The Senate Finance Committee voted Tuesday to raise the contribution cap for non-state employers from 22 percent to 24 percent of payroll. The move aims to prevent shifting nearly $400 million in unfunded liability costs to the state under a retirement reform bill.

The amendment to House Bill 78 passed 5-2 after staff analysis showed the bill would shift responsibility for paying down legacy pension debt from Alaska's 148 non-state public employee retirement system employers to state government between fiscal years 2027 and 2039, when the unfunded liability is projected to be paid off.

Peter Eklund, staff to the Senate Finance Committee, walked members through actuarial projections showing non-state employers currently pay $173 million toward the unfunded liability. Under the bill without the amendment, that would drop to $151 million in fiscal year 2030, a $22 million annual shift to the state.

"That $22 million would shift above the 22 percent cap line to the state of Alaska," Eklund said. "There would be a cost shift from the non-state PERS employers of in this case in FY30 of 22 million dollars to the state of Alaska."

The total cost shift over 13 years would reach $394.5 million, according to analysis from Gallagher, the state's actuary.

David Kirshner, actuary with Gallagher, confirmed the figures and explained the mechanics. Because non-state employers are capped at paying 22 percent of payroll, any cost increases from reopening the defined benefit plan fall entirely to the state.

"The only way to achieve the goal of maintaining the status quo, which is essentially that over the 13-year period that we are looking at through FY39 to keep the additional state contributions roughly where they are currently, we determined that increasing that 22 percent cap to 24 percent would achieve that result," Kirshner said.

Increasing the cap to 24 percent would increase non-state employer contributions by about $417 million and decrease state contributions by about $403 million over the period, Kirshner said.

Senator Kiel opposed the amendment, saying the bill's projected costs do not account for savings from reduced employee turnover and that raising the municipal cap guarantees higher costs for local governments funded by property and sales taxes.

"If you raise the muni contribution cap from 22 to 24, the muni's costs go up, period," Kiel said. "It is sales tax dollars and it is property tax dollars. Not if the assumptions are wrong. They just go up."

Senator Stedman supported the amendment, saying municipalities need to understand the costs and that the state should not absorb the expense of implementing a new tier for all other employers.

"Clearly there is cost shifts going on," Stedman said. "Some of us have been concerned about it for quite some time, and it is a difficult and complex subject."

The committee also adopted two other amendments Tuesday. Amendment 2, which passed without objection, adds a 12-month service requirement for employees who reach retirement age with only 10 years of service. The change addresses a recommendation from the Alaska Retirement Management Board to prevent unintended consequences.

Amendment 5 passed 6-1, removing the 12 percent ceiling on adjustable employee contribution rates. Senator Kaufman, who offered the amendment, said removing the cap would help ensure the plan does not become underfunded, noting that testimony had indicated the adjustments would always be small enough that the ceiling would never be needed.

Senator Stedman supported removing the cap, citing decades of subpar market returns in pension history. "By removing this cap would give the armored tools necessary," Stedman said. "I think there are a lot of retirement plans that are under ninety percent funded."

The committee rejected Amendment 7, which would have raised the retirement age from 60 to 65 for all employees except public safety personnel. The amendment failed 2-4.

The committee set the bill aside for further consideration. Chairman Hoffman said the committee intends to invite affected parties to provide input on the amendments at a later date.