To bolster Alaska’s public sector, a bipartisan effort is underway to relaunch the state’s pensions as defined benefit plans.
“I’m carrying this bill on behalf of thousands of state employees who have worked for more than a decade to refine it,” said Cathy Giessel, leader of the state senate’s Republican majority during her introduction of Bill 88. “It will give our employees a secure and livable retirement and also be affordable to the state.”
The bill, which is co-sponsored by five Republicans and four Democrats, aims to help the state attract and retain public employees. After both pension plans transitioned from traditional DB plans to defined contribution arrangements in 2014, Alaska’s public sector workforce dipped by 24.6 per cent. A state-backed report last year also found one in five positions remained vacant.
While the state’s pension costs were reduced by the transition to a DC model, Giessel said Alaska is now spending far more trying to attract and retain its employees. She noted some government departments have started offering five-figure signing bonuses to new employees. “There’s other hidden costs as well. To onboard a firefighter or police officer, it costs $100,000. . . . To onboard a new teacher, it’s about $18,000.”
According to Giessel, the decision to move away from the DB model was misguided. It came during a difficult period for the Alaska Public Employees’ Retirement System, which saw its solvency ratio fall from 100 per cent in 2002 to 61 per cent in 2013. She said her colleagues blamed the funding shortfalls on the DB model, but should have pinned the blame on the former administrator.
Between 2002 and 2007, the PERS was administered by Mercer. After the state sued the consultancy in 2007 for failing to conduct accurate actuarial assessments, Mercer settled the claim for US$500 million in 2010. “Not only were [the actuarial reports] erroneous, but [Mercer] lied about making those errors by not disclosing them to the state,” said Giessel. “Consequently, we became underfunded.”
The new DB plans wouldn’t replicate the ones that were closed in 2014. Rather than adopting a strict DB formula, the plans would adopt a hybrid model, receiving contributions from both employees and the state. Members of the legacy plans would also be given the option to decline joining the new plans.
“This isn’t your grandma’s defined benefit plan,” said Giessel.