A push to revive Alaska’s pension system

A push to revive Alaska’s public pension system is under way in the state House of Representatives, where a Juneau lawmaker has suggested a measure that would directly affect more than 41,000 people statewide.

Rep. Sam Kito III, D-Juneau, held a hearing Saturday on House Bill 83, which would allow government workers – state and city alike – to choose between a traditional pension or the 401(k)-style program currently offered by the state.

“We can have an option that will be affordable and will increase recruitment and retention for state employees and for our teachers,” Kito said Saturday.

Kito’s idea has been proposed every Legislature since 2012 by a member of the Juneau delegation, but with a new coalition majority controlling the House, this may be its best chance since a similar bill by Sen. Dennis Egan, D-Juneau, passed the Senate in 2012. Egan has a companion measure in the Senate this year.

If HB 83 were approved by the House and Senate, then signed into law by the governor, it would create new tiers in the government’s retirement system for teachers and public employees.

Those workers would be allowed a one-time-only choice: stick with their existing 401(k)-style approach or switch to a pension in the new tier.

The state estimates about 80 percent would switch, seeking the stability of a pension over the portability of a 401(k)-style system.

Pensions have become more attractive as doubts rise about the effectiveness of 401(k)s. In January, the Wall Street Journal reported that many of the people who created the first 401(k)s now regret their actions and no longer believe that a 401(k) is an effective way to save for retirement.

Bailey Childers, director of the National Public Pension Coalition, testified to the committee, “for the majority of American workers … a 401(k) is just not getting them where they need to be for retirement.”

She pointed to the experience in Michigan, where public employees have operated under a 401(k)-style system for 20 years. A recent study found employees had saved an average of $66,000.

Several of Alaska’s public employees testified Saturday that passage of HB 83 would entice them to stay in Alaska.

Justin Hernandez of Anchorage Police Department Employees Association said his department has a hard time keeping officers, because Alaska’s police training is high-quality, and once officers are trained, they become attractive targets for Outside recruitment.

APD and other departments in Alaska have a hard time competing with places that offer higher pay and a stable pension.

“HB 83 gives us some sort of competition … to compete with these Lower 48 departments,” he said.

Amber Barney, an employee of the Department of Revenue, said the state created its retirement system to be portable, but that portability is working against the state because it allows workers to leave without penalty. That costs the state money in training.

“There’s just no incentive for state employees or for public employees to continue be here,” she said.

Figures from the Public Employees Retirement System show more than 34,000 Alaskans are paying into the retirement system. Half are members of the pre-2005 pension system, while half joined after the pension cutoff. Another 9,600 people are in the teachers’ retirement system, with 4,100 having joined since 2005.

According to figures from the Alaska Department of Administration, almost 30 percent of Alaska’s public employees are replaced annually, and statistics from the Alaska Department of Labor and Workforce Development show most new arrivals are in their 20s. Alaskans tend to migrate out of the state for college, return, then leave again in their 30s and 40s – unless they have a reason to stay.

The Alaska Legislature eliminated the state’s pension program after the revelation that the state’s actuary had lied to the state, costing it billions of dollars. That contributed to an $11 billion hole in the fund that pays pensions. While the state has closed that hole somewhat, Alaska is still in the red.

Childers said by phone that reopening the pension program could narrow that gap because Alaskans would again be paying into the pension fund.

She pointed to the experience of West Virginia, which eliminated pensions for teachers in 1991. The fund subsequently accrued a deficit of billions.

“They found that cost-wise, it was more cost-effective for the state to go back to a defined benefit plan,” she said, and now the teachers’ pension is on track to be fully funded.

The drafters of HB 83 say their intent is for it to be revenue-neutral, that higher payments by state employees and lower medical benefits will prevent the new program from becoming a problem.

That remains to be seen – no financial analysis has been released, though Kito said one is in progress.

Childers is optimistic.

“I think you all are will experience what West Virginia did … where your unfunded liability is going to get back in much better shape,” she predicted.

Back at Saturday’s committee meeting, Thunder Mountain High School teacher Pat Roach said his school lost one of its best young teachers recently.

“He said he couldn’t count on his job in Alaska, and (Washington) D.C. offers a pension,” Roach said.

He added that Thunder Mountain will soon lose another teacher: himself.

“Next year is my last year of teaching in Alaska. I’ve already informed my principal,” he said. “A lack of pension was definitely part of the reasoning.”

• Contact reporter James Brooks at james.k.brooks@juneauempire.com or call 419-7732.

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