In a bid to address perceived State of Alaska employment vacancy and retention issues, the House Democrat-led majority has introduced House Bill 78, a pension reform measure they claim is a middle ground between past defined benefit retirement plans and the current defined contribution system.
In reality, the State of Alaska added 700 people to its roster last year and is projected to be staffed by 24,000 workers in 2025. It remains one of the biggest employers in the state.
Yet the perception of needing a lavish pension plan, as was used in the 1970s to attract workers to Alaska, persists despite the evidence it’s not needed.
The House Finance Committee bill proposes a risk-sharing retirement model where responsibility is distributed among employers, employees, and retirees. This marks a departure from traditional defined benefit plans—where the employer bears most of the financial risk—and the existing defined contribution plan, which places the burden largely on employees.
Read more about HB 78 at this link.
The House Finance Committee is co-chaired by Democrats Neal Foster, Andy Josephson, and shape-shifting Cal Schrage, who claims to be an independent.
“It is time to act. Firefighters, law enforcement officers, teachers, and other state employees have been calling out for a change to our broken retirement system for years,” said House Speaker Bryce Edgmon, formerly a Democrat but now independent as a matter of political convenience, which allows him to switch back and forth between political alliances. “This bill presents an opportunity to finally have an honest discussion in the legislature, and with the public, that has been stifled for too long. With House Bill 78, Alaska has a real opportunity to make our state a competitive employer again.” (*Italics by Must Read Alaska)
House Majority Leader Chuck Kopp, a Republican who has joined forces with the Democrats to create a Democrat-controlled majority, said, “HB 78 will be considered with an eye toward a safer, more attractive, and orderly state that provides stability to businesses and families when making decisions to invest in Alaska.”
Representative Neal Foster, the Democrat co-chair of the House Finance Committee, explained, “HB 78 is about responsible retirement security that will not burden future generations of Alaska with unreasonable debt, and will make sure our workforce has reason to stay in Alaska.”
Are public employee defined benefit pension plans sustainable?
While HB 78 proponents say this bill will strike a balance, critics argue that any return to elements of a defined benefits system could create long-term financial liabilities for the state.
Defined benefit pensions, where employees are guaranteed a specific retirement income, have led to significant underfunded pension obligations in all the states where it has been used in the past.
In Alaska, the $7 billion still owed to the previous pension plan, dissolved in 2006, amounts to $9,524 per Alaskan owed to the pensioners still drawing from it.
The issue of growing unfunded obligations stems from a combination of factors, including longer life expectancies, inaccurate actuarial projections, and economic downturns that shrink investment returns. When these systems fall short, taxpayers will have to cover the gap.
Economists say the State of Alaska is uniquely at risk in these employer-guarantied pension schemes because the Alaska Constitution guarantees existing public employee pensions must be paid, as a much higher commitment than the need to plow roads, pay a Permanent Fund dividend, or even fund the University of Alaska. Article XII, Section 7 says public employee retirement benefits are contractual and cannot be diminished or impaired.
Now that the buying power of the Alaska Permanent Fund has failed to grow for some time and the Permanent Fund dividend has been skimmed off in order to increased state spending, public employee unions have the remaining Permanent Fund balance in their sights.
While the corpus of the Permanent Fund is protected in many ways, HB 78 does not protect it because of the Constitutional provision that says any retirement benefits must be paid.
HB 78 also does not acknowledge the congressionally passed Social Security Fairness Act, which was signed into law earlier this year. Alaska public employees benefit from this new law more than those of any other state. State and municipal employees, and retirees, in Alaska, including teachers and firefighters now have the entire Social Security entitlement for the first time since 1977. Therefore Social Security becomes for them a fully funded defined benefit retirement system, a very progressive one at that, in addition to the PERS and TRS defined contribution retirement systems.
PERS and TRS defined contribution systems are 401(k)-type plans that are more generous than most offered by private sector employers in Alaska. Supporters of the defined contribution systems, now almost 20 years old, point out that it has much more portability than defined benefit pensions.
