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Impact Analysis: Pension Reform Forum

Can a New Pension Plan Stem Alaska’s Talent Exodus?

Forum Summary by Ross Johnston, Executive Director.

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A roomful of policymakers, constituents, economists, educators and public servants grappled with a ghost from Alaska’s past: reviving a once-robust pension system. The stakes couldn’t be higher. With state agencies bleeding talent — troopers commuting from Florida, rural classrooms staffed by visa holders from the Philippines — a proposed overhaul to the retirement system has ignited a fierce debate. Is House Bill 78 the lifeline Alaska needs to keep its workers, or a risky rewind to fiscal folly?

The forum, hosted by the nonprofit policy group Commonwealth North, brought together a bipartisan panel to dissect HB 78, a House Finance Committee bill that would introduce a new defined benefit pension plan for state employees. Modeled after systems in states like Washington and Wisconsin, it promises shared risks between employers, employees and retirees, capped contributions and no automatic cost-of-living adjustments if funding dips below 90 percent. Proponents hail it as a bulwark against the “high tax of turnover,” while critics warn it’s a Pandora’s box of unmodeled uncertainties.

 

Representative Chuck Kopp, a Republican from Anchorage and a retired police officer, kicked off the discussion with a stark diagnosis. “Every year, when the governor rolls out his annual budget, all the commissioners list their top concern: recruitment and retention,” Kopp said, flashing charts showing overtime costs ballooning from $85 million in fiscal year 2020 to a projected $160 million by 2025. He traced the woes back to 2002, when actuarial firm Mercer — later sued by the state — underestimated contributions, saddling Alaska with a $6 billion liability in today’s dollars.

HB 78, Kopp argued, flips the script. New hires would default into the plan, with existing employees given 180 days to opt in from the current defined contribution model, akin to a 401(k). Employee contributions would range from 8 to 12 percent of payroll, matched by employer flexibility, and vesting after five years. Actuaries, he stressed, project a flat $37 million annual state cost with no new unfunded liabilities. “This is a strategic investment in the workforce,” Kopp said, citing surveys where 83 percent of Department of Public Safety members favored a defined benefit return. “We’re not taking away from the old system. But going forward, everybody has skin in the game.”

Not everyone was convinced. Representative Will Stapp, a Republican from Fairbanks and a combat veteran, countered with a plea for caution, invoking Warren Buffett: “Risk comes from not knowing what you’re doing.” Stapp dissected the bill’s assumptions, like the 7.25 percent discount rate for future benefits — higher than the national average of 6.86 percent and those in model states like Utah and Tennessee. “If that rate drops after employees buy in, you immediately create a liability,” he warned, projecting potential costs swelling to $1.8 billion over 20 years under modest payroll growth tweaks.

Drawing from a 2005 Senate Finance transcript, Stapp referenced the growth in total accrued pension liabilities from $12.6 billion in 2005 to $25 billion today, while noting the unfunded actuarial liability remains at $7.2 billion—down from peaks of $12-14 billion in 2014 and projected to reach full funding by 2039. “Better benefits cost more money,” he said, urging stress tests and alternatives like enhancing defined contribution matches or opting into Social Security. “We’ve repeated mistakes. If we’re wrong, retirees could go 20 years without inflation adjustments. Who pays the price? My kids, yours — all of us.”

 

Dr. Brock Wilson, a researcher at the University of Alaska Anchorage’s Institute of Social and Economic Research, contributed empirical evidence to the debate. He started off by showing Alaska had the highest level of school job vacancies in the country. His analysis of the 2006–2007 shift from defined-benefit to defined-contribution retirement plans found no immediate decline in recruitment, suggesting that both systems can attract new employees. However, his data show a steady erosion in long-term retention: among cohorts hired in 2000, 50 percent of employees remained after nine years, compared with just 33 percent of those hired in 2014. “Better compensation in the form of pensions leads to people sticking around,” Wilson said, citing a federal policy that increased Alaska teachers’ pensions by 25 percent and sharply reduced quit rates.

Anecdotes from Justin Mack, chair of the Alaska Professional Firefighters Association, humanized the crisis. Hired under the “Tier IV” defined contribution system 14 years ago, Mack shared stories of classes hemorrhaging talent: one lost 10 of its members to early exits, another 12. “We’re a training ground for the rest of the country,” he said. “We train them, they take.” Mack quoted firefighters who’d fled for Washington’s fully funded plan, where employee contributions hover at 8 percent and benefits have risen despite market storms. “Fiscal responsibility or retirement security? It’s a false choice.”

In a lively Q&A moderated by Jon Katchen, a partner at the law firm Holland & Hart, the panel traded barbs and olive branches. Kopp dismissed Stapp’s modeling gaps as “emotional rhetoric,” insisting actuaries had vetted the bill for 18 years across states. “They can’t envision a scenario where it introduces liability,” he said. Stapp fired back: “If it’s bulletproof, uncap employee contributions.” Mack pressed on healthcare — HB 78’s 3 percent health reimbursement accounts pale against legacy full coverage — while Wilson advocated contextual tweaks, noting salary as the top retention gripe.

Kopp expressed optimism for Stapp’s support: “He’s getting very close.” Stapp, ever the skeptic, quipped that proper comparisons might sway him: “If it makes sense, let’s do it.” As the forum wrapped, Ross Johnston, Commonwealth North’s executive director, reminded attendees: “Connection is where action happens.”

Alaska’s pension woes are no outlier. Nationally, public plans face $1.3 trillion in unfunded liabilities, per the National Conference on Public Employee Retirement Systems. But in a state where geography and isolation amplify every shortfall, the debate feels existential. With HB 78 now in the Senate, the clock ticks. Will Alaska bet on a shared-risk revival, or heed the ghosts of projections past? For workers like Mack’s firefighters — risking life and limb — the answer can’t come soon enough.

This Forum was sponsored by NEA-Alaska