Lyda Green: HB 55 public pensions would be far too expensive for Alaska’s budget

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It’s been 16 years since Alaska lawmakers moved away from an increasingly expensive and debt-riddled pension benefit to a more financially sustainable retirement option for public workers and educators.

Now, in a purported attempt to stop the exodus of expensive, newly trained public safety personnel, lawmakers are considering a return to a pension scheme based on the same flawed policies that generated debt and budget problems for the state in the past. 

When advocating for the legislation launching the state’s current defined contribution retirement benefit back in 2005, Sen. Bert Stedman warned that the state’s then $5 billion in underfunded retirement benefits was a result of “multiple years of compounded errors,” including inaccurate assumptions, a bear market, declining interest rates, artificially low contribution rates, and legislation that increased benefits. 

The senator went on to say that the Legislature had insufficient and inaccurate information when critical decisions on funding and risk were made. The legislature today appears to be following the same path with House Bill 55 (HB55), legislation that would launch a new—and risky, as designed—pension system. And much like Sen. Stedman’s diagnosis of previous bad decisions, today’s HB55 has yet to receive any actuarial analysis of the potential long-term risks and costs associated with such a drastic shift in plan design.

So far, legislators appear to have completely relied on proponents of HB55 for data and context, usually a recipe for bad policy outcomes. The narrative proponents curated around HB55 centers on claims that the solutions being considered in HB55 are well-studied, low-risk and drastically needed to maintain law and order.

Over the years, previous similar attempts to return to a traditional pension benefit for first responders have been reviewed by actuaries, most recently HB79 from 2020. In that report, state actuaries found that, given certain market returns, the legislature could expect to pay between $100 million to over $1.6 billion in additional contributions over the next 20 years, without a guarantee that all earned benefits will be fully funded. Despite being introduced in February of 2021, HB55 has yet to receive an actuarial evaluation.

The claim that HB55 is low-risk to state and local budgets is a reference to what proponents call new “cost containment levers” like a minimum retirement age, a member contribution rate floor, and a cost-of-living-adjustment that suspends if the new fund falls below 90% funded. But those policies would only be tantamount to a band aid on a bullet wound once markets underperform. 

While the COLA changes and a minimum retirement age would be effective cost saving measures, setting a member contribution rate floor along with a rate cap like HB55 suggests simply ensures all future fund underperformance beyond the cap will be placed on the backs of state and local budgets.

Capital market forecasts expect well below 7% returns over the next decade and other pension systems are rapidly lowering their investment targets. By doing nothing to reduce the current 7.38% assumed rate of return, HB55 stands out of step with recent state-level trends and makes the scenario where rates exceed the member cap much more likely. More concerning, the limited analysis available on the potential costs of the reform are relying on that same overly optimistic rate. 

Finally, to maintain law and order, the state must have the ability to effectively recruit and retain qualified public safety personnel. The retention challenges facing the state in this regard are nearly identical to challenges reported by public safety leaders in almost every other state in the country, all of which have continuously offered some type of traditional pension benefit as a benefit. There is no data to support the expectation that offering a pension benefit will have any impact whatsoever on retention.

Other states offering public safety pensions have the exact same issue today, as do teacher workforces, public agency workforces, and even the private sector. 

Notwithstanding anecdotal proponent testimony, academic research suggests that retirement design is not a powerful motivator to public workers; rather, working conditions and salary tend to drive individual decisions to start, continue or change careers. Early career new hires specifically tend to focus little on retirement offerings themselves relative to the entire package of salary and benefits. 

Opening a new tier in the previously closed public pension system would move the state back from its current risk-free retirement design for new public safety hires and expose the state to the same types of unfunded liabilities that prompted closing the pension fifteen years ago. HB55 as designed does not adequately mitigate financial risk to governments, which makes the current proposal a risky gambit for Alaska in the current, volatile economic climate.

  • Lyda Green was president of the Alaska Senate, 2007-08.

25 COMMENTS

  1. Due to the sensitive nature of what l am going to say, you will not hear any politician or AST brass bring it up in the next Senate hearing. But it needs to be said. And we need to figure out how to address it if we are ever to retain top quality State Troopers throughout the State.

    Retirement is not what is causing AST’s retention problem. Rural housing is not the problem. Salary is not the problem.

    The problem is the duty location.

