As you retire from state service, or even if you are in the private sector but have prior State of Alaska employment, it’s important to take stock of the available benefits. Given the complexity of the state system, with its different retirement systems (PERS, TRS, JRS), multiple employment tiers, job classifications, union involvement, etc., it can be difficult to cover all the options in one cohesive article. Please be sure to verify your details with the State of Alaska Division of Retirement and Benefits through their website or by calling the Member Education Center (907-465-4460 for those living in Juneau, 800-821-2251 for those in other areas).
With that in mind, we’ll summarize* the numerous and varying retirement plans and benefits for which you may be eligible.
Defined Contribution Plan (pension)
If you were a PERS tier I-III employee, a TRS tier I-II employee, or employed under JRS, you may be eligible for a monthly pension benefit. We’ve outlined details of each plan in prior articles, <provide links here> so please refer to those for specifics on each system; details vary by retirement system and job classification. Regardless of which system you may be eligible for, there are a few things to keep in mind:
Retirement Timing impact on benefit amount-
Your age at retirement and date of hire (or employment tier), will impact whether you receive full or reduced benefits at the time of filing. For PERS and TRS tier I retirees, the normal retirement age is 55, but for PERS tiers II-III and TRS tier II, the normal retirement age is 60. While you can begin collecting up to five years prior to those ages, you will receive reduced benefits depending on how close to your full retirement age you are. To complicate things further, there are additional eligibility requirements that could allow for earlier collection without reducing the benefit. Again, it’s always good to consult DRB materials to see if any of these are applicable.
Benefit Increases-
In retirement, you may be eligible for annual increases in your pension benefit. PERS, TRS, and JRS retirees all have different applicable formulas and methodologies. For PERS and TRS retirees, you may be eligible for Post-Retirement Pension Adjustments and/or the Alaska Cost of Living Allowance (COLA; for retirees who continue to live in Alaska). For JRS retirees the adjustment is based on increases in active judicial salaries. These adjustments are typically made annually based on specific criteria and requirements.
Survivor Benefits-
Upon your decision to begin the pension benefits, you’ll be asked about whether you’d like a percentage of your pension to be payable to a beneficiary (typically a spouse). While everyone’s situation is unique, it’s typical to opt-in to some level of survivor benefit. Please consult your financial professional to discuss this further.
Deductions-
You may find various deductions from your monthly pension, including those for taxes, a potential deduction for Retiree Health Plans (depending on your service credits and eligibility), and potential deductions for Dental-Audio-Visual (DAV) and Long-Term Care (LTC) benefits if you opt-in to those programs.
Supplemental Annuity Plan (SBS)
This plan is effectively your replacement for Social Security, which the State of Alaska opted out of beginning Jan 1, 1980. Social Security, a federal plan, guarantees monthly income for the remainder of the recipient’s life, but the SBS account, a state-sponsored plan, will have to be managed effectively to provide similar income over a similar period.
The SBS can be kept in its original form (account at Empower) or rolled into an IRA at the custodian of your choosing (through a “direct rollover” of your plan; consult your financial planner about which option may be best for you). If you choose to leave the plan in its original form, there are several withdrawal options available, including:
Lump Sum-
Withdrawing the full amount, or some portion of the account. Partial lump sum distributions may occur on more than one occasion, as needed. This option would also be available through an IRA account.
Annuitization-
Stipulates regular monthly amounts over certain periods (5, 10, or 15 years), over the rest of your life, or over the joint life expectancy of you and a survivor. The limitation to annuitized payments is that they are typically inflexible, with no ability to change the income amount over time.
Periodic Payments-
A more flexible recurring payment option, where you set the amount of income to be received, with the flexibility to change the amounts at your discretion. This is similar to how you could structure withdrawals from an IRA account.
Regardless of your withdrawal type or whether you keep the SBS account at Empower or roll your account to an IRA, the dollars distributed will be subject to federal income tax, and there will be Required Minimum Distributions (RMDs) starting at your Required Beginning Date (RBD) per current IRS rules.
