Defined benefits plans for government workers are expensive for taxpayers. With attempts to return state employees to a defined benefit plan of one sort or another, the state is staring down what could be billions of dollars in unfunded liabilities.
In a deeper dive into the fiscal crisis that could result from bills now being considered that would return some state workers to a pension retirement program, analysts from the Reason Foundation testified before the House Ways and Means Committee on Monday evening, telling lawmakers the pension plan would have to earn an average of 7.25 percent over 30 years in order to avoid putting the state into a deeper fiscal hole than it’s already in from to the previous pension plan, which was discontinued starting in 2006. The average return, they said, is just below 7% right now. Even .25% makes a huge difference, they said.
Ryan Frost and Leonard Gilroy of the Pension Integrity Project of the Reason Foundation also said that with SB 88, the costs that were given by the bill sponsors are not transparent.
So far, there hasn’t been an accurate fiscal note provided for SB 88. Frost and Gilroy said if the pension fund suffered any kind of fiscal stress at all, the state could take on an increase unfunded liability of $8.6 billion over the next 30 years.
The two said the stress test they used in their analysis was what has been observed over the past 20 years in market returns.
The two also said that in their analyses performed for governments all over the country, they’ve found that there is no correlation between employee retention and defined benefits. Employees are different in this era, and move around for various reasons, they said. Retention is a problem all over the country. The average employee holds vastly more jobs than their parents did, an average of 7 to 8 jobs over the course of their career.
Rep. Cliff Groh, an Anchorage theoretical nonpartisan representative who caucuses with Democrats, scoffed at the two analysts and said that because they are from outside the state (Oregon and Utah), they don’t understand Alaska. He said he knows many people who think that a lack of defined benefits is what is making it hard to hire firefighters and troopers.
Rep. Jamie Allard, a Republican from Eagle River, disputed Groh’s claim that because the analysts are from out of state their data is invalid. She said the field of policing has changed and many people are not willing to go into the field of law enforcement for various reasons.
For their part, the Reason Foundation analysts took Groh’s patronizing in stride. They had had much worst treatment in Senate Labor and Commerce Committee earlier in the day, where they were met with stone cold glares from public employee union surrogates.
In Senate Labor and Commerce, a teacher called into the committee and shushed her classroom so that she could testify in favor of SB 88 — during class.
Rep. Andrew Gray, a Democrat, kept going back to previous slides that the two had presented and appeared to be reading questions that were being provided to him from someone coaching him from outside the room, likely the bill sponsor or her staff.
SB 88 would allow some employees of the state — public safety workers — and teachers from across the state who are in the defined contribution plan the opportunity to choose between the pension plan (defined benefit) and the current defined contribution plans of the Public Employees’ Retirement System of Alaska and the teachers’ retirement system.
It is sponsored by Sen. Cathy Giessel, a Republican who now primarily identifies with Democrats, and Republican Senators Click Bishop, Gary Stevens, and Democrat Senators Jesse Kiehl, Scott Kawasaki, Loki Gale, Bill Wielechowski, Elvi Gray-Jackson, Forrest Dunbar, and Matt Claman.
The bottom line from the Reason Foundation is that transferring years of service from a defined contribution plan to a defined benefit plan (pension) creates new liabilities for the state, and immediately exposes the state to potential pension debt if returns fall below the bill sponsor’s unrealistic assumptions.
Undoing the reforms of 2006, which were led by Sen. Bert Stedman of Sitka, could generate hundreds of millions in new costs after even just one year of poor market returns.
SB 88 and HB 22 could cost upwards of $8 billion or $800 million, respectively, in coming decades. Since most employees leave before being able to take advantage of a pension, this could be a costly move that only benefits a relatively small group, Frost and Gilmore said.
Watch the presentation by Reason Foundation’s Frost and Gilroy at this link.
