Changes in public employee pension system could help stem the talent drain from state agencies and local governments

The state Senate is taking a cautious approach on changes to the state pension system that many argue are needed to recruit and retain teachers and other public employees.

What’s proposed in several bills pending in the Legislature is “defined benefits,” or a traditional pension, as an added option for new public employees to the “defined contribution” or 401(k)-type retirement plans now in place.

Senate President Gary Stevens, R-Kodiak, urged caution on changes: “If we go too fast we’re stuck with this until people die,” Stevens said in a Senate press briefing.

That’s because once pension rights are established they can’t be changed under the state constitution, Stevens said. Legislators need to move carefully in establishing a new pension option, known as “tiers,” with a new defined benefit tier.

However, there is growing support in the Legislature for some kind of change that would give school districts, state agencies new tool for recruiting.

Sen. Bert Stedman, R-Sitka, a Senate Finance Committee cochair, said hearings are planned the week of Feb. 20 by the Division of Retirement Benefits to brief senators on performance of the current 401(k)-type system. Stedman said the Legislature needs to know how “Tier 3” is performing before offering a new option.

Three bills are now before the Legislature dealing with public employee benefits. They include House Bill 22, a bill by Rep. Andy Josephson, D-Anch., which deals with retirement options for firefighters and police. Sen. Scott Kawasaki, D-Fairbanks, has introduced a version of this in Senate Bill 35.

Sen. Jesse Kiehl, D-Juneau, has introduced SB 11, which changes the retirement system options for all public employees.

Sources in the state capitol say the major thrust for changing the system will likely come from the Senate, where the Senate Majority is already on record supporting a change. What’s uncertain is whether the House Majority, led by conservative Republicans, will agree.

Many legislators are concerned about workforce shortages facing not just the public sector but private employers as well. The worry is that Alaska is the only state that does not offer at least the option of defined benefits for new teachers and other public employees like firefighters and police.

The “defined contribution” plan has public employees contribute as well as public employers and after five years the employee can take the employer’s contribution and leave, which is termed “portability.” That isn’t the case with defined benefits, where employees can pull out their contribution to retirement but have no call on the public employer.

Many argue this creates a disincentive for public employees to stay in their jobs because they can pull out both their own and the public employer contribution and leave the state for a job elsewhere. Because the pay difference between Alaska and the Lower 48 is now largely gone, a job out of state often pays more and the employee has no incentive to stay on the job until retirement.

The result of that is a loss of valuable experience out of state and the loss of what employers have spent training new employees.

When the state was flush with oil money in the 1970s and 1980s the Legislature bumped up pensions and other benefits in an effort to retain public employees. High wages In construction, particularly during the Trans Alaska Pipeline System, were difficult for public agencies to compete with.

But once the oil boom tapered off the “Tier 1” pension system remained including one of its most attractive, but expensive, features for public employees, the medical benefits for retirees.

By the 1990s legislators were alarmed at the rising costs of the Tier 1 pensions and established a less-generous “Tier 2” plan for new workers being hired, biut which was still a defined benefits plan. Finally, defined benefits was dropped altogether for new public employees being hired and the Defined Contribution, or 401(k)-type plan was offered in Tier III.

That has taken the state Alaska to the bottom among states in employee benefits. University of Alaska President Pat Pitney told the Senate Education Committee Monday that years ago, early in her career at the university as its budget director, she did study of teacher and benefit and found Alaska to have one of the nation’s best pay and benefits.

“Now we’re not even at the national average for teacher pay and we have the worst retirement system in the nation,” Pitney told the committee.

Jordan Adams, business manager of Public Employees Local 71, told the Senate Labor and Commerce Committee, “We’ve had 16 years of Tier 4 (Defined Contributions),” which is enough to see it’s not working. Local 71 represents state blue collar workers, like equipment operators.

Noncompetitive benefits are just part of the picture. State wages are also not competitive with the private sector which is also aggressively recruiting for employees, Jordan said.

The pay gap is roughly 30 percent difference across most state blue collar jobs and 40 percent for electricians, he said. “The state (administration) shows no intention of dealing with this.”