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The PERS/TRS Debate Rages
by Rep. Mike Kelly


March 24, 2005

It is likely that many of you have read my opinion pieces regarding the state of our public employee and teacher retirement systems (PERS & TRS) and watch with interest the developing debate about how we will address the growing unfunded liability of our retirement plans.

Like many of my colleagues, I arrived in Juneau deeply concerned about the unfunded liability, which is now in excess of $5 billion and growing. I declined to enroll in PERS, committed to contribute to a reasonable, fair, and equitable solution. The unfunded liability is particularly serious problem for Fairbanks that could result in substantial increases to local property taxes, and thus I feel warrants particular attention by our delegation. Although generating real movement to craft a plan has taken longer than I anticipated, the Legislature now has several alternatives under consideration.

In late February and early March, I introduced a series of bills (HB 170, HB 177, and HB 191) that would address three essential areas necessary to solve the unfunded liability problem for the long term. First, implementing a new tier that moves our retirement system from a Defined Benefit (DB) to a Defined Contribution (DC) plan is necessary to prevent the unfunded liability from growing with the addition of new employees while providing future generations of public employees with a competitive retirement package. Secondly, as a matter of equity and in the interest of bringing more money into the system to reduce the liability, the existing un-retired employee population needs to increase contribute a greater amount. Lastly, we should implement structural changes to the respective retirement boards in an effort to improve system performance.

Recently, the Senate Finance Committee unveiled SB 141 an omnibus bill, which incorporated, to varying degrees, elements of all the components mentioned above. There are some noteworthy differences between the Senate version, and my bills. The Senate Finance Committee has now had several hearings on their bill, and by the time you read this, House State Affairs will have considered the measures I've put forward as my contribution to the debate. Rep. Paul Seaton (R-Homer), Chair of the State Affairs Committee, has told me he intends to roll elements of my three bills into a new State Affairs committee bill which will also contain elements he would like to include in the final solution.

What remains clear is that there is a desire by members in both houses to address this problem in some fashion similar to what we have suggested and demanding that a solution be in place by end of session. It is also becoming clear that there are those committed to a solution that involves a unilateral bailout of the retirement systems by the state, including use of the Permanent Fund earnings ­ or stalling to next session, an election year. That is simply not an option that non-beneficiary Alaskans will support.

Every day that we fail to act, represents a several hundred thousand dollar increase in the unfunded liability-nearly a billion dollars from 2004 to 2005. Secondly, the Division of Retirement and Benefits, the PERS and TRS boards, and their actuarial consultants have spent nearly a year reviewing the problem and preparing some very reasonable proposals. In November of last year, the PERS and TRS boards decided not to make a recommendation for system changes, deferring instead to the Legislature. Now the ball is in our court.

The time for review and study is drawing to a close. The time for action is near.



Rep. Mike Kelly (R) is a member of the 24th Alaska State Legislature representing District 7 - Fairbanks.



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