By Sen. Bert Stedman & Sen. Lyda Green
November 19, 2006
The size of Alaska's unfunded pension liability is not in dispute. There are five actuarial firms in the country that analyze large public pension systems. Over the past five years, Alaska has employed four of them. The best analytical minds in the country agree. We have a serious problem, and it's getting bigger.
The state's current actuary, Buck Consulting, puts the combined Public Employees' Retirement System/Teachers' Retirement System unfunded pension liability at $8.6 billion. It is equivalent to 25 percent of the value of the Permanent Fund and represents $13,000 of debt for every person in Alaska. In the past five years alone, it has grown by $4.5 billion. We don't need to waste any more time analyzing the number. We need to develop realistic options for eliminating our debt. Anyone who tells you otherwise is being dishonest and isn't helping move us closer to a long-term fix.
The Alaska Retirement Management Board is tackling the problem head-on. Simply put, public employers (the state, city governments and school districts) are $8.6 billion behind in setting aside money that they'll need to pay for the pension and medical benefits of their employees. In order to catch up, they would need to invest $600 million per year for each of the next 25 years. By raising employer contribution rates, the board is putting the funding problem squarely where it belongs - with employers.
Local municipalities and school finance directors have watched their PERS/TRS contribution rates double and triple in the past four years. When the board's fiscal year 2008 PERS/TRS contribution rates take effect, total statewide employer contributions will exceed $1 billion a year. Employers can't absorb these increases without cutting programs, raising taxes or asking the state to cover the difference. So far, they've managed to stave off budgeting problems because the Legislature redirected millions in state financial assistance to help reduce their liabilities. Clearly, every Alaskan has a vested interest in fixing this problem. After all, that's public money that might otherwise have paid for new schools, roads or public safety programs in your town.
Without question, the most significant thing the Legislature has done to slow the growth of our unfunded liability and to reduce the volatility of future costs is to establish a 401(k)-style, defined-contribution plan for new public employees. We simply can't continue the generous retirement benefits embedded in our current PERS and TRS tiers, nor can we put new employees into an already underfunded plan.
But to imply, as some have, that cutting off new employees from the existing tiers makes the problem worse is simply not true. Employee contributions have zero impact on the liability, regardless of the plan they participate in. Employers will always bear the full responsibility for paying off the $8.6 billion liability, and the state has some responsibility to help.
Alaska is the first state in
the nation to implement such far-reaching and progressive public
pension reform, and you can expect other states to follow our
lead. It's going to take all of us working together, with the
facts, to find the best solutions. Let's honor the commitments
we've made to our hardworking current and former public employees
while working to secure the financial health of future generations
About: Sen. Lyda Green (R) is a member of the Alaska State Legislature representing District G: Hatcher Pass, Mat-Su(Palmer), Mat-Su(Wasilla), Palmer, Wasilla.
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