We will call the Senate Finance Committee to order.
It is 1.30, the senate finance room in the capital city, present senator Stedman, senator
Salads your cell phones, we have a quorum to conduct business.
We have one item on today's agenda, which is HB 78,
retirement systems, defining benefits.
We probably won't get through the bill completely,
since we only have half an hour today,
we're going to be adjourning a little bit after two o'clock,
because of schedule conflicts.
With that, the first item, as I said, was HB 78 Retirement Systems Defining Benefit Options.
This is the 1st hearing on this bill.
As I invite the prime sponsor, representative cop to the table to, and bring anyone with
him that he needs support from, introduce the bill and tell us what it does to.
People that are working for the state of Alaska
Thank You chair Hoffman members of the committee. It's a privilege to be here today and
Present to you this policy proposal
Mr. Chairman I first want to ground the discussion
Before we jump into the slides and address a critical distinction. I think that matters
There are two very different cost conversations that often get conflated when we talk about pensions.
The first is Alaska's legacy pension liability, and that liability comes from retirement tiers that we closed nearly 20 years ago.
It's already locked into statute, it's amortized on a closed schedule and projected to be paid off around 2039.
And that obligation exists whether House Bill 78 passes or not.
House Bill 78 does not add $1 to that legacy debt.
The second conversation and the one before us today is the cost of future service.
How Alaska compensates and retains the workforce that we depend on going forward.
The state's actuary Gallagher testified in House Finance Committee last April evaluating House Bill 78 using the same conservative assumptions,
statutory, contribution caps and funding rules that we already have in the law.
And under that analysis, the normal cost of the plan, defined benefit here, is about 10% of payroll for
and about nine and a half for TERS,
well below what we are paying today
to contribute to the legacy tiers.
As we walk through these slides,
the key takeaway is this,
Alaska is already paying for its past.
The policy choice before us is whether we continue
paying the escalating and largely invisible costs
of workforce failure.
or whether we invest in a disciplined and shared risk way in the retirement system that
stabilizes our workforce and brings long-term predictability back to the budget.
So the next slide. So this slide, Mr. Chairman, just highlights what we already know. The workforce
recruitment and retention problems are everywhere in state government. It's not isolated, it's
Nearly every one of the commissioners has said retaining a skilled workforce is a real problem
in keeping experienced staff. The quote here highlighted from our state auditor
shows us that audit findings are one our biggest government failures and it's tied
directly to our workforce instability.
The findings as you see here from Chris Curtis, our State Auditor, is that we had nearly 90
Most recently, several of us heard the auditor break this down for us.
Basically, she said we're losing experience staff and our compliance is breaking down.
That increases our operational risk. For instance, Mr. Chairman, our auditor said
we had one grant in the FY24 statewide audit.
that was a disaster grant for which the state was eligible to be reimbursed from the federal
government $280 million that we did not ask for reimbursement. Largely because of an operational
breakdown, just the interest I'm not asking for that is $1.4 million a month. Where we're at on that
now, I don't know if we received that money back. But it's an example, if you don t have the operational
to know how to do a job, it does hurt the state.
Again, a stable experienced workforce
does promote program integrity
and protects the State and the federal resources.
So this just gives some context
in fiscal framing to what we're discussing.
The legacy plans, as we saw this morning
and on other previous days before this committee
and The House Finance Committee,
Recovering their stable terrors is at 80% purses at 70%
payments toward the legacy planned
Liability are larger now, but the liability is reducing more rapidly and according to the arm board
We're on track for around a 2039 payoff
House bill 78 again does not reopen the Legacy tiers and
I just wanted to highlight here that our investment returns have exceeded expectations
to thank the people at the Department of Revenue for that.
Senator Stedman.
Just a point.
I think earlier this morning, we had a presentation
on PERS and TERS.
TRS has the same liability it had in 2015 as it has in 25.
They had the Same Numerica.
So we didn't gain anything.
And we spent a couple billion bucks going nowhere.
SPS moved a little bit, but not much.
We can certainly rejuvenate those letters or those numerics,
but we talked about that.
That was after the $2 billion infusion into ters
and the 1 billion infusion into purrs.
So I would not couch this last decade is gaining much ground
on the unfunded liability.
It certainly wasn't reflected here a couple of hours ago
in the table.
Thank you senator stedman, please proceed. Yeah, mr. Chairman, so just just in reply
Thank You senator stephener for pointing that out. So our our fiscal choices have not always done us well
In 2014, we went to a level percent of payroll due to House Bill 385, which was introduced
less than two weeks to go to the end of the session, passed both bodies unanimously,
and that stretched out the amortization schedule and changed us from a
level dollar pay to level percentage payroll. And the state's actuary for the arm board,
Gallagher said, that will cost you $5 billion in additional unfunded liability to do this.
But we defaulted at that time towards reducing our short-term liability to stretch it out
longer.
And it did in fact cause us to be more slow on the front end.
They predicted eight more years of increasing liability before it peaked and started coming
down.
And I think clearly we're on a downward slide now.
This next slide, Mr. Chairman, shows what's happening with our workforce, the defined
It shows that we are cashing out $160 million a year in purrs and turs, the employees are.
And if you add their supplemental annuity and deferred compensation plan, it's nearly $500 million every year
in cashouts, and most of those are happening when employees hit the five year of service or 100% vested when they can take their employer and employee contributions.
This is the most recent pie chart of our state workforce showing that most of
our employees are in that one to four year churn and it exactly what our
commissioners are telling us that we're not keeping people in the workforce
pipeline for a career we are incentivizing more of a cash and go
day labor plan. Next slide.
Senator Steadman.
Again we had presentations here at the previous legislature from legislative
finance over employee turnover.
And there was no discernible difference in the plans.
We can bring that all back and take a look at that.
But in just inferring that that's the only issue is the retirement plan,
I would argue that it has a lot more to do with salaries,
daycare, and ability to buy a home in housing.
So it's a much more complicated formula.
And we can revisit that, Mr. Chairman, with leg finance, if they can update that data set.
We'll get that Senator Keel.
Thank you, Mister Chairman.
I do recall that same presentation and of course legislative finance acknowledged the information that they didn't have.
And some of the assumptions they had to make, like assuming once somebody left a PERS employer, they have left Pers forever.
But when you compare that to what the actuaries actually have,
and the numbers they've put in the purse financial reports.
In fact, there's a huge difference in turnover
and their attention is much better with the defined benefit.
But if we want to get those restated,
I'd love to see those, restate it with all the data in them.
We're getting certain need to do that.
Senator Olson.
Oh, God.
Here we go.
Bruce Stidman's.
Oh, come on.
Come on, you have a response?
Yes, through the chair, Senator Olson, thank you.
This morning, indeed, at 8 a.m. in front of the House
Education Committee, the deed commissioner
said they're experiencing 28% turnover in the teacher
workforce statewide.
We're seeing significant turnover
It's an observable behavior that's documented and I am and
I wouldn't take issue either with Senator Stedman's recommendations that we improve
childcare and salaries.
I mean, those things are all important, but as far as turnover,
our own commissioners are documenting very significant high rates of turnover.
Thank you.
going on to the retirement system and just kind of making this point, Mr. Chairman, this
is the slide that DRB showed us just last week in front of this committee and in
front house finance. What I think is really interesting when we look at this
is 80% of today's active peers and tours employees are in the defined
contribution plan but they're only producing 1%
of the retirees statewide. 99%
And this tells us the issue is not just timing. It's that the current system is
not retaining employees long enough to reach retirement, which is the workforce
problem that House Bill 78 is intending to address. And we're hearing this from
our commissioners. We're seeing it from the turnover.
