The Alaska Senate on Wednesday passed legislation to create a new pension program for public employees, a move that backers say will help address costly worker shortages in state and local government.
Senate Bill 88, authored by Senate Majority Leader Cathy Giessel, has been a priority piece of legislation for the bipartisan Senate Majority and addresses long-running concerns the state’s current retirement system incentivizes a revolving door of public employees.
Backers argued that the change would make a meaningful difference for the Alaska economy, which relies on a well-functioning state government. Currently, as many as one in six state jobs are vacant.
“If we want to see more cranes, as the governor said last night,” Giessel said, referencing Gov. Mike Dunleavy’s State of the State address, “those cranes mean people are investing here. It means they have trust that the state government here is stable and effective. That means we’ve gotta have departments that can issue those building permits. We’ve gotta have departments that can keep the roads cleared. That our schools are there, so families moving here know their children will be educated well.”
Alaska did away with its old pension plan in 2006, moving from a defined benefit system where workers are guaranteed payouts to a defined contribution system where workers aren’t. The defined contribution system is similar to a 401(k)-style plan that allows individuals to direct how their retirement is invested. Critics argue it puts too much burden on employees and leaves open the possibility that their retirement falls short of covering costs.
A report last year found the retirement accounts of most employees on the current defined contribution plan were lagging well behind those on defined benefit plans at the same point in their careers.
The lack of a guaranteed retirement is a particularly big deal because Alaska has also opted state and local workers out of Social Security.
The measure ran into opposition from several Republicans, including Palmer Republican Sen. Shelley Hughes, who questioned whether a stable pension really matters to young employees anymore.
“They’ve coined the phrase ‘golden handcuffs’ in regard to pensions, as in they don’t want them,” she said, referring to a term that’s been around since at least the 1970s. “This is not grandpa’s workforce. Today’s employees want flexibility and mobility.”
She also worried that offering pensions to public employees would create undue competition with the private sector, where pensions are rare, but Social Security is available.
“How could I put the private sector at a disadvantage when it’s their businesses and their jobs that actually create our economy and are the basis of our economy,” she said. “It solves it for the public sector, perhaps, but not for the private sector.”
Others said they were concerned that the cost estimates on the plan, which suggest it would be cost-neutral with as much as $76 million in savings from reduced recruitment and retention efforts, were inaccurate.
Giessel stressed that the new legislation is a far cry from the plans of the past, which had generous pensions and top-tier health benefits. To that end, there are several changes aimed at minimizing the costs of the plan, such as adjustments for employee contributions. Retirees leaving public service before becoming Medicare-eligible would also have to purchase their own health insurance rather than having it provided by the state.
“This is not a return to the pension system we had previously. That was a gold-plated system. It was expensive, particularly the health care costs,” she said. “This shares the risk.”
The legislation now heads to the House, where Republican leadership has already signaled skepticism to the change. A more limited bill that would implement a defined benefit plan for first responders has been stuck in a special committee there since the early days of last year’s legislative session.
Matt Acuña 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.
