Alaska lawmakers aim for last-minute review of public pension reform

Amid high vacancies and turnover in the ranks of public employees, some lawmakers are hoping that a major overhaul of Alaska’s public retirement system could be adopted in the final days of the legislative session.

It’s a tall order. Alaska’s public workers have been without a guaranteed pension since 2006, when lawmakers did away with the defined benefit system that was plagued by underfunding. Since then, labor groups representing teachers, public safety workers and other public-sector employees have increasingly raised alarm about the long-term impacts of the move, which meant fewer employees were incentivized to remain in Alaska for the duration of their careers, and many were lured to other states where benefits were more generous.

Reinstating some form of a guaranteed public pension has been one of the bipartisan Senate majority’s key priorities for over a year, but opposition from some Republican House members has stalled the progress of a bill that the Senate adopted last year.

The policy change has received limited attention this year as lawmakers had their eyes on addressing education- and energy-related legislation. But a last-minute effort could push the plan to the finish line before lawmakers’ May 15 deadline to end the current session.

Senate Bill 88 would offer public workers a new model: a return to defined benefits — meaning a guaranteed pension — with key differences from the pre-2006 plan that are meant to spread the risk between the state and its employees, and ensure the state does not risk unfunded liabilities as it did in the 2000s.

The Republican-led House majority has slow-rolled its consideration. In an unusual move, the bill last year was relegated to a newly formed subcommittee of the House State Affairs Committee, which has met only once since the current session began in January.

In late April, House Minority Leader Calvin Schrage, an Anchorage independent, attempted on the House floor to discharge the Senate bill from the State Affairs Committee. The procedural move would have relinquished control over the fate of the bill from that subcommittee, sending it instead to the House Labor and Commerce Committee — which appears to view action on pension plans more favorably.

The discharge attempts failed twice in the same week, with all House majority Republicans opposing the move. But the split was narrow. In the second attempt, 19 out of 40 House members voted in favor of the move.

House Republicans who opposed the discharge vote said they were still waiting on new actuarial analysis requested by Senate members earlier this year. Those analyses were available as of the end of April.

Sen. Cathy Giessel, an Anchorage Republican sponsoring the bill, said she shared a packet of information with House members after the discharge attempts that she said would “encourage” them to view the bill as “an answer to the current statewide recruitment and retention crisis.” She met with House majority leadership members on Tuesday, asking for them to schedule the bill for a hearing.

In a letter to House members, Giessel wrote that “the cost of the status quo is quite literally, killing our state.”

In response, the House State Affairs Subcommittee, led by Rep. Craig Johnson, an Anchorage Republican, scheduled a hearing on the bill on Tuesday at 6 p.m. — just over a week before the scheduled end of the session. Johnson said Friday that he’s “not crazy” about the bill but that the intention would be to transfer its review to the full State Affairs Committee.

“We’re just going to try to get everything out on the table and filter out as much as we can and kick it back to the committee and see what the rule of the body is,” said Johnson.

Even if the committee passed the bill, its final adoption this year would require several additional hearings before reaching a vote on the House floor, including in the House Labor and Commerce and House Finance committees. Both Johnson and Schrage said it was potentially still possible, as lawmakers ramp up their work pace in the final days of the session.

“One of the recurring themes of this Legislature is that there are many proposals that have a majority of legislators supporting them and we cannot get those proposals to the floor for a vote,” Schrage said Friday. “I think if you put a defined pension plan on the floor, it passes today.”

‘Only Alaska took up the challenge’

In 2005, amid contentious debates over an underfunded pension system, and a national push to overhaul retirement benefits, Alaska lawmakers narrowly agreed to do away with the defined benefits that guarantee a regular pension, replacing them with a 401(k)-style contribution system as a cost-saving measure for the state.

At the time when Alaska eliminated its defined benefits plan, there was interest nationwide in the move, according to Teresa Ghilarducci, a professor of economics studying pensions at the New School for Social Research.

