Senate panel advances retirement bill despite $400M cost shift concern

The Senate Finance Committee advanced a major retirement reform bill Tuesday despite warnings it could shift nearly $400 million in unfunded liability costs from municipalities to the state over 13 years.

House Bill 78 would create a new defined benefit retirement option for public employees after years of operating under a defined contribution system. But actuarial analysis shows the bill would transfer $394.5 million in unfunded liability costs from 148 non-state PERS employers to Alaska state government between 2027 and 2039.

Sen. Bert Stedman proposed an amendment to raise the municipal contribution cap from 22 percent to 24 percent of payroll to prevent the cost shift. The amendment failed on a 6-1 vote, with only Stedman supporting it.

"If Amendment 1 is not adopted, if the bill is left the way it is, is it proper for the state of Alaska to pick up the cost of implementing the new tier for all the other 148 PERS employers?" Stedman asked during committee discussion.

Actuary David Kirshner from Arthur J. Gallagher explained that increasing the cap from 22 percent to 24 percent would increase non-state employer contributions by about $417 million while decreasing additional state contributions by about $403 million.

"The only way to achieve the goal of maintaining the status quo is essentially that over the 13-year period that we are looking at through FY39 to keep the additional state contributions roughly where they are currently," Kirshner said.

Sen. Jesse Kiehl opposed the amendment, arguing that the bill would bring offsetting benefits not captured in fiscal projections. "We have tremendous turnover costs," Kiehl said. "When you net it all out, we are not going to see an increased cost here to the state." Kiehl contended that improved employee retention under a defined benefit system would reduce recruitment and training expenses that currently burden state agencies due to high turnover rates.

Kiehl noted that raising the municipal contribution cap would increase costs for local governments regardless of whether actuarial assumptions prove correct. "It is sales tax dollars and it is property tax dollars," he said.

The committee approved two other amendments. One removed a 12 percent ceiling on adjustable employee contribution rates to prevent underfunding. Stedman supported removing the cap as a safeguard against creating unfunded liabilities.

"By removing this cap would give the Alaska Retirement Management board tools necessary," said committee chair Sen. Lyman Hoffman.

Another amendment failed that would have raised the retirement age from 60 to 65 for all employees except public safety personnel. Sen. Forrest Dunbar proposed the change to help ensure plan solvency, but it was rejected.