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.
Comments (5)
Add commentknowing at retirement
I doubt many retiring individuals would have problems with a system that clearly tells them at retirement what their share of insurance cost is going to be. On the contrary not knowing and having a system that can change that cost is certainly unacceptable.
How about we start
By calling the apples apples?
A projected increase in the cost of healthcare is not "increased risk" it's a projected cost increase. This is not a poker game where we calculate the risk of loss for a given set of cards. We calculate as best we can future costs and in this case the discussion is how those costs should be shared between the State and future retiree's.
This is blackmail....
clear and simple. Let's see.......gee, the 'risk' of your current plan is really, really high, we really don't think it will be funded at it's current projections by the time you retire and will probably be gone because we'd rather not be responsible.....oh, but how would you like to "choose" this other, not quite as good option?
Honestly.
Not Sure I Understand
Perhaps I'm slow (well, really, there is no doubt) but what does this mean? If a state employee opts for a defined pension, can they expect to have their insurance premiums rise 50% every five years? And their other option is to be left to the mercy of the stock market in a 401(k) plan? Gosh, that's REALLY between a rock and a hard place.
And what is the State of Alaska's budget surplus now?
Defined benefit
I am fortunate since I retired under tier one. It was an extremely generous program which needed change. I have been retired for 16 years and plan on drawing retirement for a long time in the future.
A change in the plan was certainly needed. Defined benefit does not need to mean the same benefit that was defined under the old generous system.
Increase age at which a person can retire (this should include teacher, biologists, police and fire that have 20 years of service) as well as all others. Many places do have age plus service equal a high number. Reduce the percent earned per year of service. Increase the employee contribution.
If someone quits and takes their contributions do not let them buy back in at a future date if they go back to work for the system.
Etc. A defined benefit should work for people too because they know what they need to do to contribute enough to afford to retire in the future. It also allows them to change jobs or locations without retirement being a major factor.