OPINION: Alaska is paying the price for its poor retirement system changes

I am a lifelong conservative and I vote based on candidates who value fiscal responsibility. I also support restoring a defined-benefit pension for Alaska’s public employees. Our teachers, troopers, firefighters and plow truck drivers not only deserve a decent retirement, but it makes good financial sense for Alaska.

As a retired teacher, I know that having one of the worst retirement systems in the country is crippling to our ability to attract and retain the best and brightest educators for our students.

Alaska has among the worst teacher turnover in the country. In our road system schools, we are losing 20% of teachers, and 10% of administrators every year. In rural remote communities, these numbers are even higher. This lack of stability is incredibly damaging to schools and students but it also costs Alaska a lot of money. A 2017 study by the University of Alaska Anchorage’s Institute for Social and Economic Research — which is assuredly dated and underestimates the 2022 costs — estimated teacher turnover costing the state of Alaska $20 million per year or $20,000 per teacher. And, it is not just teachers; experts have estimated the cost of recruiting a new administrator at $75,000. All of this churn creates costly instability and real expenses for school districts that are already struggling with increased energy and health care costs.

Why are so many Alaska teachers and school administrators leaving? At least one factor is the retirement system. Alaska is the only state in the country where teachers and administrators hired after 2006 can’t earn a pension, and are not enrolled in Social Security. The fact that Alaska teachers are not enrolled in Social Security is a surprise to many. The Alaska Territorial Teachers Retirement System and Anchorage Police and Fire Retirement System opted out of Social Security in 1951. No teacher, administrator or Anchorage police officer or firefighter alive and working today was involved in this unfortunate decision.

Not only does Social Security provide benefits in old age, but it also provides death and disability coverage. Right now, if an Alaska teacher is catastrophically injured off the job, they are totally uncovered, by the state of Alaska and by Social Security. I have heard horror stories of Alaska teachers severely injured off the job with no coverage, benefits or support at all.

Another factor many aren’t aware of is the Windfall Elimination Provision. The WEP, as it is known, is a federal penalty on earned Social Security benefits. So, even if a teacher or school administrator works in the summer, or has previous work where they paid into Social Security, their Social Security benefits will be penalized upon joining the ranks of Alaska educators. Anyone who has worked in another state and has earned Social Security will subject their earned Social Security to the WEP just by joining the Alaska Teachers Retirement System, aka TRS, or Public Employee Retirement System, or PERS. Even though TRS 3 and PERS 4 are not pensions, the Social Security Administration currently treats them like pensions. Any public employee, including our veterans and retired service members who moves to Alaska and joins TRS or PERS is likely to create a penalty to their earned Social Security benefits.

Now, let’s consider how modern pensions can be tailored to protect the state of Alaska in a fiscally prudent manner. First, due to the scale of pension investments, they can be managed in a cost-effective manner. Many don’t realize that the fragmentation of many small individually managed accounts puts all of the financial risk on the individual, but also creates the biggest opportunity for profits for big banks and financial institutions. Instead of managing one large pool, these corporations can charge fees to thousands of individual accounts. This larger pool of funds also allows for a more cost-effective strategy for dealing with varying lifespans and balancing a portfolio for the short or long term. A recent study estimates that a typical pension has a 49% cost advantage over an individual account. These cost advantages benefit both the state of Alaska and our retirees.

When Alaska eliminated the option to earn a pension, there was a national effort to move states away from pensions. Many states like Alaska that changed have restored at least the option or choice to earn a pension. These states have also adopted modern “risk-sharing” tools to protect the state from unfunded liabilities and ensure the solvency of their pension funds. Almost every other state that we are competing with for public safety and public education employees are offering a pension option.

During the most recent legislative session, Rep. Grier Hopkins of Fairbanks proposed House Bill 220. As I understand it, HB 220 would not only offer public employees a pension option, it was actually projected to save the state of Alaska $57 million over the next 6 years. It was modeled after the best practices of other states and appears to be the best model moving forward.

Pensions are complex, but our problem in Alaska is simple. If we want to recruit the best and brightest teachers and troopers we need our elected officials to take on this challenge and find a system where we can offer a pension option, but protect the bottom line for the state. This November, when candidates are seeking your vote and support, ask them where they stand when it comes to restoring the option for public employees to earn a pension. The future of Alaska’s public safety and public education system depends on it.

Kathy Wright is a retired teacher. She retired after working more than 30 years for the Anchorage School District. She is a beneficiary of Alaska’s defined-benefit retirement system.

The views expressed here are the writer’s and are not necessarily endorsed by the Anchorage Daily News, which welcomes a broad range of viewpoints. To submit a piece for consideration, email commentary(at)adn.com. Send submissions shorter than 200 words to letters@adn.com or click here to submit via any web browser. Read our full guidelines for letters and commentaries here.