Iris Samuels summed up a lot of the issues around a return to the defined-benefit retirement issue for Alaska’s public employees in the Jan. 30 article on that topic, but there were a couple of points not mentioned.
First, the unfunded liability that was used as the excuse for dismantling the retirement system was partly caused by the huge surge in the cost of health care benefits that started in the late 1990s. It changed from a relatively small cost to something huge that impacts the cost of living in Alaska today. Simply reducing that or managing it better lowers the cost of a defined-benefit system, and that can easily be done.
The actuaries that advised the state government on the defined benefit program were willing to pay $500 million to settle out of court. That’s a lot of money to pay so your folks don’t have to testify under oath. Makes you wonder what they might have said.
Lastly, the current system reduces any Social Security benefits someone might be entitled to if they vest in a state of Alaska retirement system, and in the defined- contribution tiers, you vest immediately. That’s somewhat OK for defined-benefit tiers, but for defined-contribution tiers, it brings a huge risk.
Social Security isn’t what anyone wants to live on (only), but it’s the floor that keeps coming every month as long as you live. When retired Defined Contribution employees begin to draw on their principal (and most will) they start the clock on how long their savings will last. Without knowing how long they will live, it all becomes a gamble. When their principal runs out, they are done. They have no income.
And lastly, it eliminates the survivor and disability benefits of Social Security. Not all that many people make use of those, but when they come into play, it’s a critical resource for people in a bad situation. The Alaska defined-benefit system provided for that. The defined-contribution system does not.
All of this means the state puts risk on its employees that every other business in Alaska does not. It’s time for a realistic look and a fair offering for public employees in Alaska.
— Andy Holleman
Anchorage
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