“There was lots of pressure in every single state, and only Alaska took up the challenge,” Ghilarducci told the House Labor and Commerce Committee in hearing earlier this year. “And so in some ways, the country is grateful because you ran the experiment.”

By the state’s own assessment, the change has meant that many of Alaska’s public employees hired since 2006 have less money saved up for retirement. Under the defined contribution plan, employees’ retirement funds are subject to the success of the investment decisions they make throughout their careers.

“That’s just the inefficiency or the waste of having an individual having to manage their own plan,” said Ghilarducci. “Most people are not good professional investors.”

Experts say that while hiring problems exist in other states, Alaska is unique in the recruitment and retention challenges created by its retirement plan. Teachers, public safety workers and others can gain a form of a guaranteed pension in most states, meaning they are often tempted to leave the state once they begin to think about retirement.

Alaska’s staffing challenges have affected virtually every public service that Alaskans depend on — schools have been wracked by teacher vacancies and have come to rely increasingly on teachers coming from overseas on temporary visas; public benefits, including food assistance, have been disseminated late or not at all amid a shortage in workers tasked with processing requests; and jails and prisons have struggled to fill correctional officer vacancies despite offering $10,000 hiring and retention bonuses.

[Alaska Senate advances budget as governor signals support for $175M one-time boost for schools]

Generational differences

Supporters of the Senate bill say that a return to some form of defined benefits in Alaska is inevitable, and better sooner than later. Without the change, some analysts and labor organizations say the problems of recruitment and retention will only get worse.

Counterarguments persist. Republican Gov. Mike Dunleavy earlier this year said during a press conference that by his estimation, young Alaskans working as teachers would prefer to receive annual bonuses that could help pay for a car or student loans, instead of receiving a pension.

Dunleavy himself receives a monthly state pension for his years as a public educator, on top of his salary as governor. In a 2009 interview to a newspaper in Pennsylvania, where he is from, Dunleavy said that after his career as a public school teacher and administrator, “the system has been very good” to him, and he “could retire with a retirement income that many people would envy as a working income.”

Ultimately, even if lawmakers could muster the votes to support the bill, the governor could use his veto pen to nix the policy. He has so far been noncommittal in his position on the bill.

The chair of the House State Affairs Committee — Anchorage Republican Rep. Laddie Shaw — receives two monthly pension payments from the state and the military. Still, he has remained reticent to advance the bill. Shaw declined an interview request on the pension bill.

Dunleavy’s assertion that young Alaskans are not as interested in pensions as their predecessors is negated by a growing body of research.

“We’re finding that the age of being concerned about financial futures is much younger,” said Ghilarducci. “That number is really early — I would say around 28-30 is when people are thinking about their financial future.”

As labor organizations push for last-minute progress on the bill, conservative groups are actively fighting the re-implementation of pensions. The Alaska chapter of Americans for Prosperity, a conservative advocacy group, sent an email late last month to House members urging them not to vote for the bill.

Quincy Azimi-Tabrizi, strategic director for Americans for Prosperity Alaska, wrote in the email that the new defined benefits plan is “flawed” and said there is “little, if any, evidence that a defined benefit pension is a revenant factor that helps drive employee recruitment and retention.” Instead, Americans for Prosperity called for wages to be increased as a means to attract and retain workers.

The email warned lawmakers that votes on the bill “may be recorded in our 2024 legislative session scorecard” — a veiled reference to the ramifications that lawmakers may face during upcoming reelection campaigns. Americans for Prosperity has already registered its intent to raise and spend money in the upcoming election to support some candidates — and oppose others.

Advocates for the bill say that the assertions by Americans for Prosperity are incorrect. Most importantly, they say that opponents fail to acknowledge that the bill under consideration is vastly different from the defined benefits plan that existed in Alaska until 2006. That plan had no flexibility in it to account for situations in which the state’s ability to fund it wavered. But the new proposal has been altered so that if the plan’s solvency dips, employees will increase their contributions to help shoulder the burden. It also includes only modest health care benefits as a cost-saving measure.

