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Restoring pension benefits to Alaska’s public service workers remains on hold until at least January 2025, when state lawmakers open the next session of the legislature.
In the state legislature’s regular session, which ended May 15, lawmakers renewed efforts to restore the shuttered state pension plan to again enable public sector workers to accrue in the defined benefit plan. Pension reopening efforts are critical, say lawmakers in favor of restoring the pension, which was closed to new hires in 2006, citing Alaska’s significant public sector staffing challenge, and issues with recruitment and retention of public employees.
Lawmakers who backed the bills to restore state pension benefits note Alaska’s struggles with shortages of teachers, law enforcement officers, firefighters, paramedics and other first responders.
Restoring pension benefits to public sector workers would provide a critical recruitment tool, facilitating greater public safety, which “is a huge issue in Alaska,” as the state must ensure it has capacity to provide basic public services to far-flung and remote rural communities, explains Alaska State Senator Cathy Giessel, a Republican.
“We have a very significant shortage of state troopers,” she says. “One of our [state] boroughs is the size of the state of West Virginia [and] they have two state troopers assigned to them. The response time is so long, the borough assembly has actually advised the residents to arm themselves.”
The state also has “a significant shortage of teachers,” Giessel says. In years past “hundreds of teachers, would show up at job fairs [but] now we have a handful applying for each opening.”
“I want Alaska’s economy to get back on track,” Giessel adds. “I want to keep Alaskans here. We are educating a lot of great Alaska kids, but they’re leaving the state for opportunities in the lower forty-eight [U.S. states].”
Alaska House Bill 22, which would have restored pension benefits to police officers and firefighters, is l now “dead for all time,” explains Alaska State Representative Andy Josephson, a Democrat.
“There is no defined benefit bill, the session ended [as scheduled] and it’s going to be a hot topic during campaigns,” he says.
Alaska House Republican lawmakers opposed to the legislation “buried my bill [in a state subcommittee] about 15 months ago and my bill never came up for oxygen again after,” Josephson said, in May.
“I may not make any [changes] or nothing significant,” he says. “But if I get reelected, I’ll likely refile it in January.”
All 40 of the state representatives in Alaska’s lower house, and 10 state senators, are running for reelection this year.
Despite proponents’ efforts to get pension reforms over the finish line in the most recent session, each of the principal bills will have to be entirely reintroduced, following the closure of the Alaska State Legislature’s 33rd session on May 16.
“There were all these intricate efforts to try and attach the bill to a bill of a similar subject, under our single subject rule,” adds Josephson. “There was a real effort to do this, but it did not succeed.”
SB 88, sponsored by Giessel, would allow certain employees the option to choose between the defined benefit and defined contribution plans of the Public Employees’ Retirement System and the Teachers’ Retirement System.
Alaska’s Challenges
Alaska has experienced higher turnover and severe challenges to recruit and retain public sector workers since it closed the pension plan for new hires.
“We’re spending a lot of money on retraining, particularly of first responders [and] that costs us about $150,000 a pop,” explains Josephson, “We do great at building our workforce, but then … they leave for greener pastures.”
Increasing turnover challenges Alaska’s cities and towns to recruit and retain a sufficient number of workers to satisfactorily operate vital public services, he adds.
Had the Alaska Senate bill become law, it would have created a new pension tier and pension fund for teachers and state employees. Under the legislation, regular employees could retire at 60 years old or with 30 years of service; public safety employees could retire at age 50 with 25 years of service; or at age 55 with 20 years; and the state contribution rate would have been set each year by the Alaska Retirement Management Board.
Josephson’s Alaska House bill would have restored the DB benefit to only first responders, which number nearly 3,000 of the state’s 21,000 total public employees.
“My first responders’ version only covered [7.5%] of all public employees, so the risk to the state frankly was far smaller than bringing back all 20,000 public employees,” Josephson says.
In the U.S., 94% of public employees have access to a DB plan, according to data from the Urban Institute published in 2018.
Supporters of the bills argue Alaska must restore—some form of—the state pension as “we’re the only state that has closed and continues to keep closed our defined benefit system,” entirely to public sector workers including teachers, adds Giessel.
“The state needs these bills because we have a workforce shortage problem,” says Giessel. “We know that our workers are being stolen away from us by other states that have defined benefit [plans].”
Alaska-trained public sector workers including police officers, fire fighters and teachers are “actively recruited by Washington Oregon and California,” she says.
Actuarial modeling by the Libertarian nonprofit Reason Foundation—using scenarios assuming every Alaska new hire would select the DB plan—estimated the costs to the state of restoring the pension at between $5.5 billion to $9.6 billion over the next 30 years.
The think tank seeks to influence state policy and operates the Pension Integrity Project, consulting public officials on pension reforms to improve solvency and promote retirement security, according to the foundation’s website.
