Bill Summary – FastDemocracy

State of Alaska
                                                        Fiscal Note
                                                                                        Bill Version:                   CSSB 88(FIN)
 2024 Legislative Session
                                                                                        Fiscal Note Number:             3
                                                                                        (S) Publish Date:               1/26/2024
 Identifier:        SB088CS(FIN)-VAR-ALL-01-25-2024                       Department:       Various
 Title:             RETIREMENT SYSTEMS; DEFINED BENEFIT                   Appropriation: Various
                    OPT.                                                  Allocation:       All Branches
 Sponsor:           GIESSEL                                               OMB Component Number:               0
 Requester: (S) Finance
 Expenditures/Revenues
 Note: Amounts do not include inflation unless otherwise noted below.                                                         (Thousands of Dollars)
                                                 Included in
                                    FY2025       Governor's
                                Appropriation      FY2025                                      Out-Year Cost Estimates
                                  Requested       Request
 OPERATING EXPENDITURES                FY 2025       FY 2025        FY 2026               FY 2027          FY 2028            FY 2029         FY 2030
 Personal Services                    (6,026.0)                    (6,191.7)             (6,362.0)        (6,536.9)          (6,716.7)       (6,901.4)
 Travel
 Services
 Commodities
 Capital Outlay
 Grants & Benefits
 Miscellaneous
 Total Operating                      (6,026.0)           0.0      (6,191.7)             (6,362.0)        (6,536.9)          (6,716.7)       (6,901.4)
 Fund Source (Operating Only)
 1002 Fed Rcpts (Fed)                       (898.6)                      (534.5)           (537.9)          (549.1)            (554.7)         (569.9)
 1004 Gen Fund (UGF)                      (2,831.1)                    (4,291.3)         (4,449.4)        (4,584.4)          (4,744.5)       (4,875.0)
 1005 GF/Prgm (DGF)                         (472.6)                      (281.1)           (282.9)          (288.8)            (291.7)         (299.8)
 1251 Non-UGF (Other)                     (1,823.7)                    (1,084.8)         (1,091.8)        (1,114.6)          (1,125.8)       (1,156.7)
 Total                                    (6,026.0)          0.0       (6,191.7)         (6,362.0)        (6,536.9)          (6,716.7)       (6,901.4)
 Positions
 Full-time
 Part-time
 Temporary
 Change in Revenues
 None
 Total                                          0.0          0.0             0.0                0.0               0.0              0.0             0.0
 Estimated SUPPLEMENTAL (FY2024) cost:                              0.0            (separate supplemental appropriation required)
 Estimated CAPITAL (FY2025) cost:                                   0.0            (separate capital appropriation required)
 Does the bill create or modify a new fund or account?       Yes
 (Supplemental/Capital/New Fund - discuss reasons and fund source(s) in analysis section)
 ASSOCIATED REGULATIONS
 Does the bill direct, or will the bill result in, regulation changes adopted by your agency?           Yes
 If yes, by what date are the regulations to be adopted, amended or repealed?                           TBD
 Why this fiscal note differs from previous version/comments:
 Senate Finance Committee-generated note incorporating updated analysis from the committee's contract actuary in addition to
 changes made in the committee substitute.
 Prepared By:              Senator Hoffman                                                                    Phone:        (907)465-4453
                           Senate Finance Committee
                                                              REPORT                                          Date:         01/25/2024
                                                                            ED
                                                               SFC 01/2 OUT OF
                           Senator Olson
                           Senate Finance Committee
                                                                             6/2024
Printed 1/26/2024                                               Page 1 of 4                                                          Control Code: CknwF
                                                                                                             CSSB 88(FIN) - Fiscal Note 3
                                                  FISCAL NOTE ANALYSIS
STATE OF ALASKA                                                                    BILL NO. SB 88
2024 LEGISLATIVE SESSION
Analysis
   This bill establishes new "tiers" with a Defined Benefit (DB) pension system for all new employees who begin service after
   the effective date of the bill, July 1, 2024. The tiers would impact both members of the Alaska Public Employees'
   Retirement System (PERS) and the Alaska Teachers' Retirement System (TRS). Pension accrual rates for years of service are
   comparable to the pre‐2006 DB system.