We are not filling up the pipeline.
Thank you. Next slide. So the proposal under this plan, Mr. Chairman, is in light
is a system that lowers costs and improves service.
We look at it as a strategic workforce investment.
It should be emphasized that this involves separate accounting.
The pensions and the healthcare trusts
are separate from the legacy pension trusts.
In front of House Finance Committee,
our state actuary, Mr. Kirschner, said this plan.
is going to help future retention,
it's going help lower future turnover.
It's because people are incentivized to stay,
receive benefits in an environment
that produces these types of outcomes
and that's consistent with the actuaries' interpretation.
Next slide.
Here we see how the employee contributions work.
In purrs and turs, employees have an adjustable rate.
Which keeps the plan healthy they share in the risk and the stability and it protects against underfunding
It's 8 to 12 percent based on a 90 percent funding threshold. This is the gold standard
Nationwide amongst a pension health funds
We went with that standard because we want the the trust to relax react live to the market
If there's poor market returns, we want the contributions to go up so employees share the risk.
They start at 8%, but you can see there is quite a range that can go
up where they can contribute more during poor-market returns.
I would point out that our actuary says that all of their projections and all
of them, they're not projecting the HB78 subtrusts, come anywhere near the 90% level.
Starting well funded of course
So here we show states that use a variable employee contribution question from yes, sir. Kaufman. Yes. Thank you through the chair to the bill sponsor
If you would just explain the mechanism by which we start out a hundred percent funded yes
Thank You for the question senator Kaufman through. The chair
There has to be an actuarially fair transfer in other words the the buy-in
It has to be equivalent to the value of a defined benefit pension plan that you're buying
into.
So a DC account will be evaluated based on the benefits it's buying going into a define
benefit system.
Now, what that means is that not every employee will get a one-to-one transfer.
Defined benefits are more valuable.
It is a lifetime pension where the longevity risk will outlive my income, is shared with
the employer where it's all on the employee in a defined contribution.
And the investment risk is share, we can see here, shared, versus it all being on
the employ.
In House Bill 78, like we had before, right now, for instance,
if an officer is hurt on duty, they immediately go from their pay to 40% of their base pay and they lose all their health care.
It's not something I think the legislature ever intended, but that is the way it is right
now.
We look at that the occupational disability the non-occupational disability and go back to how it was
So the benefits from are more valuable is what I'm saying in the defined benefit plan and
The actuaries job is to make sure that when you buy into that plan if you have a hundred thousand dollars in your DC account
That you get a $100,000 of DD benefits
We'll add equivalent to a year for your service transaction
Maybe for some it will and maybe for sum it'll be more like a multiplier
Senator Kauffman
Thank you through the show. I'm gonna have to unpack that a little bit later
so if you if You have two employees and
One like most state employees has two accounts that they've or perhaps even three so they they got their defined contribution
They've got the SBS and and then whatever they may have been putting
into what's really the Roth fund as far as a
income goes so compared to let's say somebody in education who only has the
defined contribution plan right now because they have been opted out of the
equivalent of Social Security whether it's SBS Social security so there's a
peace missing there so you have two unequal entrance into this as you plan
to to sweep these funds into the plan and and then offer the pension can you
Explain how that works, I get the sense that there's not going to be equality in there
because there are two different starting points.
So there has to actually be an fair transfer, in other words, the benefits that you're buying
And that is something best I would defer to Mr. Kirschner,
whoever the state's actuary is on that.
Now, you mentioned teachers.
So the State actually contributes at a higher rate
to the teacher as employees.
They contribute at 8% match, and they give 5% to per.
So teachers do get a bigger bump in there.
But again, whether you're a teacher
or whether your regular peers employ
the size of your account.
has to match exactly what the defined benefit is.
From what we can look at, it's going to be a,
you know, what, we hope as many of our employees
will be one to one transfer.
We know some will have excess that have done well
and they can just, they, can bank that money,
keep it in their savings.
And some will can go on a payroll, the bill provides for a pay roll pay plan where you can just pay over time.
Like if you come in and they say you combine 90% of your years of service, but not 100%, do you want to go
on payroll payplan or do want do a one lump sum, there's options for employees to square it up, so they're year for year
for service. And, some employees may decide to stay in the DC plan. This doesn't force any employee to leave the plan that
I'm meeting back to order, Senator Stedman.
Maybe I can help clarify a little bit,
because I heard some muddling here that crossing wires.
Supplemental benefit system is a different issue.
You're not gonna be able to move that around.
What we're talking about is the Defined Contribution Plan.
And if you're in a surplus,
you are actually further ahead in the defined benefit plan
than you would be the define contribution.
And you'd have that opportunity then to
go into the lesser plan and
We'll get into what we do with the surplus later on
the
and if you're in a
Say you were in the stable value fund
Which is basically a money market account and you don't you it's not an investment account
And you haven't accumulated much then you'd be at a deficit and then we can talk later in applying on how
If you want to deficit how you could gain back that defined benefit, but
and
Is not in SPS or Social Security and that's the teachers on their own accord
So that gap is still in existence
There is some police and fire that are also not an SBS or social security
That's at a local issue that is not the state and there hasn't been any
Communities that I know of cities that have come forward and asked their change the plan
The communities could put in their home plan if they want to or they can do deferred comp or do other mechanisms to cover that
But all of the state employees are in SBS or Social Security.
That is not the same at the local level, even in my own district.
So there's some clarifications that we need to work on as we go forward.
What's the responsibility of city hall?
And also the liability, how it can flow from city Hall to the State.
We saw that this morning with the cap at 22% with
the contribution rate at 27.55.
Thank you Senator Stedman, Senator Kaufman
Thank You through the sheriff. Thank. You for that
Yeah, it's part of what
What I've been puzzling over is what where do all the streams of money come come from and that was helpful. Thanks
Thank, you, please continue
Thank-you, mr. Chairman
So continuing with the employee contribution. I think we've we talked about that the employees shared the risk
And then we also want to show the employee's contribution,
oh, the states that also have shared risk.
So we're not alone.
These are other states
that do that on a smaller scale.
We have an eight to 12 range
to increase the capacity to absorb downturns.
Going to the employer contribution.
We stay with what is currently the cap now for PERS local governments are capped to 22% with the state paying any additional
liability above 22 on behalf of local government and
And we stay, with churs capped at 12.56 now what, is significant here is we set a floor of 12
Now, how did we get that?
Oh, Mr. Chairman, it's because the plan itself,
once the legacy pension debt is paid off,
is projected again for PERS to be just a little over 10%
and for TERS about nine and a half.
So that still gives us a cushion for a very well-funded
plan, and it is something a future legislature can visit
if they think that the floor is too high.
But the state in this bill maintains existing liability
and the employee employer contribution is synced.
So if the actuaries say, hey, we need to go from 8 to 8.1,
then there'll be a, you know, for the employees,
then the employers will also have a .1 increase.
Again, it's a shared risk plan.
Next slide.
So.
So, yes, Mr. Stipp.
Senator St
No, no, just getting into this plan
and there's the complexities will get pretty substantial
on sure.
But the 22%, I'm really curious on that, because that was put in place to protect the cities from going broke.
First one would have went under, would've been Fairbanks, and followed by many others, if not the vast majority of our cities.
So the state came in and capped the contribution at 22%.
Right now I think it's 27.55, I remember right this morning somewhere in there.
I'm not sure, Mr. Chairman, that the state should be putting on the table
accumulating additional liabilities from City Hall.
