On Friday, April 2, the Alaska Supreme Court voted 3-2 to allow Alaska’s public employees to buy back into Tier 1 of the states’ Public Employees’ Retirement System (PERS) and Teachers’ Retirement System (TRS). Tier 1 of both systems provides a defined-benefit pension with guaranteed income in retirement. Below, we outline how this case came before the court and why this ruling is a win for retirement security.
Background of Alaska’s Pension System
The trajectory that led to the Court’s decision in Alaska began in 2005. After years of underfunding by the state and inaccurate projections from the state actuary, the Alaska legislature closed PERS and TRS to newly hired public employees and moved them into a riskier, less secure defined-contribution plan. At the time, lawmakers argued that this would reduce costs. “We think this change will stop the so-called bleeding, so we can slow down the state’s increasing liability,” said Gov. Frank Murkowski shortly after signing the bill into law.
However, by closing the plans to new hires, the systems lost a dedicated source of revenue. By 2017, according to a report from the National Institute on Retirement Security (NIRS), PERS’ and TRS’ unfunded liabilities combined were $2.2 billion higher than they were in 2005. The state was also forced to make a one-time $3 billion infusion into the closed plans in 2014 to meet their escalating costs.
Without offering a defined-benefit plan, Alaska faced difficulties in recruiting and retaining qualified public employees. Nine former Alaska Teachers of the Year wrote in an op-ed in 2019 that not being able to offer a defined-benefit plan was one of the main reasons behind the state’s high rate of teacher turnover, and the same report from NIRS found that Alaska loses $20 million per year because of this turnover.
Teachers weren’t the only public profession impacted by not being able to offer a defined-benefit pension. The Alaska Department of Public Safety (DPS) has also stated that the lack of a defined-benefit plan affected State Troopers’ staffing levels. According to NIRS, “over the six year period from 2011 through 2017, the Alaska DPS saw a noticeable increase in the number of non-retirement separations from service,” and “72 percent of those who left went to work for a different public safety department often in a state that offers a pension.”
When the legislature cut off access to Tier 1 of PERS and TRS, it stipulated that former public employees could re-enroll in Tier I if they successfully met two conditions. First, they had to rejoin the public workforce by 2010. Second, if they withdrew their retirement contributions when they left the state, they had to pay back those contributions.
Former public employee Peter Metcalfe argued in a case filed against the state that the 2005 law was unconstitutional because of the deadline the legislature set for Alaska’s public employees to return to work if they wanted to rejoin Tier 1. Following multiple appeals, the Alaska Supreme Court agreed with Metcalfe that the law was unconstitutional. According to KTOO, “the decision applies to any former employee who cashed out and has yet to return to work or who already returned to work under a less-generous retirement plan.”
Metcalfe argued in the case that, “In general, a title called Section 7 of the Alaska Constitution, positively affirms [that] employees’ rights once gained cannot be removed. It is a principle. I don’t think the legislature or the governor should be willy-nilly trying to limit benefits, or freedom of speech or anything else that is protected in the Constitution.”
As a result of the April 2 ruling, up to 78,000 public employees in Alaska could buy their way back into Tier 1, which would provide them with the financial security they deserve after dedicating their careers in service to the state.