Challenging the slow pace of the governor and Legislature in dealing with Alaska’s underfunded pension plans, the Alaska Retirement Management Board trustees Thursday voted to try to force the issue and speed up paying off the debt.
Trustee Martin Pihl, a Ketchikan civic leader and retired Ketchikan Pulp Co. general manager, urged the board to change how it calculates the state’s annual contribution to the Public Employee Retirement and Teacher Retirement Systems.
The change would frontload payments to the trust funds scheduled to be made during the next 25 years, costing more immediately but likely saving significant dollars later.
The state currently has a shortfall of $11 billion dollars in what it believes it will need to provide pension checks and pay for retiree health care, and what the trust funds will have available with which to make those payments. That amount is known as the retirement system’s “unfunded liability.”
“The trustees are really grappling with what we can do to solve the unfunded liability problem, and this is one meaningful step we can make,” said Trustee Kristin Erchinger, finance director for the city of Seward.
The step the trustees took was changing the method by which extra payments are made into the trust funds to pay down the unfunded liability from the current method, known as “level rate of pay” to a system called “level dollar.”
Level dollar is a system that Gov. Sean Parnell has spoken positively of in the past, but Thursday his administration urged against its adoption.
The state needs the flexibility of keeping that money available for state needs, said Trustee Becky Hultberg, commissioner of the Department of Administration.
She said Parnell asked her to convey to the board his commitment to meeting the state’s constitutional obligation to pay retirement benefits, but also needed to have the state’s billions in surplus available given the uncertainty facing the state in several areas.
“The governor has become concerned about some recent events,” she said, including uncertainty in global financial markets, especially with respect to Europe.
Also, she said, the price of oil was falling, along with oil production.
She said Parnell has previously said he was “leaning toward” level dollar, but said he questioned whether now was the right time to make that move.
Trustee Sam Trivette, a retired Juneau probation and corrections officer, said the board had been considering the move for at least three years, and needed to take the step.
Trivette, who is also vice-chairman of the Retirement Management Board, said if the Legislature changed the oil tax structure, it will probably result in money being taken out of the treasury and given to oil companies, and that would make it harder to make retirement payments.
“I don’t see how we can possibly win by waiting,” he said.
But the board’s chairwoman, Gail Schubert, cautioned against making the move to level dollar.
“I’m not comfortable with making that change right now, mainly because of what’s happening in the financial markets right now,” she said.
The resolution was adopted by a 4-3 vote.
Pihl and other advocates of level dollar acknowledged while they could change the calculation method, they couldn’t make the Legislature and the governor approve the money needed to pay for it.
Hultberg suggested the appropriations needed to implement level dollar might not get through the Governor’s Office.
While the governor expects and understands the board is going to do what it thinks is right, “he’ll be exercising his professional judgment as well,” she said.
The ARM Board’s action came after this year’s legislative session, during which the Senate approved $1 billion extra payment towards the retirement debt, but the House of Representatives declined to follow and the money was removed in a conference committee.
• Contact reporter Pat Forgey at 523-2250 or at patrick.forgey@juneauempire.com.
Comments (22)
Add commentAgain, Parnell
"She said Parnell asked her to convey to the board his commitment to meeting the state’s constitutional obligation to pay retirement benefits, but also needed to have the state’s billions in surplus available given the uncertainty facing the state in several areas."
Translation: "I'd rather give my oil buddies $2 billion per year than meet our commitment to the retirees."
Where's Cathy Munoz on this issue?
According to JE's FB post
According to JE's FB post last night, this change has already been made ...
time for action
twenty years of allowing the unpaid amount to grown due to interest is absurd. There is nothing else the legislature has ever not paid when it comes to its financial obligations. Perhpas the legislative per diem should be owed to the politicians and then not paid for twenty years.
I see this as an example of how easily the politicians can make the voters focus on one issue while they fund their pork projects in their districts. Voters read how there is no funds available to pay for everything so as long as the coffers get used first to pay for that community project, like free air fare to the Great Alaska roundball days, voters are fooled into believing the legislature is acting in the voters interest.
Comment
Roughcut, I have been thinking that Latitude is female, but who knows?
While I don't agree with bashing Gov. Parnell just because I disagree with what is attributed to him in the Empire, and I think it's telling that Latitude singles out Rep. Munoz on this, I am compelled to say that absent more information I think the administration is wrong. The unfunded liability continues to grow even as oil production wanes. If not paid now the end point could be that the PERS/TRS hole can one day only be filled by the corpus of the Permanent Fund, and at that time the entire state and municipal bureaucracies will be in a panic over much diminished funding. So I disagree with Latitude's attitude and rationale but I agree with her apparent conclusion that the $11 to $12 billion should be paid today.
