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Change in Alaska pension-option bill would require beneficiaries to share risk

Posted: February 10, 2012 - 12:10am

JUNEAU — Public employees who opt into a traditional pension program as proposed by a Senate bill would have to share in the risk if health care costs rise as projected.

SB121 was amended in the Senate State Affairs Committee on Thursday, after an actuary’s analysis that looked out over about 30 years showed initial cost savings would be lost. An analysis is being done on the new proposal.

In 2005, the Legislature passed a measure taking the state from a defined benefit, or pension, program to defined contribution, or 401(k)-style, benefit. Union leaders have said that this was a mistake, and has hurt employee retention.

SB121 would let new and current public employees decide between a retirement account, like a 401(k), or earning a traditional pension.

Supporters of the bill want it to be cost-neutral, or not costing the system any more. Deputy Commissioner of Administration, Mike Barnhill, said in an interview that he’s not sure that’s possible.

He said unfunded liabilities can creep into the system at any point over time, and the administration opposes the bill. The state currently faces $11 billion in unfunded liabilities, owed to factors including actuarial errors, a stock market dive, health care costs and retiree longevity.

In testimony, Barnhill said history shows a trend of 9 percent a year increases in health care costs.

State Affairs Committee chair Sen. Bill Wielechowski said he hopes to move the bill soon but wants to provide time for the new analysis and for the administration to respond. Wielechowski, D-Anchorage, is one of 10 senators signed on to the bill. The primary sponsor is Sen. Dennis Egan, D-Juneau.

An aide to Egan, Jesse Kiehl, told the committee the premium shares could fluctuate during an employee’s tenure. The amendment calls for a review every five years, after which the percentages could be adjusted. He said premium levels, or the percentage the employee pays and the system pays, would lock in at retirement.

There are an estimated 13,000 employees between the public employees’ and teachers’ retirement systems. About 60 percent who are currently in defined contribution programs are expected to switch if the bill passes. An estimated 80 percent of new hires are expected to choose a defined benefit.

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