The state under the old plans took on that liability,
mostly because of the accounting Quagmire and the inability to get an accurate
account per city.
So we pulled them and came up with a numeric of 22 percent. The State would take everything over that. High enough
to get the City Hall's attention but low enough not to bankrupt them.
I'm not interested personally of this of the city or excuse me the state going forward in
any plan whatsoever of taking liabilities from City hall. City halls should be responsible for
their own liabilities because and we in our plans they're constitutionally protected from
a diminishment and benefit so it's a one-way door so I think that needs to be considered as we go
Why this plan is tied into the 22%?
Through the chair, Senator Steppmann.
So just going back to this planned House Bill 78,
it is not projected to add any new unfunded liability,
not $1 more to the legacy debt.
Now, to policy call that you rightfully bring up,
should we pay above the cap?
This, in fairness to local government, their perspective is the Mercer debacle when we
got bad actuarial advice, advice back in 2002, 2001, 2003, whatever that was, and the state
submitted a claim against Mercer.
in the range of $1.8 to $2.80 billion is what the state claimed its loss was.
Well, we know what that time value of that money is, just today it would be over $5 billion.
We collected $500 million, I think about $400 million actually ended up in our account
by the time we paid the attorneys off and everything.
So, that really set us back. Local government was shocked because they were told by the
state that they either didn't have to contribute during those years or severely undercontributed
and then we'd know what happened.
got their actual bill. It was very high. They said, hey, can we have a guaranteed rate that's
survivable? And it was a shared risk between the state and local government.
It's not like they were getting away with something. We need the cities to be viable.
We can't have them go on bankrupt, and it's worked well to this point. And I would just say that even
It is something we all are excited about going away and it is going to way and in a short while
These plans are going
To drop down to ten and nine and a half percent payroll if we go with something like this
Okay, my the next is continuing with the structure the besting period is five years for purrs and terrors and
It matches the prior DB tiers encourages people to stay whether you're a teacher or a general
Public employee, it's a five-year vesting period.
This is qualifications for retirement.
What does that look like?
These are just reasonable, realistic retirement
agents.
It protects our teachers and public safety workforce.
And it honors long-term service.
We want to incentivize people staying in the workforce
by working careers here in Alaska.
And so if you're terse or non-public safety perse,
you have to be 60 years old with a minimum of five years
service or at 30 years of service,
you can collect your pension.
For perce public safety, age 50 with 25 years
of services or 55 with 20 years
of a service a little bit shorter for public
safety because the job takes frankly a lot out of them.
So, the structure, this is how the benefit structure works is there's the multiplier.
You get 2% of your high 5 years.
This is not based on the high 3, but the five years for your first 10 years and 2.5% thereafter.
So if you work 20 years, you'll be at 45%.
And then you can do the math there and you see for teachers,
42.5 if you work 20 years or all the way up to 67. 5% if
you worked 30 years that is that's just how the multipliers
work again it's based off your five years high salary and the
next slide actually highlights how that the the average salary
is computed to get into that for PERS and TERS next
When we did the new tiers 20 years ago, we didn't want to have
four employees doing the same job at four different levels. Tier one, tier two,
tier three, and then come in with tier four. So we tried to match the
new tier to find contribution to benefits of tier
three which is, I think, similar to what's taking place here, trying to keep
I just want to remind the folks of where we came up with these values.
The other thing that shouldn't go unnoticed is that the state of Alaska has a very rich
retirement plan.
Very rich.
And nobody wants to talk about it at the table, but it is.
And then when you add SBS, supplemental benefit system, after 30 years you have 100% salary
replacement.
pushing a million dollars in their SBS account and over.
So we have a very, very wealthy or very rich and competitive retirement plan
and the TERS system from what I've seen is ranked number 11 in the nation.
We're not in top 10, we're number eleven.
And that's with the current structure.
So there's a lot of indigestion
And some categories at the local level, because the municipalities have shorted their employees by not having them in Social Security or SPS, takes out about a third of the retirement.
I just want to make that note again, Mr. Chairman.
Thank you, Senator Stedman.
Senator Kauffman?
Thank You, through the chair.
I believe that we should do something to surface that information so that
we have an accurate assessment of
the current situation and the gaps.
What I've seen is the teacher's situation
is not well understood and it often gets neglected
that there's a piece missing there,
so part of the problem that needs to be solved is there.
And the retention issue seems to
be the driver for this.
I think what we should be working on
is a sustainable retirement plan
that takes into account what were able to do.
takes kind of the best case examples of what we're doing right now, gets it on the table,
looks at it, and then we can see whether or not this proposal is actually the
best way to go. Thank you with that. Everyone at this table knows, but for the listening audience,
Senator Steadman does have legislation in to try to fix the teacher's lack of funding under SBS.
Thank you chair Hoffman
Next just briefly addressing the that retirees also have skin in the game
There is no cost of living allowance
We we had that under the previous legacy tiers. That's when you're tuned 65
You get an additional 10% of your base pension that is gone that helped keep the plan solvent
It may not be viewed as fair, but actually it's very very sound
Next slide, we also see how retirees have skin in the game.
This is inflation-proofing, and Senator Steadman on the previous slide.
Yes, on a previous line.
I'd just like to note, one of the goals was not to diminish benefits previously.
We can argue if the defined benefit is good or bad, go around circles, I'll live on.
But clearly the intent was to match up with tier three and not diminish benefit.
So what I'm hearing today, this legislation diminishes benefits.
There's no reason the state of Alaska should be diminishing benefits
In fact, we've always talked about increasing them increasing salaries doing this turds SBS for ters and
Telling City Hall to quit being cheapskates and get them in Social Security or SPS
Let's not diminish benefits
Thank you, Senator Steadman. She's continued. Yeah through the chair
Senator stebman that warms my heart but I agree with you we shouldn't diminish the benefits, but we're also trying to
bring forward a plan that the Actuaries say is very responsible and in fact will not add one additional dollar to unfunded liability.
Thank you, Senator Hoffman.
Mr. Chairman, thank you Mr Chairman I'm just trying to make sure we're putting our comparisons in the right places.
So to the sponsor the current defined contribution system does that have a cost of living adjustment for living in Alaska when you're 65?
No, it's it all through the chair senator keel. It's all what you have in your defined contribution account
That's what? You live off of but there's no pension per se
Whatever annuity you can buy is what, you? Can, buy okay? Thank you
So mr. Chairman the again with retirees with skin in the game this is inflation-proofing this bill is structured
So the inflation proofing which is tied to Anchorage cpi right now
And that can go away or be reduced significantly
if the fund valuation drops below 90%.
The actuaries say this is a very strong vehicle
to keep it well funded.
We see that Nebraska, South Dakota and Wisconsin do this
and that's their current funding levels of their plans.
They're all 100% or more funded,
again, sharing the risk.
Next slide.
The medical coverage, something important to all of us, is consistent with the DC plan.
We did make some improvements that were actually well-founded and encouraged by the arm board.
Employees no longer must retire directly from the plan, this came from their requirement
of reaching your years of service if you were a teacher, you could take 30 years or public
You also had to retire directly into Medicare, which means you had
to be 64 years of age and on the job and retire exactly at 65.
And that was something that uniformly agreed was not a good practice
for encouraging our employees to hang in there and get their benefits.
So this changes that, again, looking at what's in the current DC plan and
And says, no, if you have your full time in service,
you've vested in your health retirement account
and your Alaska supplemental health care card
when you turn Medicaid eligible at 65.