    Imagine being a young 22 year old, fresh out of college and just hired to be one of Alaska’s finest. 16 weeks at the academy, a badge, a uniform, a gun, and an exciting career in front of you. You get sent to a population center for field training. Usually two years in Soldotna, Mat-Su, or Fairbanks. The job is exciting, you make new friends, the pay is pretty good and before long you find a spouse and get married. You settle into life and soon, kids. Things are going great.

    About three or four years into your new job you start getting pressured to sign up for rural duty. The department will pay up to 40% more if you go to a village but the move seems awfully inconvenient. Your spouse has a job in the city and your kid is making friends. Soon, the little one will be read to start school.

    Sooner or later it is made pretty clear that are going to have to choose a rural location because that is where the department needs Troopers. So, you start doing some research. Housing? Maybe not as nice as you prefer but the department will subsidize the vast majority of the costs. Awesome! Moving expenses? AST will move everything you own for free. Not too shabby. Now, what about schools? Hmmm, thats a tough one. Playgrounds for my kid? Restaurants to take my family to? Barbeque cookouts with my buddies? Grocery stores? Hair salons? Gosh, a whole lot of the things you started to build your life around won’t be nearly as accessible as they were in town. At least not in the way you have become used to.

    Alas, you are a tough one though and you are dedicated to your job and know you can make anything work. But still you wonder. Will my spouse like living in a village? Can they find meaningful work? Will my kid fit in at the new school? Will I be appreciated in a new town? Will I get to do all the fun training and high risk arrests l secretly enjoy the heck out of? All of the sudden you start to wonder???

    And then, you get a call from an APD recruiter.

    This story plays out a dozen times every year in the AST ranks.

    Pension plans will make no difference.

    • Excellent description of the situation. It exists not only for The Troopers; it’s reality for all sectors. No change to the pension plan is going to change that reality. Retirement is a long time off for those younger folks. Private businesses are seeing months on end with zero response to job offers. Yes, in many of those cases it IS economic. The housing and general living costs require high wages but granting them does nothing to overcome the social issues. Local hire? Why are people with rural roots not taking those jobs? Economic reality is that despite high pay housing is near impossible to find; educational opportunities for any offspring are well-funded but not up to the standards a responsible parent requires. Money now or money later (pension) does not make the difference.

      With all that there is one more factor nobody wants to think about, let alone discuss:

      When applying for any job the questions are asked about drug use and criminal record.
      One “Yes” and it’s effectively over. Application appreciated but rejected. The word get out; don’t bother applying at _________________. (you fill in the employer – it’s the same for all sorts). No consideration of whether there has been rehabilitation. Do the crime and you do the time. Life. Life without a job.

      Want to put money into something that will work? And NO, this won’t work for The Troopers or most levels of safety/security. Put money into making effective rehabilitation possible and real. Convince employers to weigh their standards against reality. Put money into keeping young people from going down the drug/booze/petty crime path.

      I know a few troopers – the smart ones who have a lot of time in already elect to spend some time – near retirement – in the villages. It has the potential to raise, for a year or two, the final pay figure that goes into the calculation of how a near-future pension might look. Problem is that it doesn’t work for younger folks. Their vision of their later-in-life future is not at all clear.

      Throwing money at pensions will, indeed, make no difference. Making rural Alaska a better place to live will work and yes, it will cost money. But it’s also going to require some big attitude and “face reality” changes.

    • Great point.
      .
      Seems like a glaringly obvious, avoidable deficiency in the quality of recruitment, psychological evaluation, and training.
      .
      Recruits who don’t see AST as a calling, a commitment, will have or create issues with challenging duty locations… and probably everything else.
      .
      Think Robin Sage. If troopers don’t receive pass/fail immersion training in language and culture before assignment to rural duty, it’s rather hard to imagine what else will prepare them for reasonably successful interaction with indigenous people… on their turf.
      .
      Sure and such a thing’ll pull heavily on state purse strings, but your point remains: is this a public-safety job to be managed and executed properly or is it just another financial abyss to be filled with money and excuses?

    • You know going in that you can be force transferred during your first five years of service, but that doesn’t make the reality of it any easier. I’ve been to almost all of the places where the State has a Trooper(s) post. Beyond the regional hubs and the road system and Southeast posts the only way to get urban amenities is to get on an airplane and go to an urban area. Being a police officer is hard on marriages under the best of circumstances. If you’re that young, single, low seniority Trooper contemplating marriage and a family you’d best have a very good understanding with your intended about what a few years of your lives together may well be like.

