Compare and contrast: Alaska Senate pension bill peters out, Illinois has worst unfunded pension in U.S.

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MUST READ ALASKA | THE CENTER SQUARE

The Alaska Senate passed Senate Bill 88, legislation that would revive a pension plan that was retired by the Legislature in 2006, when it became clear that such pensions were unsustainable for the State budget. Newer hires in public employee jobs were put into 401(k) contribution plans that built retirement accounts for their later years.

SB 88’s sponsors are Big Government Democrats and nominal Republicans, including Sens. Cathy Giessel, Click Bishop, Gary Stevens, Jesse Kiehl, Scott Kawasaki, Loki Tobin, Bill Wielechowski, Elvi Gray-Jackson, Forrest Dunbar, Matt Claman, and Donny Olson. They are backed by the biggest unions in the state, including ASEA and AFL-CIO.

On the House side, sponsors are Reps. Ashley Carrick, Cal Schrage, Andy Josephson, Jennie Armstrong, Alyse Galvin, Rebecca Himschoot, Andrew Gray, and Cliff Groh, all Big-Government Democrats or “independents” who use the nonpartisan label for cover.

That bill, transmitted to the House on Feb. 2, is now in the House State Affairs Committee.

Meanwhile, in Illinois, a harbinger of what awaits other states that go deeper into pensions. A proposed Tier 2 pension change may cost taxpayers billions of dollars at a time when the Illinois state pension plan is already on the verge of collapse.

According to the Illinois Policy Institute, pensions with funding ratios under 60% are deeply troubled and plans with funding ratios under 40% are likely to be past the point of no return.

Illinois, at 44% funding ratio, is home to the nation’s worst pension crisis and Chicago alone faces more pension debt than 44 states. And the reason? Much of it is due to galloping pay raises for public employees.

State Rep. Blaine Wilhour, R-Beecher City, told The Center Square that the early conversations were about fixing Tier 2 to ensure it didn’t get employees hurt by the “safe harbor” rule, a requirement in which some public employees do not have to pay into Social Security, since they’re covered by pension plans that are equivalent to Social Security benefits.

“I suspected at the time [the conversation] would transform into a massive pension enhancement the taxpayers simply can’t afford,” Wilhour told The Center Square. “We passed through the pensions committee a couple bills that are going to put billions of dollars onto the taxpayer when property taxes are already out of control. Let’s be honest about the conversation we are having. Are we trying to fix the Tier 2 system or are we trying to do a massive pension enhancement?”

Wilhour said nobody has been able to show lawmakers where a single pensioner is going to fall below safe harbor. State Rep. Stephanie Kifowit, D-Oswego, said there was expert testimony last summer.

“We had extensive subject matter hearings regarding safe harbor last summer and there were examples from both the Teacher Retirement System and State University Retirement System of individuals that would trigger safe harbor,” Kifowit told The Center Square. “So his [Wilhour’s] statement is technically false. I’m not sure what he’s basing it on. We had expert testimony that said we would trigger the safe harbor provision with regards to individuals that are retiring as soon as this year or next year.”

Illinois has an unfunded pension liability of $143 billion. Just two years ago it was $120 billion.

To compare, the State of Alaska’s unfunded pension liability is $6.7 billion, whereas two years ago it was $4.48 billion. Even with its pension plan closed over 15 years ago, its obligation continues to those pensioners who were in the system. In the early days of the Alaska Tier 1 pension, workers could retire and begin drawing their pensions at age 50. Some pensioners drew large pensions for nearly half of their lives.

That’s not the pension plan being proposed by SB 88, however. This is a modified pension plan, but it still contains the fiscal risks that other set pension plans carry. SB 88 would amend the Public Employees’ Retirement System of Alaska and the teachers’ retirement system to give certain employees the option to choose between the defined benefit and defined contribution plans of these retirement systems. The bill offers increased benefit payments to some disabled members or those aged 60 or older.

“We need to put efficiency back into state government by reducing the constant churn of employees,” said Senate Majority Leader Cathy Giessel, R-Anchorage and the bill’s prime sponsor. She believes by returning to defined benefits, more employees will stay in government work, and thus, government will be more efficient.

Another Alaska bill seeking changes for state worker retirements is House Bill 302, which would improve the defined contribution benefits currently offered to the state’s teachers, police, and firefighters.