Alaska moved away from defined-benefit pensions in 2006 due to the escalating costs of funding retirement obligations and price shocks not foreseen by actuaries of earlier years.
Defined contribution plans shifted more of the responsibility to employees, but also have contributions from the state. Yet they reduce the state’s financial exposure.
HB 78 is complex, as are all public pension systems. The bill is 52 pages of jargon, equations, and moving parts. No one would be ready to fully explain it upon a first reading.
However, one of the main flaws of the the bill is that it suffers from what’s known as adverse selection. It allows people to pick and choose how much the employer — the State of Alaska and local taxpayers — will be on the hook.
Also, the bill does not address problems unique to Alaska, such as the state taking on the majority of the responsibilities of the employer for municipalities and school districts that are not supported by property taxes. Those employers make decisions costly to the system and those costs are shifted to the State treasury and the Permanent Fund Earnings Reserve Account.
Public sector pension obligations are a growing issue across the United States, with several states grappling with severe pension funding crises, even though all states have discontinued these costly programs. Illinois, California, and New Jersey serve as cautionary tales, where massive unfunded liabilities have strained state budgets, forcing cuts to essential services and leading to tax increases to cover pension shortfalls.
Any sustainable retirement system must carefully balance benefits with fiscal responsibility. While HB 78 aims to mitigate risk through a shared model, fiscal conservatives warn that any system that shifts responsibility back to the employer could create financial obligations for future generations. If investment projections fall short or demographic trends change, taxpayers could once again be on the hook for shortfalls, undermining the bill’s goal of long-term sustainability.
HB 78’s destiny is uncertain as already there is another bill on the Senate side to bring back defined benefits at a time when billions of dollars are still owed to retired workers who were part of the old pension plan.
The bills in the House and the Senate would benefit elected officials at many levels, including legislators and staffers, and of course the executive branch at all levels.
There’s a general sense in Juneau that the House and Senate majorities have the numbers to enact a defined benefit retirement bill for public employees this session. The Department of Administration, which houses Retirement & Benefits, has been told to remain neutral on this financially critical matter. Since state finances are already so overdrawn and bleak, it’s likely that Gov. Mike Dunleavy will veto anything that brings additional financial uncertainty and budget stress.
Agree! It would be insane to adopt a plan to attract workers when that isn’t the problem! The problem is that Alaska’s give is TOO BIG & it has TOO MANY welfare programs & little recourse or incentive to get people off the rolls!
What Alaska needs is DOGE.
Politicians see the people’s PFD as their personal piggy bank.
They are going to wind up having it all and spending it all.
Absolutely foolish idea to break Alaska again. Libs never stop trying to destroy what is not theirs. Line item veto. All you RINO’s in the legislature should burn in hell for supporting this liberal garbage.
It’s extraordinarily poor financial management that the state has a $7 billion unfunded liability against a guaranteed retirement system that has been essentially closed for almost 20 years. However, had the defined benefit plans not been closed the past-due liability amount might well be $30 billion today!
The way the arithmetic works is that the unfunded liability is accruing interest at a rate of 7.25 percent so long as it remains unpaid. There is a hole in the trust funds of $7 billion, and that amount plus interest will eventually be paid by some combination of Permanent Fund income, petroleum revenues, and/or a state income tax. If the Legislature doesn’t eventually pay it then a court will. Restarting defined benefit retirement for new employees plus allowing almost 20 years of past hires to convert from defined contribution to defined benefit now, if this legislation becomes law, is a way both give state employee unions a clear claim on the Permanent Fund corpus and ensure there will soon be a state income tax.
The PFD would be an early casualty if this new plan became law as it’s not in the constitution. The legislators sponsoring this legislation would be defined benefit plan beneficiaries themselves, and they would like to abolish the PFD without being blamed. Most or all of them have at one time or another supported an income tax.
Kayak. Very well said!
I have absolutely no faith in the unethical politicians in Juneau. Especially “Republicans” traitors.
A pension plan is contrary to the Governor’s outmigration policy which negates the need for workers.
