Senate OKs retirement reform bill

Dems call plan a selective income tax for teachers, public employees

Posted: Tuesday, April 12, 2005

The Alaska Senate voted Monday for a reform of the teachers and public employees retirement system, asking them to contribute more of their paychecks to retirement.

The bill proposes existing employees increase the rate of their contributions 0.5 percent each year for six years, and new employees establish a 401(k)-style account. Current state law requires teachers to contribute 8.65 percent for retirement benefits, firefighters and peace officers to contribute 7.5 percent, and other employees to pay 6.75.

If the bill is signed into law, beginning July 1 the average public school teacher who makes $53,900 annually would pay $22.50 more monthly in the first year and $125 more monthly after six years.

The reform aims to fix a $5.7 billion hole in Alaska's $16.4 billion retirement system - a burden all taxpayers have been sharing. Lawmakers said the shortfall was caused by increased medical fees, poor performance on stock market investments, underestimating system liabilities and employees retiring earlier and living longer.

Before the bill passed 12-8, Sen. Kim Elton, D-Juneau, called the reform an income tax for a large, selective group.

"My mother used to say if you jerk on a clothesline at one end, the clothes on the other end will jump. Well, if we jerk on this clothesline, public employees in the future will lose their shirts," Elton said.

"There's some talk of an income tax. And I would suggest, if you like to do a poll, see how many Alaskans would be willing to pay an income tax to keep filling the deficit that the current retirement system is creating," said Sen. Con Bunde, R-Anchorage.

The Alaska Legislature has reportedly spent 10 years trying to pen a workable plan. This time lawmakers think they have a rewrite that arrests the growing deficit and gives something back to the employees.

Republicans applaud the plan for enabling employees to have control over their investment decisions. Sen. Lyda Green, R-Wasilla, said it frees up employees who want to move out of Alaska before they retire and want to take their account with them.

"My biggest problem with this is there is no safety net," said Sen. Hollis French, D-Anchorage. He worries employees could lose their investments on fad stock markets, such as the recent "dot-com" bust.

"Intelligent individuals make bad decisions every day," French said. "You need something to fall back on."

A portion of the contributions will be placed in a trust fund to be used for the plan's medical fee reimbursement program.

The opposition also said the plan does not address the problem of rising medical costs, but rather passes them on to the employee.

The reform also calls for simplifying the process of how the pension systems are managed. Now there are three separate boards but the bill suggests combining them into one nine-member body.

Nebraska and West Virginia are the only other states that have tried defined contributions and individual accounts in their public employee retirement system and teacher retirement system, also known as PERS and TRS.

As an alternative, Alaska Democrats suggested a hybrid of a backup account and an optional private fund.

• Andrew Petty can be reached at andrew.petty@juneauempire.com



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