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Senate Bill 141, the public-employee retirement bill that has been called the most important legislation of the session, failed Thursday night in the Alaska House.
A coalition of House Republicans and Democrats has opposed the bill based on its having incomplete research and not providing a safety net for future employees.
"It didn't shock me. It was just a bad idea that had a temporary hiccup along the way," said House Minority Leader Rep. Ethan Berkowitz, D-Anchorage.
The bill is not dead. The House will vote on reconsidering the bill, possibly today.
The retirement plan would create private accounts for new public employees and teachers hired after July 1. Under this "defined-contribution" plan, employees would receive their fund in a lump sum instead of monthly pension checks.
The Senate has used various forms of pressure on the House to pass the bill. Last weekend senators suspended meetings, and they have made passing a student allocation bill contingent on the House approving the defined-contribution plan.
Sen. Bert Stedman, R-Sitka, said the Senate did not have a response yet.
"It's up for reconsideration tomorrow. We'll wait and see what tomorrow brings," Stedman said.
In their final arguments for the bill, supporters said the plan would be cheaper for the state, with the system allowing control of the employers' future payments into the retirement system.
State and city employers have been paying $13 billion in investments into the retirement system. But actuaries believe there is a $5.7 billion shortfall that municipalities and the state will be obligated to pay in the long-term.
School districts and municipalities are filling this hole with increased employer payments.
But Rep. Eric Croft, D-Anchorage, called reference to the shortfall a "scare tactic," and compared the system to paying a home mortgage. He said the defined-contribution plan would create a whole generation of headaches.
"We would be involved in trying to fix this major mistake for a decade," Croft said.
The plan also would pay only a percentage of medical insurance premiums, but a separate account would be made to pay for those expenses.
Opponents said it does not reward an employee's length of service, giving them fewer reasons to retire in Alaska.
But given the expense of the current system, some legislators say the current plans are not sustainable.
"(The system) is not just portable. You actually get it," said Rep. Paul Seaton, R-Homer.