The Senate Finance Committee, which led the state to shift from a traditional retirement system to a 401k-style system for new employees, Friday heard a proposal that would allow public employees to go back to a defined benefit plan.
Senate Bill 121, sponsored by Sen. Dennis Egan, D-Juneau, said the bill had been carefully crafted so that it didn’t add to the state’s growing unfunded liability that spurred the change in the first place.
“It also adds absolutely not one red cent to the unfunded liability of the past,” Egan said.
The state’s unfunded liability is currently estimated at $11 billion, meaning that the state expects its retirement trust funds to be short that amount over the next decades as benefits are being paid.
Egan aide Jesse Kiehl said that, under the proposal, state and municipal employees hired since 2006 would get a single chance to change to a new defined-benefit pension plan.
New employees would get a choice of plans, with Kiehl saying the traditional retirement plan would likely be the choice of those wanting to make a career with the state.
Others, however, might find the self-directed, 401k-type plan a better deal. That could include those who only expect to stay in Alaska or in public service a short time, as well as those who may already have a defined-benefit retirement package from another career.
“This will enable those who serve Alaskans to chose the retirement plan that best fits their service,” Kiehl said.
William Fornia, an actuary working for state unions, said the pooling of risk would allow public employees to have better retirements.
Individuals don’t know how long they are going to live, but actuaries can give more precise estimates of how long larger pools of people will need retirement benefits such as pension checks and health care.
That’s something an individual retiree can’t know.
“They’d have to save extra because they might live longer than average,” he said.
The professional investment managers who work with for the Alaska Retirement Management Board are likely to earn more on retirement investments than are individual retirees on their own, Fornia said.
“The ARM Board are pretty good investors, they get better returns than individuals do on their own,” he said.
Public employees told the committee that they wanted access to a defined benefit program. That would help the state attract and retain skilled employees, they said.
Sitka teacher Hillary Seeland, who has also taught in Angoon, told the committee that she’d love to be able to stay in the town where she was raised.
“As an Alaskan and especially a Sitkan, I learned I could connect with my students in a way that other teachers couldn’t,” she said.
But she’s not sure she’ll be able to stay.
“The cost of living is very, very high and I have no secure retirement,” she said.
A fellow teacher is leaving the state at the end of the year, but Seeland said she doesn’t want to have to do that to protect her own future.
“I would love the option of a defined benefit plan, and I would love to know that the state cares about the future of our youth,” she said.
The Parnell administration, however told the committee that it didn’t support offering a defined benefit plan, even one thought to not cost the state anything.
While the plan Egan proposed is projected to save the state about $40 million in the short term, and then be cost-neutral after that, Department of Administration Deputy Commissioner Mike Barnhill said that wasn’t good enough.
He called that a “laudable objective,” but said the risk was still too high, that costs would rise unexpectedly due to higher-than-expected costs, longer-than-predicted life spans or failure to meet investment expectations.
The state is now struggling to meet its constitutional and moral pension obligations to pay already incurred debts, and should not be taking on new risks, he said.
The Parnell administration didn’t challenge Fornia’s estimates, but called the cost of the change “indeterminate.”
• Contact reporter Pat Forgey at 523-2250 or email@example.com