One of the positive fiscally responsible changes past legislatures and governors made to the PERS / TERS public employee retirement system over the years was a move from defined benefit to a defined contribution. This saves money over the long term because the impact of inflation (among other things) is mitigated.
Public employee unions are not really happy with this outcome and have over the years been busily purchasing legislators via campaign contributions and support who try from time to time to embrace once again the unaffordable, budget busting defined benefit retirement system.
The most recent attempt to do this was last legislative session when 10 House members of both parties introduced HB 79:
“An Act relating to participation of certain peace officers and firefighters in the defined benefit and defined contribution plans of the Public Employees’ Retirement System of Alaska; relating to eligibility of peace officers and firefighters for medical, disability, and death benefits; relating to liability of the Public Employees’ Retirement System of Alaska; and providing for an effective date.”
Buried in nearly 23 pages of legislation, is the important part which allows peace officers or firefighters who were hired after June 30, 2006 to make a onetime election from the current defined contribution to a defined benefit retirement program. Actual language from page 19 follows:
* Sec. 35. The uncodified law of the State of Alaska is amended by adding a new section to read RETIREMENT PLAN ELECTION. (a) A peace officer or firefighter who was first hired after June 30, 2006, and before the effective date of this section, and who is a member of the defined contribution retirement plan of the public employees' retirement system under AS 39.35.700 - 39.35.990, may, within 90 days after the effective date of this section, make a one-time election to participate in the defined benefit retirement plan under AS 39.35.095 - 39.35.680 and to transfer all contributions that have been made or should be made to the defined contribution retirement plan for service the member completes before the effective date of the member's participation in the defined benefit retirement plan. The transferred contributions shall be used to purchase credited service in the defined benefit retirement plan on an actuarial equivalent basis determined by the Alaska Retirement Management Board established under AS 37.10.210.
I can think of no better way to completely blow up the already unaffordable state budget than to return to an even more unaffordable defined benefit state retirement system.
Leading this effort was District 24 House member Chuck Kopp, a retired police officer, Bristol Bay commercial fishermen, and proud recipient of significant public employee union campaign donations (60% in his latest APOC report) over the years. He has predictably failed to offer any substantive budget discipline (budget cuts) since he was first elected. Chuck infamously joined with democrats nearly two years ago, organizing the House majority and empowering their goals in the legislature. Appears his union buds got what they wanted from him.
How to pay for this? Unknown, as he has already supported the grab of large chunks of the PFD over the last several years. Perhaps he thinks that using the PFD will be the short-term budgetary fix. The problem is that it is four years since the Legislature refused to pay the statutory PFD and we remain mired deep in the deficit spending hole. You would think that somewhere along the line, the Rule of Holes will apply: When you find you are in one, quit digging. Not only does Chuck keep digging, with this proposed legislation, he just brought in an excavator.
Happily, the legislation, introduced on March 6, 2019, did not make it all that far, landing in House Finance on April 3, 2019. Work on this continued in the 2020 session where it ended up in House Rules on March 18, 2020. The bad news is that it is still in process and has significant Republican backing, likely due to inclusion of the terms “peace officer and firefighter.”
The problem with doing this is that once it is rolled out to police and firefighters, it will only be a short time before the other unions demand a return to defined benefit retirement plans and the crushing tax burden on industry and Permanent Fund.
This legislation is the height of fiscal irresponsibility. And Chuck Kopp ought to answer for it in the upcoming campaign: How do you intend on paying for something that is more unaffordable than our currently unaffordable retirement plans?
Alex Gimarc lives in Anchorage since retiring from the military in 1997. His interests include science and technology, environment, energy, economics, military affairs, fishing and disabilities policies. His weekly column “Interesting Items” is a summary of news stories with substantive Alaska-themed topics. He was a small business owner and Information Technology professional.