   Current employees who are in the Defined Contribution Retirement (DCR) plans, who began service between July 1, 2006
   and June 30, 2024, are able to make a one‐time irrevocable election to join the new PERS or TRS Defined Benefit (DB) plan
   with 180 days to decide. DCR employees who have separated from public service, should they return to service, would
   also have a 180‐day window to elect to convert to the new tier. The Division of Retirement and Benefits (DRB) will
   calculate, for each eligible employee, the number of years of service that employee can purchase with the funds in their
   DCR account. If this is less than the employee's actual years of employment, DRB will use existing procedures to enable
   employees, should they choose, to purchase the additional time.
   The healthcare benefit provisions provided in the bill are unchanged from what is currently provided in the current DCR
   healthcare plans. New sub‐trusts will be established for each of the new tiers' DB benefits. This is necessary to account for
   the financial activity of each respective PERS and TRS defined benefit pension and healthcare plan. The performance is
   then used to value the separate trusts in the annual actuarial valuation reports, which are used by the Alaska Retirement
   Management (ARM) Board to adopt future PERS and TRS contribution rates. One feature of this bill is that both employee
   and employer contribution rates can be changed by the ARM Board in order to keep the trusts adequately funded and
   minimize the accrual of past service costs.
   The previous version of this fiscal note was derived from analysis provided by the Division of Retirement and Benefits'
   consulting actuary, Buck Global LLC (Buck). Buck's analysis indicated two separate impacts on future state budgets: direct
   costs for state employees, and "additional state contributions" to municipal and school district employees in excess of the
   statutory maximum contribution levels.
   Buck is in the process of revisiting this analysis, given both updated workforce data as well as the changes made in the
   Senate Finance Committee Substitute. Because this analysis will not be available for several weeks, the Finance Committee
   is producing their own fiscal note with the input and assistance of the committee's own contract actuary, Gene Kalwarski
   of Cheiron. It is understood and expected that the committee's fiscal note will be superseded once the Buck analysis is
   complete.
   Additionally, the committee had concerns with the prior Buck analysis because of the way it incorporated future changes
   to the workforce. Buck assumed rapid and substantial changes to recruitment and retention levels throughout the
   workforce. This generated a growing gap between the base case workforce and the "SB88" workforce that reached $250
   million per year by the end of the analysis period. The bulk of the fiscal impacts identified in their analysis was actually the
   additional employer costs of this larger workforce, rather than any inherent cost increases in the plan change itself.
   The Buck analysis also assumed that 100% of the eligible current DCR workforce chose to transition to the new DB tier.
   Additionally, it did not consider other impacts to the state treasury, or to the economy at large, due to fewer disruptions
   generated by high turnover, repeated recruitment and training costs, and the bonuses and other incentives currently
   being paid as "workarounds" to ongoing labor shortages throughout the state.
(Revised 10/31/2023 OMB/LFD)                                                                                          Page 2 of 4
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                                                                                                              CSSB 88(FIN) - Fiscal Note 3
                                                   FISCAL NOTE ANALYSIS
STATE OF ALASKA                                                                     BILL NO. SB 88
2024 LEGISLATIVE SESSION
Analysis
   Potential offsets and savings due to passing SB88 were identified by Dr. Teresa Ghilarducci, an economist retained by bill
   supporters. In her testimony on January 23, she identified savings of at least $76 million per year. The largest component
   of this was the recruitment / training / separation costs which she estimated at $62 million. The next largest was due to
   the lower rates of return earned on invested assets in the employee‐directed DCR plans, at $14 million. These potential
   savings are outside the actuarial analysis in this fiscal ntoe.
   David Kershner of Buck, testifying in the Senate Finance Committee on January 24, indicated that SB88 would not impact
   legacy accounts or past service costs tied to prior pension tiers.