I have not spoken to Rep. Munoz whatsoever but I would bet that she believes that paying down the unfunded liability makes sense. In earlier years I have heard her speak very knowledgeably about public retirement issues, and she likely better understands all the moving parts of PERS and TRS than do her 59 colleagues. At the same time, I hope she doesn't come out against the governor on this issue because while others may feel good (and it may help the Empire sell newspapers) when a legislator does that it does nothing but cost Juneau. It's far better to work constructively if one wants to actually accomplish something, and I am sure that is how Rep. Munoz works.
I applaud the Empire for reporting on this issue. This is clearly a difficult issue that crosses party lines. All the people mentioned in this article are thoughtful, hard-working Alaskans.
@ $2B / year savings
we can pay off the unfunded liability in less than 6 years.
Here is yet another reason to continue the loud and frequent protestations of Gov. Parnell's oil tax bill (regardless of which gender is protesting - as in, who the hell cares whether Lat is M or F!). Voters have very short memories, in my experience, and it's important to continue to remind them and their elected officials that the $2B giveaway to the oil companies is not in the best interest of Alaskans (you know, us guys).
We expect Alaskans to live within their means, but we don't ask the same of our state government? The unfunded liability is the equivalent of violating their contract with retirees. This is a moral question and, so far, we have seen little in practice to show that our elected officials understand that.
Spiff
I agree.
My Take on things
First, the retirement funds are liabilities that need to be paid some day. They are promises made to people that if they paid into a system they would have an income when they retired. Whether the offers or the promises were too little or too generous are secondary. They are promises to be kept. Making sure they are covered at the least expense, probably by putting money into those funds now and saving costs in the future, even if there is inflation, seems to me to be a good thing to do.
Secondly, our Governor seems very intent and dedicated to lowering the price we get for our oil, a non-renewable product, seems to over ride other need in our State. When he first introduced his proposal, the State House went along with it. The Senate questioned it and did all they could to get information, testimony from the oil industry, international experts, data and facts from what is truly happening with the oil industry and the Finance and Resources committees tried to come up with a fair compromise, but it failed to pass.
A special session was called, and the primary issue again was the income the State would receive from selling our resource. I watched the legislative proceedings on Gavel to Gavel, and when it began to appear that even some members of the House Finance Committee had questions about the Governor's proposal, he quickly withdrew from consideration his proposal. It seemed to me, and this is just my opinion, that some House members were having second thoughts about the approval they had given. After that, there was no real need for a special session.
However that special session cost about $450,000 or more and accomplished almost nothing except passing a bill on human trafficking that could have been passed any time.
What do we end up with then? Uncertainty about bills we know must be paid, no clarity on what prices we need to ask for a resource we are selling, no clear, contractual commitments by the oil industry that if given a lower price what they will do in return.
In the past people looked to elected officials and representatives as "public servants" who left their regular work and income to do what they thought best for all those they represented. Now it seems many of those folks are not "public servants" but servants of special interest groups, the people who contribute to their election campaigns and their political parties.
We, as voters, still have a voice, but our voices should not be influenced by the amount of advertising, promotion, vague promises. We need to have candidates that vote for us and work for us, and not just themselves and special interest.
anyone look at the investment markets?
How can anyone take the Pension Board seriously when they have an expected return of over eight percent per year! The 30-year, US Treasury is yielding less than 4 percent, the stock market has been flat for a nearly 15 years, real estate has negative returns, yet, the Pension Board thinks they can average 8 percent or more per year for the next 25 years.
The bad news is, when you apply an accurate expected return, the unfunded liability more than doubles and nearly triples to over $30 Billion. Bye Bye Alaska Permanent fund, a gift to public employees from the citizens of Alaska.
Wrong, Fluetsch
Retirees' pensions are not a "gift". They're a commitment the State made to its employees.
I wouldn't expect you to recognize the difference.
Latitude, you cannot be serious!
Benefit beyond contractual obligtation! The decision of the pension board to eliminate the co-pay on medical in 2001 was not a gift? It was not a contractually obligated benefit, yet Alaskans are paying a fortune for that "gift". Please Latitude!
let people benefit to the level they paid in- NOTHING more
It is dead wrong to try to force current workers to pay off previous retiree's debts and pay their own retirements fully.
If you're taking out more than you contributed; you are living off another person's work the same as if you reached into their pocket book and repeatedly lifted their wallet.
New Life
I hope as you sign yourself, you have a new life, because you absolutely have no understanding of my life, nor what I did, the private businesses I have in my lifetime.
So you can rant, rave, have all the fun you want thinking you know things, that you know all about my life.
Living in ignorance can be kind of fun I guess, but its not the kind of life I have had or have at the present time.
By the way, I don't have "multiple vacations" in Hawaii. I spend about 10 months in Juneau every year, I visit my remaining siblings for a few weeks, and take one vacation to a warm place once a year for a week or ten days.
Just a quick grammatical note. If you enjoy criticizing me, maybe the least you could do is learn to spell my family name correctly.
