The House, which passed the bill last year, voted 21-19 along caucus lines to accept changes made to it in the Senate, marking lawmakers’ final approval of the measure. It heads next to Dunleavy, who has not commented publicly on whether he’ll sign it.
Supporters of the measure were jubilant on Wednesday, describing the legislation as a solution to a problem two decades in the making.
“Having employees have the option of a defined benefit pension system is a good thing for the state of Alaska. This experiment we’ve been on for the last two decades of a defined contribution system has failed us,” said Rep. Calvin Schrage, an Anchorage independent.
If signed by Dunleavy, the bill will reinstate a guaranteed pension system for employees of the state, municipalities and school districts for the first time since 2006, when lawmakers voted to close the pension system in the face of a multibillion-dollar unfunded liability. Lawmakers replaced it with a 401(k)-style plan that has left many public employees without sufficient income to retire with security, and with less incentive to commit to a full career in Alaska’s public sector.
The unfunded liability was attributed in large part to incorrect actuarial information provided to the state in the early 2000s. The state sued the actuarial firm but failed to recoup enough to fully fund its plans. Alaska has been paying back that liability ever since, with interest.
Supporters of a return to defined benefits say that the 2006 decision is the root of many of the recruitment and retention challenges in the public sector today, including high turnover rates among teachers, public safety officers, road engineers, ferry operators and administrators of critical public safety net programs, among others.
To avoid another financial crisis, crafters of the bill, who include House Majority Leader Chuck Kopp and Senate Majority Leader Cathy Giessel, added requirements for additional actuarial analyses. They also made the plan far less generous for retirees by reducing health care benefits and requiring employees to increase their contributions to the plan if it becomes underfunded. The Senate then changed the bill to provide employees with the option to remain in the current, 401(k)-style retirement system, and to provide municipalities and school districts the option to opt out of offering the new pension to their workers.
But the changes weren’t enough for the 19 House Republicans in the minority, who argued on Wednesday that the plan wasn’t sufficiently analyzed, that it would still pose an unsustainable financial risk to the state, and that it would not solve the state’s recruitment and retention crisis.
“I would consider this Alaska’s rendezvous with destiny,” said Rep. Will Stapp, a Fairbanks Republican, adding that he thinks the state may be about to “repeat the single most expensive financial mistake in the history of the state of Alaska.”
The new pension plan — which would go into effect next year — is set to cost the state tens of millions of dollars annually, depending on the number of public employees who join it. But proponents of the measure say that figure doesn’t account for the amount of money the state will save by avoiding the need to pay overtime in understaffed departments, and by eliminating the need to constantly train new teachers and police officers.
“This bill is not built on hope, but it does bring it,” said Kopp, adding that “the cost of what we’re doing now is orders of magnitude higher than what this bill introduces.”
Though majority lawmakers succeeded in shepherding the legislation through a rigorous process that included dozens of committee hearings and lengthy floor debates, its passage into law isn’t guaranteed.
“We still have one more stop, though — we have the big red pen, potentially,” said Giessel, referring to a potential veto from Dunleavy.
Dunleavy, who receives a state pension from his years as a public school educator, has previously said that younger workers are not as interested in pensions as his generation had been. His spokesperson, Jeff Turner, declined on Wednesday to share whether Dunleavy supports the bill.
“I’m very optimistic,” said Sen. Jesse Kiehl, a Juneau Democrat who has been working on pension reform since the last plan was repealed. “I’m happy to loan the governor the blue pen, the black pen — I’m sure I could find a purple one — any color but red.”
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