Deferred Compensation Plan (DCP)
This plan is governed by IRC Section 457 but is akin to a private sector 401(k) plan with respect to how you might utilize it in retirement. The DCP can be kept in its original form (account at Empower) or rolled into an IRA at the custodian of your choosing (through a “direct rollover” of your plan; consult your financial planner about which option may be best for you). Your plan could include pre-tax contributions, which would be taxable as you take distributions, or after-tax contributions within the Roth DCP option, where distributions will be tax-free from the account, or both. If you choose to roll this plan to an IRA, consult with a financial professional to ensure proper mapping and tax treatment at the time of transfer. Your DCP will also be subject to RMD rules as you reach the stipulated age.
Retiree Health Benefits
State of Alaska retirees may be eligible for participation in one of the State’s Retiree Health Plans. While we won’t compare the current plans (Aetna and Optum) in this piece, it’s worth having that conversation with your planner.
Participant eligibility will depend on which retirement system you’re covered by (Defined Contribution vs. Defined Benefit), which is dependent on which employment Tier you fall under (PERS IV and TRS III vs. PERS I-III and TRS I-II respectively). Your total service credits will help determine if you’re eligible for covered health care (no premiums), or if you’ll have to pay health care premiums to receive care. For example, PERS tier I-II retirees are eligible for covered health care after reaching 30 years of service credit (25 years for peace officers and firefighters), while TRS tier I retirees are eligible for covered health insurance for life once they reach 25 years of credited service. Retirees in the Defined Contribution Retirement system pay a cascading percentage of premiums for coverage after having earned 15-30 years of service credits. You can find additional information on the State’s DRB website and associated publications or discuss it with your financial planner.
It’s important to note that most retirees will still apply for Medicare coverages A and B at age 65, at which point Medicare becomes the primary insurer with state coverage acting as supplemental coverage. One interesting aspect for those who continue to live in the State of Alaska is the hesitation of healthcare providers in the state to work with Medicare concerning billing. It’s always a good idea to have established relationships with your required doctors and clinics and to ask them about their willingness to bill Medicare, to ensure continuity of coverage in retirement.
Dental, Audio, and Visual (D-A-V)
Retirees across the plan system will have access to dental, audio, and vision insurance coverages at pre-determined monthly premiums. The premium amounts differ for those in the Defined Benefit system and the Defined Contribution system, but in most cases, they’re within a few dollars of each other.
Long-Term Care Insurance (LTC)
The State of Alaska offers coverage for long-term care expenses that aren’t covered by traditional health insurance or Medicare. These could include care in your home, at a graduated care facility, or in a nursing home. The need to fund long-term care needs can be one of the biggest challenges in a retiree’s ongoing financial plan, particularly when leaving a surviving spouse with a reduced pool of assets to sustain their ongoing income.
While the state plan is not perfect, we’re seeing this plan offer more stability than private plans that have been typically available in the State of Alaska. For clients with private plans, we’re experiencing increasing premiums every couple of years, sometimes by 50% or more, to maintain coverage. We have not seen a similar trend with the state’s offered policies.
Within the state plan, you’ll choose from a “silver”, “gold”, and “platinum” coverage option, each with a prescribed monthly premium largely based on age. You can also choose coverage for a spouse if you opt for self-coverage. There are numerous factors to consider in deciding which option is best, many of which depend on your other resources, so consulting a financial professional when making the decision is your best bet.
Coordinating benefits with your financial plan and other assets-
How you choose to integrate your state benefits into your long-term plan will depend largely on how you’ve structured other available resources. These may include state or private sector assets for a spouse, or other accounts (IRAs, Roth IRAs, brokerage accounts, etc.). Feel free to give us a call to schedule an exploratory conversation if you’d like to develop your coordinated plan! <provide contact link>
Please Note- There may be nuanced differences in your benefits depending on your employment class and whether/which union contract may apply. Please utilize the resources provided by the State of Alaska and/or your Union to supplement this information.
As noted earlier, this is not an exhaustive analysis of each of the State of Alaska retiree benefits but should give you an overview of the options for which you may be eligible. If you have questions or would like to consider a more comprehensive discussion and planning work, please feel free to contact us for an exploratory conversation.
*Information in this article is taken from The Division of Retirement and Benefits (DRB) administers, which manages the State of Alaska’s retirement, healthcare, and benefit plans.
