The Alaska Public Employee’s Association union, the Alaska State Employees Association and the Alaska Correctional Officer Association filed suit requiesting an injunction against the state in late June, claiming the plan would not qualify for tax exempt status with the Internal Revenue Service (See Labor Unions Protest Alaska’s New Pension System).
According to the AP, the law, effective Saturday, will scrap defined benefit plans for public employees and teachers hired after that date, and will enroll them in defined contribution plans. However, current workers will be able to keep their defined benefit pensions unless they choose to switch to the new ones.
In his opinion, Superior Court Judge Larry Weeks rejected the unions’ call for an injunction, saying that they did not meet the legal standard that would compel him to stop the new retirement plan’s implementation.
The unions contended that the defined contribution plan would leave new employees worse off than current employees, which would go against the state’s constitution. Weeks also wrote that while legal precedent has made clear that the state constitution prohibits diminishing or impairing the accrued benefits of current employees, future employees are not subject to the same analysis.
Even if the state and municipalities would end up owing damages to new employees if the IRS does not qualify the plans, Weeks wrote that fact alone was not enough to grant the injunction request, the AP reported.
In order to cushion the state’s public retirement shortfall of between $5.7 billion and $6.2 billion, Alaska Governor Frank Murkowski signed a bill in July 2005 that would switch Alaska Public Employees Retirement System and Teachers Retirement System over to a 401(k)-type plan (See Alaska Public Pension Plans Switching From DB to DC).