HB 302 would boost state contributions into the defined contribution accounts of public safety workers, and it would give public school teachers access to the Supplemental Benefit System-Annuity Plan, which other government workers in the state have access to.

But both SB 88 and HB 302 are in the House State Affairs Committee, with Sunday, April 14 being the 90th day of the Legislature this year, and only one month to go until the House speaker and Senate president must gavel out on the 121st day, leaving any unfinished work to either die or be taken up in a special session.

Contributions from both Must Read Alaska and The Center Square are in this news story.

36 COMMENTS

  1. They are after the PFD.
    We need the PFD enshrined in the constitution.
    These unions want the PFD and the majority of Alaskans can’t see it.
    We will all lose our PFD and get a new tax to support the unions.

    • The Left isn’t after just the PFD. The are after the corpus of the Permanent Fund, and they have figured out a way around the state constitution to get their hands on it.

    • Yep.
      All the oil money & profit from the Fund MUST go to our public “servants”
      How’s that for the Government screwing w/ our language to benefit themselves?
      Since when do the “servants” get everything?

      I was paid to do things that helped & aided others my whole life, but I am not government so I am not a “servant” ??

  2. I have no sympathy for pensions. They are truly a financial disaster. How to increase taxes? Pensions. How to contribute to inflation? Pensions. How to feed entitlement? Pensions.
    This is natural law: If you don’t work, you don’t get paid. Pensions ruin budgets. Full stop. Why is someone entitled to continue getting a paycheck from an entity they previously worked for when they no longer work there?

    • Pensions are Great.
      I am collecting 3 of them, all private & invested in Wall St.
      They could get reduced or go away since they are not backed by the government.
      That’s the chance I took & so far, so good.

      Do you think we should do away w/ social security?

  3. We need to put efficiency back into state government by cutting 1000s of jobs and ending union contracts.

    But we’re not gonna, so go ahead and commit economic suicide.

  4. Alaskans in private business don’t have pensions. If they’re lucky, the get access to a company 401(k). Matching funds are long gone for most. Most people just have their own Roth or 401(k). The State of AK and Muni both got rid of their pensions for one reason: they can’t afford them. By what measure of insanity did the senators and representatives above think that this was a reasonable bill and one that would be supported by the vast majority of Alaskans who don’t have and never will have a pension? Tools, all of them.

    • The public employee unions could care less where the money comes from. They just want it. Plus they assume no risk for the program. The majority of people who assume the risk (all of us) do not get this benefit. If the employee unions want to run a pension system and assume 100% of the risk…great. But they won’t because they understand how it works.

    • The Muni did not get rid of pensions.
      The Muni unions are alive & well, as are they great pension deals.
      Who do you think pulls the strings in Muni elections & elects the communists on the assembly?
      The Municipal unions, that’s who; and they do it to feed their paychecks & their Cadillac pension plans.

      Muni carpenters, bus drivers, painters, plumbers, teachers, janitors, mechanics, electricians etc are getting pensions.

  5. Need help with your pension? Make a deal with the anchorage school district. ASD kicked roughly 4 million into the teamsters national pension. So truckers and bus drivers and tool room hermits who have never nor will ever set foot in Alaska are getting paid by us to live out their retirements. Good stuff.
    “But…but…but the ASD can barely educate the kids with the amount they have.” Yeah right.

  6. So for all of you who are against the pension, what are your proposals for addressing are chronic law enforcement and teacher shortages? Because working for a law enforcement agency, I’ve spoken to many people who have left after getting the training, and many have left for other states who offer pensions. We’ve tried multiple different things and we are still in a staffing crisis. People come here, work until vested in the 401(k), then leave for a state that has pension, while keeping the funds the state put in their 401(k). The current formula of Tier IV is a lose-lose for the state.

    • Why do they do that ?
      Come to AK to start in law enforcement, then leave for a pension?
      Why don’t they start their career in ANY OTHER state, that ALL have good pensions?
      It’s not like a move into , then out ,of AK coats nothing.

      • Other states require getting vested, usually a minimum of 10 years service. And most states set the payout based on the last three years of service to incentivize staying for longer careers.

        • That system of “last three years” pension benefits booster might encourage people to keep slogging away as a state employee long enough to qualify.
          But human nature surfaces, here. State employees have told me that this system allows them to pad their allowable working hours in many creative ways, so their pay over the last three years is hugely more than they ever made under normal work hours.
          That increase in average hourly pay qualifies them for inflated pension pay forever, after they retire. And they are also incentivized to retire the day after those last three years of padded income.
          A change to salaries, with built in nominal pay increases as the years pass, would solve this particular loophole that state employees can now exploit to their undue benefit.

