(SitNews) Juneau, Alaska - A plan to put the state’s operating budget on a more sustainable path, while better enabling the state to meet its retirement obligations for earlier retirement system plans was proposed by Governor Sean Parnell this week.

Current projections estimate that Alaska's Public Employees’ Retirement System (PERS) and Teachers’ Retirement System (TRS) have a combined unfunded liability of $11.9 billion.

Specifically, in his FY 2015 budget, the Governor Parnell will recommend transferring $3 billion from a budget savings account into the state’s retirement trust funds. According to the governor, this move would effectively pay down the unfunded pension debt and create a lower fixed annual payment from the state operating budget.

“State pension contributions represent the single largest cost driver in the state’s operating budget,” Governor Parnell said. “This year’s budget contains an unfunded pension liability contribution of more than $600 million, and the payment plan requires an increase to more than $700 million next year. Soon, the operating budget would be required to contribute more than $1 billion annually to this one line-item. If left unaddressed, the annual state pension contribution will increasingly burden the state and hamper our ability to meet the people’s constitutional priorities. Paying down the debt now is this generation’s responsibility that we will not leave to the children of Alaska to deal with in the future.”

Quoting a news release, the governor’s proposal strengthens Alaska’s AAA credit rating and keeps the biggest driver of operating budget increases from growing.

“Given the significant and escalating resources required to pay down the unfunded pension liability, it is in Alaska’s interest to dedicate some of our budget reserves now to paying down our obligation, and move the state’s annual payment to a lower, more sustainable and predictable level,” Governor Parnell said. “Leveraging our reserves in this fashion will allow us to meet our obligations, reduce our annual operating budget, address future needs, and maintain flexibility. I look forward to working with the Legislature and the Alaska Retirement Management Board to address the unfunded liability."

Governor Parnell will seek legislative approval for a one-time $3 billion appropriation from the Constitutional Budget Reserve into the retirement trust funds. A savings infusion in the FY 2015 budget will enable the annual state pension contribution to drop to $500 million a year, and will increase the funded status of the PERS and TRS systems by 10 percent almost immediately.

Using the proposed allocation of $1.12 billion to TRS and $1.88 to PERS returns the two systems to the 2003 funding levels: PERS from 63% to 73% ; TRS from 53% to 63%.

An analysis by Morningstar, Inc. (NASDAQ: MORN), a leading provider of independent investment research, reported in November 2012, that Alaska was the highest in the nation of Unfunded Actuarial Accrued Liability (UAAL) per capita, at more than $10,000.

Edited by Mary Kauffman, SitNews

Related:

Report says Alaska has highest unfunded state pensions liability
http://www.sitnews.us/1112News/112612/112612_uaal.html

"State and Local Pensions 101" overview
Morningstar, Inc.
http://global.morningstar.com/pensions101

On the Web:

FY 2015 Budget Addresses Biggest Operating Cost Driver
http://gov.alaska.gov/parnell_media/resources_files/
fy15_operating120513.pdf

Sources of News: 

Office of the Governor
www.gov.state.ak.us

Morningstar, Inc.
http://corporate.morningstar.com

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