      It’s not just the toll it can take on marriages, it takes a real toll on your associations and social life. I once had to deal with a grievance by a force transferred Trooper seeking reassignment to an urban area becauuse of the dearth of single, attractive women in the area of the Post. I’ve slept on some of the best floors in rural Alaska, but even in my days with the BIA I didn’t look for opportunities to stay overnight beyond the regional hubs. I’ve had two wives during my time in Alaska and dated a fair share of Alaska women in between them. Wife v1.0 who came here with me wasn’t really happy if she was out of sight of Nordstrom’s. Wife v2.0 would be OK in a regional hub; she spent most of her adult life in Juneau, but the credit card bills for online shopping would be astounding. And as to kids, urban schools in Alaska are bad enough so I can’t imagine trying to educate your kids anywhere beyond the regional hubs. I think if I were a young Trooper with a spouse and kid(s) facing a forced transfer to a rural post, I’d leave spouse and kid(s) in town and hope the marriage survived.

      All that said, there are some who love the rural postings, some too much. Some Troopers become truly Bushy and don’t play well with others anywhere else. Unless they’ve made structural changes since I retired, the structure of rural postings was set in the early 80s and the State has been in retrenchment from rural law enforcement by Troopers since those days. Frankly, in large swathes of the State the rural residents don’t want Troopers there any more than Troopers want to be posted there. At one time in the Nineties, some villages were demanding that the Troopers secure the village’s permission before entering the village. Not even Democrats would let that stand, but the sentiment is still there, and every Democrat administration brings out new talk of Indian Country and Tribal Police administering tribal law.

  2. “Off the Record” and Lyda Green couldn’t be more wrong. Lyda is an outsider looking in and stating “studies show” but not naming studies and frankly ignoring the precepts of “Lies, Damn Lies, and Statistics.”

    “Off the Record” will also find that even though there is a trend to hire younger and younger AST, it is not an indicator of the labor market, it is in symptom of the loss of PERS. You want the more mature of 30yoa+ v. a manchild of 22 or 23…so many that start a LEO career at that age find out very quickly they can’t hack being a LEO, much less an Alaska State Trooper. You’ll find that the candidates you DO want look at retirement and benefits, if those aren’t competitive, you simply get half-baked tweeners.

    So spend real time around working Troopers or better yet, go spend with separated Tier 4 former Troopers…don’t rely upon the joke that separation interviews or questionaires are.

    There has always been a pull to APD from AST among Troops with less than five years on, especially from the Valley.

    However, if someone were to say “yep, the Troopers should only be in rural communities that haven’t the tax resources to support professional law enforcement” I’d wholeheartedly agree.

    So…pull 90% of those Troopers out of the Valley, away from the Kenai Peninsula, and vacate Fairbanks AST Post and let those boroughs fund their own law enforcement…

    AST has no business being in areas where taxpayers can fund a Borough Department when smaller communities are lacking.

    So..let’s save the SOA some cash and put the financial burdens of receuitment, training, retention, etc. on the organized boroughs. I’ll just sit here and enjoy the show.

    • Excellent comment. Another small (sarcasm) impediment to keeping the best of the best is no employee ever enjoys being administratively throw under the bus for appeasement of the social media masses. DPS has enough problems within without dumping on their dedicated staff. Another morale breaker is pressure to keep the stats up, even when the public is behaving. So having to work traffic in order to get those numbers up causes Trp’s Jack and Jill to behave more like revenue collectors than dedicated public safety officials. And that pressure is real. And it reflects in public/LE acceptance and cooperation. This article is biased and pretty much BS. Benefits and pay matter.

  3. Any pension scheme that use a rate of return above 5% is bogus. All one has to do is look at what the POMV formula for the PF which has been extensively studied

  4. A very well written piece by Lyda Green. The largest public employee pension system in the country, CALPERS, has adjusted its earnings rate, down to 6.8 percent. Even then, the overly generous assumed rates of return are lethal to public finances.

  5. People who join the US Army, Marines, Navy, and Coast Guard do the same thing. If you don’t like being sent out on rotation, don’t join.

  6. This is true but we must consider all law enforcement. There is another scenario that plays out to a greater extent. Our fully trained, seasoned officers are being lured away by recruiters down south. They offer higher pay, a pension, often times cheaper housing, and other benefits. Those departments can afford to cherry pick from the best because they typically only hire lateral transfers. All the costs of training, academies, and the washouts are avoided. If an officer in Alaska has 8-9 years in on a pension system, the incentive to stay is much greater. Plus, you don’t have a police force full of rookies.

