All the new, radical, defined contribution public employee retirement system apparently needs is politicians to continue to feed and clothe it. 
     How else do we explain the legislature's need to return to the committee tables and bureaucratic closets to fix a half dozen or so very significant problems less than a year after the new retirement recipe passed? How else do we explain the bureaucracy's identification of at least 18 other supposedly less critical issues that will need attention from the legislature in the out years?
     After a messy fight last session that extended into a brow- and chest-beating special session, the legislature agreed with the governor and turned the state's retirement system topsy-turvy. Since statehood, Alaska has had a defined benefit retirement system. Defined benefit systems are the preferred and almost universal approach of public employers at the federal, state and local levels. But last year, the Alaska legislature decided to make Alaska's new public employees march to a completely different drummer. We changed from providing a specified benefit to retirees to mandating a specified retirement contribution from public employees with no guaranteed benefit.
     The legislative debate wasn't pretty. It extended from regular session into special session and, finally, the House acquiesced to the Senate majority--as much out of fatigue as out of anything remotely resembling a policy-based decision.
     All that happened 10 months ago. Here's what we know 10 months later about what the legislative majority wrought back then:

• the new retirement system (tier 4) is more expensive than the existing system (tier 3) for new employees;
• the greater part of the expense of the new system is shifted to future employees (those hired after June 30 this year);
• the benefit risk also is shifted to employees (this is especially significant in Alaska because our government employees, unlike government employees elsewhere, are not eligible for the Social Security safety net);
• the change from tier 3 to tier 4 does nothing to pare down the unfunded liability; and
• the changes do not deal with a fundamental driver of pension costs--skyrocketing healthcare costs.

     So, some pretty dramatic changes enacted last year, with huge implications for individual, new employees. Some pretty dramatic changes with huge implications for future workforce strength in our police departments, schools, resource management agencies, health agencies and other public service agencies. 
     The things we know are pretty sobering. But there are things we don't know, things that lurk in the future, that may be even scarier. Here's what we don't know yet about changing to a defined contribution (tier 4) and walking away from a defined benefit (tier 3):

• we don't know the impact of the change on retention and recruitment of teachers, police officers and other public employees (how many will choose employment elsewhere because benefits are better there and how many later will take their portable benefits with them to a defined benefit jurisdiction as they begin to focus on retirement stability?);
• we don't know the funding mechanism for the death and disability benefit added for the teachers' retirement system at the last minute in last year's special session;
• we don't know if the actuarial assumptions used by the state's last retirement consultant were correct-the assumptions that supposedly justified the need for the new tier 4;
• we don't know if the unfunded liability is the responsibility of all employees or just the tier 1, 2 and 3 employees, causing a disparate impact on employees who may even share the same office;
• we don't know the actuarial assumptions (including health care cost projections, longevity, and market returns on pension funds) that will be used by the new consultant (that won't be known until later this year); and
• we don't know how the unfunded pension liability will be dealt with--especially now that we take new employees out of the old system.

     In short, we still don't know if the tier 4 system is actually any better than the existing tier 3 recipe (though common sense says reducing benefits will implicate our ability to attract and keep good public employees). Put another way, battling to stabilize future pension plans with the new tier 4 may not be anymore effective than fighting a submarine with a flamethrower. The far better approach is to focus on the debilitating effects of rising health care costs--effects that affect pensions, the economic viability of actors in our private sector, and our competitiveness in global markets. 
     Instead, we changed to tier 4 for future employees and ignoring the healthcare elephant. And, as a result, retirement will be far more expensive and risky for future cops, teachers and other public servants. It will be more difficult to attract good public employees because we are now less competitive as we recruit.
I guess we also know a couple of other things:

• we can do what HB475 does-start the feeding and clothing component for tier 4 by fixing some of the more egregious problems that resulted from last year's painful rush to judgment and getting updated data on the actuarial end; or
• we can delay the implementation of tier 4 for a year as my bill (SB293) does so that we can review yet-to-be compiled actuarial data, understand the recruitment and retention issues, and figure out what other mistakes are hidden in the yet-to-be unexplored nooks and shadows of last year's tier 4 bill.

     My preference, obviously, is SB293.

Phone: (907) 465-4947 Fax: (907) 465-2108 Mail: Sen. Kim Elton, State Capitol Juneau, AK 99801   Got a scoop? Call or email your tips and suggestions to any of the email addresses below: Email: Senator.Kim.Elton Jesse.Kiehl Paula.Cadiente Web: http://elton.akdemocrats.org

Capitol Undercurrents  

A close shave--Senator Hollis French got up early Thursday morning and cut off the beard he started last summer on his Mt. McKinley climb. Later he explained on the senate floor, under special orders, that it was a learning experience. "I was doing that and watching myself in the mirror and I thought it's only appropriate given the [fact that significant oil taxes are the] dominant topic in the building. I watched the Senate Resources Committee yesterday working on this oil tax bill. I saw both sides asking good and thoughtful questions and I thought 'it looks like we're going to give the [oil] industry a good and close shave' and I can just say that a shave feels good and it doesn't draw much blood."

What a gentleman--Last Sunday a gossipy Anchorage Daily News column (the Ear) reported a conservative male legislator wandered into a Juneau theater to see Brokeback Mountain, expecting a typical cowboy flick. He quickly found out this western didn't follow the traditional format and left early. One of this conservative legislator's male colleagues was later said: "Hey, if I'd known it would make him that uncomfortable I'd have gone along to hold his hand."

Family issues--U.S. Senator Lisa Murkowski gave her annual address to the legislature Tuesday. Her father, Gov. Frank Murkowski, chose that day to roll out his long, long anticipated oil tax plan. They both scheduled press conferences at 3 p.m. That's called, in politics, stepping all over each other.

Used-to-be-family feud--In Texas, Congressman Armando Martinez has a primary race this spring. His soon-to-be ex, Jessica Reyes-Martinez, is running against him. Actually, she puts it differently. She says she's "running for office, not against him. It just happens he's in office right now."