Would a new state pension plan cost the state? Significantly, Reason Foundation analysts say

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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.

36 COMMENTS

  1. And who will enjoy such a benefit? By where america and alaska been going, I expect to be working for the rest of my life. No matter
    what a worker puts away today, it don’t look
    like it’ll be there to collect.

  2. This is nothing more than a union and political ploy, to take money from the PFD. Why do public employees get a better retirement than anybody else? What makes them a better class of person than everybody else? If the state is going to have a retirement program, they should have it for the entire population of the state. No catering to public union employees. Treat them just like the rest of the workforce is treated. wake up Alaskans, they’re stealing the PFD.

    • The current state of Tier 4 should suffice. If any union wants to add additional bonuses to the contract negotiations in the future, do so with a cost analysis and ratio of retention included.
      Here is an idea for every union member: opt out! Stop paylin dues (we are allowed to opt out in Alaska) for unions that undermine the current workforce to entice a future workforce. Opt out for 6 months to see how the union behaves when they see their current workforce dimished due to their greed. You want more in your paycheck? Opt out, they still have to represent you if the position is a union position. Lets see them work for US, THEIR CURRENT WORKFORCE!
      State and muni, you want us to stay? Dont give away our future, there is no ROI (return on investment) on an additional benefit plan, that is why the numbers look bad.
      Reject this and move on.
      When our economy is better, review this again, its worth investigatingevery 3-7 years.

    • They want to give away another golden parachute in ADDITION to social security.
      Also, state workers do not contribute to social security, so if this is their only job, they will not receive social security. They DO have an annuity (like a 401) that hey contribute to every paycheck and the state matches it in lieu of social security. Any state worker that had other jobs may have also earned social security. You cannot take social security till you are 62, you are encouraged to start at 67 (full retirement age), and get maximunpm amount if you wait till you are 70.
      For some reason these legislators/misrepresentatives will not accept that a vast majority of this current generation of potential worker bees are LAZY! I have tried to hire many staff over the last 20 years and I have to say, the pool is very shallow!

  3. The cost of this is immaterial. The plebs will pay for it. The citizens are pay pigs for holy State Workers.

    What’s important is protecting holy State Workers. Especially if they are unionized.

    • Calling all union workers to opt out and stop paying dues.
      Lets see if the unions will listen when you take money from them, they waste so much of the dues on swaying our politicians. Is that where you want your paycheck going?
      Opt out for 6 months and see if you do better with the money than the union.

    • Yes at all cost. For educators, it’s nice to have the school district matching your donations, and after 5 years of service and you are vested, that money is yours. Pretty sweet deal if you want to put in the time.

  4. From what I understood, it’s not all state employees. I thought it was mainly law enforcement and teachers. The state is at critically low levels for both, especially law enforcement. We have a 5 and out plan where we recruit, hire, send to academies, outfit with equipment, field train, and now pay very generous signing bonuses. It takes close to 3 years to get a fresh recruit up to speed. With our current 401K type system with generous matching, they are fully vested at 5 years. They leave and we start all over again. I haven’t researched the costs, the signing bonuses continue to rise so i’ts hard to calculate. End result, shrinking agencies and the experienced officers we greatly need for our safety. Want to be like SF and Seattle?

    • Yep and take all that matching money with them. Start over somewhere else, or if you do that after a couple of decades of service and are old enough, pay the 10% penalty for early withdrawal, cash in and live like a king.

    • Nope, it’s ALL State employees and not just law enforcement. Too many bills for DB have been filed thus the need to fully vet ALL the bills. I just don’t see how the State can afford this. We are already maxed out. It would be nice if teachers had at least social security.

  5. It gives them a “crisis7” in funding excuse to law the confiscatory taxes they want to impose.. It’s Equity, of course!!

  6. “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.”

    The State of Alaska still has to pay down the existing unfunded liability (several billion) currently on the books for PERS/TRS retirees that the State owes. ‘https://alaskapolicyforum.org/2023/02/alaskas-unfunded-liabilities/#:~:text=Over%20the%20last%20two%20decades,committed%20to%20state%20employee%20retirees.

  7. Do away with drug testing & criminal background checks and watch how many applicants the Troopers & fire departments get! I doubt that the lack of a defined pension plan makes that big of a difference.

  8. When this state goes bankrupt, and it will, don’t expect anyone to bail us out.

    We don’t have the votes to matter to the power people. We don’t swing elections on a regular basis.

  9. I’d like to know what that “teacher’s” work/pay status was at the time. Retirement isn’t a legal subject of collective bargaining so she has no legal rights to address that subject on employer time. The union might have some sort of union leave time for union sponsored political activities, but she sure as Hell shouldn’t have had a classroom full of kids if she was doing that. My guess is that it is just the usual teacher arrogance that they can do what the damned well please.

  10. I worked for the state for 16 months and bailed. Let me tell you it wasn’t because their was no defined retirement plan. When the state of Alaska makes the U.S Army (i retired from the Army) look like a well oiled machine their are problems. The state of Alaska offers some of the worse supervisors anyone will have the pleasure working with. They operate using groupthink and Abilene paradox mindset. Majority of people like me quit because of horrible co-workers/supervisors. The state constantly rewards bad behavior with promotions. Yeah defined retirement not going to fix that.

  11. A defined benefit pension plan paid for by the employee is how defined benefit pensions plan work, a defined benefit pension plan paid for by the employer is how defined benefit pension plans fail, a defined benefit pension plan paid for by the government is how the government goes bankrupt and the employees get screwed…except in Alaska where by the stste constitution the citizens get screwed and the retired government employee is made whole at ALL cost.

  12. The unions want people like me to just be quiet. They are all scared of the truth or as some would say they are afraid of white elephant in the room. The toxic leadership/environment runs rampant. As stated before people quit because of bad leadership in this case supervisors. Co-workers that should’ve been let go due to poor work ethics are protected by the unions. A lot of good workers stick around because they are trapped in a sense nowhere else to go. Also the unions don’t want to say the words that will pay for this defined retirement. That’s our PFD..

  13. Like it or not, nothing comes for free. Yep, everyone wants to bash their favorites, the public employees.

    You can put all the numbers in the world out there you want. Go ahead.

    The fact is this. If you want State Trooper applicants who are willing to commit to a career of public service, you need a decent pension.

    If you don’t offer it, you’ll continue to attract recruits who are in it for the money and they become Troopers who are just a shadow of the talent you used to have…and you’re replacing half of them at five years and most of the rest before they hit ten years.

    More big news for you. When they’re hired, the academy is four months long and residential “boot camp” style. Then they go through another four months of field training and then they’re at-will probationary for another four months. It generally takes another two years before a Trooper is considered fully competent and five years before he actually knows anything.

    It’s not a security job, and a heckuva lot more than being city traffic cop.

    No worries, just keep up with defined contribution and be satisfied that if you ever do call 911 for any reason, your responder barely knows his job and he’s just doing a job instead of serving the public.

    I remember one class where they selected twenty-three Trooper recruits from over 2000 qualified applicants…and most of the guys who got hired took pay cuts for the career of public service. This was not unusual in the PERS days.

    Those guys are gone now, replaced by the guys figuring out any way possible how to not transfer West or remote.

    You get what you pay for folks.

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