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Senate Passes Legislation Establishing a Defined Benefits Retirement System for Public Employees and Teachers
Senate Bill 88 Heads to the House of Representatives for Consideration
JUNEAU – Today, the Alaska State Senate passed Senate Bill 88, sponsored by Senator Cathy Giessel (R-Anchorage), to create a newly defined benefit system for public employees and teachers and provide an option for current Tier IV employees to convert their defined contribution plan to the new pension retirement system. The legislation gained broad bipartisan support with ten additional co-sponsors.
“As we said from the beginning, this is not your grandmother’s gold-plated retirement plan. This is a modest and reasonable retirement plan that will turn the tide on our workforce recruitment and retention issues. We must take significant action now if we want to turn around our economy and attract the brightest and best in all industries, public and private,” said Sen. Cathy Giessel.
The legislation, introduced on March 1, 2023, seeks to address Alaska’s workforce recruitment and retention issues. Over the past 11 years, Alaska has seen an outmigration of its population, losing nearly 34,000, or seven percent, of working-age Alaskans. Meanwhile, Alaska’s aging population has grown by three percent. In a recent presentation to the Alaska legislature, the state of Alaska recognized that its department vacancies have climbed to 26%. On top of that, municipalities are struggling to fill maintenance and operations, police and fire, and other positions to deliver essential services. One primary reason that has been cited for recruitment and retention issues is the lack of a quality retirement system that public servants can depend on once they retire.
“A reliable and quality retirement package is crucial for attracting and retaining skilled individuals in Alaska. This is particularly important given the widespread labor shortages and 11 straight years of out-migration in our state,” said Senator Click Bishop (R-Fairbanks). “The demand for essential workers, such as nurses, police officers, firefighters, teachers, snow-plow drivers, heavy equipment operators, and ferry workers underscores the urgency of providing competitive retirement packages. Returning to a defined benefit system will serve as that vital incentive for individuals to choose Alaska as their home.”
In 2006, the state of Alaska transitioned into a defined contribution plan, similar to a 401(k)-retirement plan, and it was believed that retirees would earn the same level of retirement as the prior defined benefits system. An initial analysis by the Division of Retirement and Benefits concluded that if a state worker who has spent 20 years under the defined contribution plan were to retire today, the employee would only receive 32% of their average earnings, compared to 40.3% under the prior defined benefits system – a difference of $8,000 a year. Even more so, a peace officer or firefighter would receive $16,000 less under the defined contribution plan after 20 years of service.
Many components of this new defined benefits plan are similar to PERS Tier III and TRS Tier II. But, through analysis, revisions, and compromises, components that caused concerns about past retirement systems are addressed. For example, this proposal increases the employee contribution rate from prior pension retirement systems and makes it adjustable from 8-10% to have employees share in the system’s financial solvency risk. It also maintains the current system’s retiree medical coverage plan in place to keep the state’s liability toward medical costs as low as possible.
“If we are going to strengthen our economy and attract working-age populations back to the state, we need to offer a competitive and reliable retirement plan. This gets us there,” concluded Sen. Giessel.
Senate Bill 88 is co-sponsored by Senator Click Bishop, Senator Gary Stevens (R-Kodiak), Senator Jesse Kiehl (D-Juneau), Senator Scott Kawasaki (D-Fairbanks), Senator Löki Tobin (D-Anchorage), Senator Bill Wielechowski (D-Anchorage), Senator Elvi Gray-Jackson (D-Anchorage), Senator Forrest Dunbar (D-Anchorage), Senator Matt Claman (D-Anchorage), and Senator Donny Olson (D-Golovin). The legislation will now move to the House of Representatives for consideration.
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