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Analyst: AK could see savings with pension deposit

Posted: February 9, 2012 - 1:08am

JUNEAU — The state could save $5.3 billion in payments to Alaska’s troubled public employees’ retirement system by putting $2 billion into a reserve fund now, a legislative fiscal analyst said Wednesday.

David Teal, director of the Legislative Finance Division, told the Senate Finance Committee the $2 billion would raise the system’s funding ratio, or ratio of assets to liabilities, as it would be used by the Alaska Retirement Management Board in calculating its assets.

Such a deposit also would save about $2 billion in annual contributions in the next five years alone, as compared to what the state would pay without one, while maintaining an employer contribution rate of no more than 22 percent, according to information provided during the hearing.

Teal said the state would be able to recover its initial $2 billion, though not for decades. The bill, SB187, would set up a new reserve fund and feature a trigger intended to prevent future legislatures from raiding it. It does not specifically call for a $2 billion deposit, but that figure is being used as a starting point for discussions on the issue.

The committee is considering ways to address $11 billion in unfunded pension liabilities between the public employees’ and teachers’ retirement systems.

Wednesday’s discussion, which was relatively brief, focused on the public employees’ system. Committee co-chair Bert Stedman, R-Sitka, told reporters Tuesday that lawmakers will need to deal with both systems. He said each will take more than a $1 billion to address and has pegged a total overall range at $2 billion to $4 billion.

High oil prices have helped line Alaska’s coffers: the state has an estimated $10 billion in the constitutional budget reserve fund alone.

But this is just one of the challenges facing lawmakers. Oil production is declining, and by one estimate, the state could be in deficit spending by fiscal year 2015, even with relatively modest capital budgets, by recent standards, if agency operating budgets continue to grow at an average of 7.8 percent.

Gov. Sean Parnell last week said he’d rather see the state stay on its current payment plan, under which payments would increase before they fall, or move to a level-pay plan than have an equity deposit that would essentially be off limits if the state got in a financial bind.

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