Senate Finance advances pension bill with municipal opt-in provision

The Alaska Senate Finance Committee voted 5-2 on April 24 to advance a bill creating a new defined benefit pension option for public employees, but only after adopting an amendment that lets municipalities choose whether to participate.

The committee approved House Bill 78 with an amendment requiring non-state employers to decide between July 1 and Sept. 30, 2026, whether to offer the new pension tier to their employees. The change came after testimony from local government leaders who said the bill's proposed increase in the employer contribution cap from 22 percent to 24 percent would strain local budgets already facing deficits and rising costs.

The bill creates a new defined benefit retirement tier and allows certain current employees in the defined contribution system to convert to the new pension plan. Alaska closed its pension system to new hires in 2006 and moved to defined contribution accounts. Supporters say the change is needed to recruit and retain teachers, troopers and other public workers who now leave Alaska for states offering traditional pensions.

Several city managers and mayors testified that the proposed increase in the employer contribution cap would create significant budget pressures.

John Leach, municipal administrator for Sitka, said the increase would cost his community between $400,000 and $500,000 annually. Sitka entered budget planning with a $900,000 deficit and already eliminated two positions to close the gap.

"A cap increase of this magnitude would force us to cut four to five additional positions from a workforce already operating below minimum staffing levels," Leach said.

Beth Weldon, mayor of Juneau, said the change would cost her city roughly $1 million per year and the school district another $300,000. She asked the committee to preserve the existing 22 percent cap that has been in place since 2006.

"That framework grew out of difficult decisions made in 2005 and 2006, when the Legislature closed the defined benefit system to new hires," Weldon said. "Local governments across Alaska, including Juneau, have planned their budgets for nearly two decades based on the 22 percent employer cap."

Weldon said Juneau supports creating a defined benefit option to help recruit and retain employees, but asked that legacy costs remain a state responsibility. She said the city would accept a higher cap for the new tier only if existing tiers remain at 22 percent.

Nils Andreassen, executive director of the Alaska Municipal League, said housing authorities would pay $600,000 more statewide under the amendment, and school districts would face $7 million in additional costs. He said some employers would have to reduce health insurance benefits or cut positions to absorb the increase.