Win Gruening: Hey, Alaska Legislature – there are always bad choices, but why repeat them?

By WIN GRUENING

Feb.19, 2026 -The demand for a more generous defined benefit retirement system for public employees is again echoing through the halls of Alaska’s Capitol. Proponents insist that their proposed legislation, HB 78, won’t cost Alaska anything and will save the state money overall.

HB 78 boosters cite issues with employee retention and internal polls to support their view. Yet, some recent studies raise questions about the effectiveness of public pensions in recruiting and retaining public sector employees.

More importantly, financial projections used to justify this legislation are based on the same fuzzy optimistic assumptions that created billions of dollars of unfunded liability in the old retirement system that burdens us today.

Unfunded liability, or the technical term, Unfunded Actuarial Accrued Liability (UAAL), is the excess, if any, of accrued liability over the actuarial value of assets in a pension plan. In other words, the present value of benefits earned to date that isn’t covered by current plan assets.

In 2005, to stem mounting pension shortfalls, the Legislature voted overwhelmingly to end defined benefit (DB) plans for public employees in favor of defined contribution (DC) plans. Only four votes in each chamber dissented.

The following year, over 60,000 participants in the Teachers Retirement System (TRS) and the Public Employees Retirement System (PERS) remained grandfathered within their old defined benefit plans while subsequent employees were enrolled in newly established defined contribution plans.

Twenty years later, with no additional employees covered, the State has poured $8.8 billion into the legacy DB plans. Billions more are projected to be pumped into those pension plans to keep them afloat.

Despite that, the unfunded liability of PERS and TRS (not including healthcare plans, which are separate and solvent), has risen from $3.3 billion in 2006 to $6.8 billion in 2025.

It’s hard to understand how that happened during a time when investment markets have risen dramatically. The Dow Jones Industrial Average (DJI) peaked near 12,500 in 2006. This month the DJI reached 50,000.

The issue then, as now, is overly rosy actuarial assumptions and inability to achieve projected market returns on plan assets.

According to research by the Reason Foundation, a national libertarian think-tank, re-instituting DB plans could easily add $7 billion in additional costs to future state budgets.

A further complication that adds considerable pension risk are provisions in the Alaska Constitution requiring that “membership by state and municipal employees in a retirement system is a contractual relationship and accrued benefits of these systems cannot be diminished or impaired.”

Barring a constitutional amendment, therefore, government entities in Alaska can never reduce the level of benefits to an enrolled plan participant.

Sponsors are quick to note that HB 78 incorporates hybrid provisions which they claim will mitigate risk by increasing the employee contribution share in times of high inflation or market volatility. However, the effect of these provisions relies on the same exaggerated assumptions of investment return and actuarial performance.

What promoters appallingly ignore in the State’s own actuarial analysis is this disclaimer, “By shifting active members and all future hires from the DC plans to the DB plans, the State will assume greater risk of larger unfunded liabilities and higher contributions in future years.”

HB 78 supporters also conveniently discount changing societal demographics that suggest a different approach to retirement benefits. Many younger people are not fixated on receiving a defined pension benefit 20 or 30 years in the future. What they desire is flexibility in investment options, the opportunity for higher market returns, and plan portability, all features excluded in a defined benefit plan but incorporated in a defined contribution plan.

HB 78, then, will not only repeat mistakes of the past, it won’t meet the needs of the future.

What is driving the need for this? Alaska’s largest newspaper, the Anchorage Daily News, has penned a critical editorial. Municipal governments, realizing the possible financial implications, have been silent. Savvy legislators like Southeast’s Sen. Bert Stedman, who thankfully can do the math, staunchly oppose HB 78 so that the financial resources of our state and cities will remain protected.

Why expose current and future generations of Alaskans to the financial burden HB 78 would impose?

Win Gruening retired as senior vice president in charge of business banking for Key Bank for the State of Alaska in 2012. He was born and raised in Juneau and graduated from the US Air Force Academy in 1970. After serving as a pilot in the US Air Force flying in the Pacific and Vietnam, Win began his banking career with Rainier Bank in Seattle and moved home  to Juneau in 1980. Win has been involved extensively in various local and statewide organizations such as United Way, Junior Achievement, and the Alaska Committee.

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