Now, what the arm board recommended
is that not only if your fully vested
in the plan that you don't have to come back at 64
and beg someone for a job to retire at $65,
but also that we drop the PERS and TERS
mandatory service of 30 years to 25 years for just the health care vesting purpose.
Because the Health Trust are so overfunded and for public safety to drop it from 25 to 20 years,
the arm board actuary ran this and it was still a very over funded, well funded plan by dropping
those numbers by five years and saying if you're a teacher at 25 year you are fully vested in your
and you have access to your HRA to bridge you to medic.
Medicare and you get your Alaska supplemental health care plan at 65. So those are employee-friendly positions actually
Responsible recommended by the arm board and they're adopted in this here
We can see how the plan is funded for PERS and TERS. It's 3% of the total payroll of those classes
I'm sorry 3 percent of The average payroll
Per year goes into their account and for public safety employees. Its 4% Of the average payroll goes in to their
Now, next slide.
Senator Steadman.
Earlier today, we had a presentation,
and we talked about this replacement
of federal funds, e-gwhip or whatever the acronym was,
which pushed the health care into a substantial surplus.
Question at the table was what happens when that goes away?
So that's an open question out for the departments
The other thing I would caution the members about is what helped sink the old plan is every
time they got in, not every time, but when they were in the surplus, the increased benefits
and lowered contributions and drove the plan under water.
And this is a one-way door.
You can't take benefits back.
Premium or the surplus in the health care until we hear from retirements and benefits about how secure they think that surplus actually is
Before we even take action in The operating budget mr. Chairman on funding
It is a significant risk the way it looks
Thank You senator statement
Please proceed. Yeah through through the chair senator stebman
So actually the arm board just evaluated the employee group waiver program subsidies
Looking at our current funding
PERS of course health care is 132 percent funded and tours 139 percent
Funded and if all the employ group waver programs go away
They would still remain over funded PRS at 104 percent and TERS at 110 percent
So that's the latest to put off the press evaluation on that.
So the statement from the arm board, what I reference is the retirement benefits
department. I think they may have a different opinion. We need to hear that
Thank you, Senator Sediments. Senator Keel. Thank thank you. Mr. Chairman.
Representative cop, I want to make sure I'm understanding what your piece of legislation does. Do you propose a change to the
PERS or tours to find benefit health trust and what it pays for here or is this?
strictly in the DC plan
this would this wood cover both our DC employees and
our
House bill 78 employees again. We're not doing anything with the legacy pension just this plan and DC it would it
affect those.
Mr. Senator Keel.
A quick follow-up.
So it might be the only place
Senator Seven and I are going
to agree on this, but benefit
enhancements after a defined
benefit system is kicked off or
dangerous as all get out.
So, it sounds like this bill's
not making any benefit enhancements
to the legacy defined benefit.
Do you mind understanding that
right?
Through the chair, yes, Senator
Keill, we are not taking any
benefit announcements to you.
legacy, defined benefit, pension trust.
Thank you, Senator Keoh.
Please proceed.
Thank You, senator Hoffman, chair Hoffman.
So the structure current employees, this is how it would work, is any current
state local government employee in the purrs or ters?
would, that is hired after this bill becomes effective,
would have 180 days to opt into the plan or retain their own.
So six months to evaluate, am I better off in the defined
contribution plan, or do I want to roll in
the DB plan?
New employees coming in after the effective data this
bill would be enrolled in
the Defined Benefit Plan.
Just recent, just as I wrap up here,
pension reform surveys across the state show that Alaskans are strongly supporting this.
And in all districts across this state, all regions,
people recognize that we have a situation that needs to be addressed with our workforce.
This was a patinkin survey, and I think we probably all know from keeping in touch with
our own districts that it's probably at least that today, nothing's really changed.
Internally, the State Employee Surveys, we
That was done by the Department of Public Safety that shows 82% would prefer a defined
benefit retirement of all 458 public safety employees surveyed.
Almost 97% of them that have a defined benefit wanted their defined
benefit and 3.3% would rather have
a define contribution of those in the defined contribution plan 75.7%
would prefer to be in
the define benefit. And 22.9 in
the Defined Contribution. So that just kind of tells us where our people at.
Through the chair to the bill sponsor. So you have this opt-in so that's that
you can elect to participate and
I'm just curious that does the amount of enrollment the
Percentage of employees who opt in does that affect the financials of plan in any way?
So the actuary assumes a hundred percent optin
They give us their most conservative number that has resulted in an estimate of about 36 to 37 million
dollar additional state contributions to the state and for state employees about 50 million.
So those would be, they assume everybody is going to go in, but they will also,
and Mr. Kirschner should tell you this. They recognize that not everybody will,
and that would affect that. But they give the most
conservative scenario, which is everybody's going elect to
Senator Kaufman. Thank you through the chair. I'm just curious what
Why wasn't they're modeling with maybe different outcomes? I think a hundred percent is optimistic
I know just my casual survey of some of the younger folks in the building there
They're no on opting in right now
And I I just curiously it seems like it would be good to to model a few different
Outcomes or have a slider or something on that
Sure through the chair senator Hoffman are
Kaufman
Kaufman, thank you
We'll get you that report so kyron testified in front of this committee and they did that modeling last year
We get to copy that Report they ran if you have fewer opt-in. It's a lower cost
But the actuaries give you a fully loaded cost assuming a hundred percent so the numbers that
Buck, or not Buck but Gallagher consulting the state's act sure he gives is a fully loaded number.
I would say that it was also brought to both the House Finance Committee's attention and
other committees that if turnover assumptions don't change, and we still have turnover.
Actually, the DB plan is far cheaper and we'll be saving hundreds of millions of dollars
in the long run because the benefits are more valuable and if people don't stay around
to collect them, it's the better way to go.
So if you don t think it s going to change turnover, then you should absolutely go forward
with this plan because it is cheaper, but if it will, there is an additional cost because
people stay long enough to work career, collect their benefits, get health care and things
But this slide here, Mr. Chairman, shows the cost of what we're doing now.
I'm going to pre-reslide Senator Kaufman and Senator Studman.
Yes, thank you, Chairman.
On the previous slide was Senator.
Senator Kauffman, I think he's not finished yet.
Kaufman.
There.
There, Kaufman?
The survey that was done, folks prefer a plan such as this.
Did they understand the situation with inflation-proofing?
I'm semi-retired, I do this, but I also have retirement funds.
It's inflation-proofing by grace of its growth rate versus my withdrawal rate
and the amount that I leave behind to continue to grow the base amount
to deal with inflation.
So thereby that plan is inflation proof.
When folks are thinking about enrolling in this, will they understand the inflation risk that they're signing up for?
Through the chair, yes, Senator Kaufman, all the details of the plan are provided structurally to each employee.
That's why there's a six month window to make the choice so that a proper analysis.
It's not a take it or leave it.
You can keep your divine contribution plan and there is going to be a lot of education.
you know, worksheet and they'll know what they're getting,
what their getting that won't be a guess.
And all the benefits and how the triggers work
and the risk sharing would be explained.
Thank you Senator Kaufman, Senator Stedman.
Thank You Mr. Chairman.
I assume that on the slide showing the communities
in the survey, I assure them you have resolutions
from all these cities supporting the defined benefit plan
and you'll submit those to the committee.
Through the chair senator stephen those weren't those werent going to burrow assemblies and city councils those we're
Standard polling. I don't know how patinkin does that frankly, but
So no, I dont have resolutions from from those entities and mr. Chairman
I Don't think there's a resolution from anybody supporting any of the cities supporting going back to a defined benefit
But the other question is
When are they going to update or has it already been done to run the analysis to see who is
overfunded relative to this plan or underfunded and how, what's the time frame on that?
