Public employees show support for restoration of pension plan
Published Thursday, March 20, 2008
JUNEAU — Public employees, teachers and their union representatives showed up in force this week to tell a Senate committee that the state should never have traded in its pension plan for a 401(k)-style defined contribution plan.
The Senate State Affairs Committee held two days of hearings before moving out a bill Wednesday that would reinstate the defined benefits retirement plan for newly hired employees.
It also would repeal the two-year-old defined contribution plan giving those hired since the new plan went into effect the choice between the two.
“It’s fair, it helps attract and keep good employees and it adds back the cost of living incentive for retirees to stay in the state once they have retired,” said Sen. Kim Elton, D-Juneau.
The Legislature approved the defined contributions plan in the waning hours of the 2005 legislative session after a bitter row between the House and the Senate.
Senate leaders said the switch was key to stopping the expansion of the public employees and teachers retirement systems long-term payout shortfall, now estimated at more than $8 billion.
House Republican leaders and Democrats from both bodies said the proposal did not address the shortfall and doubted whether the defined contribution system was even a fix.
The new retirement system went into effect July 1, 2006 for newly hired teachers and public employees; those workers already in the system were allowed to keep their pensions unless they chose to switch to the new plans.
Alaska State Employees Association business manager Jim Duncan, speaking on behalf of a coalition of unions and retiree organizations, said the new plan fails to provide retirees with a secure pension and adequate medical coverage, and it does not result in a cost savings to the state.
The change also has made it difficult to recruit and retain new employees, he said.
Bob Claus, a 22-year state trooper now stationed in Klawock, said the pension plan was a huge factor in his decision to apply for the job and stick with it.
He said a 22-year-old recruit that he is currently training does not have the same incentive despite the state’s considerable investment of time and money in his training.
But Sen. Con Bunde, R-Anchorage, said he believes young people today are looking for flexibility. He compared the pension plan to a form of indentured servitude for discontented workers.
“We are going to force them to stay here because of the retirement that they will lose if they move,” Bunde said.
Anchorage teacher Jake Todd said the new plan offers few incentives to stay and with teacher pay falling behind that in other states, many talk of leaving.
“Teachers will leave as other states have better plans in place,” Todd said.
Pat Shier, director of the state Division of Retirement and Benefits, said it was too soon to properly compare the old and new plans and see how it has affected employment.
“We think it’s too soon to tell if it’s an impediment to recruitment,” said Shier. “Our data doesn’t show that.”
Shier has heard anecdotal information, but said no study has been done to find out why people might turn down a job in Alaska.
He suspects the problem is more widespread than with just civil servant and teacher positions.
Committee Chairwoman Lesil McGuire, R-Anchorage, said she believes problems already are showing up with recruitment of teachers and front line public safety workers.
“If we are going to attract and retain folks for a state function, we need to be sure they have a humane and adequate retirement,” McGuire said.
The bill moved out of the committee by a vote of 3-2.
Sen. Gary Stevens, R-Kodiak, said he had serious qualms about the measure but said it was “too early to kill the bill” and the continued discussion was important.
The bill is Senate Bill 183.
Comments
Having a retirement plan based on a defined contribution is one of the better implimentations the state legislature has enacted. Why should the citizens of this state be obligated for anyones retirement. The old system places obligations on the financial future of our state which we have no control over in bad times. In the future if we dont find new a source of revenue our state will go broke. Why have this uncertainty when we can follow almost all other retirement plans seen today and enrich our state employees with a defined contribution plan. It Works
I agree with bikebuilder. The defined contribution plan is a much better idea. We need the remeber that the state is us, the people. With the pension plan method of PERS and TERS, we are essentially telling people that if they work for us, then we will continue to pay them a salary when they retire, EVEN if it means we ourselves must go broke. I think it is much more reasonable to tell people that if they work for us we give them a fixed amount of money for thier retirement (in the form of a 401(k) or 403(b), etc, contibution), and allow them to manage their money as they see fit. If we are concerned about retaining public employees without offering them a pension, then maybe we should be paying them better now, rather than promising to pay them after they retire, when we don't know if we will be able to afford to do so. It is dangerous to presume upon the future.
The State does not pay for PERS/TRS. The State won't go broke.
A problem for university and state employees is that they are not covered by social security. Plus, if they have social security from other jobs, that amount is REDUCED because of the state employment. As such, if a new hire now spends a career at the university or state, they will not receive any social security or a reduced amount of social security if they've had other employment. Who can afford to spend much time at the state? How can the citizens of the state think that this won't hurt the state economically in the long run?
Batman_ak your misinformed.
The state of alaska, and local municipalities pay PERS/TRS. Who did you think was paying for our state employees retirement? the federal government, dont think so.
Also state employees are covered with a social security plan, its called SBS which each state employee receives. The supplimental benifits system was developed after the state opted out of social security. SBS is maintained, and payed for with state funds.
The SBS plan also is a better plan and has better benefits then social security.
bikebuilder, you are misinformed. What you are talking about is the joint contribution that the worker & the state put in as the employee works. This is true of a defined contribution or a defined benefit system. The state does not pay beyond what is in the PERS system per employee.
The University does not have SBS. They have a pension plan which in no way is comparable to social security.
Batman_ak and Bikebuilder; You are both right and misinformed. Prior to mid 2006, PERS/TRS was a defined benefit plan. This means, that when a person retires, they get a defined monthly payment ('salary'), and defined medical benefits for the rest of thier life. These benefits are paid by the state. If people live longer, and if people have higher medical bills, then the state must pay for these. This is why the PERS/TRS system is currently in an $8 billion shortfall... because medical costs have risen beyind expectation, and people are living longer. The state pays for this from a collection of money that is managed and invested (either directly of indirectly) by the state. If this fund is not managed well, then WE the tax payers have to make up the difference to public employees.
In mid 2006, the legisature changed PERS/TRS to s defined conribution plan, where the state pays a fixed amount (based on salary) to a 401(k) type managed retirement fund. The employee gets to choose from a couple of fund providers, and from any of the eligible funds offered by that provider. The employee has significant control over how that money is invested and managed. If it is not managed well, and there is not enough money for a good retirement, then the state does NOT make up the difference. This is a 'well pay you now then let you manage your retirement' approach. It allows the employees to plan for thier retirement.... if you invest wisely, you get more money, if you invest poorly, you get less money.
In the end, I believe a defined contribution approach is best. It does not leave us (as a state) with with future liabilities due to presumtion on future circumstances. (and it let's me, a public employee, have more say in how my retirement money is invested).
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