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Worker-favored pension plan makes progress

Egan plan would not cost state additional money

Posted: January 29, 2012 - 1:09am

Alaska’s public employees could be getting nearer to having the option for a traditional pension plan, instead of the 401(k)-style plan new employees were controversially forced into starting in 2006.

Sen. Dennis Egan, D-Juneau, says his bill to allow employees to chose either a traditional defined-benefit retirement or the current defined-contribution plan is close to getting an agreement between state and outside actuaries that it would be cost neutral.

“We’re very close now to reaching an agreement,” said Egan this week, after the Senate State Affairs Committee heard his bill.

The key agreement Egan is trying to reach is developing a plan that won’t cost the state anything for public employees to have defined benefit plans instead of defined contribution plans.

At the State Affairs meeting, Deputy Commissioner Mike Barnhill of the Department of Administration said the state’s actuaries were working with outside actuaries to tweak the bill to so that it would have a “neutral fiscal impact.”

“I think we’re getting very close,” Barnhill said.

Alaska became the first state to switch entirely to a defined contribution plan for new hires in 2006, and unions and employee advocates have been trying to switch back ever since.

One of the reasons for the switch was the state’s growing “unfunded liability,” the difference between what it will cost to pay retirement benefits and what the state expects to have available for those payments.

Since 2006, however, the unfunded liability has continued to rise, and is now about $11 billion.

Egan aide Jesse Kiehl told the State Affairs Committee the goal of those working on Senate Bill 121 is to craft a bill in which “the system is kept whole and no unfunded liability is created.”

That’s likely to be key to winning legislative approval of the bill.

Senate Bill 121 currently has 10 Senate co-sponsors. That’s half the Senate, but doesn’t include key members such as Senate Finance Committee co-chairmen Lyman Hoffman (D-Bethel) and Bert Stedman (R-Sitka), Senate President Gary Stevens (R-Kodiak) or Majority Leader Kevin Meyer (R-Anchorage).

The Parnell administration may also oppose the bill. Barnhill has said a defined benefit system leaves the state liable for any shortfall in retirement funding, and the state would prefer to have that risk remain with employees.

The bill would allow existing state employees who were hired since 2006 the option of converting to the defined benefit plan as well.

About 60 percent of current employees are likely to make the switch if given the option, said Angela Rodell, deputy commissioner for Treasury of the Department of Revenue.

Under the latest draft of the bill, Kiehl said, employees whose defined-contribution retirement accounts don’t contain enough money to pay for a defined-benefit retirement would be able to “buy in” to the defined-benefit system by making up the difference.

AFL-CIO’s Vince Beltrami said some employees might want a retirement plan they can cash out of and leave the state, but most want the commitment of a good retirement Senate Bill 121 would provide, he said.

“When it comes to serving Alaska’s workers, this bill is a good fit,” he said.

The current system leaves many employees at risk of an inadequate retirement, warned Ted Moninski of the Retired Public Employees of Alaska.

That’s in part because nationally more than two-thirds of employees cash out their 401(k)-type retirements when they change jobs, instead of rolling them over into their new jobs.

Moninski said the current defined-benefit system for existing employees includes incentives for retirees to remain in Alaska, where their spending supports communities and local jobs.

“It is clearly in Alaskans’ best interest to incentivize employees to remain in Alaska after retirement,” he said.

The defined-contribution retirement for newer employees doesn’t do that, Moninski said.

Egan said the agreement on the cost of the change could pave the way for his bill to make it through at least one chamber of the Alaska Legislature.

“I think we have a good opportunity to get it through the Senate,” Egan said.

• Contact reporter Pat Forgey at 523-2250 or at patrick.forgey@juneauempire.com.

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