Dunleavy vetoes public pension bill, leaving override as long shot

Gov. Mike Dunleavy vetoed House Bill 78 on Monday, blocking a bill that would have reopened a defined benefit pension option for Alaska public employees and teachers.

The veto came after the Legislature failed to advance a natural gas pipeline bill Dunleavy had sought. The governor had signaled he would consider signing the pension bill as part of a broader agreement that included his gas line legislation. Lawmakers did not pass it in the form or on the timeline he wanted, and the pension veto followed.

The bill survives only if lawmakers override. The Legislature scheduled a joint session for 1 pm Tuesday to take it up, and an override takes 40 votes from the 60-member Legislature. HB 78 passed the Senate 12-8 and the House 21-19 in late April, a combined 33 votes in favor. If those coalitions hold, the override falls seven votes short.

The bill would have let certain public employees and teachers choose between Alaska's existing defined contribution retirement plans and a defined benefit pension. Under a defined benefit plan, a retiree receives a guaranteed monthly payment based on salary and years of service, with the employer carrying the investment risk. It covered the Public Employees' Retirement System and the Teachers' Retirement System, and gave eligible employees a one-time election to move into the new tier.

Dunleavy wrote in his veto letter that he shares the Legislature's goal of strengthening recruitment and retention in Alaska's public workforce, but that the bill carried unresolved legal, tax, administrative and fiscal problems. Most importantly, he wrote, it would "return long-term investment, actuarial, and unfunded liability risk to the State." Pension obligations run for decades, he added, and the full cost might not surface until years after enactment.

He also tied the veto to the state's revenue debate, writing that a Legislature intending to increase long-term spending obligations has to be prepared to support the long-term revenue to pay for them, through resource development and private-sector growth. Any return to a defined benefit system, he wrote, has to be legally sound, fiscally responsible, administrable, compliant with federal tax law and backed by a durable way to pay for it. HB 78, in his judgment, did not meet that standard.

Supporters have framed the bill as a recruitment and retention tool for public workers, including teachers and public safety employees. Alaska closed its previous defined benefit system to new hires after June 30, 2006, moving new public employees and teachers into defined contribution plans.

The fiscal notes attached to the bill projected what it would cost to run. A Department of Administration note for the Senate Labor and Commerce version put operating costs at about $1.1 million in fiscal 2027 and about $771,200 a year from fiscal 2029 through 2032 for the Division of Retirement and Benefits. A separate 2025 note, citing the state's consulting actuary, projected a net $467 million increase in additional state contributions to the two retirement systems from fiscal 2027 through 2039, assuming future experience matched actuarial assumptions.