State retirement plan could return to defined benefits system

Among a supportive chorus of Alaskan voices, an out-of-state think tank’s concerns about the potential cost of the change fell flat during public testimony
FastCast digital headlines for Tuesday, March 21, 2023
Published: Mar. 21, 2023 at 3:47 PM AKDT
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ANCHORAGE, Alaska (KTUU) - A bill that would reinvent retirement benefits for public sector employees, and be the largest overhaul to the retirement system for state employees since 2006, received its second day of public testimony in the Senate Labor and Commerce Committee on March 20.

Under former Gov. Frank Murkowski, lawmakers abolished the defined benefits program already in place and shifted state workers to a new system reliant on defined contributions.

The bill titled SB 88 already has support from ten legislators: Sens. Cathy Giessel (R-Anchorage), Click Bishop (D-Fairbanks), Stevens (R-Kodiak), Jesse Kiehl (D-Juneau), Kawasaki (D-Fairbanks), Löki Tobin (D-Anchorage), Bill Wielechowski (D-Anchorage), Elvi Gray-Jackson (D-Anchorage), Forrest Dunbar (D-Anchorage), and Matt Claman (D-Anchorage).

A defined benefits system is one of the two retirement plans protected under the Employee Retirement Income Security Act of 1974 (ERISA). This means that employees and employers know how retirement benefits will be calculated ahead of time.

Unlike the defined contributions system the State of Alaska currently has, It’s not tied to the market.

Defined contributions, the other plan protected by ERISA, means that the final balance in a retirement savings accounts depends on the performance of the investment.

But some say that the risks inherent in investments and hard-to-predict final balances in a defined contribution account drives away talented and qualified employees from state jobs.

The committee heard testimony from retired and current teachers and firefighters, concerned citizens, union members, lifelong state residents, and from Alaska newcomers.

One firefighter who stated he was a third-generation Alaskan phoned in from Washington, explained how the poor retirement benefits offered by the state of Alaska contributed to his move.

Testimony from a Los Angeles-based think tank the Reason Foundation critiqued SB 88, citing what they claimed to be high costs of switching to a defined benefits plan.

Staff members Ryan Frost and Zachary Christenson testified one after the other on behalf of the organization, painting a bleak for the state budget.

“I’m not against a defined benefits or defined contribution plan,” Frost said. “We care bout the risk. And, we feel there is far too much risk currently in the bill proposals.”

“Our evaluations show that SB 88 very likely could add another $8.6 billion in costs to Alaska budgets,” Christenson added.

At the conclusion of Frost’s testimony, Dunbar asked him what drew him to the state.

Frost answered that his organization works around the country on pension legislation.

“If we see something a pension proposal that comes up that we feel like our expertise will be helpful with, we’ll come out and try to offer our solutions and knowledge on it,” Frost said.

But in terms of expertise, neither Frost nor Christenson pointed to past professional experience with cases bearing resemblance to Alaska’s unique pension predicament, with both stating the Reason Foundation played a role in Arizona and Colorado’s retirement savings plans development.

Dunbar asked if either the Arizona or Colorado legislation compared to the sweeping changes SB 88 would instigate in Alaska and if they transitioned from defined contributions to defined benefits.

“No, not in those cases, no,” Christenson said.

Dunbar followed up to ask Christenson if he has ever supported moving from defined contributions to defined benefits.

Instances of this are rare, according to Christenson, and the only major case he was aware of this specific transition was in West Virginia — but the Reason Foundation did not contribute to the legislative process or provide testimony because it did not exist at the time.

In addition, he failed to answer questions from Sen. Kelly Merrick inquiring about the donors funding the Reason Foundation.