The future of Alaska's workforce is at risk: Fixing the state’s broken pension system
When most people hear the word “pension,” they think of a regular retirement check that someone has earned from their employer. In virtually all cases, this pension is added to the foundation of Social Security, joining other savings accounts to help retirees live comfortably into their old age.
But what if you don’t have Social Security and all you have is a pension?
Almost every working American participates in Social Security, so most of us assume that those benefits are kind of baked in. But in Alaska, a surprisingly large group of workers don’t have Social Security. This group includes all teachers and a large number of state employees.
For this group of Alaskans, their only regular source of income in old age is their pension with the state of Alaska. Prior to 2006, this retirement functioned very much like Social Security. Based on the number of years that a teacher or public employee worked, they would qualify for a monthly payment for as long as they lived.
But what happened in 2006? The state of Alaska ended this retirement system and started a new system that is a lot closer to an IRA or 401k-style account. In essence, it’s a savings account in which each individual saves for their own retirement.
There are two big problems with this system: Nobody knows how long they will live, and, because of that, nobody knows how much they will receive in any given month. Because they don’t have a safety net with a monthly Social Security check they can count on, Alaska retirees have to save enough money to live into their 80s, 90s, or even 100s. An account with $1 million may not be enough. What if you lived 40 years after retiring at age 60? Dividing $1 million by 40 would mean that a retiree shouldn’t take out more than $25,000 per year. That’s below the poverty line. And what about inflation? There are no cost of living adjustments to these accounts. Investing risk is something that’s very scary for retirees who could easily be crushed if the stock market suddenly collapses.
You have to go back in history almost a hundred years to find a time in America where tens of thousands of American workers were without any retirement security. The Social Security Act was signed in 1935 and checks were issued to retirees starting in 1940. Prior to that, older workers who ran out of savings either moved in with their children or into a poorhouse. Although poorhouses went away soon after Social Security emerged, we will likely see them return — at least in Alaska — if nothing is done to correct this problem.
Alaska’s choice to opt out of Social Security for teachers and some public employees was made in the last century when Alaska’s state retirement system basically duplicated Social Security. “Who needs two programs that serve the same function?” or so the thinking went at the time. Had the state offered only the IRA-style, individual retirement savings account system back in the 1970s, the choice to leave Social Security would have been unthinkable as the disastrous consequences for public employees would have been obvious.
The Alaska Legislature can fix this problem by establishing a system that provides actual security for retirees. Over the past six years, numerous bills have been introduced that would have resolved this dilemma. One solution would have restored Social Security while retaining the current system: In fact, because having Social Security and an employer-sponsored IRA or 401k is considered a relatively good option for retirement, many private employers do exactly this for their employees. But not the State of Alaska.
Senate Bill 88 was passed last year, but it didn’t make it through the House. That bill would have created a new tier with guaranteed lifetime benefits for new hires, and existing employees would have been allowed to switch to the new tier. Contributions by state employees would have risen slightly, and the Alaska Retirement Management Board would have set contribution rates. In order to prevent underfunding — as happened prior to 2006 — the board could have adjusted the state’s contribution and reduced annual inflation-adjusted payments for retirees. Both of these proposals would not have increased the cost of the program to the State of Alaska.
The Alaska Legislature’s inaction over the past years has contributed to the crisis in our public schools. Not only has the state funding for public education remained virtually flat for the past decade, but the lack of a meaningful retirement has created a revolving door for teachers in our schools that is seriously harming our students. The current system encourages teachers and other public employees to work for a few years in Alaska, and then take all of their retirement savings and move to the Lower 48 where every other state offers actual retirement security. In essence, we have created a massive economic incentive for teachers — as well as firefighters, police and other essential workers — to leave Alaska, and that’s exactly what many are doing. The turnover in all these jobs across the state has exploded. In schools across the state, you will find large numbers of unfilled positions with classrooms staffed only by a substitute or students in large “study halls” in the cafeteria. Some school districts have resorted to hiring teachers from overseas to try to fill these positions.
I’m surprised that parents have not stood up and loudly protested these changes. The sad reality is that the amount of student learning in many classrooms across Alaska has diminished. Unqualified teachers without teaching certificates are being brought in to fill the gaps. Many of these teachers may have potential, but prior to the detrimental impact of Alaska’s current retirement system, they never would have been given charge of a classroom before spending a year or more of professional education and student teaching.
I’m not a doom and gloom person, but the longer Alaska allows this problem to persist, the longer it will take to get back on our previous path to high quality student learning in every classroom. About 30% of our teachers still have 18 or more years of experience. But these teachers won’t be in our schools in another 5-10 years. We need to fix our state retirement system right now if we want to recruit and retain high quality educators, firefighters, police and other essential workers. These are the workers that we are counting on to grow Alaska.
Tim Parker is a retired teacher from Fairbanks. He served as president of NEA-Alaska, the state's teachers union from 2016-2020.