  7. Give everyone their full, statutory PFD, as stated by Governor Dunleavy. The most equitable solution for stimulating the economy and making Bush living more economically tolerable.

  8. Might the HB 55 public pension scheme work if costs in excess of current obligations were offset by eliminating presently occupied state-employee positions?

  9. We need to quit helping with rural fuel Subsidies for electricity and then we won’t need any cops because the remote villages will go away.

  10. Nowhere in the “I have my pension but you can’t have yours” article is the idea that the state loses millions of dollars training law enforcement only to lose them to other agencies due to its mobile 401K plan. Also, HB55 is significantly more conservative than previous bills, so previous actuarial analysis will show a higher loss. Currently, you have troopers working alone in communities going to dangerous calls by themselves because they can’t hire qualified applicants. The whole, “if you don’t like it, don’t do it” crowd will love it when the bad guy comes to their door and no one answers their call for help. Law enforcement in Alaska is woefully underfunded already. Whatever happened to “Back the Blue?” Being in law enforcement is a calling, not a job. It would be nice to show them some support.

    • “I have my pension but you can’t have yours”

      Well put.

      The money is indeed there to provide fair pensions to 20 year State Troopers. But, it is spent elsewhere. And, when it comes down to it, some conservative lawmakers aren’t as “law and order” and “back the blue” as they claim to be.

    • Adjust the pension system for inflation big guy.

      A couple of years from now an $80/k salary will feel like a $20/k salary. No amount of pension stuffing will compensate for that.

      The Fiat economy will collapse and folks will return to precious metals and furs for exchange.

      At least the whole state will kick out the Sierra club and the aspca once that happens.

  11. The real goal is the complete restoration of the old pension plan. Start with troopers, move to healthcare, on to teachers, then state workers.

    Part of the Alaska caste system.

  12. ‘https://www.coloradopolitics.com/legislature/colorado-public-pension-systems-unfunded-debt-up-to-31-billion/article_e1822d92-d398-11eb-a92b-b3a51172c092.html

    The same “good idea” has been tried before in lots of places. It’s not going to work in Alaska, again. It’s an inherently flawed plan.

    Just another opinion, but I’ve seen it before, and the proposed solution is always the same: raise taxes to pay for ever- better government pensions.

  13. A DEFINED BENEFIT IS ALSO CALLED THE PFD. IT’S EVEN NOT ONLY WRITTEN, BUT STILL IN EFFECT. IT’S BEEN IN ALASKAN STATUTE FOR OVER FORTY YEARS.

    The union is right, retirement is important. Fact is it’s important to every adult. The State owes us $4200 each this year. Pay it. Then everyone can bolster their 401 or pay bills, it’s nobody’s business what anyone chooses.

    Just don’t go back down the financial rabbit hole. Been there, done that.

    Especially don’t let politicians pick and choose winners and losers with our money, which for the last seven years has been our PFD, doled out to unions and special interests.

  14. Large wages and benefits make little difference in recruiting or maintaining a workforce. Job satisfaction plays a major role. Spouse support another. Most men are perfectly fine and somewhat excited to spend a year in a village, until they are informed that it may involve a divorce. Careful what you sign up for, just like the military.

  15. Shouldn’t someone that spent the best years of their lives serving their community and risking their lives be entitled to a pension? Don’t we owe them some sort of financial security in their retirement years in return for the years of security they provided for us?
    This work is hard, taxing and unsustainable into old age. For these reasons, a robust retirement plan for those exempt from Social Security benefits is a must.
    We lose too many firefighters and police officers to better paying careers, or like so many Alaskans that are fed up with the “Californication” of Alaska’s politics and they move to other states. It’s hard enough for families to afford the high cost of living in Alaska without our elected government representatives meddling with the PFD, threatening new taxes, increasing current taxes, regulating some businesses into bankruptcy etc…

    We the people have had enough of the Alaskan government taking advantage of Alaskan residents with their partisan political games! Give us our FULL PFDs! Pay our first responders a respectable wage with a competitive benefit and retirement plan! Repair and maintain our roads and infrastructure! Provide our children and grandchildren with a quality (and non politically or religiously controversial) education! Then if there is anything left you can pay yourselves a reasonable salary.
    I’m afraid some of you are currently serving out your last term in office and you don’t even realize it! My

  16. Pensions are number 2 in importance for recruitment and number 1 in importance for retention. Period.

    When you hire on , it is with the understanding Bush Duty may be in the cards. A few have quit rather then transfer.

    The tier one pension needs to come back for these critical positions.

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