I'm kind of curious to say that myself or that is.
Through the Chair, Senators, and analysis, to which plan is over funded and funded.
We've got to figure out what the value is of the new plan, say this isn't acted, and I'm an employee.
I want to see where I am at in the defined contribution to
see if I should go to the define benefit.
I mean, they're going to be in surplus or minus, right?
Odds are, I won't be at net zero.
Through the Chair, Senator Stemman, yes, great question,
and that is something the arm board actuary working with DRB would do for
should this become law, they would produce that evaluation.
I can tell you that in good market returns
in the good years like we had,
employees would be in very good shape.
In a down year they'd be able to buy less.
It's just intuitive.
If your account balance is less,
you can buy fewer DB benefits.
If you're DC account has had a good year,
you are gonna buy more DB benefit.
Well, I think that needs to be run, so we can see that analysis, Mr. Chairman, we're
trying to make a decision, because as I recall several years ago, there was another defined
benefit bill in the other body, and when they ran that analyses, this was way before COVID,
they were shocked at how many people were in surplus.
And the last time we discussed performance in detail was at the bottom of the trough of
we can all see it in our SBS accounts, including the presenter if you looked at his SPS account.
Thank you, Mr. Chairman. It is always very tempting to just look at today's market and
assume that it's the end of history and it'll never be the other way again. But I'm glad we're
having good conversations to make sure we make long-term decisions. When we are talking about
that we can look to and it went the other direction because when one Senate
bill 141 passed in 2005 if memory serves and I'll ask you please represent
correct me where I get this wrong that it wasn't just an option for folks who
were in defined benefit but had invested yet they had not just
an options to convert to the brand-new defined contribution plan but an
incentive they were going to get a dollar-for-dollar match on their
contributions to their their DB account
My recollection is that there were about 8 or 10,000 eligible's and
statewide 60 people converted is at right through the chair senator keel that is my memory. Okay. Thank you
senator Keel
See, thank you to mr. Chairman this slide here mister chairman the cost of doing nothing is the
Cost of what we're doing right now. I would just draw the committee's attention to the fy 20
premium pay chart, this is produced by the administration.
It shows we paid $80 million, $83 million
in overtime call out pay, double time filling shifts
in FY20.
And if you see in FY25, we were almost at $150 million.
And only six months into this fiscal year,
we are north of $112 million on track
to go over $200 million at that pace.
Mr. Chairman, that is an exponential spend rate.
That is going up, and that's the cost of what we're doing now.
And compared with the costs of this bill, it pales in comparison,
the Cost of House Bill 78 is a very small investment in our workforce.
And what were doing, now, is very expensive.
That's a difference between real budget exposure and an actuarial analysis.
Next slide.
Chairman.
Before we go on, I know you like to jump ahead, but I think if we look at the turnover rate
around the nation, which is what we should look
at, we'd find that Alaska is not an anomaly, neither is our education system an
anomaly.
It's a nationwide trend.
These issues here on this chart are all state employees, so we can exclude
on their employees and not having them an SBS or Social Security.
But these factors
are significant. If you look at corrections,
if you're looking at public safety,
these need to be negotiated by the administration in their labor
contracts. So we not only need
to deal with additive employees to
Pay premium to get it under control regardless of what retirement system we have
And I think that's come to light with a report that hit the chairman's desk here. Maybe even this morning. This morning
Thank you senator stegman. Yeah, sir. Yes through the chair. Thank You senator stem minute
I I would point out that this chart does not include other purrs employers
So local government is being slaughtered
by what we're doing now.
Their numbers are far bigger
because there's more local government employees.
The same dynamics are playing out all across the state.
You're absolutely right.
How we go about solving this?
That's a policy call,
but the cost of doing nothing is extraordinary.
This slide here shows that this is actually
a net revenue positive measure
by the most conservative estimates,
and I'll explain that.
The recruitment and retention
Improving savings and training costs, loss workforce hours and premium pay.
So we just saw the premium paid slide for just the state, not local government.
But if you look at that gray bar, that is the actuary number for a fully loaded plan and
how it's escalating from 2027 going up as we hire people, fill positions,
keep more people in by 2031, what it'll cost.
The projected savings is that middle bar and that is just looking at reduced hiring
and training churn and higher investment returns from DB pooling and
that's a very conservative number. We're expecting to get an update on that soon but
we know that it's not far off because we
know the cost of what we're doing now.
In premium pay, in errors and omissions, fines from the federal government to our state agencies for not getting SNAP benefits,
other public health benefits out on time on schedule, having to contract financing firms to make payroll for the state,
being unable to collect federal reimbursements because we don't have the staffing or the employees with the knowledge to do that.
Those measures are orders of magnitude more than this plan is presenting
So I would just say that this is a net revenue positive and it restores Alaska's ability to provide critically needed services
to all
Alaskans
In it
Next slide
We've struggled here with our our agencies on their salaries. We have a salary report in
We haven't had the luxury of having it in the middle of the table yet to look at salary increases across
Pretty much across the border on the state particularly the low end
It's salaries that's been been targeted that we need to deal with
So I just like to remind the folks of that and the other thing when you when then we keep talking about City Hall
City hall can put in their own plan
They don't need the state to put in their plan. They can put on their own matching deferred compensation plan
They could increase salaries they can't put it in there own defined benefit plan
they don' t have to be backed by the
Constitution and piggyback on the states plan
Nobody's forcing them to do that
But they're certainly not volunteering to go out and do their on defined benefits plan
or for that matter
Do we even matching for deferred comp, there's only a handful, two or three statewide that do match for
deferred compensation, that's what I'm referring to.
Senator Kaufman.
Thank you through the chair that talking about the payroll and mentioning it there, it brings up the mind.
So what's the growth assumption in payroll as a percentage?
So, through the chair, Senator Kaufman, right now the payroll growth is at 1 percent.
Senator Kauffman.
Did you adopt that because of the governor's 1% growth proposal?
Through the Chair, the 1%, is the latest proven, trued up number that we have from
Senator Kaufman.
But through the chair, I would suggest
there's serious coil springs on that.
Everywhere we're hearing all over the state that people
are not satisfied with the pay they're getting,
there is the payroll study that Senator Stedman brought up.
And so that levy may be about to break.
And I just wonder if that's an accurate number in payroll
growth.
It seems like it should be modeled on inflation.
Through the chair the actuary center coffin the Actuary does model as far as for purposes of this bill different question
inflation and all that that would be a better question for the actuator answer, but I'll give you an example
We threw twenty million dollars at the Department of Health Division of Public Assistance
They hired over a hundred employees, and they still have some of the highest turnover
in state government
So just throwing money at till a Phil seats
And it's not keeping people in the workforce pipeline. What the actual analysis shows is that this bill will keep people here
So yes, you'll grow your payroll because you have more people filling the vacancies that we all say we're trying to do
We're, trying, to properly staff
the positions that, we need teachers we have over 500 teachers on visas in western in
western and north western Alaska right now and
is that what we always want to do or eventually do we want
to home grow our talent and grow
our numbers of employees in these positions.
Same thing with public safety and plot truck operators.
So if our goal is to fill vacancies,
we will grow payroll and eventually these people
will be around long enough to collect benefits
and, eventually, retire.
But what you see now is a rate of churn that's so high
that our workforce pipeline is not filling up.
People are not retiring.
