Alaska public worker shortage fuels renewed interest in pension plan

JUNEAU — Amid a deepening crisis in recruiting and keeping state workers, the Alaska Legislature is again considering measures to recreate a pension plan for public employees, but disagreements on the type and extent of the plan mean a long path ahead.

A deficit of billions of dollars led lawmakers in 2006 to do away with the state’s defined benefits plans, which gave state employees a dependable pension not reliant on the ups and downs of the stock market, and instead offered workers a 401(k)-style option that allows them to invest in the stock market but gives less stability — and less of an incentive for workers to remain in Alaska.

Since then, some lawmakers, union leaders and worker advocates have raised alarm about the loss in Alaska’s ability to recruit new employees and keep existing workers, who are sometimes lured by more generous benefits plans to other states. In the 2022 legislative session, a bill to recreate a defined benefits pension plan for public safety workers came close to passage but stalled in a Senate committee.

This year, the bipartisan Senate majority has named improving recruitment and retention of state employees as one of their top priorities. Members of both the Senate majority and the House coalition are hoping to see a new plan. But among the more conservative Republicans that govern the House, lingering fear over committing the state to an affordable plan could translate to a long and difficult legislative process.

‘A culture of spreading the wealth’

In the House, lawmakers are already considering a bill that would create a pension plan only for public safety workers. That measure, House Bill 22, is a reincarnation of the bill that passed the House in 2021. Rep. Andy Josephson, an Anchorage Democrat who sponsored the bill both in 2021 and this year, says it’s a conservative measure that can demonstrate the efficacy of such a pension plan without putting the state under an unreasonable financial burden.

“It’s fair to guess that the House majority is going to look more favorably on first responders than the entire pool,” said Josephson, calling his bill “the sweet spot” that can appeal to the Republican-dominated House majority’s more conservative side. But leadership in the House referred Josephson’s bill to four different committees for hearings, typically signaling an interest to stall the measure.

At the same time, some House and Senate members have expressed interest in pursuing a less conservative option: creating a new pension plan for all state employees, rather than a specific sector. That would include everyone hired by state and local governments: teachers, public safety workers, snow plow operators, biologists, wastewater plant managers.

Josephson’s plan, meanwhile, would apply to roughly 2,300 first responders, who make up around 7.5% of public employees in Alaska.

‘They cannot keep and retain public safety employees’

The reasoning for giving public safety workers a pension option while setting aside other workers is the investment needed to train first responders. Josephson pegged the number between $100,000 and $200,000 per worker, shouldered entirely by the state or local government taxes. His bill has a price tag of roughly $6 million annually, but he says that is less than the millions the state currently pays in recruiting and training public safety workers who are leaving because of unattractive benefits options.

“Think of the state’s veterinarian,” said Josephson, “he paid for his own training. This is unique. So when there’s this churn because the benefits are so bad, the state and cities pick up that cost.” He noted that public safety workers “put their lives at risk for us.”

Dominic Lozano, president of the Alaska professional firefighters association, told the House Community and Regional Affairs committee earlier this month that after the state got rid of the defined benefits plan in 2006, firefighters began noticing more of their colleagues leaving. And in their field, more experience is essential.

“You can pretty much go around the state, and it doesn’t matter what municipality, what town, what fire service area — the fact they cannot keep and retain public safety employees is becoming a big concern,” said Lozano.

Josephson acknowledged that other public sectors, including education, face a crisis in turnover that could be addressed with a new pension plan, and that he hopes that a bill targeting public safety workers will ultimately lead to a plan that applies to other workers.

“If it leads to success and a culture of spreading the wealth — great,” he said.

That is exactly what some more conservative Republicans are worried about. They say that even a narrow bill opens the door for other state employees to demand similar benefits.

“That is a big concern with folks I talk to about a bill like this, that you’re opening the door for a tremendous financial burden on the state by allowing thousands of public workers to demand this program,” said Rep. Tom McKay, R-Anchorage, during a hearing on the bill.

But Republicans are not united in their opposition. Rep. Justin Ruffridge, R-Soldotna, said he is open to considering a defined benefits program for all public employees. Whatever plan is adopted, he said that “it has to be everybody.”

“You can’t just pick one group and not offer the same to everybody,” Ruffridge said.

