Alaska retirement debts need to be dealt with, but that’s not a good enough reason to pass a bill now under consideration in the Senate Finance Committee, according to members of the Alaska Retirement Management Board.
The board, meeting in Juneau on Thursday, got a report on Senate Bill 187 from Legislative Finance Director David Teal.
It didn’t like what it heard.
Calling the bill a “disaster” and “not sound accounting practice,” members said they’d take up a resolution opposing the bill when it continues to meet today.
Board Chairwoman Gail Schubert, who is also CEO of the Bering Straits Native Corp., said it was rare for the board to step into policy discussions like that.
Vice-chairman Sam Trivette said the board should have been involved much earlier.
After the Legislature ended the state’s traditional pension plan and adopted a 401(k)-style plan to shift retirement risk to employees, Trivette said the board got heat for something it had nothing to do with.
“Don’t point at us, we weren’t part of the process,” he said.
Now he says they should be.
Senate Bill 187 is part of a plan to create a special reserve fund into which $2 billion could be deposited. The earnings from that $2 billion would then be used to pay down about $7 billion in unfunded liability in the Public Employees Retirement System, and was introduced by the powerful Senate Finance Committee. The Teacher Retirement System would be dealt with separately.
Creating a special fund for the $2 billion, rather than locking it up in the trust fund, would keep that money available to the Legislature.
It would then require the ARM Board’s accountant to calculate the unfunded liability as if it were in the retirement trust fund.
That’s not the way the Government Accounting Standards Board (GASB) requires calculations to be made, said board member Martin Pihl of Wrangell.
He called the bill “the difference between sound accounting practice and something dictated to the board.”
That unfunded liability amount is used each year to calculate how much the state and local governments have to pay in retirement costs each year, leading to discussion about whether it would shift costs.
Teal said part of that $2 billion was to cover local governments’ costs, but the state would not require those municipalities to pay their $800 million portion.
“That’s not going to work, the municipalities don’t have $800 million to contribute,” Teal said.
Teal said the bill also contained what he called a “poison pill” provision that would make it difficult for dip into the fund.
“That’s designed to prevent some future Legislature from raiding the reserve fund,” Teal said.
The Alaska Constitution prevents the creation of dedicated funds, so that was the most protection they give it, he said.
And GASB rules say that money can’t be used to calculated how well funded the retirement plan is,
“But that money is there, and it is that money that ensures the health of the system,” Teal said.
Board member Kristin Erchinger, finance director for the city of Seward, doubted that.
“How can this board use those assets to set rates when we know those assets are not available to fund the pension plan?” she asked.
She warned the Senate bill would dramatically increase costs to local governments in the future.
The senators didn’t want to put the money directly into the trust funds because that could result in the trust funds later becoming overfunded as the closed plans wind down.
Under Senate Bill 187, the $2 billion would go back to the general fund when it is no longer needed.
Schubert appointed a new legislative committee for the ARM Board to monitor pension issues. It is comprised of herself, Trivette, Erchinger and Pihl.
• Contact reporter Pat Forgey at 523-2250 or at firstname.lastname@example.org.