On the last day of the 25th Alaska Legislature Senator Kim Elton and cosponsor Senator Lesil McGuire introduced SB183, an act which would repeal the “401K savings plan” imposed on new teachers and public employees hired after June 30 2006. SB183 would restore a safe, secure Defined Benefit plan which would allow our seniors to retire with dignity.
The legislation which imposed the “401K” savings plan was sponsored by the previous Administration and promised to “stop the bleeding” of the pension plans and bring relief to employers. It did neither, and narrowly passed, requiring 3 special sessions before it passed by ONE vote. The previous Administration did not give legislators all the facts. The new Palin Administration indicates, in a report from the new actuary, Buck consultants, that Tier III of PERS, with almost 19000 active members, and Tier II of TRS with 7100 active members cost almost exactly the same as the new 401K plan. It is most important to note two things. Under the 401K plan, after 5 years an employee can take their contribution and also the employer’s contribution and leave – no dollars stay in the state and there is no “guaranteed” health care. Retirees will be “out of luck” when money in the required Health accounts runs out. It is a faulty plan which attracts short -timers and transients who will take their money and run and cost the state millions of dollars in training costs. Two states, Utah and Colorado, rejected this type of mandatory plan for just those reasons.
The Palin Administration, unlike the previous Administration, has taken steps to “stop the bleeding” by appropriating in the Capital Budget, SB53, $269 million dollars to defined benefit accounts in TRS, thus reducing the employer contribution rate for FY’08 from the adopted 54% to an effective rate of 12.56%; for PERS $185 million was appropriated which would reduce employer contribution from about 40% to 22%, a single payer rate. This is not a permanent “fix” because SB125, which would fix these rates and this process in law, failed to pass. This significant effort to help employers and meet the actuarially calculated rate is a big help to the funds and to employers. When the 401K plan was mandated, the prior Tiers were closed to new members, and the employer rates will continue to escalate. The rates, yet to be adopted for FY’09, are calculated by the the actuary to be close to 57% for TRS and 43% for PERS.
What can we do to help? Get the facts on Tier costs from Senator Elton and his aides. Nationwide, the bulk of public pension funding is not shouldered by taxpayers – almost 85% comes from investment earnings and employee contributions. Public pension plan recipients fuel the local economy, but only if they stay in the state. Retention of experienced and trained personnel is critical to the continuous, reliable delivery of taxpayer services. We want to build community, not destroy it. We do not oppose 401K type plans, but they are intended to supplement, not replace a defined benefit pension. In Alaska, teachers are adversely impacted the most by a 401K as the only retirement source, because teachers are not eligible for Social Security and even if they do earn Social Security wages through additional employment, they will be penalized with a reduced benefit when they apply. Public employees have either Social Security or a replacement Supplemental Benefit Plan. Please work with other retiree groups, community leaders and active teachers and public workers to RESTORE COMMON SENSE. Get the facts, contact legislators, attend forums, ask questions of your local boards. Talk to local chambers and school boards about the importance of stable communities, faculties and school programs. Retired community members are contributors, both economically and socially. Retired members deserve a safe and secure retirement.
Gayle Harbo, Secretary of the Alaska Management Retirement Board, and Pres. of NEA-Alaska/Retired
(Originally printed in the AKREA Newsletter, Summer 2007)
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