Day 9: Conservative public pension plan runs into conservative opposition

What if the teachers want this, too?

Good morning, Alaska! It’s Day 9 of the legislative session.

In this edition: What stands to be one of the big legislative issues of this session got its first hearing in the House on Tuesday. House Bill 22 marks the latest effort to return some portion of Alaska’s public sector to a dependable defined benefit pension system, rather than the 401k-style plan that’s been in place for about 15 years. It’s a conservative approach that would only extend the benefit to firefighters and police officers, but it’s already running into conservative opposition from folks who worry that those darned teachers might get it in their heads to ask for a dependable retirement plan. Also, the daily schedule and the reading list.

Current mood: 😠

Conservative public pension plan runs into conservative opposition

With an audience filled with firefighters, Rep. Andy Josephson makes the case for his House Bill 22 that would give existing firefighters and police officers the option of joining a defined benefit pension system.

Listen to pretty much any legislative hearing on education, public safety or the delivery of state services and you’ll hear a common thread: There’s just not enough people to do the jobs and the people on the jobs aren’t sticking around for as long as they once did. While there’s a lot of reasons that contribute to the revolving door in the public sector, the one thing that seems to frequently come up is the state’s current public employee retirement system doesn’t give young people a reason to stick around. The defined contribution system is essentially a 401k-style plan where you put in money and what you get paid out in retirement depends on the market and, oh, Alaska public sector employees are not eligible for Social Security, either.

It’s a transition the state made in the mid-2000s when legislators, alarmed at the costs of the past pension plans system that got sideways because of actuarial fraud, did away with the defined benefit system—where you pay in and you get a stable retirement guaranteed by the state—that had lured so many to Alaska.

Pro-worker legislators have long been fighting for a return to some kind of a defined benefit system pretty much since the change was narrowly approved by the Legislature (fun fact: Alaska U.S. Rep. Mary Peltola was among the 21 members of the House who approved the legislation, a point she later said was “the biggest regret of my legislative career”). The efforts have varied over the years, with broad proposals to offer some kind defined benefit to all employees to more narrowly tailored ones.

That’s where we find the latest defined benefit plan, in Anchorage Democratic Rep. Andy Josephson’s House Bill 22. The effort is a continuation of one carried by Republican legislators in the past and would create a limited defined benefit plan only for public safety employees—firefighters and police officers. The legislation is currently is a retread of the House pension bill that reached the Senate Finance Committee last year, marking the closest such a change has come to passage.

As Rep. Josephson said throughout the bill’s first hearing in the House Community and Regional Affairs Committee on Tuesday, the legislation is very conservative compared to what he or most public employees would want. It doesn’t come close to the generous nature of the early retirement defined benefit tiers of the past.

Here are the key areas where they’ve peeled the benefits back:

• No more pre-Medicare coverage for people retiring prior to Medicare age

• Elimination of the 10% cost of living adjustments for pensions

• Final calculation of benefits based on the last 5 years rather than the last 3 years

• Requires a minimum age of 55 with 20 years of service to collect benefits

Public safety employees on the current defined contribution plans would have a window to buy into the new tier, but they likely wouldn’t get a 1:1 value for the time worked under their current retirement benefits. In one example, Josephson said it might be that six years of service paid into the defined contribution plans would equal 4 years and change under the new tier.

The committee heard testimony from Dominic Lozano, the president of the Alaska Professional Fire Fighters Association, who told the committee that soon after the transition from the defined benefit system to the defined contribution system the impacts were felt. He said, basically, the situation is that younger employees don’t stay around because there’s no reason to when places in the Lower 48 will happily hire them away, inviting them to take their 401k-style pension from Alaska and buy into their defined benefit pensions.

“We’re not getting any older firefighters because they're all leaving. It is drastic, the gutting out. I can speak very well on the Fairbanks Fire Department as a 22 years on the job there,” he said. “We have about four or five of us that are in that 20-year range and then there’s a 13-year gap for the next employee.”

The 401k-style defined contribution system, Lozano noted, was designed with mobility in mind and, surprise, younger workers are taking advantage that mobility to leave for jobs with better pensions, which forces fire and police departments (as well as schools and pretty much every where else in the public sector) to go through costly rounds of recruitment, training and retention.

It was an issue that got its own slide at the Senate Finance Committee’s Tuesday hearing on the budget, where state budget director Neil Steininger said more than 17% of budgeted positions in state government were vacant as of December and that recruiting is increasingly expensive and decreasingly successful.

