The Wall Street Journal‘s editorial board says that while other states are being crushed by unfunded pensions for public workers, smart states like Florida are de-risking by moving to defined-contribution plans. Alaska is going the other direction, however, in large part due to the efforts of Sen. Cathy Giessel.
“That makes it all the more strange that Alaska may risk its future by returning to defined-benefit pensions,” the board wrote in an editorial on Thursday, weighing in on Senate Bill 88, which would return the state to a pension system for state employees and teachers.
Instead of an individual retirement account, the idea is to return to the pension system, in which the state becomes obligated to pay retirees a fixed amount annually. The pension checks would be inflation-proofed, which means they’d continue to go up each year. Retirees with 30 years of service would be paid about 63% of their final three years of salary, for the rest of their lives.
The editorial board singled out Alaska state Sen. Giessel of Anchorage, saying, “Why go back to this dismal future? Supporters hope the lure of an old-style pension will attract more public workers, especially teachers who are in short supply in the state. Fixed pensions would ‘put efficiency back into state government’ by ‘reducing the constant churn of employees,’ says state Sen. Cathy Giessel.”
Giessel, who was once thought to be a conservative, has embraced most, if not all, of the Democrats’ platform, including the return to the pension plan, as desired by union officials who have great influence over her.
“Give credit to Ms. Giessel for daring to use efficiency and government in the same sentence with a straight face. But if she wants to attract and retain more teachers, the better and more transparent way is to raise their salary. At least politicians and taxpayers would be able to see how much this costs today rather than disguising the fiscal burden in the form of future liabilities,” the editorial board argued.
In 2006, the Alaska Legislature ended the pension program because the costs were outstripping the fund balance, and the actuary tables showed that Alaska could default on the pension payments. Even after 18 years, the fund today is $3 billion short of being able to meet its obligations to those who retired years ago, even without new members, the editorial board pointed out. Newer state employees have 401(k)-type retirement plans that are very generous.
Regarding that $3 billion shortfall, the newspaper reminded readers that the Reason Foundation studied the Alaska pension system and discovered it would add $200 million in unfunded liabilities in 2022, “as potential returns were smothered by a stock-market downturn. The same study projects a $9 billion liability over the long run.”
Alaska already has a historically poor pension-funding gap, and restoring the old plan could move it below even union havens like New Jersey and Connecticut, the newspaper said.
Giving credit where credit is due, the Wall Street Journal noted that the Alaska branch of the National Education Association is one of the big drivers for Giessel’s efforts to restore defined benefits.
“After Juneau reformed its pension plan, the union chose not to join a program that supplements the new 401(k)s with payroll-tax funding. The state teachers union held out instead for fully restored pension benefits, betting its persistent political pressure would eventually prevail. Ms. Giessel’s bill would reward that union bet at great taxpayer expense,” the editorial board wrote.
In Alaska, that tax is in the way of the Legislature stripping out most of Alaskans’ statutory Permanent Fund dividends in order to pay for services the Legislature to which appropriates money.
“The state Senate approved the defined-benefit plans last month, but the House is more skeptical and Republican Gov. Mike Dunleavy hasn’t taken a definite position. It should be an easy choice. Public-worker pensions create incentives for ever-higher taxes as current politicians seek near-term political support by adding to taxpayer liabilities that have to be paid on some future Governor’s watch. Down that road lies New Jersey or Illinois,” the editorial concluded.