OPINION: Alaska shouldn’t risk returning to defined-benefit retirement

If you are a good-hearted Alaskan who believes lawmakers are out to protect your interests and are far above pandering to special interests to scare up votes in upcoming elections, House Bill 55 might be a disappointment.

The measure would, its sponsors’ summary statement says, “create a new hybrid retirement plan option for state and municipal peace officers and firefighters under the Alaska Public Employees’ Retirement System (PERS) with new protections for the state against unforeseen future liabilities.”

If we want to recruit and retain first responders, why not, instead, pay them more, improve their working conditions and make their lives and jobs a little easier. We might even — gasp! — consider fully staffing agencies to reduce job-related stress. There is, after all, debate about retirement plans’ role in recruitment or retention.

Does Alaska really need to open a risky, potentially bank-breaking retirement pension plan for first responders? Unlikely, and a cynic could be forgiven for seeing HB 55 as a first step in returning the state workforce to its old, bedeviled pension system, shut down years ago.

HB 55 galloped through the Alaska House 25-15 last year, largely along party lines, but with six Republicans joining Democrats in voting for passage. In the Senate this month, the legislation was forced out of the Labor and Commerce Committee chaired by Republican Sen. Mia Costello. She rightfully had balked at moving the bill because of concerns about financial risks to the state.

The bill is sponsored in the Senate by Anchorage Democratic Sens. Tom Begich, Elvi Gray-Jackson and Bill Wielechowski. It has gotten love from all the usual suspects, including gubernatorial hopeful Republican-cum-independent-cum-undeclared-cum-independent-again Bill Walker.

The measure would set up a new “defined-benefit” pension fund for first responders. The old pension plan, seriously underfunded when closed to new hires in 2006, still covers 26,000 workers. It was replaced by a “defined contribution” 401(k) retirement system. That system now covers about 11,000 state employees.

Defined-benefit plans are nothing new. They date back to the Revolutionary War, and spread as the nation industrialized. For the past 25 years, they have lost ground to defined-contribution plans in the private sector because they are expensive and complex to manage. Across the country, states’ defined-benefit pension systems largely have been underfunded and remain so. Pew Trusts says nationwide the systems are about 80% funded, a huge improvement over past years. The four states with the most financially troubled traditional pension systems are Illinois, Kentucky, Pennsylvania and New Jersey. As former state Senate President Lyda Green pointed out in a recent op-ed, Sitka Republican Sen. Bert Stedman, an advocate of the defined-contribution plan now in place, warned 17 years ago that underfunded retirement benefits in Alaska sprang from “ ‘multiple years of compounded errors,’ ” including inaccurate assumptions, a bear market, declining interest rates, artificially low contribution rates and legislation that increased benefits.” Lawmakers in 2014 approved then-Gov. Sean Parnell’s plan to shore up the state’s pension system by injecting $3 billion of state reserve funds to help pay down the unfunded liability, which at one point totaled about $12 billion, and they agreed the state should put $500 million into the retirement system every year, until the shortfall is eliminated. The plan remained underfunded by about $4.6 billion last year.

With Alaska’s old plan, dating to 1961, still underfunded, we should be leery of stumbling down the same traditional pension path — with its risks — that led Alaska into such a terrible fiscal mess in years past. What are the state’s costs for HB 55′s new pension fund? Who really knows? PERS consulting actuary Buck Global estimates it could cost Alaska as much as $7 million annually. Supporters say HB 55 minimizes risks for the state, but policy analyst Ryan Frost of the Reason Foundation’s Pension Integrity Project sees it differently. He says the bill “does far too little to prevent growing unfunded pension liabilities.”

In short, HB 55 only works as intended if Alaska PERS does something it has never once accomplished in its entire history — “get 100% of its assumptions 100% right, 100% of the time,” Frost wrote.

All this as lawmakers tell Alaskans to brace for new taxes because they are needed simply to make ends meet, and battles rage over the size, calculation and future of Permanent Fund dividends.

It is tough to understand how any responsible legislator, given the history of traditional state retirement systems in general, and Alaska’s in particular, could with a straight face choose to embrace such a costly and risky system — even for first responders — while at the same time urging Alaskans to get ready for taxes.

Paul Jenkins is a former Associated Press reporter, managing editor of the Anchorage Times, an editor of the Voice of the Times and former editor of the Anchorage Daily Planet.

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