“We’ve been hearing about recruitment and retention issues among many industries. I’m at a point where if you say it’s a recruitment and retention issue, it’s like me saying, ‘Hey, I’m late to work because I lack resources.’ What are the issues?” replied Wasilla Republican Sen. David Wilson. “What is the overall plan because we keep hearing this is a problem, we see it’s a problem and we’re being sued because it’s a problem. What is the state doing to fix this systematic issue other than just saying it's a problem?”

The Senate has put the state’s recruitment and retention issues on the forefront of its policy agenda for the session, hinting at support for a return to some kind of defined benefit pension plan with some kind of limits like Rep. Josephson is proposing. Though there are suggestions that the extended defined benefit plan could include other public employees, particularly teachers.

But it’s the newly minted Republican House Majority that might be a roadblock to any progress on that issue.

At the hearing on Tuesday, Reps. Kevin McCabe, R-Big Lake, and Tom McKay, R-Anchorage, both strove to find reasons to oppose the plan. McCabe wanted to see the studies that backed up the claims that training public employees could cost between $100,000 and $200,000—which Rep. Josephson said he’d happily provide—or evidence that it really was the pension plan that was driving people out—Lozano said he would be happy to forward them the recent study that found just that.

McCabe replied by taking it to an extreme hypothetical: what if the new pension plan, which by all accounts is far more modest than the past retirement tiers with an anticipated cost to the state that’s lower than the recruitment and retention costs, bankrupts the state? After all, pension plans are a significant reason for big business bankruptcies, McCabe claimed without providing evidence. What then?

Rep. McKay was perhaps more blunt in his reasoning to oppose it.

Rep. Tom McKay, R-ANchorage, explains his opposition to the pension plan.

He supports fire fighters and police officers, he claimed, but worried that teachers would want a piece of the pie—the dependable retirement pie—too.

“What I hear to follow along with Rep. McCabe stated was if we were to do this, we open the door for all the state employees and all the school teachers in the state of Alaska,” McKay said. “We open the door for them to demand this same benefit, so that is a big concern with folks I talk to about a bill like this. That you’re opening the door for a tremendous financial burden on the state by allowing thousands of public workers to demand this program. That would be one of my hesitancies to advancing this bill.”

McKay also worried that if the plan was put into place that teachers might sue to force the state to extend the same benefits to them. Rep. Josephson, an attorney, replied that, basically, anyone can sue for anything.

“You can indict a ham sandwich,” he said, “You can sue over anything.”

He said they wouldn’t be likely to win and would then be on the hook for the considerable attorney fees involved in such litigation. But he noted that teachers are ultimately well within their rights to fight for a defined benefit system, and that he fully supports those efforts.

Public testimony on the measure is expected next week.

Stay tuned.

Follow the thread: The House Community and Regional Affairs Committee hears the defined benefits pension plan for firefighters and police officers.

The daily schedule

• The Senate Finance Committee heard an update on the mental health budget at 9 a.m.

• The House Finance Committee gets an overview of the operating budget at 1:30

• The Senate Judiciary Committee gets a report on the Alaska Court System at 1:30

• Senate Labor and Commerce meets at 1:30 to get an overview on “the medical industry perspective.”

• Senate Education has a meeting at 3:30 to overview the fiscal challenges to public education in Alaska

• Senate Resources meets at 3:30 to get an overview of the Frontiers Collaboration, which deals with advanced nuclear energy

The reading list

• Speaking of retirement benefits, Alaska’s U.S. Sen. Dan Sullivan said he’s open to changes to Social Security as Congress contemplates debt-cieling negotiations with the House extremists. From The Hill: Senators eye Social Security reforms as some in House GOP consider cuts

• The conservative Alaska Public Forum’s Bethany Marcum, of redistricting infamy, is one of the four folks Gov. Dunleavy has appointed to the University of Alaska’s Board of Regents. One of the others being the brother of Commissioner-designee Adam Crum. From the ADN: Gov. Dunleavy appoints 4 to University of Alaska Board of Regents

• Oops! Turns out the Alaska State Troopers were tricked into detaining a high school principal for a mental health check. From the Alaska Beacon: State troopers, misled by false court order, detained school principal for mental health check

• An excellent look into the negotiations that went into four rural legislators joining the mostly Republican House Majority. From the Alaska Beacon: For rural Alaska lawmakers, local issues trumped party interests and swung the state House

• The state is facing a lawsuit over its guidance that sorta allows public funds to be spent on private and religious schools. From the Alaska Beacon: Lawsuit says Alaska statute allowing public funding to go to private schools is unconstitutional

• It’s been a busy couple days for Anchorage in its saga with Mayor Dave Bronson. From the ADN: Assembly activates subpoena powers for inquiry into former Health Department director and Anchorage’s acting municipal attorney resigns