Senator Kaufman thank you through the chair to the bill sponsor you know in terms of payroll you can look at it
The total balance sheet how many employees at what rate but also the pay rate of each end of the their per unit cost for an FTE
Of what the escalation is of that
Separately from whether or not you hire more employees, and so that's that where I'm wondering about inflation seemed
There seems to be some things to look into
with inflation with regard to the payout,
but also with regards to
the assumptions around how we're going to
look at escalation of an individual's pay.
Sure. Thank you. Through the Chair,
Senator Coffin, I know the actuaries online,
and I believe we'll be coming up next.
Great question for him.
Thank You.
If this is a conservative shared risk design, Mr. Chairman, it has variable employee contributions,
conditional inflation proofing, fixed employer caps, they know their cost.
The actuary projects no triggers of risk sharing thresholds will be reached under their assumptions.
They're separate accounting, completely keeping everything separate from the legacy trusts.
There is no COLA.
As I mentioned, the health care is unchanged from the DC plan.
The higher actuarial cost is simply due to retention,
more valuable benefits and statutory employer caps.
So what we see, Mr. Chairman, is that it's very expensive doing
our current approach.
There's no free pass out of this.
And Alaska is already committed to paying off our legacy pension obligations, and those
payments will continue to go on schedule.
Whether we reform the system or not, but what is not fixed and what continues to grow
every year is the cost of instability in our workforce.
Vacancies, overtime, premium pay, recruitment, churn, training costs,
audit findings and service failures or all things that have come before this committee,
and they don't appear in the actuarial tables, but they do appear on our budget.
House Bill 78 addresses this problem upstream. It does with these fixed employer caps,
adjustable employee contributions, and conditional inflation provision.
It shares risk, it limits exposure,
and it aligns Alaska with best practices used in other states.
that House Bill 70 provides measurable, transparent, and manageable costs.
What cannot be reliably measured or what is difficult to measure is the price of a retirement
system that fails to retain the people we train, certify,
and depend on.
And drives up our premium pay and overtime, increases audit findings, fines,
and federal reimbursement losses and destabilizes our economy.
principal, finished paying for the past, stopped paying
for failure in the present, and billed a system that works
for Alaska's future.
Not just for us, but for our kids.
I recently received an email from a Kodiak Island
borough special education teacher that just moved back
to Chicago and said, hey, I hear you have a possible bill
to get us back to a pension.
And he said even if my pension was cut in half in Chicago
and it'd be about 6,000 a month,
I would come back
to Alaska.
I'm thinking, these are the type of people that we want back here.
He was a special ed teacher in Kodiak for several years.
Just went to Chicago because they had a pension, wants to come back home to Alaska.
We want these people back in our state, but that's the cost of our system now, losing
these to other states and watching them walk away, not because
they don't love Alaska,
but because we can't retire here, and this gives us a chance to change that.
Thank you, Mr. Chairman.
Thank you before we go to invite a testimony Monia. I know everyone has to fill out their financial disclosures, but there's
I would request that you submit yours as early as possible
To the public because it may relate to this bill. Not saying anything else about that
It's gonna come out. No, thank you for asking mr. Chairman so
In 2024, I was with the Alaska Public Pension Coalition and helped facilitate
Out on an abundance of caution, I declared it in 2025, even though it was 2024.
And the Ledger Ethics Committee found 100% in my favor, everything I did was fine.
I no longer have any connection fiscally, either business or otherwise with the pension coalition.
But I'm glad you asked the question.
I am proud to say that I don't have business affiliation with this.
This is something I have been pursuing since I was first elected in 2016.
I just wanted to put that on the table.
Thank you, Mr. Chairman.
Thank You.
With that, we will be going to invite a testimony.
We have one individual that has been invited to testify on House Bill 78, that being David
Kirschner.
He is online.
He's the principal actuarial for Arthur J. Gallagher and company.
Mr. Kirchner, please identify yourself for the record and proceed with your invited testimony
All right.
Thank you very much.
Can you hear me okay?
We can hear you loud and clear.
Allright.
Good afternoon.
My name is David Kirschner.
I'm a retirement actuary with Gallagher.
We have been working with the DRB as the actuary for Alaska's retirement systems since 2006.
And I have personally been involved for the last 11 years.
to discuss today the potential impact
on future state contributions to current insurers due
to HD 78, which is a proposal from last year
that will reopen the defined benefit pension plan
to allow public employees and teachers.
The figures that you're going to see
in my presentation are the same as what I presented
to the House Finance Committee in April of last
and they are based on a detailed HB78 fiscal note analysis that we completed in March 2025.
So before you continue, Ms. Kirschner, we have scheduled till 3 o'clock.
If we don't get done by that time,
we could certainly bring this bill back before and have your presentation completed,
time management please proceed okay all right thank you so i uh you have my
presentation in front of you i'm on audio only so I can't see my presentation
but i like to move to slide three that shows the content of my
presentation i am going to focus today on slide 5
The information provided in the appendix is there for additional background information
reference for committee members.
Moving on to slide five.
I'd like to say 50 of review of how hers and hers are funded, and the Alaska statute
contributions to perds are limited to 20% of pay.
However, beginning in FY 22, the state as an employer began contributing to full actual rate,
not just 20%, of paid based on the total payroll of its perd and the payroll
of the pers, state employees is about 60% total per payroll.
and then terse employers contribute 12.56%.
The member contributions are also specified by statute.
You can see there, there are three classifications
of employees that contribute different percentages of pay.
The actuarially determined contribution,
you're gonna see that term a lot throughout the material.
Consistent two components.
The first component is the normal cost.
which is the actuarial cost of benefits that active members are expected to through in the upcoming year as they earn an additional year of service.
Second component is to pass service costs, and that is, the amortization or the paying down of the unfunded liability,
and based on the methodology that's in place when this analysis is performed.
That was the 25 year.
And then for correction, the payroll growth rate used in these figures was 2.75%, which
was set a number of years ago at the inflation rate of 2 and 1.5% plus 25, date to the point.
The reference to a lower payroll rate, those were recent changes that the arm board made
And as stated earlier by law, the actual early determining contribution is calculated separately
by trust.
So the pension trust and health care trust, yes, that are legally segregated and those
costs are actually separated.
Moving on to slide six.
How are the various, how are those actual determining contributions paid?
of the skin being normal costs are paid as the defined benefit normal cost are
paid in combination by members and the employers. The employers also contribute
various amounts for current defined contribution of DCR, return of plan
members. They contribute the actuarial cost for occupational
They also made contributions to the member's defined contribution or DC accounts, which are 5% for curves and 7% per terse, and 3% HRA contribution.
A portion of the employer's contribution also goes to pay down the past service costs that on funded liability for the ED finals.
It is equal to their total contribution minus the amount they pay for the DB normal cost
and minus amount that they paid for these CR numbers.
The DB pass service cost that is not paid by the employers is paid
by this state by additional state contributions.
Additional state contribution can increase for two reasons.
The first reason is if the cost of the benefits themselves increased, and the second reason
is that there's a change in the distribution of these four-year contributions among the
various benefits.
And each two reasons are why our fiscal note analysis protects increases in state contributions,
and we'll see that when we get to the example in a few slides.
before we move on to slide seven we have a question on slide six from Senator
Stedman. Yes thank you Mr. Chairman I think we should have them or retirement
benefits or the actuary look at this growth potential in our salaries because
clearly we had a salary study on the table that's gonna have to get funded
to some mechanism one percent growth we all know that
contractual labor contracts at three and five percent stepped out for several years.
We need a more accurate
expectation, you know, the analysis of what we're dealing with here at the table. And
we'd jump for joy if there's a one percent growth in salary except we have more or more turnover.
It's going to be definitely higher no matter what return the plan we are.
