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Parnell rips traditional retirement system

Statement may be setback for Egan's effort to bring back defined benefit plan

Posted: February 2, 2012 - 12:14am
Gov. Sean Parnell hold a press conference at the Capitol Wednesday to talk about legislative issues.  Michael Penn/Juneau Empire
Michael Penn/Juneau Empire
Gov. Sean Parnell hold a press conference at the Capitol Wednesday to talk about legislative issues.

Gov. Sean Parnell said he doesn’t support allowing new state employees back into the state’s traditional pension plan, even if it’s not expected to cost the state anything.

Sen. Dennis Egan, D-Juneau, has been trying to reopen the state’s defined-benefit pension plan to new employees, who have been forced into a 401(k)-style defined contribution plan since 2006.

Parnell said Thursday even if there would be no additional cost to the state, he’d oppose allowing employees to once again join the defined-benefit plan.

The state’s retirement system currently has an unfunded liability of $11 billion, meaning it will need that much additional money beyond what its trust funds are expected to be worth over the next 25 years.

Parnell said he doesn’t want to take the risk of returning to a defined-benefit plan, even one projected to cost no more than the current defined-contribution plan.

“Putting that risk on the system for only state employees when everyone else bears that risk for themselves is something I don’t support at this time,” he said.

The state’s assumptions assume good times ahead, and if that doesn’t materialize as planned the state could see the unfunded liability grow, he said.

“I don’t see digging a deeper hole. I don’t want to do that for the people of Alaska,” Parnell said.

Egan said employees are already taking a risk going to work for the state, where they aren’t covered by the Social Security system that covers private employees.

“There is already a risk going to work for the state, we’re trying to level that risk,” he said.

Parnell also said he was not supportive of legislative efforts to provide an extra infusion of money into retirement savings to limit the plan’s future cost to the state.

Legislators have proposed amounts from $1 billion to $4 billion into retirement savings. The Senate Finance Committee on Wednesday introduced a bill creating a new pension reserve trust into which those amounts could be deposited.

Parnell said there have been more recent proposals to contribute as much as $6 billion into the retirement trust funds.

“I think that’s a dangerous progression that I don’t want to see continue,” he said.

He used terms like “throwing,” “dumping” and “locking up” to describe deposits into the pension trust funds.

The state faces threats such as declining oil production for which it may need the flexibility of having readily available cash, he said.

“It doesn’t leave us a lot of wiggle room or flexibility when the production curve continues down and oil prices go down even a little bit,” he said.

Egan said the Senate Finance Committee proposal involves creating a new reserve for the cash infusion so it could be used to pay down yearly costs, but might be available in emergencies.

Parnell also proposed switching how pension costs are calculated, switching from “level rate of pay” to “level dollar.”

Under level dollar, costs would be initially higher, but the costs would stop increasing yearly.

He said he appreciated the legislative attention to the unfunded liability problem, which he said was “putting this elephant of a problem on the table.”

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

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