Advocates also point to research showing the efficacy of pensions in improving recruitment and retention. Several studies have shown in other states that have some form of defined benefit offering, workers stay on average far longer than they do in Alaska, including a study of Alaska teachers conducted by Dan Doonan, executive director of the National Institute on Retirement Security, who traveled to Juneau this month to speak with lawmakers in favor of the return to defined benefits.

He found that newly hired teachers in Alaska remain educators in the state for far less time than teachers hired in California, Washington, Oregon or Montana.

The cost of hiring and training new employees each year is tallied in the millions of dollars, and is not always included when considering the cost of implementing the new plan, Ghilarducci said.

‘We have those scenarios’

The actuarial analysts hired by the state found that the plan could cost the state more than $1 billion over the course of 14 years. But Giessel said that the cost is based on an assumption that the new pension plan would lead every person hired by the state to remain in their job through retirement — leading to higher salaries over time as workers gain experience and regular pay raises.

“We don’t believe that everyone will stay for their entire career. People move around,” said Giessel. Because of that, Giessel requested the actuarial analysts to look at various scenarios, including ones that take into account that not all employees will remain in public employment through their entire career.

“Part of the reason that the House was delaying working on the bill is they were waiting for those scenarios. Well, we have those scenarios now,” Giessel said. They generally show that the cost of the pension plan will likely be below $1 billion for the 14-year period examined, changing depending on the number of current employees who switch from the defined contribution to the defined benefit plan and the number of employees who are enticed to remain in their jobs long-term by the pension option.

Giessel also said that the projected cost is not necessarily a bad thing, because it includes higher wages for more experienced workers who will choose to build their careers in Alaska’s public sector, providing better, more efficient services to Alaskans.

There is evidence that most current Alaska employees broadly support the move to defined benefits. Earlier this year, Public Safety Commissioner James Cockrell emailed all employees of his department asking them whether they supported a defined benefits retirement system or a defined contribution system. According to an email obtained by the Daily News, he received 458 responses from department employees; 82% said they preferred defined benefits over defined contributions.

“The purpose for the survey was geared toward high level talking points to bring to legislators when discussing this very political and sensitive topic, and the results will be very helpful when that time comes,” Cockrell wrote in the email sharing the results with department employees, adding that he believes “there needs to be fundamental changes to the current retirement system” for all public employees in the state.

“It is my opinion that we need either an option of a hybrid system and/or a defined benefit with both having a reasonable health care plan after retirement,” he said.

The Reason Foundation, a Libertarian think tank, has weighed in extensively on Alaska’s pension debate. In a series of opinion pieces, the foundation has argued in favor of retaining the current defined contribution plan over the defined benefit plan. The foundation has also argued that the Senate bill would add $9.6 billion in unforeseen costs to the state over the course of 30 years.

Giessel said that the Reason Foundation is backed by companies that stand to benefit financially from a move away from defined benefits.

The Reason Foundation offers free-to-lawmakers consulting services on pensions and has advocated in favor of defined contribution plans, rather than defined benefits plans, in numerous states.

Leonard Gilroy, vice president of the Reason Foundation, said in a written statement that the foundation has no financial interest in the investment decisions made by Alaska, its pension system, or individuals in the state.

“Defined benefit public pension systems invest money with many of the same companies that manage defined contribution retirement plan investments and so many Alaskans’ individual 401(k)s,” he said.

Johnson said he invited the foundation to testify during the Tuesday hearing because they were ready and able to do so on short notice, and he wanted to get a balanced view on the proposal.

Correction: The article previously incorrectly said that the Reason Foundation does not disclose its donors. The foundation publishes an annual list of contributors who provided $1,000 or more. The story also has been updated with a statement from the foundation about its financial interests.