   The table on the following page contains updated cost data from Cheiron. For the purposes of this analysis, the committee
   has assumed a static workforce, looking only at the cost impact of changing the pension system. Should successful
   implementation of a new DB tier result in a larger and better paid public workforce, this would need to be addressed in
   future budgets.
   The Cheiron analysis also assumes a 100% conversion rate, meaning that all eligible DCR employees in both PERS and TRS
   opt to switch to the new system. Payrolls are estimated to increase with inflation, which is assumed at 2.75% per year.
   Fund sources are estimated based on the fund source ratios from the May 2023 fiscal notes.
   The costs identified are an aggregate total across all jurisdictions. Therefore, this fiscal note replaces both actuarial fiscal
   notes that were based on the May 2023 Buck analysis: the "State as Employer" note [SB088CS(FIN)‐VAR‐ALL‐05‐12‐2023]
   and the "Additional State Contributions" note [SB088CS(L&C)‐RET‐PERS‐05‐12‐2023].
(Revised 10/31/2023 OMB/LFD)                                                                                            Page 3 of 4
SB088CS(FIN)-VAR-ALL-01-25-2024                                  Page 3 of 4                                                 Control Code: CknwF
                                                                          CSSB 88(FIN) - Fiscal Note 3
                                  FISCAL NOTE ANALYSIS
STATE OF ALASKA                                          BILL NO. SB 88
2024 LEGISLATIVE SESSION
Analysis
(Revised 10/31/2023 OMB/LFD)                                                      Page 4 of 4
SB088CS(FIN)-VAR-ALL-01-25-2024            Page 4 of 4                                Control Code: CknwF
Statutes affected: 
SB0088A, AM SB 88, introduced 03/01/2023: 14.25.009, 14.25.220, 14.25.310, 14.25.590, 14.25.040, 14.40.661, 14.40.799, 14.25.540, 14.25.048, 14.25.061, 14.25.050, U.S.C, 14.25.070, 14.25.173, 14.20.136, 14.25.350, 39.30.370, 14.25.075, 14.25.047, 14.25.060, 14.25.100, 14.25.107, 14.20.345, 14.25.105, 14.25.087, 14.25.085, 14.25.168, 14.25.171, 39.30.097, 39.30.340, 14.25.110, 14.25.167, 14.25.130, 14.25.133, 14.25.132, 14.25.131, 14.25.134, 14.25.166, 14.25.156, 14.25.142, 14.25.143, 14.25.155, 14.25.160, 14.25.157, 14.25.162, 14.25.164, 14.25.158, 14.25.125, 14.25.169, 39.30.300, 39.30.095, 39.35.095, 39.35.680, 14.25.330, 14.25.490, 37.10.220, 37.10.210, 37.10.390, 14.25.340, 39.30.150, 39.30.180, 39.35.730, 39.35.750, 39.45.010, 39.45.060, 14.25.145, 39.35.100, 39.30.495, 39.35.160, 39.35.255, 37.10.310, 40.25.110, 40.25.120, 39.35.475, 39.30.090, 14.25.480, 22.25.090, 39.35.535, 39.35.537, 39.35.880, 39.37.145, 23.15.136, 39.30.091, 21.86.310, 23.15.010, 23.15.210, 39.35.700, 39.35.990, 39.30.380, 14.25.470, 39.35.870, 39.30.390, 39.30.400, 39.30.420, 39.35.520, 39.35.150, 39.35.282, 39.35.280, 39.35.370, 39.35.450, 39.35.381, 39.35.400, 39.35.440, 39.35.485, 39.35.480, 39.35.360, 39.35.300, 39.35.310, 39.35.385, 39.35.940, 39.35.720, 39.35.895, 14.25.012, 14.25.010, 14.25.181, 14.25.320, 39.35.115, 39.35.678, 39.35.710, 39.35.003
