Compliance July 28, 2005

Alaska Public Pension Plans Switching From DB to DC

July 28, 2005 (PLANSPONSOR.com) - Alaska Governor Frank Murkowski signed a bill that would switch the Alaska's Public Employees Retirement System and Teachers Retirement System to 401(k) type defined contribution plans.
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The systems currently have a shortfall between $5.7 billion and $6.2 billion, according to the Associated Press.   The new defined contribution plan will go into effect for public employees and teachers hired after July 1, 2006.

The shortfall is blamed on fluctuations in the stock market, rising health care costs, and more people retiring earlier and living longer, according to the AP.   Opponents of the bill say it doesn’t address the shortfall and will make it harder to attract and retain employees.   The state house’s minority leader Ethan Berkowitz believes the state should work to lower health care costs to address the shortfall.

Murkowski feels the new defined contribution system will benefit employees by making their accounts more portable, the AP reports.

Portability, as well decrease in costs for employers are main reasons cited for the growing trend of switching defined benefit pension systems to defined contribution type plans (See  Running the Fund: Taking It Personal  and  Running the Fund: Taking It Personal (cont.) ).

In a press release, the governor said that between now and the effective date of the new system he will work on helping the state’s legislature come up with a solution to the unfunded pension liability. The governor’s press release is  here .

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