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 firstname.lastname@example.org.