you to the chair
I
Think it would be good for me at least some maybe others to to see the like the set of risks that were realized that
got us to that underfunded
Positioned it's not just the you know, I know it often said that well the actuarial is messed up and
and gave us bad advice, and we didn't fund adequately,
but I believe it was probably a stack of realized risk,
whether it's investment performance,
the timing of that performance relative
to the plan experience,
and other elements that help feed into all of it.
So if we have a future discussion,
I think that would be a good area to talk about.
We can dig up old skeletons later on.
There's a multitude of issues, right?
So we can look at that later, but yeah, it is a problem.
But anyway, let's go on to the current last year's problem that I think we've got resolved. Is that correct?
To the chair. Yes. Okay. Good. So tell us the wonders that you did to fix this. That'd be good
Okay, so it was November the 4th 2024 the Division of Retirement of Benefits was informed by the office of
information technology of some unusual activity that was happening on the
division servers. So consequently access to the state network and servers was suspended
so we could have an investigation. It's important to note that from that
investigation we found out that no data from the division was accessed or breached
no information leaks but given the time required to restore and rebuild the
to migrate the division's programs and applications to the cloud,
it was decided to complete this migration process.
During this Migration process, the e-reporting for payroll
application employers used to submit contributions
to a system failed, an additional programming
was needed for it to successfully function.
February the 6th, going forward to there, e-reporting was back online, but there was the expected
backlog. To get past this active payroll used a three phased approach, allowing payroll
reports from our employers over a free stage so they didn't overwhelm the system at once.
April 30, 2025 deadlines were provided for employers to report all outstanding payrolls
and the ultimate deadline was May 30th and this was considered adequate time for all employers
to get caught up. Following.
discussions with the division, the Department of Law, OMB and the legislature, it was agreed
that neither participants nor employers could be held responsible for the lost earnings due to
the system outage and as a result an appropriation of 2.7 million was requested from and approved by
the Legislature to compensate participants for lost investment earnings and those funds became
between June 17th and July 21st, 2025, the make-hold payments were posted to the members' accounts.
So, before we go on to that slide, Senator Keel.
Thanks, Mr. Chairman.
If we could go back the previous slide I think it might be worthwhile just to let Alaskans
know what that unusual activity was, right, that started that sort of a clinical term.
And it's probably worth telling Alaskans, but this wasn't a glitch in your software.
This was outside thieves trying to break in and steal either data or money, and my understanding
is that the division did the responsible thing and locked it down before anything went missing.
My understanding, the origin of this, Right?
Yes, back-faith actors try to access our systems and what was the second part of your question, I believe?
Look, Mr. Chairman, the credit where it's due. I think the division
took good advice from information technology and they they locked down this system
Which course had these consequences we're dealing with but my understanding is it was locked-down before anybody's data was stolen and before
Anybody's money was still in yes to the chair. That's correct
Okay, for the chair, if I may.
Thank you.
So, kudos.
Well done, done right, and now we have cleanup to deal with.
So as we look through the cleanup then,
I think maybe what did this mean to those other employers,
the city hall, the school district,
the other folks, in terms of their obligation
to make their payments every payroll,
was implied, but we never said, what's the system for?
What did they have trouble doing?
Through the chair to Senator Keoh.
Of course, they didn't have an online system to report.
But we didn t actually wait until it was back online.
We, our active payroll team, worked with the employers
to do it in a manual process, because our team had access
to e-reporting within the state, so they sent us.
spreadsheets so we could enter for them and they could reconcile and back and forth so
we started that right away and of course when it was up and running on February the 6th then
they can report through the system again but ofcourse there was the backlog and we didn't
want them all reporting at once and strategized with I think was an employer size.
to process that so the system wasn't overwhelmed.
So those were the things we did
and it wasn t a case of just waiting for
we weren t sitting on our hands
until the citizens were up and running.
We started work right away.
Thanks.
So thank you.
So that was how we prioritized the
system so that employers could put money
into the retirement accounts that had to be put in
with every payroll.
