“Expenditures made by retirees of state and local government provide a steady economic stimulus to Alaska communities and the state economy.”
– National Institute of Retirement Security, Pensionomics 2021
Tourist greenbacks coming to Alaska fluctuate dramatically year to year. Same with fishing revenue, oil bucks, construction expenditures, and federal dollars. Some years it’s downright scary. So, what are the stability superheroes of the Alaskan economy? An important one is the traditional “defined benefit” pension plan where, regardless of economic rain or shine, the retiree receives the same predictable check every month.
The National Institute on Retirement Security (NIRS) is a nonpartisan, non-profit research institute based in Washington, D.C. Last year they completed a study looking at the economic impact of traditional pensions in Alaska, and this year they completed a national study with a similar focus. We’ll take a brief look at both because of the impact the findings have on our everyday lives. And you’ll have an impressive new topic to discuss at the dinner table. Let’s start with Alaska.
According to the NIRS study, “Pensionomics 2021”, in 2018 (the latest year with complete information) 53,505 residents of Alaska received a total of $1.4 billion in pension benefits from state and local pension plans. That’s a lot of Alaskan families who are receiving a steady paycheck to offset tumultuous times. And clearly that’s serious money.
A modest but important income
However, the average pension benefit received per individual was a modest $2,191 per month or $26,297 per year. Still, that’s important income, especially considering that many public employees in Alaska were and are barred from participating in Social Security as public employees, due to a decades-old agreement between the state and the feds.
Looking at the big picture in Alaska, in 2018 expenditures stemming from state and local pensions supported:
8,778 jobs that paid $490.9 million in wages and salaries
$1.6 billion in total economic output
$215.0 million in federal, state, and local tax revenues
Bottom line: Just by being a retired person in Alaska who is receiving a pension, you are making a significant contribution to the economic wellbeing and stability of the Alaskan economy. And there’s more.
Impact on small towns and rural areas
Earlier this summer NIRS produced a groundbreaking study titled, “Fortifying Main Street: The Economic Benefit of Public Pension Dollars in Small Towns and Rural America”.
“The report finds that a positive economic contributor to these communities is the flow of benefit dollars from public pension plans. In 2018, public pension benefit dollars represented between one and three percent of GDP [in this case Gross Domestic Product is the value of goods and services produced within a county] on average in the 2,922 counties in the 43 states studied.”
Alaska was not one of the states studied, and of course we have boroughs rather than counties. Nevertheless, there is every reason to believe the overall findings apply to our fine state:
“Rural counties have the highest percentages of their populations receiving public pension benefits.
Small town counties experience a greater relative impact in terms of both GDP and total personal income from pension benefit dollars than rural or metropolitan counties.
Rural counties see more of an impact in terms of personal income than metropolitan counties...”
The key message here is that retirees with pensions are very likely making an outsized contribution to the economic stability of rural Alaska. And that is something to be proud of.
But the fact is that after years of underfunding by the state and inaccurate projections from the state actuary, in 2005 the Alaska legislature closed PERS and TRS traditional pension systems to newly-hired public employees and moved these employees into a riskier, less secure plan. This shortsighted response by legislators did not save the state money, but did put tens of thousands of new and prospective retirees at serious financial risk. In addition, this policy reversal threatened the economic stability of our state and local economies.
The times, they are a-changin’
In April of this year the Alaska Supreme Court voted to allow Alaska’s public employees to buy back into Tier 1 of the states’ Public Employees’ Retirement System (PERS) and Teachers’ Retirement System (TRS), both of which provide a defined-benefit pension with guaranteed income in retirement. Wow, that’s huge!
And this year HB220 would have provided public employees hired since 2005 without a traditional pension an option to convert from their current retirement plan to a traditional “defined benefit” one. It almost passed and became law.
Keep your eyes open for further developments, because here in Alaska, “the times, they are a-changin’.”