There's that and then I've got one other thing, Mr. Chairman. I'm really
curious and concerned with this 22% cap that there isn't a liability shift to
the state from City Hall when the plan goes underfunded and there's been
testimony here that this will never be under funded never have a unfunded
liability but that's highly improbable because all they have to do is miss one
year of targeted rate of return and we're right back to where we were right you
Actually, at some point walk through us with the normal cost and
Comparatively in detail in the Normal cost between the plans and in particular when the plan starts going underfunded the new plan
any liability transfer from City Hall to the state
Thank you, we could get back with Arthur Gallagher and company and set a time for that
Please proceed
So, on slide 7, the unfunded liability equals the difference between the actuarially free
liability and the actual liability of assets.
The actual fee liability is the present value of future benefits that are attributable
to you in half service or service as to the valuation date.
That's why it's called the new free liability.
under the smoothing method adopted by the on board and statutes that market gains and
losses are recognized in the actual value over a five-year period to recognize 20%
of the market gain from losses each year.
is based on a series of assumptions which we believe are our best estimate of
assumptions over the long term. We know in any given year that our assumptions
are not going to be exactly realized. So we're going
to have potential changes in our fund liability that can occur because
either the assets do better or worse than we expected
by more or less than expected based on the changes in any client participants.
We can also have an impact on employment liability if contributions made are greater or
less then the actuarial is determined contribution.
And then finally, we can have changes when the income liability due to changes and assumptions.
And as required by last statute, you can do evaluate the assumptions once every four years.
The last time the assumptions were changed with effective 2022, and we're currently
evaluating the assumption as part of the new four-year experience study and new assumptions
will be discussed with the armed board.
The next meeting and then potentially adopted effective for the 2006 evaluation.
In the appendix, we've provided a couple of slides that show the key reasons for why
tension on public liabilities change between over a 10 year period from 2014 to 2024.
And I believe that information could help respond or answer some of the questions that I've heard
at this and other meetings, but I don't do the time. I'm going through that today.
Moving on to slide eight.
The funding methodology was established by statutes in 2014.
The unfunded liability and the organization has changed from level dollar to level percentage of pay.
Level dollar is like paying off your home mortgage, where you pay the same amount of the year of a month.
Under level percentages pay, the amount, increase each year as the payroll growth of payroll is expected to.
And as I said, these calculations were based on the 2.75% payroll growth rate that had been
in effect for many years.
The amortization period was reset to a close 25-year period from 2014, which is why 2039
has been our magic target date for when the trusts were projected to be 100% funded.
contributions to great setting process and the action of IVACIT.
On slide 9, the arm board made other significant changes in 2018 when they introduced what
we call a layer and relation methodology, and reason for a layered conversation methodology
contributions at the state, we would incur if we maintain that original 25 year period.
Under a layered amortization methodology, each year's unexpected change in the unfunded
liability, either positive or negative, is then amertized over a separate 25-year period,
and then this total amorability changes the sound of all the individual amoration there.
When there's an emergency, we've introduced the immigration period for the remaining unfunded liability from 2014, it's not changed.
So that unfunned liability, from 2013, is still going to be fully amortized by 2039.
And again, in the appendix, there are some details on the background on assumptions that we use for evaluations as well.
as the assumption that we do for our HB 78 awesome officers.
Senator Stidman.
Moving on, move.
Thank you, Mr. Chair.
Is there a question?
Yes, Senator.
Yes thank you.
I'm having a concept challenge here because I keep hearing that through these presentations that
taking care of the pension is going to be really easy.
That it's not going be underfunded and there's this doesn't matter how it split.
to send the aggregate right. All you're doing is sharing the cost if it goes underfunded
and it's predictable. But when I looked at the presentation this morning,
after the billion that went into the PERS unfunded liability in 2015 and the 2 billion in the TERS,
The infusion of a billion and today the last numbers. I have is 25. It's 5.1 billion
Well from 4.4 to 5 point one
You're going backwards
then if we go to terrors
Over the same time frame they were shown after the two billion infusion
In 2015 we're at one billion six twenty nine
And, ironically, in FY 25, we're at $1,629, so we've spent a decade dealing with something
as simple as a pension liability, as the way it's being presented here, and our liability
Mr. Chairman is the same spot.
And we spent several billion dollars trying to move it down.
As it appears, and that was the presentation this morning at this finance table.
And the discussion that we're going to have coming up at the table and inviting the actuaries
help because we are going need help, is this amortization period discussion of 15 years
to 25.
Because we need to get this retired.
And if I can make one other quick comment, then I'll zip my lip for a minute.
If you were born in 1980, went to work in 2005, you're 25 years old.
Now it's 26, so we'll just round it off and say it is 25.
You'd be halfway through your working career at 20 years in,
and you've been burdened by the sun-funded liability for your entire working
career, and now we've got 20 more years.
Without adding any more just what we got in front of us 20 more years
So your entire fewer board in 1980 your
Entire working career has been burdened by the sun-funded liability that is not what
We should be doing to our future generations
Even though these liabilities benefits were accrued in
60 70s 80s and 90s certainly the child born in
1980 had nothing to do with it so
I'm very concerned
When we look at the pension plan and we say we don't have to worry about it, it's never going to go unfunded.
We had that presentation this morning that says we're in the same spot we were ten years ago in dollars.
The funding ratio is improved because the portfolio has gotten bigger and so on and
so forth but the dollars owed that we have pay at this table is still there.
Repeat from this morning, Mr. Chairman. I know you don't want to hear it twice. Thank you, Senator Stidman. Maybe I shouldn't say thank you
Senator keel. Hey, thank You, mr. chairman
Real numbers are hard
And realities fiscal realities are heard and he can be painful and the simple fact is that
that you know, all these things have an impact all of these have in effect and
Some of the things that the bill sponsor talked about
In terms of the costs we're all bearing, as we appropriate money to these agencies,
they can't get their overtime under control because they, can keep their employees.
That's reflected in some of our pension choices too.
Now we are not putting those dollars to a trust fund with an actuarial funded ratio.
We're putting the dollars into the operating budget.
We are putting dollars in to.
Another five and a half percent UGF cost overrun in the form of a supplemental department of corrections again
Not for the first time because they can't get staffed up
So mr. Chairman we are bearing costs. There's no question about it and the Alaskans. We serve our bearing those costs
Certainly we've got a couple of folks
Who represent who work in schools around the building who might talk to us about what's going on because we can keep teachers?
And I'm not going to belabor this point forever, but I think it's fair to ask where we can
save a dollar by investing a dollars.
We don't even have to talk about the individuals who have a personal account and no pension
Reflections that that things that we see reflected in the actuaries bringing down that return assumption from eight and a quarter percent to seven
Four percent means for them
But it sure doesn't mean they're retiring fat and happy
So mr. Chairman there are costs all over the place
And and we should definitely talk about where we bear costs and what we bare risks, but only one of those
Happens to come with a funded ratio that. We can put on a piece of paper that doesn t mean it's the only place we need to look
So, I think it's a worthwhile conversation, but I would hate for us ever to run the risk of getting myopic and thinking that the only costs are in the pension plan because Alaskans are bearing them all over the place.
Thank you, Senator Keel.
Mr. Kushner, please proceed.
And I'd like to just explain there's, like I said, there are two reasons why we are
projecting state contributions to increase.
The first reason is because the underlying benefits that HV78 members would receive are
more valuable than they currently receive as a DCR member and therefore more costly.
The second reason on slide 17 is the additional cost due to HB 78,
called directly to the state. And we're going to see that when we look at an example,
which we've shown beginning on slides 19, slide 19 shows a bar chart that compared the cost of,
HB78 was projected with the proposed to be effective.
