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Gov. Frank Murkowski signed a bill Wednesday switching the state's pension retirement systems to privatized 401(k)-type accounts for teachers and state employees who start next July.
Murkowski said the overhaul of the public employee and teacher retirement systems aims to stop the growth of a $5.7 billion to $6.2 billion shortfall in the $16.4 billion system.
Public employees and teachers hired after July 1, 2006, will be under the new defined-contribution plan. The bill does not affect the retirement or benefits of existing employees.
"This is not legislation that necessarily solves the problem," Murkowski said. "We think this change will stop the so-called bleeding."
The bill by Sen. Bert Stedman, R-Sitka, was considered one of the most contentious in the Legislature this year and one of the main items under consideration in a two-week special session that cost the state more than $378,000.
The shortfall is largely due to fluctuations in the stock market, rising health care costs, more people retiring earlier and living longer and missed estimates on investment returns.
Opponents on both sides of the aisle have argued that the move to the defined-contribution plan does not address the shortfall and will make it harder to attract and retain public employees and teachers. They say the new plan puts too much risk on the workers.
House Minority Leader Ethan Berkowitz, D-Anchorage, said the bill is an "organized attack on working Alaskans designed to drive down the value of labor."
"This bill does nothing to solve the problem of the unfunded liability the state's retirement systems has and was just an act of political bullying and arrogance," he said.
Murkowski said the privatized retirement investment accounts would be more portable for employees because it allows them to take their benefits with them if they change jobs. But opponents have argued that the portability will increase employers' costs because the it allows employees to receive training from the state and then leave for higher-paying jobs in the private sector.
Senate Finance Committee Chairwoman Lyda Green, R-Wasilla, said the new board created under the bill to replace the PERS and TRS boards will examine solutions to the shortfall and provide recommendations to the Legislature next year.
"It is always easier to do nothing," she said. "We were rapidly facing a dangerous future if we did nothing."
Rep. Bruce Weyhrauch, R-Juneau and chairman of the House Ways and Means Committee, has held one public hearing this summer on how to address the shortfall. His office said the committee is planning to hold more meetings later this year in Fairbanks and Kenai but no dates have been set.
Berkowitz said the administration and Legislature should work to lower skyrocketing health care costs to address the retirement systems' unfunded liability rather than going after workers' pensions.
"I'd like to see this bill repealed or at least no become effective until it shows that it helps with the unfunded liability," he said.