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Retirement board endorses Parnell's $3 billion boost

Pat Forgey
Alaska Gov. Sean Parnel has proposed pulling $3 billion from savings to help deal with the Alaska retirement trust funds' growing costs. Loren Holmes photo

JUNEAU -- Shoring up Alaska's faltering retirement trust funds needs to start with Gov. Sean Parnell's proposal to pull $3 billion from savings to help deal with the funds' growing costs, members of the Alaska Retirement Management Board said this week.

"We all agreed that the $3 billion needs to be put in now," said Sam Trivette, the board's vice chair, who was running the meeting in the absence of chair Gail Schubert. 

The state's unfunded pension liability in its Public Employee Retirement System and Teacher Retirement System trust funds is now $12 billion. That liability is the difference between what the money now in the funds is expected to be worth in future years and the cost in benefits to be paid will be. 

The board has been trying to draw attention to the dire straits of the retirement funds for years, but until recently has been unable to get support for more money to go into the funds. That's been despite billions in surplus revenues that flowed to the state in recent years while spending in other areas soared.

There's growing concern, though, that annual payments to meet retirement costs are threatening to overwhelm state budgets, especially as revenues decline.

Sen. Anna Fairclough, R-Anchorage, told the trustees that the state was committed to standing behind its promises to its employees and retirees.

"The state of Alaska understands our obligations to the people who are inside our pension system," she said.

While legislators are rarely seen at ARM Board meetings, the new attention to the issue was highlighted by the presence of Fairclough, Sen. Dennis Egan, D-Juneau, and aides to several other lawmakers.

Parnell's proposal includes features which may make it more or less palatable for various interest groups. First, it helps the Legislature balance the state's budget because it makes this year's required $1 billion payment to the unfunded liability from savings, meaning that the $3 billion contribution is effectively $2 billion extra.

In future years, the variable unfunded liability payment would be capped at $500 million, providing a predictable and lower number, helping future legislators balance some future years' budgets as well. 

At the same time, lowering the annual payment would extend the time it would take to pay off the unfunded liability. Because local governments, including cities, school districts and boroughs have to pay a share of that, that would raise their payment share. 

Those extra years of payments would come at a time when the state is expected to have even less revenue coming in from oil than it does today. The payment period would be extended five to six years, to 2036.

The ARM Board's actuarial consultant, David Slishinsky of Buck Consultants, cautioned that extending the time in which the state will take to pay off the unfunded liability, called the "amortization period," includes some risk as well.

"There are ultimately consequences to extending the amortization period," he said. While there could be benefits such as lower payments, total costs could be higher and risk of losses could increase as well.

Some in the Legislature have suggested they might create a new "reserve fund" from which the $3 billion could be placed. Earnings from that fund would go to retirement costs.

But Slishinsky warned that actuaries and others judging the trust funds' financial health would not consider those reserve funds to be equivalent to money locked up in the retirement trust funds.

"We would not be able to use it for our purposes," Slishinsky said.

Trustee Martin Pihl said he's heard comments that the state should delay paying off those debts, but that option is too risky for the state.

"Some people say pay it off with cheaper dollars later, but I think the reality is, the cheaper dollars become scarcer dollars," he said. 

Trivette agreed, saying the need now is to get money into the trust funds, where it can grow over the years as it is invested and earns a return for the state.

"There's a huge value in putting the $3 billion in now," he said.

Money in the trust funds is invested in stocks and other higher returning assets than money in the state’s other savings accounts, which are expected to be readily available for emergencies and hold more bonds, treasury bills and other safer, but low-yielding, assets.

Contact Pat Forgey at pat(at)alaskadispatch.com.