July 03, 2006
Alaska Governor Frank H. Murkowski today said he was heartened that Juneau Superior Court Judge Larry Weeks on Friday, June 30 denied a request by several state employee unions to stop the state from implementing a new "tier" of the state employees' and teachers' retirement plans.
"We believe the transition to a defined contribution plan, which is just like a 401(k), is the right answer for these retirement systems, and applaud Judge Weeks for allowing the state to proceed with starting the new plan," Murkowski said. "We are confident we will prevail in the main lawsuit, so there is no reason why new state employees should not be able to move forward with their individual defined contribution plans."
The three labor unions, the Alaska Public Employees Association/AFT, Alaska State Employees AFSCME Local #52, and the Alaska Correctional Officers Association, had asked for a temporary restraining order or preliminary injunction to prevent the state from implementing the new system as required under SB 141, the bill that made the change. SB 141 was passed in 2005, but had a delayed effective date until July 1, 2006. The unions argued that the new plan had not been approved by the Internal Revenue Service.
Department of Administration Commissioner Scott Nordstrand, retirement plan administrator, said, "It is gratifying to receive this court ruling that ensured landmark legislation was implemented on schedule effective July 1, 2006. While the unions claimed irreparable harm if the defined contribution plans went into effect, Judge Weeks agreed with the state that a temporary restraining order would cause real harm by leaving new employees without a retirement plan since the legislation had closed the defined benefit retirement plans to new members."
Attorney General David Marquez said, "I am pleased that Judge Weeks agreed with the state that the unions did not meet the requirements for an injunction. The Department of Law has worked, and will continue to work, with the Departments of Administration and Revenue and our expert tax advisors to assure that the new retirement plans are qualified by the Internal Revenue Service, and that they provide new employees and teachers with the intended favorable tax treatment."
While the court was not persuaded that the plan unapproved by the IRS was unconstitutional, it concluded that the state or its subdivisions could end up owing damages to employees hired after July 1 if the IRS makes an adverse decision on the plan's deductibility.
Nationwide, many state pension systems have funding shortfalls, including Alaska. Some pension systems have elected not to deal with this significant liability, but Alaska has made some corrective changes. Nordstrand said the defined benefit retirement plans for the PERS and TRS are currently $6.9 billion underfunded. "Fortunately for Alaskans, Governor Murkowski and the Legislature took action to stem the growth of future liability to PERS and TRS, while still maintaining an attractive retirement system," he said.
Senate Bill 141 enjoyed support from PERS and TRS employers who were no longer willing to "shoulder all of the risk" for investment returns and rising health care costs.
The Department of Administration worked hard over the last year to ensure that the new defined contribution retirement plans are successfully implemented. According to Nordstrand, the new defined contribution plans are "on track" for new employees hired on or after July 1, 2006, and the court's ruling prevents any delay.
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