As public employees rallied in front of the Alaska Capitol last week, demanding reinstatement of a pension system the Legislature abolished 18 years ago, leading members of the state Senate said their request was unlikely to be fulfilled this year.
Members of the 17-member bipartisan Senate majority said at the start of this year’s legislative session that a bill intended to improve recruitment and retention of state employees was a priority. But with only a week left in the regular legislative session, Senate President Gary Stevens said a pension bill is now expected to become law no sooner than next year.
“We started the year hoping that we could get this through this year, but I think the reality has sort of set in to realize that there’s a lot of work yet to do,” the Kodiak Republican said.
Alaska currently offers a 401(k)-style defined-contribution retirement system, and the Senate’s preferred pension bill, Senate Bill 88, would return the state to a defined-benefit retirement system, commonly known as a pension.
Under a defined-benefit plan, state, municipal and school district employees could qualify for a pension based on their years of service and average salary. Employees and employers would contribute to the plan, with the employer taking on the investment risk.
Under the state’s defined-contribution plan, employee and employer contributions are invested and held for the employee to withdraw at their choosing. The investment risk falls entirely to the individual.
The return to a pension system still has to overcome the doubts of some senators as well as lawmakers in the House and Gov. Mike Dunleavy before becoming law, and it isn’t guaranteed that it will pass next year, either.
“Some of us haven’t concluded that a complete change is the solution,” said Sitka Sen. Bert Stedman and one of the majority’s leading skeptics.
On May 2, the same day as the rally in front of the Capitol, SB 88 received its first hearings in the Senate Finance Committee, where Stedman sits as co-chair.
Sen. Cathy Giessel, the bill’s lead sponsor, pointed out a news story when talking about the need for a return to a traditional pension plan. The state Office of Public Advocacy had announced that it could no longer provide public guardians for disabled or handicapped Alaskans.
“We have a problem: It’s difficult to retain. It’s difficult to recruit using a defined contribution system,” she said.
“Certainly the pension issue — going back to a defined benefit — is not the single solution, but it’s certainly a big piece,” Giessel said.
Dan Doonan, executive director of the National Institute on Retirement Security, told members of the Senate Finance Committee that a study examining Alaska’s teacher retention problems found that teachers were more likely to quit if they had the new 401(k)-style retirement system than if they had the old pension-style system.
“The turnover rates here are fairly high compared with other states and what used to be the case with the (defined-benefit) plan,” he said.
Dominic Lozano, president of the Alaska Professional Firefighters Association, testified in support of the bill and said it was crafted using ideas from other states, including Wisconsin and North Dakota. “We’ve stolen the best practices from each of them,” he said.
If implemented, Senate Bill 88 would require new employees to participate in the pension plan, while existing employees would be given the choice to stay with the current retirement system or switch to the new one.
Benefits would be guaranteed: Police, firefighters and other public safety employees would be able to retire at age 50 with 25 years of service (or at age 55 with 20 years), while teachers and other public employees would be allowed to retire at age 60 or with 30 years of service.
If the state’s pension fund begins running below the amount that actuaries believe is needed to pay future benefits, a state board would be able to adjust required contribution rates to make up the gap.
Medical benefits are not included in the legislation, which Giessel and proponents said was a compromise intended to encourage passage of the bill.
The state’s prior pension system was eliminated by the Alaska Legislature in 2005 because of shortfalls in the pension fund.
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