Three state labor unions filed legal papers on Thursday to stop the July 1 implementation of the new state retirement system because they claim the plan may not be tax-exempt.
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The so-called "defined-contribution" plan for future public employees and teachers as it is written has not been qualified by the Internal Revenue Service to be tax-exempt, said Bruce Ludwig, business manager for the Alaska Public Employees Association.
The unions fear less money will go into new employees' retirement accounts as taxes will be taken out, Ludwig said.
"It's a bad system and it needs to be stopped until it's fixed," he said.
The Alaska State Employees Association and the Alaska Correctional Officers Association are the other two plaintiffs in the suit.
The Alaska Legislature failed this year to pass House Bill 475, which was designed to clean up various problems in the plan.
Rep. Bruce Weyhrauch, R-Juneau, is the labor unions' attorney. He said stopping the pension plan's implementation would give the IRS time to review the plan. If it does not qualify for tax exemptions, the IRS could make specific recommendations on what should be done by the state to make it a qualified plan, Weyhrauch added.
The representative, who leaves office this year, voted against several versions of the plan when it was introduced last year as Senate Bill 141 and tried to delay its start date until July 1, 2007.
The governor's office had not prepared comments on the lawsuit seeking an injunction by Thursday evening, spokesman John Manly said. The Alaska Department of Law was expected to review the case today, he added.
Commissioner Scott Nordstrand, with the Department of Administration, told The Associated Press that the lawsuit was "legal nonsense."
"The tax-exempt status of the plan is not in question - period," he said. "All the hype that has gone on in the Legislature and now with a lawsuit is simply untrue."
Nordstrand added that changes probably do need to be made to the plan.
He said the fix can be made retroactively as long as the necessary changes are approved by the Legislature by the end of January 2008.
Unions have opposed the plan since it was passed because they say it makes working for state government less attractive while making it more appealing to leave Alaska before reaching retirement.
The major difference between the defined-contribution plan and the current system is that the new system sets up 401(k)-style accounts for future workers. They can take that amount with them if they quit their jobs and move to another state.
The other part of the deal says that upon retiring, these employees will not receive an endless amount of monthly checks, but rather a lump sum that can be used up before they die.
The Murkowski administration pushed for the rewrite as it claimed the plan would save the state money. A shortfall of about $6.9 billion is expected to be owed to current and future retirees as the state's pension system has become more expensive because of rising health care costs, retirees living longer and other factors.
Because of this debt, school districts and other employers are paying more each year for retirement.
Ludwig said he recently received 25 e-mails from state employers stating that job applicants are requesting to be hired before July 1 or not at all.
"People look at benefits now," he said.