          • The proposed pension would be a “High 5” instead of the old “High 3”. If you can keep up doing large amounts of OT for five years, I’d say you probably earned that. Alos the new pension wouldn’t be a 20 years and automatic pension payments. It would be 30 years and no payment until 60 (there is an exception for Law Enforcement, given we have a job which is tougher on the body. It would be retire at 55 with 20 years or 50 with 25 years.) Additionally, there is no clause for health insurance paid by the state if you work 25 years. There would be no health insurance.

          • I would also add look at the average age of death for Law Enforcement after retirement. For me, I’ll have statically maybe 5-10 years of retirement before I die. So that pension won’t be paying out for very long.

          • “A Desert Waters report adds that on a national average many COs live only 18 months after they retire as their life expectancy age is 59 compared to 75 for the national average.”
            ‘https://www.sctimes.com/story/opinion/2018/06/09/hardships-correctional-officers-often-go-unseen-public/670334002/

            “On average, law enforcement and correctional officers died 12 years earlier than the general population. In other words, law enforcement and corrections officers lived 62.4 years compared to 74.2 years for the general population.”
            ‘https://nicic.gov/resources/nic-library/hot-topics/correctional-officer-life-expectancy

    • I’m not against a well managed pension that can pay for itself. However, that’s not what was proposed.

      Pensions in and of themselves will not keep people here. Life here is tough and most can’t hack it. Regardless of pensions.

  7. When I got hired into tier IV and started the 401k thing, we were never put back into the SS pool. Safe Harbor should have been tossed out since our pension is what we put into our 401k. Everyone else on 401k’s in industry is in the SS pool. We really got the shaft by the state brain trust on that one….

  8. Defined Benefit Pensions for State or Federal workers are a thing of the past. Every one of them has unfunded liabilities that will eventually consume the budgets of the states, municipalities, et al, that have embarked down that path! Even if the Legislature could obtain their wet dream of confiscating all of the PFD to fund a defined benefit pension plan, it would still come begging to the State to bail them out in a few decades, at best.

  9. The State defined benefit system got into trouble because of bad actuarial advice.
    The State followed bad actuarial advice, so bad that they successfully sued the actuary (Mercer) in 2007 and settled for them paying the State $500 million dollars, pennies on the dollar of what they cost us.
    A properly run pension system, which pretty much EVERY state except Alaska has, is totally affordable. What is NOT affordable is training and then losing most every new employee we have.

  10. Your attention please. There is likely to be a big push – a big union push – to move these defined benefit bills. Testimony will be a numbers game. You can call in from your home, your truck, your office – where ever you are. If there is a hearing it’s important that you call into that hearing! Numbers matter. Look for the notice in Suzanne Downing’s thrice-weekly newsletters!

    Supporters of these bills don’t only want the entire Permanent Fund to go to state employees’ pensions. They also want an income tax, and a new defined benefit plan would surely bring that.

  11. The costs that never get calculated, in the case of law enforcement, is what is being spent on the 5 and out rule. Our officers get hired, backround checks, academies, field training, uniforms, equipment etc. Add to this huge signing bonuses need for recruitment. In five years, these officers are fully vested and can leave with a healthy sum of money. Then, we start all over again. Wash, rinse, repeat.

      • MA – The Employee Retirement Income Security Act (ERISA) passed into law waaay back in 1974 stipulates a 5 year vesting requirement for private & public pension plans.

      • MA, current Tier IV Defined Contribution has a tier system as follows. 0-1 years no vestment, 2 years, 25% vestment, 3 years 50% vestment, 4 years 75% vestment, 5 years 100% vestment. What we find is a high turnover rate in the first year, as people realize the job isn’t for them, and don’t have enough skin in the game to stay. Then, at 5 years full vestment, we see another high turnover as people who decided to quit a year or two previous, but stayed until vestment, leave with their money. Also by the time of full vestment, any hiring bonuses are no longer required to be repaid if you leave. These officers come here, get $10k for DOC and $15-$30k for AST, plus moving stipends, get their full matching funds from the state, a bunch of certificates and work experience, and leave for states with pensions.

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