Reason Foundation’s Pension Integrity Project created an analysis tool, comparing the projected value of Alaska’s DB and DC benefits before the legislative efforts stalled.
“A comprehensive comparison of the closed defined benefit plan, the DB proposed in Senate Bill 88 (currently being considered in the state legislature), and the existing defined contribution plan suggests that the DC plan is the optimal benefit for most new hires,” according to the analysis, posted in April 2023.
Projecting the dollar value of a participant’s annuitized DC assets against the expected the value of a DB annuity, Reason finds a DC plan-funded annuity would provide greater asset-dollar value than DB annuity until workers reach 27 years of service, shows the analysis.
“This analysis shows that while a select group of workers could enjoy an improved benefit by reopening the defined benefit plan, the vast majority of Alaska’s public employees would be better served in the existing defined contribution plan,” Reason’s researchers wrote.
However, according to actuarial modeling, in an Alaska state fiscal note, restoring the pension for public workers would cost the state $6.901 million per year.
The figure “assumes all the jobs are filled, and all the employees are retained,” notes Giessel. “[SB 88] … [had] a provision in it, [requiring] the pension funds to remain funded at 90% funding range [and] if that amount falls below 90%, the three entities covered by the pension would have to increase their contribution.”
Teresa Ghilarducci, a labor economist and professor of economics at the New School for Social Research, who spoke to members of the Alaska legislature in May, said Alaska’s unique geography makes the need to restore a pension to public sector employees even more critical.
Robust retirement benefits in a DB plan would also help entice workers to consider public sector careers in Alaska, Ghilarducci says.
“[Workers] have to make all sorts of other decisions to move to Alaska, where you don’t have to make some big decisions to move from [for example] Indiana to Illinois.”
Long-term Challenge
Alaska shares the public worker recruitment and retention challenges with Rhode Island. Both states have experienced higher turnover following pension reform, separate National Institute on Retirement Security studies found.
The NIRS “Alaska Teacher Recruitment and Retention Study,” report was published in 2023, and the “Employees’ Retirement System of Rhode Island,” experience study, earlier this year.
In Rhode Island, “[Employee] turnover recently, has been as high as it’s been for 18 of the 19 groupings [of data on public sector workers] that we looked at,” explains Dan Doonan, executive director at NIRS and author of the Alaska and Rhode Island reports.
In Rhode Island, “turnover has been increasing pretty steadily,” of state and local government workers, following 2011 pension reforms.
NIRS organized data on Rhode Island’s public sector workers by age group, using five-year intervals, and for each group of public sector workers—including state employees, general employees, police officers, firefighters, and teachers—data was grouped into 19 segments.
Turnover was the highest in 17 of the 19 groupings studied, NIRS found.
Alaska closed the state DB plan to new state workers and Rhode Island, in 2011, changed the Employees’ Retirement System of Rhode Island to a hybrid DC plan with a reduced pension aspect and mandatory participation in a 401(k).
In Alaska, “the retirement plan change did not address the funding shortfall, and it also had the unintended consequence of creating workforce recruitment and retention challenges for public employers,” NIRS’ Doonan concluded, in the April 2023 report.
Rhode Island
In Rhode Island, public sector worker turnover rose for almost every group after the hybrid plan was implemented, the 2024 NIRS experience study found.
Increasing turnover will result in higher costs to the state, as NIRS projected fewer workers will want to work their full careers in the Rhode Island public sector. This also will drive up costs to train and replace them, NIRS found.
NIRS reported 29 of 100 new Rhode Island state employees would reach 25 years of service, compared to past experience studies, which estimated 34 to 45 of 100 new state employees would reach this tenure.
The data suggests that “change in plan design is, at least partly, increasing employee turnover by providing less incentives for public employees to stay with their employer,” Doonan wrote.
The “state employee withdrawal rate was higher in 2022 across the full range of years of service than in any of the previous four actuarial studies,” NIRS reported.
DB plans have long been used as a workforce management tool, helping states to recruit, retain and retire public employees, Doonan wrote in the Rhode Island report.
Altering the Employee Retirement System of Rhode Island to a hybrid DB-DC plan in 2011 “changed the incentives for public employees,” he wrote.
“Almost across the board, there has been an increase in turnover resulting in fewer employees retained and fewer years of service provided,” Doonan wrote. “This has negative downstream effects on the provision of public services.”
Rhode Island lawmakers tasked the state’s Office of the General Treasurer to form a pension advisory group to study pension reform effects, which published its report in January 2024.
“The 2011 reforms were intended to protect the integrity of the pension fund,” the authors wrote. “However, it is quite clear that the reforms have had a negative financial impact on state employees and retirees.”
The report does not make recommendations.