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In the States: Alaska Teachers, and New State Plan Developments

Editor's Note: This feature in the NTSA Advisor provides a look at what’s going on in the states and the most recent developments in their activity to provide and enhance retirement plan coverage.
What has it meant for teachers in Alaska that their retirement plan was part of the widespread shift from defined benefit to defined contribution? And — the Land of 10,000 Lakes is closer to adopting a state plan while California seeks help in running theirs. 

Snapshot: The Effect of the DB to DC Shift on Alaska Teachers

The shift from defined benefit plans to defined contribution plans is not new. It may be less common in the public sector, but it is not unknown among public employers. A recent study looks at what that has meant for the Alaska education sector. 
The National Institute on Retirement Security (NIRS) in “Alaska Teacher Recruitment and Retention Study: Options and Analysis Supporting Retirement Plan Design” examines the effect that shift has had on retention and recruitment in the teacher workforce in Alaska. It draws on data from the Alaska Retirement Management Board, the body that assumed fiduciary responsibility for the Alaska state retirement systems’ assets as of Oct. 1, 2005.
Background. In 2005, the Alaska legislature voted to close its two statewide DB plans for teachers and public employees in order to manage the unfunded plan liability. Beginning July 1, 2006, all new public employees hired by the state of Alaska — including teachers — participate in DC plans. 
The Findings. The NIRS says that the number of members of the Teachers Retirement System (TRS) plans (DB and DC combined) fell by 8% from 2005 to 2021. And the drop was sharper among teachers with 15 years of service or less—the number of teachers with 0-4 years of service fell by 11% during that time, and the number of those with 5-14 years fell by 18%. Further, the drop in the TRS was sharper than among the Alaska Public Employees' Retirement System as a whole. Retention of employees with more than 15 years of service was higher. 
Since the newer employees were participants in the DC plan the TRS offers, that means that more employees left the DC-based retirement plan than left the DB-based retirement plan. 
The NIRS notes that the data does not attribute the retention rate drop only to the change in retirement plans. At the same time, however, it does say that “retirement offerings are a significant component of employment terms” and further points out that retention appears stronger among the DB participants. 
The Bottom Line. The NIRS says that changing the retirement plans for Alaska public employees and the TRS not only did not address the funding shortfall, it also created recruitment and retention challenges. 
“Based on the number of people leaving for reasons other than retirement, death, or disability, improving retention among those in the defined contribution plan presents the greatest opportunities” for the TRS, says the report. 
And More Broadly…More broadly, the NIRS says that during those 15 years, it says, other states have customized the benefits they offer, but most have not followed suit with Alaska’s approach. It adds that the benefits that the public sector employers offer have become more complex as those employers adopt hybrid and combined plans, as well as increased their use of risk-sharing features in the plans they offer. 
The NIRS says that most states continue to offer a DB plan. When they offer combined plans, the NIRS finds, the DB plan is the “core benefit” and the DC plan is supplemental. Further, they say, employees prefer a DB plan when they are given a choice between that and  DC plan; however, they add the caveat that a default option and the administrative processes a state uses also affect such results. 
The NIRS argues that other states’ experiences “provide great insights” regarding how to produce more stable pension costs — including cost sharing, conditional post-retirement benefit increases, funding strategies, and reserve funds.

Minnesota House Gives a Nod to Minnesota Secure Choice

The Minnesota House of Representatives on May 1 passed a bill that would create the Minnesota Secure Choice Retirement Program, a state-run retirement plan for private-sector employees whose employers do not provide one. 
HF 782, introduced by Rep. Jamie Becker-Finn (DFL-Roseville) on Jan. 25, 2023, passed in a 71-60 vote on May 1. Becker-Finn has recognized that the American Retirement Association support of the measure has been “a big deal.” 
The bill includes provisions stating that: 
  • Employers that employ five or more covered employees and that do not sponsor their own workforce retirement savings plan would be required to participate.
  • Employees could: 
    • decide whether their contributions will be pre-tax or after-tax (Roth);
    • opt out of participation; 
    • change the rate at which they contribute;
    • direct the investment of their accounts into an array of investment funds offered through the State Board of Investment; and
    • leave their account after leaving employment with the state for distribution at a later date or elect a distribution in the form of a lump sum or other options to be determined by the board, including lifetime income options. 
    • The annual limits on contributions to an account under the program would be the federal IRA limits annually adjusted by the U.S. Treasury Department.
On to the Senate. The Senate version, SF 413, was introduced on Jan. 19. However, the House-passed bill has been substituted for that Senate bill, and HF 782 was sent to the state Senate on May 2. It is now before the Senate Finance Committee. 

Consulting Services Sought for CalSavers

The California Retirement Savings Board has issued a request for proposals (RFP) for consulting services for CalSavers, the state-run retirement plan that provides coverage for private-sector employees whose employers do not. 
The Board seeks a contractor to provide technical and administrative consultation services. More specifically, it seeks a qualified general consultant, including a registered municipal advisor, to provide expertise on the state-run retirement program industry. 
This includes experience concerning trends in:
  • customer service standards;
  • pricing; 
  • program comparison analyses; and 
  • relevant federal law and regulation. 
It also includes: 
  • providing the board with educational training regarding governance and fiduciary duty; and
  • serving as a resource to the Executive Director and program staff for consultation and review of ad-hoc projects.
Bids are due by May 25, 2023.