A late push to boost Alaska’s public employee pensions likely won’t succeed this session, but lawmakers who spent most of Tuesday scrutinizing details of a bill and union supporters at an evening rally in front of the Capitol are hoping meaningful progress occurs during the final two weeks so the odds may be better next year.
Reinstating a defined benefits retirement plan as an alternative to the existing 401K-style defined contribution plan was named one of the two main priorities of the state Senate’s bipartisan majority, which consists of nine Democrats and eight Republicans in the 20-member body. But getting to a proposal the Republican-led House and Gov. Mike Dunleavy will also support as the state grapples with a multitude of financial struggles is a formidable task.
“It’s a very important issue, but it’s a very complex one,” Senate President Gary Stevens, a Kodiak Republican, said during a news conference Tuesday. “I think the reality is it’s sort of set in that there’s a lot of work to do.”
That reality is also being accepted by Heidi Drygas, executive director of the Alaska State Employees Association, the state’s largest public employee union, even as she and about 50 other supporters joined about 20 legislators — mostly members of the Senate majority and the House minority — participating in Tuesday’s rally.
“I agree that it is unlikely this legislation will get over the ultimate finish line this year, but it would be great if we could get it on to the Senate floor and over to the House before the end of session this year,” she said.
State Sen. Jesse Kiehl, a Juneau Democrat who spent much of the day listening to testimony about the pension bill as a member of the Senate Finance Committee, called it a sensible proposal that addresses concerns such as extra costs to the state. He vowed during the rally it would get through the Senate and House — just not necessarily this year.
“We’re going to get that bill across the finish line in the 33rd Alaska Legislature,” he said, a timeline that essentially extends until next May under normal circumstances.
A study presented to the committee earlier this session found a state employee hired in 2005 with a defined benefit pension would get about 30% of their salary after 15 years, while an employee hired under the defined contribution system in 2006 would get an average of about 18%. The study also found employees in the latter system were more at risk to market volatility and how well they invested.
Another study presented to the committee Tuesday showed employee retention rates are drastically lower with defined contribution pensions. For example, male teachers in a defined benefits plan remained for average of 19.1 years while those in a defined contribution plan remained about 9.3 years.
The proposal the Senate is considering, Senate Bill 88, received exhaustive scrutiny during a pair hearings by the committee Tuesday morning and afternoon. Senate Majority Leader Cathy Giessel, an Anchorage Republican sponsoring the bill, said it revives a defined benefits option for all public employees — without mandating existing employees switch their plans — but includes some changes from earlier versions this session that make it more affordable for employers and the state.
She noted the state’s workforce shortage is so severe hiring bonuses are now being offered as incentives, yet many employees are still departing after five years because that’s when their benefits vest and better opportunities exist in other states. She said analysis indicates her bill will ultimately result in a net financial gain for the state since, among other factors, retaining employees for longer periods will reduce the costs associated with constant hiring and training of new employees.
Among the most notable changes in the bill is employee contributions would be on a sliding scale of 8-12%, matching that of several other states, rather than the bill’s previous range of 8-10%.
“Employees share the risk contributing more during poor market returns,” Giessel said.
Employer contributions, conversely, would no longer be fixed percentages of 22% for most public employees and 12.56% for teachers, but adjust downward to as low as 12% depending on the amount to achieve cost neutrality (known in the bill and accounting terms as the full actuarial cost).
Another ding affecting employees is the revised pension contains no Alaska cost-of-living-adjustment — which reflects costs here compared to the Lower 48 — which Giessel said “keeps the plan solvent.”
While the revised bill isn’t perfect from an employee perspective, Giessel said she has nonetheless received overwhelming support so far for the bill from unions and individuals because of the general security provided by a return to a defined benefit pension.
“This is a very modest retirement plan to bring back a defined benefit,” she said during Tuesday morning’s committee hearing. “A defined benefit retirement system is one that provides significantly more security at the time of a retirement than a defined contribution.
“This bill does not solve every issue, but this bill was crafted during the past 10 years by those very folks you’re describing,” she said, referring to one committee member’s question about certain employees who would still have gaps in retirement plans due to factors such as being ineligible for Social Security. “They were willing to forego resolution of that kind of issue to secure a defined benefit system that the state and communities can afford, but still provides them with a secure retirement.”
Hundred of pages of written testimony have been submitted by residents to date in addition to hours of spoken comments. Among those writing to supporting the bill is Paula DeAngeles, a Ketchikan resident who stated her deceased husband was a teacher in Colorado for 25 years and she is using his retirement account to supplement her income.
“As I learn more and more about my Alaska tier and the lack of a retirement, lack of affordable medical and see my very small retirement balance after four years of teaching I am looking at making decisions that I do not want to make,” she wrote.
“I purchased a home here. I love my teaching job. I feel safe raising my 13 year old son here by myself, but I only have 15 more years until I am 65 and am very concerned at what retirement will look like in Alaska. There are a lot of other states with better pay, retirement and medical offerings that would create a better quality of life for my son and I.”
Among the bill’s opponents is Amanda Thompson, a private art teacher in Anchorage who stated her grandparents were in Alaska-based unions which “paved the way for me and my children to thrive here.” But she stated when they died none of their pensions went to their descendants and that is a reason she opposes the bill.
“I believe that I, a single educated mother, am fully capable at investing my retirement in a way that will benefit my family,” wrote Thompson, who said she is also a member of a teacher’s union. “I wish to keep my teacher retirement funds in funds that I can have a say in.”
Furthermore, Thompson argued, the increased funding for pensions is too costly to the state.
“I do not want my children to be saddled with more taxes or reduced employment options as tax-burdened industries leave the state,” she wrote. “I see a place where they can grow and stretch their wings into a productive and vibrant adulthood.”
• Contact reporter Mark Sabbatini at email@example.com