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 passage of his gas line legislation. The Legislature did not pass the gas line bill in the form or timeline Dunleavy wanted, and the pension veto followed.

The bill remains alive only if lawmakers can override the veto. The Legislature scheduled a joint session for 1 p.m. Tuesday to take up the veto, according to the bill record. A veto override would require 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 alignments hold. The override faces long odds, falling seven votes short of the threshold if the original coalitions remain intact.

HB 78 would have let certain public employees and teachers choose between Alaska's existing defined contribution retirement plans and a defined benefit pension plan. Under a defined benefit plan, retirees receive a guaranteed monthly payment based on salary and years of service, with the employer bearing investment risk. The enrolled bill applied to the Public Employees' Retirement System and Teachers' Retirement System. It would have given eligible employees a one-time election to move into the new defined benefit tier.

Dunleavy said in his veto letter that he shares the Legislature's goal of strengthening recruitment and retention in Alaska's public workforce. But he said the bill carried unresolved legal, tax, administrative and fiscal issues.

"Most importantly, House Bill 78 would return long-term investment, actuarial, and unfunded liability risk to the State and participating employers," Dunleavy wrote. "Pension obligations extend for decades, and the full cost of this bill may not be apparent until years after its enactment."

The governor also linked the veto to the state's broader revenue debate.

"If the Legislature intends to increase the State's long-term spending obligations, it must also be prepared to support the long-term revenue needed to pay for them," Dunleavy wrote. "That requires a serious commitment to natural resource development, private-sector growth, and a stronger economic foundation for Alaska's future."

Supporters have framed HB 78 as a recruitment and retention tool for public workers, including teachers and public safety employees. Alaska closed its prior defined benefit pension system to new workers after June 30, 2006, moving new public employees and teachers into defined contribution plans.

Fiscal notes attached to the bill projected administrative costs to launch and manage the new tier. A Department of Administration fiscal note for the Senate Labor and Commerce version projected about $1.1 million in operating costs in fiscal year 2027 and about $771,200 per year from fiscal years 2029 through 2032 for the Division of Retirement and Benefits. A separate 2025 fiscal note, citing the state's consulting actuary, projected a net $467 million increase in PERS and TRS additional state contributions from fiscal years 2027 through 2039 if future experience matched actuarial assumptions.

The governor's veto letter said any return to a defined benefit system must be legally sound, fiscally responsible, administrable, compliant with federal tax law and backed by a durable plan to pay for it.

"House Bill 78 does not meet that standard," Dunleavy wrote.