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Alaska's public retirement system may need a cash infusion, says Parnell administration

Pat Forgey

JUNEAU -- It's looking increasingly like the most likely solution for Alaska's underfunded retirement plans is going to be using some of the state's ample savings to shore up those trust funds.

That's what's known as the "cash infusion" solution, and Mike Barnhill, deputy commissioner of the Department of Administration told the Senate Finance Committee Friday that some think that might be the best solution.

"There may be some emerging consensus on cash infusion now," Barnhill said.

Alaska's public retirement systems, largely the Public Employees Retirement System and the Teachers Retirement System, are struggling with huge "unfunded liability" due to saving less money in trust funds than will be needed to pay pensions and health care for tens of thousands of current and former public employees.

That unfunded liability is now estimated at nearly $12 billion less than needed to pay benefits, and the threat that amount may present to future state budgets is a matter of increasing concern, the senators were told.

That amount is "astronomical," said Kris Erchinger, a member of the Alaska Retirement Management Board and finance director for the city of Seward.

"It does have and will continue to have a significant effect on the state of Alaska," she said.

Erchinger and other members of the board, charged with overseeing the state's $22 billion in retirement trust funds, have been increasingly vocal about the need to strengthen the retirement system's finances.

The Legislature didn't act on ARM Board request for action in the last session, but the issue has drawn increasing attention.

Among options suggested are $500 million a year over four years, $2 billion up front, changes to how trust fund contributions are calculated and borrowing money with which to augment the trust funds.

Each year as long as the trust funds are underfund, local governments, schools and the state are required by state law to contribute extra cash to the funds.

Those amounts are becoming an increasing strain on local budgets Erchinger said, and likely will strain the state budget a swell.

Barnhill said that while some cash infusion option will likely win administration support, there is no formal administration proposal yet.

"We have not put a particular number on the table at this time," he said.

Barnhill reiterated the Parnell administration's commitment to the state's retirees.

They are working with actuaries, legislative committees and the ARM Board to review options, he said.

The governor believes there is a "moral obligations to see all benefits get paid when due," he said.

Legislative Finance Director David Teal told the committee that the state has been continually making its required annual contributions to pay down the unfunded liability. If it continues to do so for the next 25 years, the liability will be eliminated, he said.

But Erchinger said that if the state contributes more now, while it has the money, it will significantly reduce what it owes in future years when declining oil production or lower oil prices may mean the state has less money available.

Much of the pension checks that retirees collect come not from money the state contributes to the trust funds, but years of earnings on the stocks and bonds in which the trust funds are invested.

"Put as much money in the system upfront as possible to drive those earnings," she recommended.

Contact Pat Forgey at pat(at)alaskadispatch.com