New Life
Just to point out your ignorance
To build our log house I purchased logs from Washington because they were not available locally. The Duane Redekopp did the excavation, the concrete foundation, plumbing, electrical and constructions, the drilling of a well (we were not only city water at the time),the removal of trees prior to building was done entirely by local people, all the lumber, roofing, wood stoves, were purchased locally, all financing of construction and the mortgage was through local banks. I think a reasonable person would consider that "supporting the local economy."
See? If you just knew a few facts, you might be more careful in what you write or say.
Unfunded retirement plans
We need to learn a lesson from the State of Illinois. They have literally robbed the retirement plans of the state workers - teachers, civil servants etc. If it were not the State of Illinois, it would be a crime.
The money needs to be currently funded and done honestly. If for some reason there were some dishonest deals made then they should come to light and the pensions adjusted accordingly.
The old pension system was built upon the assumption that you could actually predict rates of return well into the future. Well I guess there is literally no one who can do that. Why are these so called professional money managers ( rate of return guessers for banks etc ) losing so much money - billions of dollars. Because they just do not know what they are doing. They just pretend to. You cannot use the past to reliably predict the future rate of return. It is a dream fantasy.
So what do we do? The old pension system has to die. There really is no way to keep it long term. If our state workers were employed by by the State of Illinois they might be looking at 10 cents on the dollar for their retirement funds. Yes is is pathetically bad.
I would say bring the pensions up to snuff with the funding then draw the line in the sand. Force a conversion after they are "fully funded" whatever that means and each person will be withdrawing an appropriate amount and placing it into a self directed roll over IRA.
Not being a lawyer, I do not know if that would fly but I do know that if the legislature does not or will not fund the pensions in the future, then it does not matter how much state employees are entitled to, the money will not be there.
I am not a state employee but I do believe that their retirement is not a gift. It is earned income that was postponed. Any employer takes all benefits into account in determining the true "cost of hiring" any employee. No matter how it is calculated, pension vs. 401k or IRA, the employer should be budgeting the total costs for that employee. Retirement has been a benefit that many employees take into account when they choose to work for you. It is part of their pay.
Most private employers are not allowed to do what the government is doing to their employees by not funding the retirement that they had promised. I was an employer for many years and I needed to stay current on my employee funding. If I did not, I am sure that I would have been seeing some court time. The government does it because they can. They are accountable to themselves. And they make the rules.
Obama breaks contracts all the time! @NewLife
Obama is also doing his very best to destroy the United States. I would not want my children or grandchildren to learn about life values from that guy. Everything he does is calculated to destroy or weaken the United States and unfortunately he has been successful.
The last thing we want to do is to pattern our lives after him. As we move beyond his presidency the historians will not be too kind to him. He will rank right down at the bottom with Carter for putting Americans out of work. And for destroying the value of the US dollar.
A government if it wants to last in the US has to be reasonably honest and open. He has failed.
Alaska should not pattern their policies after Al Capone, Adolph Hitler or Obama. We should do our best to live up to our contracts if indeed they were honestly made with no secret deals etc. Like Obama's deals.
New Life - the unions were not paid
Where in the world do you get your information - must be Fox News & the Red State Blog. The unions had to renegotiate their contracts and lost significant pensions. Quit lying.
Pensions
The majority of the unfunded liability comes from the increasing medical costs. It's not so much that the fund didn't adequately prepare for the pension payments but rather the actuaries didn't account for the increased costs to provide medical benefits. With medical benefits rising about 11% per year it is easy to see why the unfunded liability has grown to be so much.
The benefit payments and insurance are considered contractual agreements that can't be diminished or reduced. That doesn't mean that the benefits have to increase; some increases are mandatory like the inflation protection of the benefits called automatic post retirement pension adjustments.
Retirees are already seeing the impacts of the unfunded liability including the suspension of ad hoc post retirement pension adjustments (the funds would need to be 105% funded)-this has always been at the discretion of the Commisioner of Administration. Also the retiree insurance AlaskaCare decided not to provide certain preventitive care to retirees at 100% with no copay and instead are paying the claims at 80% after the deductables are paid for certain services. This was because of the large unfunded liability and that retirees would likely sue the state if their deductables or premiums increased as has happened before.
This falls back to the question at hand and if we should pay a little now or a lot later?
I'm not sure why Obama is even in this discussion and why someone would suggest that we cut benefits. The State of Alaska has constitutional protections for retirement and benefits which cannot be broken without a change to the constitution. Alaska is one of the few states that have such a protection.
The pension systems have plenty of money on hand to make the current payments. Accountingwise I'm not sure why it matters if you have the money in a reserve fund or in the pension funds. I like to think about it in respect to my checking and savings account when you add both of them up I still have the same amount of money. The advantage of having the money in the reserve funds is that you have more flexibility in how you spend the money versus having it in the PERS or TRS fund where it can only be used for benefit payments.