by Senator Lyda Green
August 05, 2005
The Senate Majority, Governor Murkowski and most House Republicans refused to go home from Juneau until the public employee retirement system reform bill passed. The reason is simple: our public employee and teachers' retirement systems suffer from structural flaws which have created and continue to create catastrophic financial instability and the very real risk that our state will lose the ability to meet the needs and expectations of employees and employers.
The flawed retirement pension plan guaranteed benefits for life and placed all the financial risk on the employer. This defined benefit system was not flexible enough to adapt to the rollercoaster performance of the stock market and staggering increases in medical costs. These unforeseen burdens fall on the shoulders of employers alone. Unpredicted financial events and market changes have resulted in an imbalance between the cost of rich retirement benefits guaranteed to existing retirees and those soon to be retired and the inability of employer assets to meet the price tags for those benefits. In fact, this year school districts, municipalities and other public employers came to the legislature asking for $108 Million to cover their employer contribution increase for which they did not have enough money without state intervention. This year the legislature boosted education funding by $70 million. $38 million of that amount will help school districts meet their growing obligation to the teacher retirement system (also known as the employer contribution amount). That financial aide is not enough because it does not begin to address the $5.7 billion dollar systematic deficit. The Senate Majority, Governor Murkowski, and most House Republicans recognized this pension crisis, the same pension crisis that is crippling public sector companies like United Airlines and General Motors, and refused to turn a blind eye.
To help prevent that deficit from growing, the legislature worked with employers and school districts to craft legislation that implements changes for future public employees and teachers. The legislature, in addition to implementing structural fixes, was able to provide some financial relief to employers until long-term financial solutions can be implemented. Future employees (those not yet in the retirement systems) will have portable 401-k type retirement accounts, the same investment vehicle used by most private sector employers and many Alaskans. In addition to the defined contribution plan, these future employees will have a supplemental benefits annuity plan and a health reimbursement arrangement.
Changes in the legislation also impact the retirement board structure for streamlined management of our retirement system assets and liabilities. A new Alaska Retirement Management Board (ARMB) will be in place as of October 1 of this year. The new board replaces the separate PERS, TRS and Alaska State Pension Investment Board (ASPIB). Under the existing structure, ASPIB dealt exclusively with the assets as an investment management board while the PERS and TRS boards incurred liabilities on behalf of the retirement systems. ARMB resolves the lack of cohesiveness and oversight by making one board responsible for the assets and liabilities. ARMB will be stacked with financial experts who understand the crisis and will provide solutions to the very real $5.7M deficit.
It is a shame that those who had the courage and the conviction to take on this problem and implement solutions will probably never receive the thanks they deserve. We have taken a bold step in fixing the structural problems in the systems. By implementing a defined contribution system, employers will no longer be bringing new unfunded liabilities into the system when they hire new employees; consequently, the problems will not grow. Also, by creating a new super board tasked with reporting to the legislature on how the unfunded liability should be addressed, the legislature has made a promise to address the unfunded liability.
SB 141 is the result of systematic and meticulous work that is the culmination of three years of research and education on the retirement system flaws. Retirement systems across the country are failing. This is not a problem created by the legislature but thankfully we elected senators, representatives and a Governor who refused to ignore the problem.
Senator Lyda Green is a member of the Alaska State Legislature representing District G (Palmer, Wasilla).
and do not necessarily reflect the opinions of Sitnews.