Bucking Trend, Traditional Pensions Back in Discussion in Alaska

A bill before the Alaska legislature would put defined benefits for state employees back in play after pension reform in the state cut out the option.
by | January 25, 2013
 

A bill before the Alaska Legislature would put defined benefits for state employees back in play after pension reform in the state eliminated the option.

Sen. Dennis Egan, D-Juneau, introduced the bill (SB30) this week, saying his proposal would give public employees a choice between a traditional pension or sticking with the 401k-style defined-contribution program that Alaska switched to in 2005.

“Also, most employees will have to be eligible for Medicare before the system helps pay for retiree health care and they’ll always pay a share of those insurance premiums,” Egan said in a news release.

Currently, new employees give 8 percent of their paychecks to their 401k-style plans. Under the bill, they could choose to give 8 percent of their salary to a defined-benefit plan instead, Jesse Kiehl, a staffer for Egan told Governing.

Egan believes his proposal would save the state $40 million in the first five years because it splits the risk of rising health-care costs between the employer and the employee so the new plan never costs more than the current defined-contribution system.

Kiehl added that state Sen. Bert Stedman, the co-author of Alaska's defined-contribution plan, had acknowledged such a strategy could avoid the pitfalls of escalating costs that older pension plans have now created. Egan's bill mirrors a similar proposal last year that was shepherded through Stedman's committee.

"We didn't get his vote on it, but we got his agreement it was cost-neutral," Kiehl said.

The proposal comes at a time when many states are switching to more market-based or hybrid plans. Michigan and Utah adopted hybrid plans in 2010 which consisted of a reduced defined benefit plan and an individual, 401k-style account for each member. Rhode Island followed suit in 2011 with what is considered the country’s most dramatic reform to-date, according to the National Conference State Legislatures. The plan requires both members and employers to contribute to the individual member accounts and members may not opt out.

In 2012, eight states made major structural changes in state retirement plans, according to the NCSL and all told, 41 states have made some kind of change to their retirement plans in the last three years.

Also this week -- and 4,000 miles away from Juneau -- a Florida legislator is taking the opposite route and announced plans to submit a bill that would do away entirely with traditional pensions for new employees and replace them with 401k-style plans. House Speaker Will Weatherford called Florida’s current pension plan a "ticking time bomb" because he fears it could require a costly taxpayer bailout in the future, the Miami Herald reported Friday.

Weatherford’s proposal comes one week after Tallahassee scored a victory when the Florida Supreme Court upheld a 2011 law that requires state employees to start contributing to their retirement plans.

Join the Discussion

After you comment, click Post. You can enter an anonymous Display Name or connect to a social profile.

More from Finance