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Retirement board fears legislative access to funds

Split board acts despite fears of alienating legislators

Posted: February 19, 2012 - 1:11am

The Alaska Retirement Management Board has backed off its harsh criticism of a pension funding proposal in the Alaska Senate, but not as much as some members would have liked.

A divided board, meeting in Juneau Friday, adopted a resolution addressing some of the issues in Senate Bill 187, but no longer directly mentions the bill.

Even that resolution was too much for some board members, with two who are also members of Gov. Sean Parnell’s administration cautioning against such a direct statement.

“I think it is precipitous and unwise to take action to rule out a concept we have not thoroughly vetted,” said Becky Hultberg, commissioner of the Department of Administration.

Senate Bill 187, sponsored by the powerful Senate Finance Committee, would 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.

The state expects to have $11 billion less than it needs to pay for pensions and health care for retirees in its traditional defined-benefit retirement plans.

Stirring concerns among ARM Board members the fact that he Legislature could take that special fund back. At the same time, Senate Bill 187 requires the ARM Board to calculate retirement contributions every year as if the reserve fund was part of the PERS trust fund.

ARM Board member Kristin Erchinger said that while the board supported a deposit into the trust funds, it didn’t like the use of the new reserve fund that the Legislature might tap later.

“The use of a reserve fund doesn’t provide sufficient assurance that these assets will ultimately be used for retirement system purposes,” she said.

Being required to use the reserve fund assets to calculate contribution rates could leave the plans underfunded, she said.

Erchinger said board members “objected to being required to use the value of these assets in any way for rate-setting purposes.”

That money, if not protected by being part of the trust fund, could leave the pension plan underfunded and shift costs to local governments, board members said.

Revenue Commissioner Bryan Butcher, a member of the board, recommended against taking a tough stand early in the process.

The bill that raised such concerns is just a first draft of what may be many versions, he said.

Other board members, though, said they feared the legislative proposal presented a threat to the retirement trust funds.

“As fiduciaries I think it is very important we never use money that isn’t really ours to set rates, and this is very clear on that,” said Gayle Harbo, a board member from Fairbanks.

Board member Sam Trivette from Juneau agreed it was not “legit” for the board to count on money it didn’t control.

The Government Accounting Standards Board doesn’t allow it, which is a “real problem for us,” he said.

ARM Board members changed a draft resolution targeting Senate Bill 187 so that it didn’t mention the bill, but still stated the board’s concerns.

Hultberg didn’t want to see any formal action at all.

“I think this resolution is premature,” she said.

It would be better to engage with members of the Legislature, she said, rather than taking a strong stand too early.

“Quite frankly, I think we risk alienating some of the members we’ll want to engage in a productive dialogue with,” she said.

Erchinger said the resolution wasn’t about “poking people in the eyes” but that the Legislature needed to know how concerned the board was.

The board’s resolution was changed so Senate Bill 187 was not mentioned specifically, but Butcher and Hultberg still wound up voting against it, with all other members voting for it.

Hultberg asked board members to make it clear to legislators that the board was divided on the issue.

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

 

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