I have great respect for former Senator Lyda Green. She was a champion of bipartisanship while serving in the Legislative Assembly and rose to prominence in the upper house, serving as Speaker of the Senate.
However, his recent opinion piece discouraging an improved retirement plan for Alaska’s first responders, who make up a very small percentage of public employees statewide, is misinformed.
The bill in question is House Bill 55, a bill that garnered strong bipartisan support when it passed the House of Representatives in May 2021. The bill would reinstate a defined benefit or traditional pension for newly employed first responders and those wishing to buy into the new tier.
The goal is undeniable: to provide these critically important workers with enough money to retire after age 55, so they can stay in Alaska, to keep us and our communities safe. . We’re one of only two states that don’t, which makes our training and recruitment of new police, fire, and correctional officers a constant, perpetual treadmill. The Department of Public Safety and local police and fire departments train new employees, usually at a cost of between $100,000 and $200,000 per employee. Do they stay in their job, here in Alaska, protecting us from harm? Generally, no. They leave Alaska after 5 years with a portable 401(k) or its equivalent, in search of greener pastures in the Lower 48.
And then it starts again: more recruitment, more training in an endless cycle.
House Bill 55 is an effort to stop this bleeding of personnel into our sister states. It is this effort that Senator Green criticizes. But what are his criticisms?
First, Senator Green largely evaded the fact that this benefit would initially cover no more than 2,358 employees, a number that would only be true if every peace officer or Level 4 firefighter joins a defined benefit program. . Over time, yes, the number of public employees who receive a defined benefit could increase to cover around 3,400 people. Yet this is a very small portion of all public employees. This greatly reduces the risk.
Second, in Green’s comment, she referenced HB 55 pursuing the “same flawed policies” that proved troublesome 15 years ago. This is incorrect. The bill brings a myriad of reforms, adjusting and reducing the risk of potential negative costs to the state. This is done by withholding inflation adjustment if necessary, requiring the calculation of a “High 5” rather than a “High 3” of salaries, postponing retirement to 55, removing the Alaska-specific cost-of-living adjustments, increasing employee contribution rates if necessary, and providing a very restricted health care benefit in retirement. Under older defined-benefit plans, pre-Medicare health care coverage accounts for about one-third of benefits paid. No such advantage exists here.
Third, curiously, Senator Green claimed that no actuarial analysis had been done on House Bill 55. This is 100% incorrect. Between Bill 55 and its predecessor, Bill 79, the State of Alaska paid for and saw the completion of three actuarial analyzes on this bill: an actuarial analysis was carried out by Buck Consulting in February 2020 – she acknowledged this one for House Bill 79. But actuarial reports were also provided in April 2021 and March 2022, again from Buck, and this time regarding Bill 55, the bill at issue . Senator Green therefore asks you to trust her opinion when she has missed this fundamental fact. Buck, the state actuary, has more than 30 offices in six countries. The state picked the best to assess House Bill 55. Proponents of HB 55 would expect no less.
Additionally, Senator Green referred to an assumed rate of return of 7.38% in the bill. However, the bill makes no such presumption. Instead, the stakeholder actuary assumes a rate of return of 7%, but proves that the scheme will perform very well at levels considerably below this figure. It should be noted that the historical rate of return of the ARM Board is approximately 8.33% over the past 30 years. This return is still almost 1% higher than the ARM Board’s long-term projections of 7.38% and 1.33% higher than what the HB 55 was designed around. In addition, the firefighters’ actuary showed that the plan would remain well funded until long-term returns of around 5.4%.
HB 55 does not reopen previous defined benefit levels that were, we admit, underfunded. It provides for a new confidence in its own silo, which creates no new cost to the state from the new class of retirees themselves. The HB55 plan is financially sound, with any cost to the state attributable to the reduction in payment from the new plan to the indebtedness of the previous pension plan.
Finally, the evidence is clear, contrary to the comment in question, that first responders do leave Alaska when they become vested with their defined contributions (401ks). They do it because they are poached with the prospect of a retirement they can actually survive on. And, again, the state and cities are left with the bag, having to retrain firefighters, police, and corrections at our local proving grounds.
After over 10 years of evaluating this plan, it is out of time to reduce the costs paid by state and our local governments for training our first responders, to see them quickly leave Alaska. Instead, we need these first responders to stay in Alaska for their entire careers, protecting us and our loved ones from threats of harm to our personal safety. HB 55 is the path to achieving this goal and will ultimately save state and local governments tens of millions of dollars in recruiting and training funds that won’t go away.
Andy Josephson was elected to the Alaska State House of Representatives in 2012 and represents residents of Midtown, the University Area and East Anchorage.
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