Alaska. The 49th state, known as the Last Frontier and the Land of the Midnight Sun, is a vast and sprawling world of opportunity. Monikers like these paint a picture of a distant, mythical land for those of us residing in the lower 48. However, the reality is that just like the rest of the U.S., Alaska relies on the tireless efforts of its public employees. Nearly two decades since state lawmakers shut down the public pension system, Alaska is struggling with the consequences of that decision. 

Earlier this month, Dan Doonan, Executive Director at the National Institute for Retirement Security, along with Alaska State Senator Cathy Giessel and Chuck Kopp of the Alaska Public Pension Coalition (AKPPC), participated in a webinar, Alaska’s Experience Moving Public Employees from Pensions to Defined Contribution Plans, to discuss the importance of passing Senate Bill 88, a bill that will put pensions back into the hands of public employees. Here’s what we learned:

The Past

Developed while Alaska was still a territory, the Teachers Retirement System (TRS) was the first public retirement system established there. TRS offered competitive benefits, designed to draw educators to put down permanent roots in the state. The Alaska Public Employees Retirement System (PERS) was established in 1961, less than two years after Alaska gained statehood, to provide pension benefits for eligible state and local government employees. TRS and PERS continued to operate until 2005, when Senate Bill 141 was signed into law, closing the defined benefit (DB) plan to new members effective July 1, 2006, offering a defined contribution (DC) 401(k) plan instead.

In the years leading up to the system’s closure, PERS saw a significant dip in its funded status after the state was advised to skip contributions to the system two years in a row due to a mathematical error made by a state actuary. In 2002, the funded status dropped from 101% to 75%  and then slowly declined. Lawmakers acknowledged they had a problem, but instead of making up the lost contributions, they exacerbated the issue by voting to close PERS and TRS, and switch all future public employees to a DC plan. Since the closure, the DB system has never regained a fully funded status. 

The Present

Today, Alaska is in crisis mode. With working-age Alaskans in the public sector leaving for states that offer their public employees DB plans, the delivery of public services is suffering. 

  • In Fairbanks, the second-largest city in the state, the police department has been forced to close for four hours every day due to inadequate staffing. Beginning in August, the city will have one staffer at the station and zero officers on duty from 8 a.m. until noon to serve the people who live, work, and go to school there. 
  • There are also public safety concerns in parts of Western Alaska, where there are too few troopers to respond to every call. In those communities, most alcohol and drug-related crimes and property crimes currently go uninvestigated. 
  • Last year, 12,000 students in the Anchorage School District could not ride the bus to school for weeks amid a bus driver shortage. 
  • Also in Anchorage, this past winter’s lack of snow plow drivers–about 25% of positions statewide went unfilled in the 2022-2023 season–caused excessive school and business closures
  •  A 22% vacancy rate in the state’s Department of Health is also affecting the delivery of vital public health services. Staff such as public assistance eligibility techs, children’s services caseworkers, and nurses and caregivers in state health and mental health facilities are all in critical shortage. 
  • Thousands of Alaskans who rely on SNAP benefits–nearly 13% of the state population–experienced major delays in receiving assistance when a combination of technical glitches and staff shortages caused a nearly year-long backlog in the system. 
  • In a stroke of irony, the website for the Alaska Division of Retirement and Benefits touts the warning, “Delayed Processing Time: Processing time for new retirement and survivor/death benefits is currently 8-10 weeks due to increased volume and staff shortages.” 

The issue of retention and on-the-job experience also factors into Alaska’s public service crisis. Shorter turnover times mean less cumulative experience in the workforce. Inexperience can cause workplace safety hazards, jeopardizing the well-being of public workers and the community. 

The staffing crisis has also affected public education in Alaska. The NIRS report details an alarming pattern of reduced employee retention among educators since the defined benefit system was closed, noting that turnover is “significantly higher in the defined contribution plans.” Alaska is the only state in the country that does not offer its public workers, including teachers and school support staff, neither Social Security benefits nor a DB option. Without the guarantee of some kind of lifetime income, many educators in Alaska just won’t take the risk of staying. Some young teachers engage in work tourism–a phenomenon where a worker will take a job in an exotic spot, such as Alaska, as a temporary way to gain work experience while living away from home. Without a DB plan, which requires more years of service than a 401(k)-style DC plan to fully vest, quit rates amongst teachers has more than doubled. The NIRS study indicated that teachers in their 40s who participate in the DC plan are over 200% more likely to quit than those who were grandfathered into the DB plan. 

Alaska’s staffing woes didn’t develop overnight, and the demand to reintroduce pension benefits to the state has grown louder over the last two decades. This year, Senator Cathy Giessel introduced Senate Bill 88 in order to return defined benefit pensions to public service workers. After a promising session, SB 88 advanced to the Senate Finance Committee and will likely get a floor vote early next year.

The Future

Senator Giessel discussed details of the new plan’s design and how the improvements come with pros and cons. “This isn’t a Cadillac retirement,” she said. “It’s not your grandma’s retirement plan.” Noting that while retirees in the proposed plan will only get modest payouts, it remains a vast improvement over what they have now. One thing the new pension plan does have is stability. There are safeguards in place to assure that the system never dips below a 90% funded status, as well as cost savings mechanisms, including automatic employee and employer contribution adjustments to meet financial benchmarks. 

Several billionaire-funded pension opponents–namely Americans for Prosperity and the Reason Foundation– are aggressively working to block the bill from passing, claiming that a defined benefit pension system reintroduction would increase taxes, require too long of a commitment from workers, and bankrupt the Permanent Fund Dividend, which provides Alaskans with yearly stipends to help families maintain financial stability in their unique economy. “It’s not about taking care of the employees,” said Kopp of the secretive anti-pension groups. “It’s not about keeping the fabric of our community and state together. And when you call 911 because a fire’s happening or because someone is being assaulted, it’s not Americans for Prosperity that are showing up to help.” 

And so, SB 88 marches on to the 2024 session of the 33rd Alaska State Legislature. NPPC, hand in hand with our Alaska partners, the AKPPC, remains steadfast and diligent in restoring retirement security to the hard-working public employees who keep Alaska running. This summer, communities across the state can expect to see educational outreach, town halls, and member engagement opportunities.

For updates on the situation in Alaska, follow the Alaska Public Pension Coalition on Facebook and Twitter, or sign up for emails.