Members of the bipartisan Senate Majority introduced legislation today that would implement a defined benefit retirement plan for all public employees, including teachers, after nearly two decades of only offering public employees a 401(k)-style retirement.
The current retirement system for Alaska, which also is opted out of Social Security benefits, has long been a cause for concern for public employees who say it burdens them with substantial risk that their retirement plan won’t actually cover their retirement. It’s also been blamed for the state’s recruitment and retention problems at just about every level.
Unlike the previous retirement tiers—and most retirement plans in the rest of the country—Alaska’s current retirement tiers are what’s called a defined contribution plan, meaning the amount of money put into the plan by the employee and the employer are set but the management of the account, and therefore what it pays out in retirement years, is left to the employee. That exposes the employee to a great deal of risk if the investment market has a downturn. It is also more mobile, meaning that it’s easy for public sector employees in Alaska to relocate and buy into another state’s plan.
Recent work done by the Division of Retirement and Benefits found the current tier is greatly under-performing both a hypothetical best-case scenario expectations and the previous tiers, meaning most state employees are not able to save enough for retirement.
The new proposal would return the state to what’s called a defined benefit plan—where the payout is guaranteed depending on years worked and salary earned—similar to the ones of the past, but with some major concessions.
“There’s nothing gold-plated about it,” said Juneau Democratic Sen. Jesse Kiehl, a longtime supporter of a defined benefit retirement plan, at the Senate Majority’s news conference.
Half of the chamber’s 20 members have already signed on in support of the bill.
The biggest change is that the new retirement plan wouldn’t offer any form of health care coverage for public sector retirees. Before becoming eligible for Medicare, retirees would have to purchase their own coverage or get a new job that provides health insurance if they want coverage. The plan would also call for a higher contribution to retirement for public employees.
Kiehl, who has proposed his own separate plan that would be more generous, said he supports this plan and believes it will be a cost saver for the state.
“It would be cheaper than any of the legacy plans to employers, it would be cheaper than the current defined contribution plan and it will deliver better benefit to Alaskans who serve the public,” he said, “and therefore it will deliver better value to Alaskans who pay for municipal government with their tax dollars, to Alaskans whose state dollars we are spending and we need to spend responsibly.”
Addressing the state’s recruitment and retention issues has been one of the foundational goals of the 17-member bipartisan Senate Majority, and a potential return to a defined benefit system has been suggested by members as one of the solutions.
Anchorage Republican Sen. Cathy Giessel is the lead sponsor of the bill, and she said she was motivated by much of the early work in the session to explore and understand the state’s workforce problems. She noted that some schools began the year without a teacher in every classroom, that the state’s public assistance offices can’t keep up with applications for food stamps and that state industry is running into problems with slow responses from the state’s permitting agencies.
“A vast majority of our current employees are not able to make adequate savings for retirement. That’s a huge problem and that’s what Senate Bill 88 is aiming to address,” she said, noting that there are significant changes in the plan to address concerns about cost and unfunded liabilities. “This is not your grandma’s defined benefit plan, it’s a whole new system.”
The legislation has been referred to the Senate Labor and Commerce Committee, whose chair Sen. Jesse Bjorkman said will begin hearings as soon as possible, and will go to the Senate Finance Committee for further review.
Giessel was bullish on the legislation’s chances of passing quickly, but said she expected it to pass by the end of the Legislature’s second session in 2024.
It’s unclear what chances the legislation has in the House, where a much more limited bill that only focused on public safety employees advanced from one committee before stalling out in the House State Affairs Committee, where it has yet to be heard.
Matt Buxton is a long-time political reporter who has written for the Fairbanks Daily News-Miner and The Midnight Sun political blog. He also authors the daily politics newsletter, The Alaska Memo, and can frequently be found live-tweeting public meetings on Twitter: @mattbuxton.