Right, that's what we're talking about here
To the chair it's a center to kill. That's correct. Thank you
So then to then drill down maybe a little bit more into the specifics on the slide
There's A reference in here
to
How difficult it was to manually process those and how there were reports that by May
We're Submitted Timely but not processed. When did we finish processing?
the last of those reports that came in timely but just took time to get in.
To the chair, the 99% of the reports were in by May for us to process.
As to when I say 99 percent of employers had reported by may 30th.
Good roll just to make sure I understand 99% of employers had all their reports in
To DRB by May 30th or DRV had, all those
Reports processed handled the money went where it was supposed to go everything was hunky-dory
To the chair the reports were all in by may 30 after that there was
the the calculation effort to mate to ensure that all
All the members were made whole
which I'm going to speak to a little bit on the next slide.
And so just the last one, if I may.
So then those calculations, when was division of retirement
benefits done with getting all those reports calculated
in the end?
To the chair.
to Senator Keoh, are you asking when did the calculations
for the loss of earnings when they were made,
or are just the actual payrolls?
The latter, please.
The later.
Oh, so that would have been May.
May 30th, they would've been all been.
Oh it was.
Yeah.
Thank you, Mr. Chair.
Next page.
So the last.
Last page is showing some statistics relating to this as you can see the amount appropriated was 2.7 million
We calculated this
using
the voluntary fiduciary correction program calculator provided by the US Department of Labor or rather are in
power retirement did that and
From there we used to we calculated the loss of earnings to make our
members whole
The total amount paid out was 1.3 million
As you can see the breakout there of pairs 692
thousand terrors
552 and SBS 65
That left the remaining balance of of 1 point 1,4 million to be returned to the state
The last statistics are total participants paid $23,996.
The highest amount paid out was $368.90 and so on received a quarter of a cent.
The average paid outs were $54.58 or $46.98 depending on its medium calculation.
Point two four of one cent. Did you round that up or how did you do that in his on their account?
To the chair give them a whole penny or did
To The chair I believe
That was I don't I know I knew there was there were seven seven individuals that were paid less than the penny
So let's just move on because that won't bankrupt us the six billion and liability might have a bigger impact, but
To the chair, that's all I've got for that on. I don't have one more slide.
I do apologize this slide is relating to the collaboration and communication and
All these individuals worked very hard towards getting us
Getting our members made whole and I
The fact that they work so hard and so diligently and efficiently is the reason we're returning 1.4 million back to
to state
It was
An unfortunate incident that we had this attempted breach of our system.
But I think we, you know, here at the table last year, we were inclined just to make everybody
hold and move on, fix the system that, things happen once in a while.
But, I do have a request for the committee.
I'd like to know that when we deal with our unfunded liability, the non-state employers,
to the state last year, we had that report,
I think it needs to be updated.
There's several entities in how long they're in the rears.
At some point,
we have to have a discussion
on how we're gonna deal with that.
And then if how many that are possibly in a rear,
but I've come to an agreement on a catch-up.
So they are technically not in reaars
by some definition,
backed up in their payment.
We'd like to know those also.
So we see the full extent of it.
To the chair, we can do that.
Yeah.
Yeah, just an update of last year's data set, frankly.
And if no one has any more questions,
that concludes my presentation, our presentation.
Okay, any other questions for the department?
I'd like to thank the Department for putting this together and again thank them for their working hard and
Department of admin to deal with our retirement plan it affects a lot of people around the state both mean both state and non-state employers
So thank you for coming in and we'll schedule that upcoming arm board discussion with the amortization
Presentation that was put forth today. There's no time to you know
for today to put that on the table and it's I think it'd be good also to have it as a separate
discussion because it is a policy potential disagreement between the legislature and executive
branch and or the arm board. We could have one opinion or three opinions but we need to
we needed to look at it at the policy makers and give our recommendations to the
This afternoon, 130, the much anticipated House Bill 78 retirement systems defined benefit option.
There's a new bill, not a bill but a New Retirement Structure that'll be put on the table today.
130 House bill 78 for an introduction and introductory hearing.
Thank you very much.
We are adjourned at 10.20 a.m.