We've shown for FY30 the cost of benefits of the percentage of pay for DCR members versus
HB 78.
The graph on the left is for curves, the graph is on, on right is perturbed.
If we look at first on this, or the, in the DCRs column, we start with a dark blue which
The actual cost of the occupational depth and stability benefits, the light blue is the cost
of health care, and the orange is defined contribution in this case 5%, and then the green is
the 3% HRA, so currently for FY30, these ECR costs are 9.7% of pay for first BCR members.
We have three cost components, we have pretty similar,
we had their healthcare benefits in the light blue.
And the reason why the healthcare benefit,
even though the underlying healthcare
benefits are the same as what they currently receive,
because we are expecting higher employee retention,
that means when we do our projections,
we're projecting more healthcare
benefits recipients in future.
under GHB78 arrangement, and therefore the actual cost is higher.
Then we add the yellow or gold cost, which is the cost of the HB 78 member tension benefit,
and then their HRA costs in range.
So this occurs to be Hb78 member cost.
You can see 9.17 currently at 11.78% of pay under 1878 and then turns increases from 10.74-11.42.
So, on the next slide.
Can you stand this slide, Mr. Kirschner?
It's actually the percentage costs.
Can you get us a slide that we can look at
that shows the costs and not only the
percentage cost for the committee's review in the future?
Thank you, please proceed.
You mean the dollar cost?
Yes.
Yes, we could do that.
Thank You.
Sure.
Then on slide 20, we take the cost from slide 19 and convert them to a total plan basis
because I have total pay basis because all of the additional take contributions are determined
on a Total Pay basis.
So we have to convert everything with Total pay bases and you can see that's what's shown
on Slide 20.
is expected to be increased in 7.67 to 10.09 for thirds and 8.92 to 9.55 for our church.
On slide 21, we've shown the components of the actual early determining contribution
rate.
Under the current plan we have the attention as normal cost for pension benefits for legacy
The legacy needs costs for the health care in light blue.
The screen is the legacy on funded liability.
And then the grade is EHRH or HRA competition.
And on the right, you can see we've done the same thing
except we have added in the cost of the 80-78 numbers,
pension benefits in orange, and in yellow or gold,
the 87-28 numbers of health services.
If they see it occurs, the total actuarial rate is expected to increase to 29.16% of
total pay for 30.22, for terrors, it's actually projected to decrease ever so slightly.
Then moving on to slide 22, we put all of these percentages together to then calculate
the projected state contributions.
Slide 22 is the development of the state as an employer
contribution under current for FY30.
The first line shows the total projected pay.
And you can see the current projected
pay is expected to increase by about 5%
because of that higher expected employer retention
either 8 to 78.
We've got the legacy E.P.E. members have to rate the normal cost in the past service.
Then we have the DCR rate, which is currently 7.67, and we just saw the 0 under 878, because
we've achieved a plan sponsor mentioned in this remark.
elective transfer to the DB plan under this under our analysis and in the next section we add in
the 80-78 members agency rate, natural rate and you can see if NA currently and then you
can change the pension rate the health care rate in HRA rate. So when we had up all the three different
You can multiply those great funds to protect the pay, to get the total.
That's the way the contribution is at the bottom.
And then I know we're almost at a time, so I'll quickly move to slide 23.
On 22, we have a question from Senator Stedman on slide 22.
Thank you, Mr. Christian.
I was wondering if you've been asked to run the analysis to see what out of the defined
Members are overfunded or underfunded when you look at the conversion so we can get an idea as have you been asked to do that analysis?
Lately so it's some current data on that
Through the chair center sim and you mean when we say over under funny to mean how many how
Many DCR members will be able to purchase their all of their service and the DB plan is that what you need?
Yes, and they could have a surplus and then we haven't talked about what
what comes about that because this is just introducing a spill and then how many folks would be under
would have to come up with the catch-up plan or whatever if that's what they want to do.
Has that analysis been run?
Yes, we did do that. Those details are shown in our in
our March 29th fiscal note letter, but I can tell you we'll just scroll through it quickly.
Based on our calculations, we, in first, these officers, firefighters,
we have 2,700, you know, 2 2011, active in 2024, and we said of those four,
about 74% of their service would be purchased by their DC account.
446 of those members were projected to have all of their service purchase,
the current others of the 24,100 members.
About 12,000 were protected to
have enough money in the DC count for all their servicing,
about 86 percent of
the average percentage and then for
About 3,600 were projected to have enough in their DC accounts to purchase all their service on average about 92% of term services purchased the ball by the DC account.
That's fine, that's interesting.
That that that fine. That older data. I think we need some newer numbers run, you know,
that was data that accumulated and presented in March,
And then the leg to get the data to be nice to have this fresh data on such an important issue as possible
but it appears that
There'll be a lot of a high percentage of of members that are overfunded
Please proceed mr. Krishna
Through the chair center step and yes, I agree and in fact
I read this we are in discussions with drb on on updating our fiscal note analysis
be based on more current data, which would be in this case 2025 data.
Okay. Thank you. So, continuing on slide 23, we're showing the development of the additional
state contributions for fiscal year 2030. The box on the left is proposed, the box
on right is perturbed, and I'll walk through the calculations for perturb that's the same
projected pay, well, in this case, occurs, this is for non-state employer's own because,
as I said, the state is an employer who pays the full rate and is not subject to the 22%
limit.
So this isn't just for current non state employers, we have the current EV members,
the legacy EV member's actual rate, and you can see it projected to decrease from 21.49%
As the plan sponsor mentioned in his remarks earlier, the DB plan costs are not affected
at all.
The dollar amount of the cost are
not effective for the legacy DB members by HV78.
So when we divide the same dollar amounts by a higher payroll as shown in the
top line,
the percentage comes down a little bit.
So that's the only reason why the current DB
members' actual rate decreased.
because the total pay are denominators.
Then we have to, if we add in the DCRA, then we added in
the HB 78 numbers, the ADC rate, which includes the HRA
on the BCHM.
You can see the totally DC rate the same numbers
we just saw earlier, 29.16 versus 30.22.
We subtract the statutory rate of 22%.
to get the additional state contribution rate.
You can see that we have a foreign interest adjustment
and after the reason why we had that interest
adjustment is because all of the rates above the APC rates
are included in interest adjustments
to take into account the fact that employer contributions
come in throughout the year, every payroll period,
whereas the original state contributions
are typically contributed to the trust.
at the beginning of the fiscal year.
So we have to back out that interest adjustment.
So, we usually have very impressive decimal rates,
times the projected pay from the top line,
to get those additional state funds to each of these.
So you can see, per additional states contribution
of rent, like 30, the deficit will increase from 99 to 120 million.
And then, in terms of some same way, it's just a statutory rate.
the 12.56 but the mechanics are exactly the same returns as they are for first.
And that is the end of my prepared remarks if you have to entertain other questions.
Any additional questions? Thank you for that presentation. Can the prime sponsor come forward?
We have any closing comments before we set this bill aside.
very much appreciate the the committees giving us the opportunity to present this policy and
I would just say that I believe the actuary
supports the initial rollout of the bill and and I'm very grateful for this opportunity
to finally be here and bring it before you. Thank you, Mr. Chairman.
Thank You. That concludes this afternoon's meeting. Our next schedule meeting is tomorrow,
Tuesday at 9 a.m. here in the Senate Finance room.
We will be hearing from Alaska's mental health trust.
Seeing nothing else to come before the committee, we are adjourned.