Like most states, Alaska has been challenged by large, unfunded liabilities in its defined benefit public employee and teacher retirement systems. But unlike many states, Alaska stepped up to secure the retirement promises made to its peace officers, firefighters, teachers and public employees. And, we did it in a way that significantly reduced state spending for years to come.
Where public retirement plans in other states have broken promises by reducing benefits or filing for bankruptcy, Gov. Sean Parnell and the Alaska Legislature unanimously enacted a plan to appropriate $3 billion to the Public Employees’ Retirement System and Teachers’ Retirement System to pay down the unfunded liability by 2039, while also preserving the state’s ability to keep its commitment to funding education, public safety and important state services.
When Parnell took office in 2009, the state’s annual payment toward the unfunded liability in Alaska’s retirement system for fiscal year 2010 was roughly $285 million. The payment owed by the state automatically increased annually and last year this obligation had doubled to more than $600 million. Indeed, the annual payment amount was projected to exceed $1 billion for numerous years through 2022.
This growing annual obligation has driven increases in the state operating budget and taken resources away from other priorities, like education, public safety and resource development. Instead of continuing to make ever-increasing payments, Parnell and the Legislature made an investment in Alaska’s future, making a substantial down payment now toward Alaska’s retirement obligations.
Specifically, HB385 moves an additional $2 billion to the TRS and $1 billion to the PERS. HB 385 is especially important to Alaska’s municipalities. While school districts and municipalities have been shielded from these increasing annual pension obligations, the state has picked up the balance. By bearing the costs, the state has indirectly enabled communities to minimize tax increases at the local level, support police on the streets, and provide additional resources in classrooms. Making these up-front payments provides stability to all participating employers by improving the state’s ability to meet these obligations.
Further, HB385 does not increase the contribution cap, ensuring fiscal stability for municipalities and school districts as their costs continue to be contained. The legislation also recognizes the value provided by the Alaska Retirement Management Board by maintaining the board’s ability to evaluate and make adjustments as needed to future contribution rates. This is the type of good government and tough decision-making that all Alaskans can be proud of.
Is HB385 perfect? No, but no bill ever is. However, the consequences of not acting to address Alaska’s unfunded pension liability were too big. This legislation will extend the time over which the unfunded liability will be paid, meaning municipalities and school districts will have to pay more than anticipated. So will the state, which is the largest employer in the systems, providing the majority of funding for all employers in the systems. Making these large payments up front and extending the time horizon for ongoing annual payments will make the strain on future budgets more manageable.
Funding retirement costs is never an easy decision. Our retirees and public employees have served and continue to serve us well, providing Alaskans with necessary and important services, including education, public safety, energy, and transportation. Keeping the promises and commitments we make as a state is vitally important. Not just some of the promises, but all of them — to retirees, to schools, to the vulnerable, to our neighborhoods, to the future of this great state.
Alaska’s financial position is strong. Permanent Fund Dividends have been generated in every year since the fund was created and have been distributed without fail to every qualified Alaskan. We currently manage more than $51 billion in state funds, providing more than $200 million in investment earnings to the General Fund in FY 2014 through May, and more than $925 million to the Constitutional Budget Reserve. On top of that, the Permanent Fund is managing another $52 billion.
With the type of long-term perspective Parnell brings to policy making, we are getting stronger. Making a significant investment toward our retirement obligations with HB385 is just another example of working for Alaskans long-term benefit. The governor and legislators made a tough decision today for a brighter future tomorrow.
• Angela Rodell is commissioner of the Department of Revenue and Curtis Thayer is commissioner of the Department of Administration.