Alaska lawmakers seek public sector pension reform over persistent opposition

Alaska House Majority Leader Chuck Kopp says that if all goes as planned, the House will vote next month on a new public pension.

A bill to reinstate a defined benefit system for Alaska’s public workers — after nearly two decades without one — “will be over in the Senate’s possession before the end of March,” Kopp said this week.

Alaska’s public employees — including teachers, peace officers, local government workers and all state workers — have been without a pension since 2006, when the state instead adopted a 401(k) style retirement plan in an effort to save money.

Unions and groups representing the state’s public employees say that the change has reduced Alaska’s retention of experienced workers.

“There is one constant theme, and that is high turnover, high vacancies, loss of institutional knowledge, loss of training dollars, and an inability to effectively deliver services because they’re constantly in a training mode,” Kopp, a South Anchorage Republican, told the House Finance Committee this month.

Kopp is working to advance legislation that was first passed by the Senate bipartisan majority more than a year ago. Last year’s Republican-led House majority refused to consider the bill, blocking its progress. But the change in House leadership this year has renewed hope that the measure could pass — despite persistent resistance from some Republican lawmakers.

Ketchikan Republican Rep. Jeremy Bynum, who previously managed the Ketchikan public utilities and served on the Ketchikan Borough Assembly, said that in his experience, retirement isn’t the driving factor in public-sector workers’ decisions to leave the state.

“There’s no doubt that retirement was part of the conversation about why somebody maybe took employment, why they might be leaving employment, but it wasn’t the primary factor. The biggest issues that drove employees where I was at away, was the cost of living in the community,” said Bynum. “It was the remoteness of being in Alaska.”

Opponents of the bill also cite its potential cost as a deterrent. They refer to the unfunded liability the state accrued before 2006, when bad actuarial information left the state with an underfunded retirement plan. The state is still paying off the liability. Though numerous measures were implemented to avoid similar situations moving forward, including requirements for additional actuarial analyses, the risk of future unfunded liabilities looms.

The exact price of the new proposed plan isn’t known — a full actuarial analysis is underway — but Kopp said he expects the annual cost to be less than what the state currently spends on recruitment and retention efforts to fill critical vacancies, which amounts to tens of millions of dollars per year.

The state has kept critical positions filled, including corrections officers and troopers, in large part by approving annual retention bonuses on top of employees’ regular pay. Still, turnover has led to increased costs for training and filling positions.

“The lost training dollars to the state eclipse the cost of what we are going to be proposing here,” Kopp told lawmakers in a House hearing.

Opposition to defined benefits proposals in Alaska has been shaped in large part by the advocacy of Americans for Prosperity — a national conservative group funded by the billionaire Koch family — which has for years recommended shrinking or eliminating public spending on pension plans across the country.

Americans for Prosperity-Alaska has launched an ad campaign claiming that the cost of the plan could force the state to implement a broad income or sales tax. Lawmakers have said no such taxes are under consideration this year.

Bethany Marcum, director of AFP-Alaska, previously worked for Gov. Mike Dunleavy when he was a state legislator. She said that “the expectation of savings to recruitment and retention is being greatly overestimated” and pointed to a recent analysis from the Reason Foundation that argued Alaska is “doing a better job at retaining public workers than most states.”

The Reason Foundation, which produces policy papers on retirement systems in various states, serves as AFP-Alaska’s “pension partner,” Marcum said — providing analysis to back the advocacy group’s campaigns.

Data recently compiled by the Reason Foundation showed that Alaska’s state employee turnover rate was lower than the national public sector average, but according to figures — provided to the writers by the Dunleavy administration — Alaska’s turnover rate rose rapidly between 2012 and 2022 — from 11.5% to 17.5%.

Ryan Frost, a researcher with the Reason Foundation, said it was possible that the sharp increase in Alaska’s turnover rate was due to the elimination of Alaska’s pre-2006 pension plan.

“That makes sense to me,” said Frost, who lives in Washington state. “I haven’t looked underneath the hood to see what the (defined benefit) turnover has looked like in Alaska.”

In 2012, 36% of Alaska’s state workers were not eligible for a pension. By 2022, that figure had gone up to 73%. Recent data from the state shows that only 37% of employees who are ineligible for a pension remain employed by the state more than six years.

Kopp called AFP-Alaska’s messaging “propaganda.”

“They have a right to argue for their interest, but they are very focused on supporting the present annuity financial services industry,” said Kopp.

Marcum said AFP-Alaska’s opposition to the defined benefit plan is driven “purely from a principled policy perspective.”

Fairbanks Republican Rep. Frank Tomaszewski proposed this year alternate retirement legislation modeled after 2023 recommendations from the Reason Foundation.

Tomaszewski’s bill would make the existing defined contribution plan more generous exclusively for public safety workers, who tend to have shorter careers. It would also expand access to the state’s Supplemental Benefit System, which is meant to replace Social Security income, and is not currently open to Alaska educators.

Tomaszewski said he favors a defined contribution plan because it allows beneficiaries to will their accrued retirement funds to their children. A defined benefit pension ensures that the beneficiary and their spouse continue to receive monthly retirement income for as long as they live, but once the beneficiary and their spouse die, funds cannot be transferred to their surviving descendants.

Tomaszewski said that he liked the idea of ensuring that children of public sector workers have access to an inheritance.

“That money is actually yours, in your account. You can take it with you, or you can will to your children,” he said.

In the Senate, Majority Leader Cathy Giessel, an Anchorage Republican, has already said she plans to take up the defined benefit bill once it is considered by the House.

The bipartisan majority in the Senate is expected to support the bill, but one of its members has remained opposed. Sen. Bert Stedman, a Sitka Republican, instead favors expansion of the Supplemental Benefit System.

“If we want to improve the teachers’ retirement, number one is they should be in SBS,” said Stedman.

By his calculation, allowing teachers to contribute to SBS would give them hundreds of thousands of dollars in additional retirement income.

Alaska is the only state that offers teachers neither a defined benefit pension, nor access to Social Security income.

The system requires both employees and employers — meaning school districts and local governments — to contribute 6.13% of participating employees’ salaries to the system. If the proposal were adopted, the cost to local employers would be in the tens of millions.

“We would have to increase the school districts’ funding to incorporate something like this,” said Tomaszewski.

In an effort to persuade reticent Republicans, proponents of the defined benefits plans repeatedly describe its lack of generosity. Unlike the pre-2006 system, employees’ retirement contributions could be raised in response to underfunding in the plan; employees would get a Health Savings Account instead of access to state-sponsored health insurance; and there would be no cost-of-living adjustment for retirees who choose to stay in Alaska.

“This is structurally so different that it’s barely recognizable. It would be like comparing a rotten apple on an old tree to a robust pear on a living tree. They’re both fruit, but it ends there,” Kopp told the House Finance Committee in a hearing for House Bill 78.

Still, Kopp said this “fiscally conservative” bill will be an improvement on the state’s current defined contribution system, which leaves most public sector workers ill-prepared for retirement and without any incentive to remain in the state beyond the initial five-year vesting period, according to an analysis conducted last year by the state’s retirement division.

“I’m actually glad that people recognize this bill is not generous,” said Kopp. “It’s almost incredible that our current system is so bad that our employee groups across the state uniformly support this bill as being better than what we have.”

Daily News reporter Sean Maguire contributed to this report.