House Bill 30: Repealing defined contribution retirement plan

Posted: Friday, February 13, 2009

The Alaska Retirement Management Board met Feb. 12, and is schedule to meet again today, to hear presentations from the Division of Retirement and Benefits, Treasury Division, and Department of Law.

They will be giving updates on legislative actions, litigation matters, fund financial and investment actions. Public and member comments, new business, and a disclosure report will be covered on today.

Returning to a defined benefit retirement plan for employees hired after 2005 is one of my top legislative priorities. House Bill 30 is awaiting a hearing date in the House Labor and Commerce Committee.

As a legislator, what I hear is that people - our constituents - are concerned for their retirement security. When Alaska switched to a defined contribution system in 2005, we went too far. The push to change came about as a result of the unfunded liability in our pension systems.

Generally, the question should not be, "Which is better, a defined benefit plan or a defined contribution plan?" Instead, retirement benefits should be viewed in total, including those from all factors such as Medicare services, deferred compensation arrangements and the opportunity for retirees to have dignity during their later years. The question should be, "Are these benefits sufficient, in total, to provide retirement security?"

Since Senate Bill 141 was passed, the switch to a defined contribution system has not made our unfunded liability go away. What has impacted our pension liabilities more than anything is the monetary contributions approved by the Legislature and the governor in the 1990s - and the fluctuations on Wall Street.

In the meantime, we haven't solved the problem, but we have conveyed a message that, as an employer, we do not put a high enough value on retaining employees by providing them retirement benefits that they can count on; benefits that will pay a pension at retirement and not just provide a 401(k)-like account.

In a defined contribution plan, the employee bears the financial risk of outliving accumulated assets and risks poor investment returns. Half of all retirees will outlive the average life expectancy, in many cases by decades. Furthermore, the recent downturns in the stock market have impacted individual retirement accounts greater than the negative impact to the accumulated assets of defined benefit employees.

Within the last year, the PERS defined benefit plan lost 22.24 percent, while the defined contribution plan lost 35.46 percent of its retirement investment.

Alaska, like any employer, should offer a retirement plan which provides for the security of their employees. By passing this bill, a policy decision will be made that provides the right tools to make Alaska a better employer for the people we ask to provide public services.

• Cathy Muñoz is a Republican representative of House District 4, Juneau's Valley District.

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