Under the Alaska bill, new employees would contribute 8% of pay into the 401(a) plan, while employers would contribute 3.5%. Existing employees would gradually see their contributions to the defined contribution plans increased to 9.8% from 6.8%, with an employer match.
In addition, the bill would merge the $8 billion Public Employees' Retirement Board and the $3.8 billion Teachers Retirement Board, both in Juneau, into the Alaska State Pension Investment Board, which already oversees investment management. The bill would also charge the ASPIB with monitoring the fund's liabilities, currently done by the Department of Administration.
Underfunding of the state's defined benefit plans was the driving force behind creating the new 401(a) plan, said Mr. Matiashowski.
"We have found ourselves with less money than we should," he said. "The governor is an advocate of the plan. It will be implemented fairly soon." The plans are underfunded by $5.7 billion.
"We're making the necessary changes to stop the bleeding in our overburdened pension system and bring more stability to the retirement system," the governor said in a news release.
Frederick H. Nesbitt, executive director/legislative counsel of the National Conference of Public Employees Retirement Systems, Washington, said the new plan is short sighted.
"They've tried it other places and it doesn't work," he said, citing North Dakota and Nebraska and the West Virginia Teachers' Retirement System, Charleston, as examples.
"They are going to find out that a DC plan is not cheap, and it will cost more than administering an existing DB plan. You have to be more liquid, and there are no savings for the first 10 years," said Mr. Nesbitt.
"California found that it didn't make sense, and Alaska will find out the same."
The Alaska Department of Administration, which will oversee the new DC plan, will issue a request for proposals for consulting and record-keeping services next year. In the interim, Great-West Life & Annuity Insurance Co., Denver, a service provider to Alaska's deferred compensation plan, will be the provider on a one-year contract, said Kathy Lea, retirement manager for the administration department.
FASCorp, a division of Great-West, is the record keeper; and Great-West Retirement Services provides communication, education and other services to the deferred compensation plan. Calls to Great-West were not returned.