Retirement plan aims for fairness

Strategy has savings for some cities, more expenses for others

Posted: Sunday, March 25, 2007

Gov. Sarah Palin's proposed changes to the troubled Public Employees Retirement System mean some will win and some will lose.

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Among the winners: The state of Alaska itself, and to a lesser extent the city of Juneau.

Among the losers: The city of Wasilla, where Palin once served as mayor.

Throughout the Capitol, legislators are pondering massive amounts of data provided by the Division of Retirement and Benefits and trying to find the fairest, most politically doable solution.

While the Public Employee Retirement System and the Teacher Retirement System have billions of dollars in assets, new projections of costs show that longer lifespans and rising health care expenses leave the plans as much as $10 billion short of what they're going to need over the next 25 years.

The best possibility, said Michael Lamb, chief financial officer for the Fairbanks North Star Borough, is to come up with a solution that makes everybody a little bit unhappy, but doesn't bankrupt anybody.

At the heart of Palin's proposal is cost sharing, or combining every government now in PERS while giving everyone the same rate.

That concept has been endorsed by the Alaska Retirement Management Board, which oversees retirement programs, and the Alaska Municipal League, which represents cities and boroughs.

Those rates can now vary dramatically depending on each city's special circumstances. They range from more than 100 percent of an employee's salary to as low as 14 percent.

Palin's plan would set a new equal rate for everybody of 39.76 percent.

The state currently pays 44 percent, so the lower rate would mean a savings of about $36 million next year, while other governments would save a total of $17 million, according to Melanie Millhorn, director of the Division of Retirement and Benefits.

The losers, then, are those cities for which 39.76 percent would be an increase. They'll wind up paying an extra $52 million under the plan next year.

"Clearly the issue that we'll be working with is the communities that are in surplus, or have a small liability, and the impact on them to keep it fair," said Sen. Bert Stedman, R-Sitka, and co-chairman of the Senate Finance Committee.

Some communities, including Petersburg and Ketchikan, have thought ahead, paying extra money into the system to reduce their future costs.

Commissioner of the Department of Administration Annette Kreitzer said Palin wants to make sure that those communities don't lose that investment.

"We think they should be rewarded for doing the right thing," she said.

Complicating the issue is the state's past record keeping. It is not always clear just how much each city owes, or how accurate those estimates are, Stedman said.

"We have difficulty in pinpointing the exact asset-liability spread not only for the folks that are running substantial deficits, but the ones the have a premium" as well, he said.

Sen. Kim Elton, D-Juneau, agreed, and said one of the benefits of cost sharing was that it eliminated those conflicts and possibly high costs for accountants to straighten it all out.

Pat Forgey can be reached at

Winners and losers

Retirement fund for fiscal year 2008

Current ratePossible gain

Juneau City and Borough42.53 percent $811,944 gain

City of Hoonah27.46 percent $84,768 loss

State of Alaska44.01 percent $36,055,995 gain

Municipality of Anchorage 39.33 percent $650,534 loss

City of Fairbanks184.95 percent $10,418,543 gain

University of Alaska33.75 percent $8,191,430 loss

City of Wasilla24.38 percent$755,627 loss

Haines Borough43.85 percent $67,935 gain

City of Pelican34.82 percent$7,664 loss

Source: Division of Retirement and Benefits.

* Current Rate is the amount set by the Alaska Retirement Management Board to be paid on salaries next year. Possible Gain is the amount each entity would gain or lose next year if Palin's cost sharing proposal is adopted.

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