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ARM board struggles with $11B in debt

Posted: December 2, 2011 - 12:04am

A state panel charged with overseeing its retirement plans delved deeply into some distressing numbers Thursday, and looked at some difficult options to come up with billions of dollars to pay its unfunded liability.

That’s the difference between what the state expects to have to pay out in retiree pensions and health care, and what it thinks it will have to make those payments with.

“There’s an $11 billion dollar hole in the system,” Mike Barnhill, deputy commissioner of the Department of Administration, told the Alaska Retirement Management Board.

The board has been asked by Gov. Sean Parnell to make recommendations for how the state should deal with the unfunded liability, and hopes to make recommendations today as it continues meeting in Anchorage.

“Is everyone as shell-shocked as I am?” asked ARM board chair Gail Schubert Thursday afternoon, after hours of work Thursday reviewing spreadsheets of various difficult options.

The Anchorage meeting will be the board’s last chance to make a formal recommendation to the Legislature before it convenes in January.

Among the options the board reviewed were extending the amortization period, recalculating the payoff method and various amounts of cash injections into the retirement trust accounts for the Public Employees Retirement System and the Teacher Retirement System.

Becky Hultberg, Parnell’s commissioner of the Department of Administration and a member of the board, said the more of the debt that is paid now, the less that will have to be paid later. But if we pay more now, she said, that crowds out the possibility of doing other things the state also needs to do.

“That’s the situation we need to try to manage very carefully,” she said.

In Alaska, the board was told, pension obligations are constitutionally and contractually obligated to employees and can’t be reduced, so the state will have to find a way to come up with the money.

“The benefit is basically set in stone,” Schubert said. “You can’t do what Commissioner Hultberg said some other states are doing and basically looking at the benefits and taking some of them away.”

“It’s just simply clear that we’re going to have to pay now or pay later,” said Tom Richards, a board member from Fairbanks.

He said the state needed to address the issue now, while the state had billions in savings and strong finances.

“We do have oil in the pipeline now, and we do have money in the bank,” he said.

Hultberg warned that oil flow through the pipeline had declined 37 percent during the last decade, while spending increased 90 percent.

The ARM Board itself has authority to only make a few of the decisions under consideration, such as how contribution levels are determined.

Other options including state cash infusions into retirement trust funds and raising costs for local governments.

Other decision will have to be made by the Legislature, but board members said not enough has been done so far to keep legislators informed of the growing unfunded liability and the steps that will need to be taken to address it.

“There needs to be a level of understanding before they ever step out on something that is not a new school in their district,” said Commissioner of Revenue Bryan Butcher, a former legislative aide.

• Contact reporter Pat Forgey at 523-2250 or at patrick.forgey@juneauempire.com.

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