Retirement in Alaska
Where We Are Today
In 2005, the Alaska Legislature passed Senate Bill 141, dismantling the public employee Defined Benefit retirement pension and health care system and replacing it with a 401K system or Defined Contribution plan. Overnight, Alaska went from having a fair and secure retirement system to having one of the worst in the country.
This change made Alaska the only state in the nation to have neither a Defined Benefit pension system or participation in Social Security. For employees who will not receive Social Security, there is no guaranteed retirement security with a 401K. This lack of security hurts recruitment and retention of the best and brightest employees. Not just in the school setting with educators, but also firefighters, police, nurses and others who simply will take their Alaska training and go to other states that will provide them with a secure retirement.
What Will Happen if We Do Nothing?
Alaskans will pay the price. With the Defined Contribution 401K plan and no Social Security safety net, the State will have to pick up the costs of providing welfare programs for retirees who outlive their 401K. Inadequately funded retirements and poor health care funding will endanger the retiring worker and will expose the State of Alaska to more financial risk. Studies show that poorly funded 401Ks caused a significant increase in use of social services among the retired. In addition to dependency on government for services, the amount of money moving in the economy will be less as retirees have less overall disposable income. In addition to retirees’ having less to spend overall, the lack of a predictable monthly payment leads retirees to spend less when the economy is in trouble. This compounds the boom and bust cycle of the Alaska economy and diverts resources to avoidable expenses at the cost of needed economic projects.
What We’re Working On
NEA-Alaska has worked with the Alaska Public Pension Coalition (APPC) for the past eight years to change the Defined Contribution system to one that offers Alaskan employees both options: a hybrid system.
This Hybrid System would offer state employees a personal choice between the Defined Contribution 401K System and the Defined Benefit Pension System. This way, public employees can choose the plan that’s best for them, based on their career path. For example, Defined Benefit plans are a great option for public employees who want to work their full careers in Alaska. Whereas, mid or late-career professionals may choose the Defined Contribution plan if they have a military or private sector pension they can depend on.
This Hybrid System patches the hole in Alaska’s safety net. Since public employees in Alaska do not earn Social Security benefits, and, in fact, lose Social Security benefits they’ve earned in past jobs the longer they work in the public sector, this hybrid system offers them an option that will cover their expenses in retirement regardless of how long they live. Additionally, if the stock market crashes at the wrong time, their retirement savings won’t disappear. Currently, in both the case of a stock market crash and someone living longer than their retirement had been planned for, the State of Alaska will have to foot the bill by paying more for social services and Medicaid.
Keeping teachers in Alaska can also be a challenge. According to statistics from Buck Consultants, prepared for the Alaska Retirement Management Board (ARM), Alaska hired 3,037 teachers between 2006 and 2012. However, by June 2012, only 632 of these teachers stayed in Alaska for more than 5 years (that’s only 20.8% or four out of every five teachers leaving Alaska!). With a Defined Benefit option, public employees would be encouraged to work in Alaska longer, whereas the current system only requires them to work in Alaska for five years before they can take the money the state has invested in their individual retirement accounts to a new job or state. Since Alaska switched to the Defined Contribution-only system, a troubling number of public employees have not been working past five years of service, especially in our most vulnerable communities. This does not just hurt the state in terms of potential dollars leaving the state, it also costs us when we then have to rehire and retrain for that position.
We will continue to work on this issue until Alaska’s educators and public employees get the secure retirement option they deserve. If you’d like to help, consider contacting your legislator.