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Some Alaska employees make bid to return to pension plan instead of 401(k)

Pat Forgey

JUNEAU -- Several years after Alaska closed its traditional pension plan to new employees, public employees are trying to get back in, but are finding stalwart opposition from the Parnell administration.

Sen. Dennis Egan, D-Juneau, said the new 401(k)-style plans the state moved to in 2006 are not serving the state well. "I want people who are public employees or teachers to be able to retire here, and contribute to our state," Egan said.

His Senate Bill 30, which would allow a choice between traditional defined benefit pension and the new defined contribution system, has been a subject of a series of discussions in the legislative committees this fall.

Despite actuarial analysis that shows the option would have no cost to the state, opponents warn that if Egan is wrong, Alaska's billions in unfunded pension liabilities could grow.

That's a risk that the state shouldn't take, said Michael Barnhill, deputy commissioner of the Department of Administration.

"We don't know what's going to happen with investment markets. In the 2050s, there could be a new downturn and create new unfunded liability," he told legislators.

How long will employees live?

Another risk to the state: unexpected longevity.

"We don't know what's going to happen with mortality in the 2070s, people could start to live another 10 years and create new unfunded liabilities," Barnhill said.

The state freed itself from that risk for those hired after July 1, 2006, because they're responsible for their own retirements.

Under those new plans, similar to those increasingly popular in private industry, each employee is responsible for making sure they've got enough money on which to retire.

The state contributes a percentage of salary into employee retirement accounts. For teachers that's Tier II; for other public employees that's Tier IV.

"Under the defined contribution plan, there are no promises made as to what those accounts are going to be worth in later years," said David Teal, director of the Legislative Finance Division. He advised legislators on the groundbreaking change several years ago.

The risk of running out of money during retirement is now assumed by the employees, not the employer, he said. "As with any 401(k) or personal retirement savings, the employee bears the risk that account is going to provide sufficient income in retirement years," he said.

Recruitment of employees hampered

To Egan, that's a risk the state is better able to bear than individual employees. "If you were a state employee, would you want to work your ass off for 40 years and then have to be getting your turkey dinner from the Glory Hole?" he said, referring to Juneau's soup kitchen and homeless shelter.

But Barnhill said the risk to the state is real as well. Health care costs, in particular, have seen increases nobody predicted. Monthly per-employee cost rose from $57 per person in the 1970s to $1,200 recently.

"The extraordinary increase in health care cost simply wasn't envisioned," Barnhill said.  By not taking on new employee commitments, Alaska is ensuring that it is able to keep those promises it has already made to tens of thousands of current and former employees, he said.

The real risk, he said, would be to take actions that threaten existing obligations.  "All across the country, states are looking at ways to reduce benefits and increase employee contributions," he said. "Alaska, instead, chose to do the right thing." In fact, Alaska has been one of the few states to move away from guaranteed retirement income for its employees, but he said others may well follow.

But union officials say that lack of a retirement guarantee is already hurting Alaska. It's making it difficult to recruit, and especially to retain state troopers and officers in several city police departments, said Jake Metcalfe, executive director of the Public Safety Employees Association.

"It's a major problem for police officers in the state that they have no defined benefit retirement system," he said.

Employees under the new system can take their retirement contributions with them when they leave state employment. In too many cases, that's just what they're doing, he said.

"They take that and go to a place that has a defined benefit retirement system because the career is physically demanding and dangerous," he said. "You can't be chasing bad guys when you are 50."

Previously, short-term Alaska employees would lose their contributions when they left.

Egan said that his bill offers employees the option that works best for them. Defined contribution may be a good option for some, Egan said, such as a military spouse who knows they'll be leaving.

"If you are going to raise a family here and retire here and contribute to the state of Alaska, you chose the other system -- you sure as hell are not going to choose the defined contribution, you are going to chose the defined benefit and we proved it was revenue neutral," Egan said.

Public employee unions helped provide funding for the actuarial analysis that showed Senate Bill 30 would have no cost to the state, but state officials have not disputed the analysis.

Instead, they said that no analysis can accurately predict the future, and that one of the reasons the state now faces billions in unfunded pension liability is due to previous flawed actuarial projections.

Contact Pat Forgey at pat(at)alaskadispatch.com