Close vote in state senate on public sector pension bill marks it as hot potato for 2024 legislative session

The Senate’s vote last week to approve Senate Bill 88, the defined benefits pension option for public employees, was razor-tight.

It was 11-7 for the final passage of the bill, and not 12-5, as was reported in the media. The final passage, on reconsideration, was by a one-vote margin. Eleven affirmative votes in the 20-member Senate are required for a bill to pass. A split vote, or 10-10, would mean the bill would fail.

All three senators in the Mat-Su delegation, Senators Shelley Hughes, David Wilson, and Mike Shower, voted against the bill.

The senator who switched between the initial vote of 12-5 and the final vote of 11-7 was Sen. Lyman Hoffman, D-Bethel. It is unclear why Hoffman changed his position, but he asked for reconsideration the day of the initial vote, Jan. 31.

Besides the three Mat-Su senators, Sens. James Kaufman, R-Anch. and Robert Myers, R-North Pole, voted no. The 11 senators voting yes are listed as cosponsors of the bill along with Giessel, the prime sponsor.

With the Legislature’s 2024 session barely three weeks old SB 88 has already become a hot potato. The Senate Majority, a coalition of Democrats and moderate Republicans, support the bill, although not all majority members voted yes for its passage. The state House, led by conservative Republicans, will likely oppose the bill. The governor’s position is unclear.

An indicator of the likely House position is the fate of a similar defined benefit option for police and fire personnel put forth last year by Rep. Andy Josephson, D-Anch. The bill was advancing in the House until it reached the House State Affairs committee. Rep. Craig Johnson, R-Anch., the House Rules chair as well as a member of the state affairs committee, worked to get Josephson’s bill put in a subcommittee, where it remains.

In the House, SB 88 was assigned to three committees by House Speaker Cathy Tilton, R-Wasilla, the State Affairs, Labor and Commerce, and Finance committees. A bill getting three committee assignments is ordinarily a death knell because of the time it will take to clear three legislative panels.

Given these politics, SB 88 will become a point of negotiation between the House, Senate, and governor through the 2024 session and is likely to end in mid-May.

The “defined benefits” pension option in SB 88 would give new employees in school districts, as well as local and state governments, the choice of the current “defined contribution,” 401-k type retirement plan, or a traditional defined benefit in retirement, or a traditional pension like that was paid until the state switched years ago to defined contribution.

State Sen. Cathy Giessel, the sponsor of SB 88, says research shows that retirees will likely do better financially under a defined benefit plan than defined contribution, where they make their own investment decisions.

Under a defined benefit plan, investment professionals guide investments of the state’s pension plan, as is done now for retirees still under the former pension plan.

The biggest argument put forth by Giessel and other backers of SB 88 is that the lack of a better retirement system is adding to problems in recruiting and retaining public sector workers, particularly among fire, police, and other public safety where governments in the Lower 48, who face their own worker shortages, are recruiting in Alaska with more generous defined benefit retirement along with better pay in some cases.

“The lack of a Defined Benefit plan is making Alaska uncompetitive with other states, causing outmigration of families and our workforce,” Giessel said in her sponsor statement for the bill.

“The existing (defined contribution) system is costing the state a lot of money, as it is resorting to hiring bonuses to attract workers while losing the investment in the training and experience of those who leave after five years of vesting in the currently defined contribution system,” she said.

Sen. Bert Stedman, R-Sitka, who voted against the bill on Feb. 2, has said that many concerns about the defined contribution system are overblown and that other issues are of more concern to public employees, such as salary along with lack of housing for workers in agencies providing service in outlying small communities.

A primary concern with the bill is that since the state constitution guarantees a traditional pension, once given, there could be liabilities to the state if financial markets turn down and the state-managed pension fund loses money. Under defined contribution 401-k type retirement, the retiree carries the risk, not the state.

Giessel has worked to mitigate this risk with a provision that if financial markets turn down the contributions of the public employers and employees are increased to keep the pension fund solvent. The latest version of the bill would also have retirees chip in if a market downturn happens.

Although he supports SB 88, Senate President Gary Stevens, R-Kodiak, has urged caution. Because of the legal obligation assumed under the constitution, a traditional pension is guaranteed, “so it’s not something to be taken lightly,” Stevens has said.