Draft before Alaska pension committee argues part-time workers lose retiree health money

A draft paper before an Alaska Retirement Management Board committee argues that part-time public workers in the state's defined contribution plans should not have their years counted at a fraction toward the 10-year test for retiree health accounts. The paper was in the packet for Friday's meeting of the board's Strategic Review and Action Committee, marked as a draft for discussion. The committee makes recommendations to the full board but cannot act on its behalf.

The defined contribution plans cover Public Employees' and Teachers' Retirement System members first hired on or after July 1, 2006. Members get a retiree health reimbursement arrangement, an employer-funded balance for medical costs in retirement. The board's draft reference guide says members qualify after 10 years of membership service, and those who leave sooner forfeit the account.

The two-page paper, "Risk, Proration, and Why DB and DC Differ," names no author. It says counting part-time years at a fraction makes sense in the old pension plans, where each year adds to a pooled, guaranteed liability. In the defined contribution plans, it says, the employer's obligation for a year ends once it makes the contribution: "Nothing further accrues that someone must fund, so there is no liability for a waiting period to protect."

The paper calls the health account the clearest case. "A retention incentive such as 10 years can be reasonable," it says. "Counting those years in prorated units is the part that does not fit." It says the longer clock raises the odds that the people least able to meet a long service test lose money already deposited.

Employers pay 3 percent of average pay across both systems for each member into the health accounts. A forfeited balance is restored, adjusted for Anchorage inflation, if the person returns to a participating employer by Dec. 31 of the year they turn 65.

State law defines membership service in both systems as "full-time or part-time employment." For the public employees' plan, a year of service is the equivalent of 52 weeks of full-time work, which part-time service can add up to.

In July, committee chair Bob Williams and Division of Retirement and Benefits Director Kathy Lea acknowledged the counting is unclear, according to the minutes. Lea said the public employees' system treats 30 or more hours a week as permanent full-time and 15 to 29 as permanent part-time. Williams asked for data on how many part-time employees both systems have and how long they have worked.

In August, Lea said the question had gone through division attorney Allison Baldock to outside lawyers at Ice Miller to check for compliance problems. In September, she said the Department of Law and Ice Miller were reviewing whether eligibility can change for part-time workers. Because the same service terms govern vesting, she said, a change may require amending state law. Neither has reported a conclusion in the minutes.

The records do not show whether the part-time data was delivered or how many members have lost balances, or how much.

The committee next meets Dec. 1. The full board meets Dec. 2 and 3 and takes public comment.