‘The smart economic move’

Sen. Jesse Kiehl, a Juneau Democrat, has already introduced a bill this year — Senate Bill 11 — that would apply to all workers. Kiehl’s bill would give new public employees the option to choose between a defined benefits pension plan and a defined contribution plan like the one available currently.

“The option part is important,” Kiehl said in an interview, noting that for some public employees, a 401(k)-style plan is preferable, like military retirees, workers with short-term public-sector appointments who spend most of their careers in the private sector, or people who come to Alaska for just short-term stints.

Under Kiehl’s plan, new employees will have a brief window in which to decide whether to elect a defined contribution plan or a defined benefits plan. Existing employees who are currently in the defined contribution program will have a one-time window in which they can switch to the new defined benefits plan, converting their accrued pension contributions to seniority in the pension program.

Skeptics of Kiehl’s plan say it could lead to the same kind of unfunded liability the state faces from the last time it offered defined benefits to public employees. But Kiehl said that won’t happen, arguing that the state could end up saving money by providing better-run retirement options.

“This is not royalty retirement. It’s a stable income you can’t outlive,” Kiehl said.

Bills like Kiehl’s have been introduced in the past, to no avail. But lawmakers say there is more openness this year to create a pension plan, driven by reports about schools’ inability to fill teach and staff vacancies, and the delays in basic government functions like snow plowing and processing public benefit requests.

“Folks around the building have seen that. They are realizing that Alaska put itself in a bad position,” Kiehl said. For some workers, he said, “with five years of experience, the smart economic move for them — for their families — is to leave the state.”

But even with a renewed focus on the challenges created by worker turnover, some want to take time to review all of the state’s options, including possibilities like increasing worker salaries rather than creating a new pension plan.

“One solution is to put a new tier in. That’s clearly a solution if there’s a definitive problem, but that’s not the only tool. You can increase contributions rate, you can increase salaries, you can do retention bonuses. You’ve got several levers that you can push and pull,” said Sen. Bert Stedman, a Sitka Republican who co-chairs the Senate Finance committee.

Given the complexity of the issue, Stedman predicted it will take longer than one legislative session — typically lasting four months — for the Legislature to agree on a new plan, meaning the issue could drag at least until the 2024 legislative session.

“It’s as complicated as oil taxes,” he said. “If we put a plan in place, once that plan is implemented and the first check is cut, the doors shut. We can’t go back and say, ‘oops, we made a mistake.’ It doesn’t work like that … So we need to get it right the first time.”

The length of time lawmakers debate the issue could in itself prove contentious. Sen. Jesse Bjorkman, a Nikiski Republican, said there is urgency in addressing Alaska’s retirement system sooner rather than later. The problem, he said, has already been studied for years.

“At a certain point in time, study hall needs to be dismissed,” said Bjorkman.

‘Golden handcuffs’

Bjorkman, a social studies teacher, says that he has watched some of his colleagues struggle to remain educators because of the state’s retirement and benefits system. And he is not alone. Rep. Rebecca Himschoot, a Sitka independent and elementary school teacher, said she has seen several colleagues leave the state, citing more generous retirement options elsewhere.

“At the end of the day, they needed to be someplace where they knew that they would have something for sure in retirement. They were spending their evenings looking at how to invest. So they had to be not just a teacher — they had to also be an investment specialist,” said Himschoot.

Himschoot became a teacher in Alaska when the state was still offering a defined benefits pension program, which she calls “golden handcuffs” that have kept her in the profession when she has faced adversity.

“I will always give my very best to students under every possible condition, but during COVID, it was really hard to stick with the profession and to be in a classroom. It was just a really hard time. But I had a good reason to stay. I had a retirement goal that was going to give me a retirement with dignity,” Himschoot said. “I can imagine if I were working for less in retirement, or didn’t have the options that I have when I finally do get to retirement, I might have considered a different profession.”

Still, some lawmakers are wondering if when public employees leave — as many did during the nationwide pandemic-induced “great resignation” — it is because of the state’s retirement options, or other factors affecting Alaska’s years-long outmigration trend.

“How do we know that the problem is the retirement plan? I know, because my colleagues have left and they have named it to me,” said Himschoot. “But even if we can’t isolate that as the problem, why wouldn’t we want to be the place in the nation where people want to work?”