in Employer Contribution Rate for PERS, TRS
September 12, 2006
The governor also announced that he would include funding to cover the increased cost of the higher rate in the Fiscal Year 2008 budget that he will recommend to the governor-elect. He will propose that the increase be funded from the additional revenue expected from the oil production tax reforms approved by the Legislature this past summer.
The actuary recommended increase for Fiscal Year 2008 will cost an additional $504 million for state and local governments, and school districts. The governor's proposal will mean that the state would cover $77 million in costs that local governments otherwise would have to pay.
Buck Consultants pegged the unfunded liability as of June 30, 2005 at $6.9 billion. Two primary reasons the liability has increased is because the previous actuary failed to properly calculate the medical liabilities for PERS and a change in the medical assumption is now being used that more accurately reflects rising medical costs.
These reasons are why the state hired a new actuary and underscore the fact that the actual liabilities for PERS and, to a lesser degree, TRS were not being properly calculated by the previous actuary (Mercer Human Resource Consulting), for a period of time. This issue is under review by the Department of Law and legal action is being considered to recover the costs to the PERS and TRS as a result of the errors made by Mercer in past valuation reports.
In addition to meeting the Fiscal Year 2008 increased obligation, the governor also will recommend that an additional $500 million be deposited in the PERS and TRS funds. This will help further pay-down the amount due to the system and accelerate the day when employer contribution rates can be stabilized. The governor urges the next administration to continue this pay-down plan.
In August the governor also pledged to use some of the increased revenue to pay back the Constitutional Budget Reserve (CBR), a savings account created by voters in 1990. To date $5.2 billion has been borrowed from the CBR, of which all but $46 million was borrowed by prior administrations.
"When our administration came into office in December 2002, we faced a budget that was $800 million in the hole. We also faced a retirement system that had a $4.4 billion unfunded liability. For too long the state spent more than it had and ignored the financial requirements of its retirement system," Murkowski explained.
"We're pleased that we are leaving the state in far better fiscal condition than when we came into office. While high oil prices have helped, the fact that we made tough decisions, effectively managed programs, and reformed Alaska's taxes have contributed to where the state is today." The governor also announced three appointments to the ARMB. He reappointed PERS Trustee Sam Trivette and TRS Trustee Gayle Harbo. He also appointed Dr. Richard Solie, Sr.to fill the TRS seat previously held by Bob Roses who resigned from the board to run for the Legislature.
In 2005 the Murkowski administration
successfully got legislative approval of important reforms to
the state's retirement systems that will provide the systems
with better predictability of future obligations.
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