Alaska Bill Seeks to Revive Defined Benefit Pension

Bipartisan legislation is intended to attract workers to fill state job vacancies.

State senators in Alaska have introduced a bipartisan bill that would create a new defined benefit pension system for state employees as a way help address a nearly 20% vacancy rate for state jobs.

Alaska’s previous defined benefit retirement system was abolished by state legislators in 2006 and replaced with a defined contribution plan. Senate Bill 88 would restore a defined benefit plan for new workers and allow current employees to choose between the new defined benefit and the current defined contribution plan.

An analysis presented last month to the State Senate’s finance committee by Alaska’s Department of Administration’s division of retirement and benefits projected that the current defined contribution system is providing significantly fewer benefits to its participants than the previous system.

According to the analysis, an employee who started out with a $58,000 salary who worked for 30 years, retired at 60 and lived to the age of 85 could expect a salary replacement ratio of approximately 64% of their last salary in retirement benefits under the former retirement system. But under the current system, the same employee could expect a salary replacement ratio of approximately 61%. That translates to a difference between approximately $81,400 and approximately $77,300.

State Senator Cathy Giessel, a Republican and the bill’s main sponsor, said the bill is needed to help the state recruit and retain public employees. The statewide public job vacancy rate is currently 17.6%, and Giessel noted that there are labor shortages for school bus drivers, ferry system staff and staff to approve food stamp applications, among a slew of unfilled positions. She said bringing back a defined benefit plan will help fill those jobs and keep them filled.  

However, Giessel also said the new the pension system would be more fiscally sound and affordable than the previous defined benefit system, which she said, “was sinking Alaska’s fiscal ship with huge financial cost.” 

Among the provisions in the bill, public employees would be required to pay more under the new system, and a small health savings account would replace the health insurance provided under the previous system. Although all new workers would be placed under the proposed new system, current employees would be allowed to remain in their existing defined contribution plan. Additionally, retirement payments would be based on a participant’s highest five consecutive years of salary, and benefits would only be available for employees who work at least five years.

“This new system has a cost and risk sharing structure for both employees and employers,” Giessel said in a newsletter update. “We believe this is a sound solution to recruitment and retention of a workforce.”

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