State senate passes bill to overhaul state’s public employee and teacher retirement system

The Alaska State Senate passed Senate Bill 88, sponsored by state Sen. Cathy Giessel (R-Anchorage), create a new “Defined Benefit” system for public employees and teacher retirement, providing an option for current employees to convert their “defined contribution” 401 K -type plan to the new pension retirement system.

The legislation gained bipartisan support in the Senate with 10 additional co-sponsors in addition to Giessel as prime sponsor. It is now in the state House, which is led by Republicans.

“This not your grandmother’s gold-plated retirement plan. This is a modest and reasonable retirement plan that will turn the tide on our workforce recruitment and retention issues,” Giessel said.

“We must take significant action now if we want to turn around our economy and attract the brightest and best in all industries, public and private,” she said.

The legislation was introduced last March and seeks to address the state’s workforce recruitment and retention issues. “Over the past 11 years, Alaska has seen an outmigration of its population, losing nearly 34,000, or 7%, of working-age Alaskans. Meanwhile, Alaska’s aging population has grown by 3%.

These senior citizens are mostly retired and out of the workforce,” she said. The state administration, led by Gov. Mike Dunleavy, has been vacancies in state agencies climbed to 26%. “On top of that, municipalities are struggling to fill maintenance and operations, police and fire, and other positions to deliver essential services. One primary reason that has been cited for recruitment and retention issues is the lack of a quality retirement system that public servants can depend on once they retire,” Giessel said.

Sen Click Bishop (R-Fairbanks), a cosponsor supports the bill: “A reliable and quality retirement package is crucial for attracting and retaining skilled individuals in Alaska. This is particularly important given the widespread labor shortages and 11 straight years of out-migration in our state,” Bishop said.

“The demand for essential workers, such as nurses, police officers, firefighters, teachers, snow-plow drivers, heavy equipment operators, and ferry workers underscores the urgency of providing competitive retirement packages, said Bishop, who is a former state Commissioner of Labor. “Returning to a defined benefit system will serve as that vital incentive for retiring individuals to choose Alaska as their home,” he said.

In 2006, the state of Alaska transitioned to a defined contribution plan, similar to a 401(k)-retirement plan, and it was believed that retirees would earn the same level of retirement as the prior Defined Benefits system, Giessel said. An initial analysis by the Division of Retirement and Benefits concluded that if a state worker who has spent 20 years under the defined contribution plan were to retire today, the employee would only receive 32% of their average earnings, compared to 40.3% under the prior defined benefits system – a difference of $8,000 a year.

Even more so, a peace officer or firefighter would receive $16,000 less under the defined contribution plan after 20 years of service. Many components of this new defined benefits plan are similar to earlier, modified defined benefits retirement plans, the so-called Tier II and Tier III plans.

“But, through analysis, revisions, and compromises, components o B 88 that caused concerns about past retirement systems are addressed,” Giessel said.

“For example, this proposal increases the employee contribution rate from prior pension retirement systems and makes it adjustable so that employees share in the system’s financial solvency risk. It also maintains the current system’s retiree medical coverage plan in place to keep the state’s liability toward medical costs as low as possible,” she said. “If we are going to strengthen our economy and attract working-age populations back to the state, we need to offer a competitive and reliable retirement plan. This gets us there,” said Giessel.

Senate Bill 88 is co-sponsored by Senator Bishop, Senator Gary Stevens (R-Kodiak), Senator Jesse Kiehl (D-Juneau), Senator Scott Kawasaki (D- Fairbanks), Senator Löki Tobin (D-Anchorage), Senator Bill Wielechowski (D-Anchorage), Senator Elvi Gray-Jackson (D-Anchorage), Senator Forrest Dunbar (D-Anchorage), Senator Matt Claman (D-Anchorage), and Senator Donny Olson (D-Golovin). The legislation now moves to the House of Representatives for consideration.