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Parnell administration opposes retirement change

Governor adamant state should not take on retirement risk, committee told

Posted: October 14, 2011 - 12:05am

By PAT FORGEY

Allowing Alaska public employees to switch back to a traditional pension plan would cost more than continuing forward with the state’s new 401K–style program, a member of the Parnell administration told a state Senate committee Thursday.

But the administration would continue to oppose the switch to a traditional defined benefit retirement plan even if it saved money, because it wants employees, not the state, to bear the risk of any retirement funding shortfalls, said Mike Barnhill, deputy commissioner of the Department of Administration.

The very nature of a defined-benefit system exposed the state and future taxpayers to the risk of having to pay for unexpected future retirement costs, he said.

Among the reasons Alaska currently has an $11 billion unfunded liability in its retirement plans is a combination of investment losses, longer life spans, changing health care cost expectations and negligence on the part of some outside managers and advisors, Barnhill said.

Under a traditional retirement plan, there’s no guarantee that can’t happen again, even in a plan designed to be cost-neutral, he said.

“There’s always going to be a risk of unfunded liability creeping into the system at any time,” he said.

Alaska became a national leader in the controversial field of pension reform in 2005 when it switched from a defined-benefit plan to the 401k-style defined contribution plan, and shifted retirement risk from the state to public employees.

Since then employee advocates, including Sen. Dennis Egan, D-Juneau, have been trying to switch back.

The Senate State Affairs Committee, chaired by Sen. Bill Wielechowski, D-Anchorage, met in Fairbanks Thursday for a hearing on Egan’s Senate Bill 121, which would let employees chose between plans.

Fairbanks history teacher Sean Gensen told the committee every other state has better retirement plans, and teachers like him are being forced to consider moving to ensure their retirement.

“I don’t want to leave Alaska, but I might have to if I want to continue teaching,” he said. “I don’t want to quit teaching, but I might have to if I want to stay in Alaska.”

Egan aide Jesse Kiehl told the committee the switch in Alaska harmed retirement security, without saving the public any money.

Thursday’s hearing was for the committee to review the just released “fiscal note,” the Parnell administration’s official estimate of what SB 121 would cost.

Kiehl said Egan’s goal is to have a revenue-neutral bill, offering better retirement options at no additional cost to the state.

The fiscal note reviewed by Wielechowski’s committee in Fairbanks showed SB 121 would cost the state money because while it would reduce pension costs to the state, it would increase health care costs.

That’s not the goal or expected result of the bill, said Kiehl, who said independent actuaries have not had an opportunity to review the cost estimates of the state’s actuarial consultants.

Barnhill acknowledged a previous fiscal note had been withdrawn after Kiehl had found errors in how it had been calculated.

He said the state has given permission for the its actuaries, Buck Consultants, to work with actuaries from the union-backed Public Pension Coalition to try to come up with numbers on which they can all agree.

Flick Fornia with the Public Pension Coalition said he thought that would be possible.

“It’s important that you guys don’t have fighting actuaries,” Fornia said.

“If we can get actuaries to agree on what the numbers are with a high degree of certainties, I think that will be a big step forward,” Wielechowski said.

Kiehl said Egan would be willing to change SB 121 to ensure it costs no more than the current system.

“Sen. Egan is committed to making this a workable bill, making SB 121 a good deal for Alaska and Alaska’s public servants,” he said.

Even if thought to be cost neutral, Barnhill said the Parnell administration would never support the bill.

“Really the only thing that would change the position of the administration at this time is a crystal ball” which could guarantee that all the actuarial assumptions were accurate, he said.

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

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