What do you want to bet it’s all about the bast… er, Democrats knowing the gas line is coming and wanting to bulk up state government to cash in?
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$9,524 per Alaskan… take each Alaskan’s PFD for the next five or six years, crisis averted, no?
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Stiffing productive Alaskans with state sales and income taxes should keep the rotting corpse of Alaska’s state government afloat until the next fiscal asteroid hits or until Alaska’s education industry demand more money …oh, wait, they’re doing that already, aren’t they?.
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Anyone seeing a trend here?
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https://mustreadalaska.com/state-commission-votes-in-automatic-pay-increases-for-politically-sensitive-state-jobs/
https://mustreadalaska.com/david-boyle-calling-bs-on-bsa-and-the-fiction-that-flat-funding-and-inflation-caused-alaska-schools-to-fail/
https://mustreadalaska.com/robert-seitz-education-reform-must-happen-first-before-any-increase-in-school-funding/
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Vermin must be doing their Happy Feet knowing they successfully FUBAR’d Alaska’s election and grand-jury systems to the point voters and state law-enforcement can’t touch ’em, no?
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For now, anyway.
And how many of the Republicans that joined the majority coalition this session will be participants in state pension funds?
Obviously NO Senator or Representative supporting this RAID on the treasury has us regular Alaskans in mind.
It is INSANE‼️
One good reason that I can think of for them to make it more complicated, is to make it more difficult to unwind should they get it to pass. This untenable scheme to bring back covered wagons is blatantly absurd on its face.
Isn’t government pay and benefits supposed to be in parity with the private sector? I would say defined benefits are not.
The state should become more fiscally conservative. Dunleavy and legislature has given in to public unions way too much.
401Ks are good for the private sector and should be good for state employees.
Pensions went out the window years ago. They all went to 401 k. Why doesn’t the State do the same? These pensions are ridiculous!
It is ridiculous.
This is crap. Every state job is better pay and benefits than anything in the private sector, with the possible exception of IBEW1547, which is able to hijack millions from rate payers for electricity in Alaska. I would submit the problem is the upper management bureaucrats are probably a huge pain in the ass to work for and the requirements for towing the political line is more important to these leaches than the actual ability of the guy doing the work.
I’m sorry but you are quite wrong. Many state jobs have a much lower pay scale than private enterprise. Anything to do with information systems whether it’s IT or programming or whatever does not pay anywhere near what the private sector does. Engineers such as at ADOT are rgularly siphoned away to private firms as the private sector pays much more. Heav equipment operators and truck drivers work at a much lower schedule than the private construction workers make. We are talking making 50% to 100% less. If you don’t believe me try doing some research before you spout off like that.
Then raise the pay rate, but do not bring back pension liabilities that will be paid out of the Permanent Fund (forced by courts if necessary; and yes the courts will force payment).
You can even make the 401k match more generous, but once 401k contributions are made by the State there is NO More Liability.
Agree also. You both have good points.
You have it spot on
Sorry, not buying it. I have been a state, municipal and borough employee and have now worked for our family owned self employed business for several years. Government jobs are top of the pay scale, with very generous leave time and retirement packages. I am PERS tier II but did not retire under PERS albeit am vested. I am stunned at the benefits I am eligible for even with less than 15 years in. The private sector on the other hand have to be wise and manage their own and that is realty.
I don’t care.
Before we find ourselves with an army of state workers with unfunded liabilities galore we ought to knee cap this mess right now.
We need a revolution in this state.
Mr. Hanna, I could not disagree more with you. If you take into account the 37.5 hour workweek, the six weeks of paid vacation that comes to state and muni employees who have been on the job just a few years, and the 12 to 14 paid holidays (not to mention so many still “working from home”) you have to acknowledge that public employees only work 2/3 as much as their private sector counterparts. And remember the travel per diem and that private sector workers travel on their own time whereas public employees travel on the clock. Add to that the airline miles so many employees and elected people accrue just about every week. And add to that the employed for life situation in the public sector that isn’t common in the private sector unless Mom and Dad own the place.
