Governor asks for $12 million to sue former consultants

Posted: Wednesday, January 31, 2007

ANCHORAGE - Gov. Sarah Palin is seeking $12 million from the Legislature to sue a consulting firm whose advice the state claims contributed to a multibillion dollar pension shortfall.

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The bill is a result of an investigation initiated last year into work done by the state's former actuary company, Mercer Human Resource Consulting Inc., which advised Alaska on its public employee and teacher retirement systems for nearly 30 years.

"Based on evidence from experts, Mercer failed to warn us about these looming problems," Palin spokesman Charles Fedullo told the Anchorage Daily News. "This is an important issue, and there's a lot of money at stake."

Mercer has denied any wrongdoing.

A spokesman said the company advised the state in 2002 that the employer contribution rate would have to be increased significantly to take factors into account.

But "Public Employee Retirement System regulations in place at the time limited the increases that could be implemented," said Mercer spokesman Charles Salmas.

"It would appear that the state may attempt to hold Mercer accountable for market conditions, demographic changes in Alaska's public employment workforce, benefit changes, and state of Alaska investment funding policies over which we did not have any control," he said.

Mercer was replaced as the state's actuary in 2005 by Buck Consultants, which did a recalculation of Alaska's pension and health care liabilities. Buck Consultants found that Mercer had underestimated medical costs by about 7 percent.

The state claims Mercer's miscalculations on future medical costs led the state to develop an unfunded liability in the pension system, with estimates of up to $8 billion.

That unfunded liability is the gap between the retirement systems' total assets and the amount in benefits that would be required to pay all the people in the system. The shortfall would affect both the public employee and teacher retirement systems.

Last year, the Legislature approved $400,000 to hire a law firm to examine the state's legal options in its dispute with Mercer. The company and state agreed to hold off any legal action until this month.

Assistant Attorney General Mike Barnhill declined to say how much the state was seeking in damages. He said the department would release more information if and when the Legislature approved the bill.

"We are optimistic that it will be passed quickly," Barnhill said.

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