SB0088B, AM CSSB 88(L&C), introduced 05/01/2023: 14.25.009, 14.25.220, 14.25.310, 14.25.590, 14.25.040, 14.40.661, 14.40.799, 14.25.540, 39.35.095, 39.35.680, 14.25.010, 14.25.181, 14.25.320, 14.25.490, 14.25.048, 14.25.061, 14.25.050, U.S.C, 14.25.065, 14.25.070, 14.20.136, 14.25.173, 37.10.220, 14.25.350, 39.30.370, 14.25.075, 14.25.047, 14.25.060, 14.25.100, 14.25.107, 14.20.345, 14.25.044, 14.25.105, 14.25.085, 14.25.087, 14.25.168, 14.25.171, 39.30.400, 39.30.097, 39.30.340, 14.25.110, 14.25.167, 14.25.142, 14.25.143, 43.23.005, 39.30.300, 39.30.095, 14.25.330, 37.10.210, 37.10.390, 14.25.340, 39.30.150, 39.30.180, 39.35.730, 39.35.750, 39.45.010, 39.45.060, 14.25.145, 39.35.100, 39.30.495, 39.35.160, 39.35.255, 37.10.310, 40.25.110, 40.25.120, 39.35.475, 39.30.090, 14.25.480, 22.25.090, 39.35.535, 39.35.537, 39.35.880, 39.37.145, 23.15.136, 39.30.091, 21.86.310, 23.15.010, 23.15.210, 39.35.700, 39.35.990, 39.35.940, 39.30.380, 14.25.470, 39.35.870, 39.30.390, 39.30.420, 39.35.115, 39.35.678, 39.35.710, 39.35.895, 39.35.165, 39.35.159, 39.35.310, 39.35.330, 39.35.340, 39.35.342, 39.35.345, 39.35.360, 39.35.370, 39.35.375, 39.35.381, 39.35.341, 39.35.520, 39.35.280, 39.35.282, 39.35.385, 39.35.120, 39.35.450, 39.35.400, 39.35.440, 39.35.485, 39.35.480, 39.35.610, 39.35.300, 39.35.720, 14.25.012
SB0088C, AM CSSB 88(FIN), introduced 01/26/2024: 14.25.009, 14.25.220, 14.25.310, 14.25.590, 14.25.040, 14.40.661, 14.40.799, 14.25.540, 39.35.095, 39.35.680, 39.30.097, 14.25.480, 14.25.171, 39.30.150, 39.30.180, 14.25.360, 14.25.010, 14.25.181, 14.25.320, 14.25.490, 14.25.048, 14.25.061, 14.25.050, U.S.C, 14.25.070, 14.25.065, 14.20.136, 14.25.173, 37.10.220, 14.25.350, 39.30.370, 14.25.075, 14.25.047, 14.25.060, 14.25.100, 14.25.107, 14.20.345, 14.25.044, 14.25.105, 14.25.085, 14.25.087, 14.25.168, 14.25.110, 14.25.167, 14.25.142, 14.25.143, 43.23.005, 39.30.300, 39.30.095, 14.25.330, 37.10.210, 37.10.390, 14.25.340, 39.35.730, 39.35.750, 39.45.010, 39.45.060, 14.25.145, 39.35.100, 39.30.495, 39.35.160, 39.35.255, 37.10.310, 14.25.086, 39.35.281, 40.25.110, 40.25.120, 39.35.475, 39.30.090, 22.25.090, 39.35.535, 39.35.537, 39.35.880, 39.37.145, 23.15.136, 39.30.091, 21.86.310, 23.15.010, 23.15.210, 39.35.700, 39.35.990, 39.35.940, 39.30.340, 14.25.003, 14.25.004, 39.30.380, 14.25.470, 39.35.870, 39.30.390, 39.30.400, 39.30.420, 39.35.760, 39.35.115, 39.35.678, 39.35.710, 39.35.895, 39.35.165, 39.35.159, 39.35.310, 39.35.330, 39.35.340, 39.35.342, 39.35.345, 39.35.360, 39.35.370, 39.35.375, 39.35.381, 39.35.341, 39.35.520, 39.35.280, 39.35.282, 39.35.385, 39.35.120, 39.35.450, 39.35.400, 39.35.440, 39.35.485, 39.35.480, 39.35.610, 39.35.300, 39.35.720, 14.25.012