Now add to all that the fact that public employees receive the 401K type retirement in their current defined contribution PERS and TRS retirement PLUS the full defined benefit on Social Security. On top of all that they can and frequently do set aside tax-deferred money in IRAs, 529 funds and the like! Bert Stedman knows (and Cathy Giessel may not) that most public employees are triple-dippers.
Every person working at Fred Meyer and Safeway wants to instead work for state government! What does that tell us?
Don’t forget that government employment attracts the halt, lame and liberal. A greenie Democrat handing out SNAP benefits at the state wouldn’t last a week in a private sector job where a person is judged ON WHAT THEY PRODUCE. Can anyone tell me where I am wrong in this?
Agree
HOW ABOUT THESE CLOWNS STOP GIVING THEMSELVES MORE MONEY AND BENEFITS WHILE THEY ARE STILL STEALING MONEY FROM OUR PFD’S !
Yeah because Troopers and Corrections Officers are raising the PFD
If the IRA is good enough for American workers, it is good enough for government workers. Right?
Maybe not. Gotta put something in the kitty to fill undesirable jobs
Perhaps, the undesirable jobs are not really all that important.
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Ever thought of that?
He doesn’t have enough schooling to think.
Those undesirable jobs include policing the streets, keeping them behind bars, and filling potholes and plowing roads. Kind of need that stuff done, ever thought of that?
Agree. As self employed business we have IRA, mutual fund, annuity and individual stocks. That is the reality of the private sector which government should be in parity with.
What a waste of time. It’s simply grandstanding to put so much time into something the Governor will just veto.
We’ve become an economic experiment. How far can Alaska be squeezed before complete collapse?
Until the next Democrat wins the governor’s office….
The wage rates may be lower at the state, however no profit motivation exists so the work demands are generally less. Also we have 12 paid holidays and very generous leave that balances out the lower pay. Getting fired for poor performance after probation is also very difficult to accomplish.
I’d be OK with the state providing this pension plan on the condition that it is predicated upon moving from having one of the highest levels of state employees per capita to a state with one of the lowest levels of state employees state per capita.
Can we borrow Elon to fix this mess?
What do they do in Florida, SD? We could learn from that great “Free State” where our next president Ron DeSantis is solving all problems. He’s an advocate of “read my lips, no new taxes”, and I love that man.
Please share.
If a pension system is enacted, will PERS IV go away or will employees have a choice? If so, many might choose PERS if they’re not going to be here 20+ years. We could slow the revolving door of law enforcement and the ongoing recruiting, hiring, training cycle that is so time consuming and costly. We need more open minds here.
Agreed!
Considering how DOC is having issues filling positions, and many of the CO’s leave after the five year vestment period, defined benefits would be beneficial. Instead of every five years losing the matching funds as the officer leaves for greener pastures (often states that have pensions), they would have to stay for a longer period to be eligible for any pension, even a reduced one, and stay for a full career to receive a larger pension.
I am fine with this as long as all legislators who are vested in the state or have spouses vested, announce a conflict of interest and not vote! Exactly why should one sector of workers be rewarded with a golden parachute when the single mom working at Walmart has nothing?
Chuck Kopp at least admitted he wanted a return to defined benefits when running, but he sure does lie about what it will cost the state of Alaska. This and HB 69 (Education funding) will bankrupt the state once they take you PFD and there is nothing left. With 23% of all AK workers in the state being public sector union, it is a hard one to defeat. But unions have NEVER cared about children or the parents of children unless you are a member of said union!
The reason a defined benifit needs to happen is pay. The for example, the average RN in Alaska makes 99,110 per year. The Avrage school nurse with the same degree makes 72,193 per year. I understand they work less hours but given the rules around investing in tax deffered retirement plans they are unable to even leaglly invest enough income to build a retirement fund. This pay difference is consitant with public employees with higher level training. Seems the only answer to attract and keep good employess is through benifits or pay. Either one means the state needs to pay more. Which we either give something up or stop whinning about the poor work performance.
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