By LUCAS SMITH
At Saturday’s Alaska Senate District E constituent meeting, attended by Senator Cathy Giessel (District E), Rep. Chuck Kopp (District 10), and Rep. Ky Holland (District 9), legislators were questioned about a pension plan some intend to resurrect for State employees.
It wasn’t that long ago that the legislature took action to address a funding shortfall for the prior state pension plan, which was unsustainable. The Legislature ended the defined-benefits pension program and replaced it with a 401(k) retirement plan.
This year, the Legislature struggles to identify revenue to fund basic state programs like education.
Sen. Giessel’s recent public position on natural resource development is that Alaska is not a “colony to be pillaged.”
This suggests Sen. Giessel may not support even a modest expansion of natural resource development. But, even if she did, certainly the democratic colleagues of her caucus wouldn’t support such expansion.
At the meeting, Giessel was asked, “What is the simple funding solution to the obvious issues with reinstating a pension plan for the public employees of Alaska?”
Giessel first addressed her position about Alaska not being a place to plunder. She clarified that she envisions Alaska taking over the role of ensuring adequate regulation and controls exist to protect air and water quality. Presumably, this effort would require enabling legislation, a new state agency or expansion of existing agencies, new regulations, enforcement rules, and compliance mechanisms.
Giessel did not provide specific details about her vision for expanding environmental controls over Alaska’s resource development industry. Giessel did, however, express concern over Alaska’s history of experiences with entities plundering Alaska’s resources citing examples like the Klondike gold rush era and the fishing industry’s past practices prior to statehood.
Giessel attributed problems with Alaska’s prior pension plan to a math error committed by an actuary. Her proposed pension plan, she claims, is fully endorsed as a practically fail-safe plan following a review by current state-employed actuaries – barring extraordinary circumstances, of course.
Furthermore, two additional actuaries have reviewed and provided similar endorsements. One of these two additional reviewers is rumored to be a former state-employed actuary himself.
Some have placed the price tag on Giessel’s new pension proposal at over $9B. Senator Giessel believes her plan is a bargain claiming an annual cost of only $45M to $50M and a net savings to taxpayers after accounting for attrition and the associated administrative cost to handle personnel related expenses.
An indicated feature of the new pension plan is that contributions may depend in part on market performance, which helps reduce the possibility that the state could face future pension funding issues.
Questioned later in the constituent meeting about dealing with the Alaska Department of Transportation and Public Facilities, Giessel accused the DOT&PF of being impossible to work with, and said the only way to deal with them is to cut their budget, which she says is exactly what the Senate Finance Committee has done.
Giessel says she had identified an additional $4M reduction, but that reduction had been sidelined.
Cutting the DOT&PF budget, of course, would only make it more challenging to access Alaska’s vast resources necessary to generate new revenue and fund things like a new state employee pension program. It should be noted here that Giessel’s husband is a longtime DOT&PF employee.
There was also a suggestion that the proposed pension plan is cheaper than the current defined contribution plan. If this is true, State employees might question whether Giessel’s plan is truly an increase in benefits to state employees, or a bait and switch. We may never truly discover this, given Giessel’s propensity to disguise herself as both a Republican and a progressive Democrat.
Meeting handouts highlighted how 40.7% of state revenue is from the federal government, 37.3% of state revenue is from Investment earnings, with only 13.8% coming from petroleum. Still, a handful of constituents cheered the idea of increasing and creating new state taxes. Senator Giessel presented her plan to generate new revenue by taxing S-Corporations while painting the majority owner of Hilcorp as an aristocratic polo-club lounger.
If it is true that you get more of what you subsidize and less of what you tax, the writing is on the wall. We can clearly see where Giessel’s plans will lead us.
Lucas Smith is a resident of South Anchorage.
When it comes to pensions — there’s a reason they don’t exist in the private sector anymore.
Pensions attract the wrong people. The people that become deadwood. Pensions encourages people who have low-productivity and low concern for the mission to hang on and stay in a job they hate.
In my 20 years of public service, the best employees were not there of the pay and benefits— but the worst ones were.
“Giessel attributed problems with Alaska’s prior pension plan to a math error committed by an actuary. Her proposed pension plan, she claims, is fully endorsed as a practically fail-safe plan following a review by current state-employed actuaries – barring extraordinary circumstances, of course.”
That’s not what AI says.
“In fiscal year 2006 (July 1, 2005, to June 30, 2006), the state faced significant financial pressure from these pension systems. The decision to switch new hires to defined contribution (DC) plans was driven by a growing unfunded liability, which had reached approximately $5.7 billion for PERS and TRS combined by 2005, according to actuarial valuations from that period. This liability reflected the gap between promised benefits and the assets available to pay them, a problem compounded by overly optimistic investment assumptions, rising healthcare costs, and longer lifespans.
“For a more concrete sense of costs, we can look at pension payments and contributions. In FY 2006, the state and participating employers were making contributions to fund ongoing benefits and reduce this liability. Employer contribution rates had spiked significantly: by 2005, PERS employers were required to contribute around 20-25% of payroll (up from 6.75% in earlier years), and TRS rates had climbed to over 30%, reflecting the urgency to address underfunding. With a covered payroll for PERS and TRS likely in the range of $1.5 to $2 billion (based on membership of over 30,000 active employees and typical state salaries), employer contributions alone could have totaled $300 million to $600 million annually by 2006. Employee contributions, typically 6.75% for PERS and 8.65% for TRS, added another $100 million to $150 million.”
Who can afford 25-30% contributions?
A defined benefit pension plan such as Giessel and Kopp advocate are only economically viable when there are more contributors than beneficiaries. When the plan has more beneficiaries then contributors the plan is no longer economically viable. That is that situation incurred by PERS and why the plan was closed to new participants in 2006. It was that realization that caused every private sector defined benefit to cease operation beginning in the 1990s. It is worthwhile to note that not a single new defined benefit plan since then was started. The most insidious damage to defined benefit plans in the public sector (ie, government) is that they are subject to collective bargaining. Any new pension plan adopted by the state will suffer from that fact.