Retirement plan would cost public employees more

An overhaul of the state-managed public employee retirement system will ask existing workers to pay more into the fund, a proponent says.

• Photos

Under the current system, the employees' contribution is fixed, and employers bear any added expenses.

Employers now pay roughly two-thirds of the contribution, which is intended to cover benefits earned by plan members that fiscal year.

But Sen. Bert Stedman, R-Sitka, said employees' share should gradually rise until it reaches half of the contribution.

The increase would be no more than $18-$22 a month for the average public worker, the Senate Finance Committee estimated.

"We're trying to make it where an employee could ease into these changes in case it's extremely tight fiscally at their house," Stedman said Tuesday at a committee meeting.

The committee is discussing a bill this week that would create a different retirement system for new public employees, and make some changes for existing employees, who would remain in the current system.

The committee is scheduled to amend Senate Bill 141 on Sunday, said chairwoman Lyda Green, R-Wasilla.

The Senate majority has said it won't support the full amount of the House's education funding increase unless such a bill passes.

The Juneau School District would receive about $1.5 million less in state and city funds under the Senate's lower figure, said Business Manager Gary Epperson.

The shortfall would be "pretty severe," he said.

Senate Bill 141 would replace the retirement plan for new state, municipal and school district employees from one that guarantees benefits at a set level to one that gives employees individual retirement accounts.

In financial jargon, the current system is a defined-benefit plan. The proposal is for a defined-contribution plan.

The Legislature is considering such a broad change because employers and employees paid too little into the plan in the 1990s to keep up with rising medical costs and compensate for losses in the stock market.

The retirement funds have plenty of money to pay obligations to current retirees. But it will take increased contributions over at least the next 25 years to pay for future retirees.

The unfunded liability - the amount by which current assets don't meet future obligations - is estimated at $5.7 billion, Stedman said.

Senate Bill 141 does not require employees to pay for the unfunded liability. Employers would have to do so.

But the increased amounts that must be paid into the plans are so great that cities and school districts have turned to the Legislature for help.

It could cost the state several hundred million dollars just in the next few years to make those payments, Stedman said. It's money he and other legislators would rather spend elsewhere.

Senate Bill 141 doesn't directly address the unfunded liability, Stedman said. But proponents say they want to put in place a more stable system, add more oversight, reduce employers' risks, and slow any growth of unfunded liability.

Sen. Lyman Hoffman, D-Bethel, asked why current employees should pay more if the state doesn't foresee that the total employer-employee contribution needs to rise to cover benefits earned that year.

"Why are we asking that when our main thrust of this whole legislation is to stabilize the whole system and pay the $5.7 billion?" he asked. "We will be digging into the employees' paycheck."

Stedman said there could be volatility in costs in the future.

And Sen. Con Bunde, R-Anchorage, said it was a philosophical call to ask beneficiaries to pay more. The state's contribution is money it can't use for other services, he said.

The committee should take a conservative approach in implementing a defined-contribution plan, said Kerry Jarrell, assistant superintendent of the Bering Strait School District and a Teacher Retirement System Board member.

He asked the committee to first look at ways to cut health care costs, limit access to health care until beneficiaries are 65, close loopholes by which retirees maximize their benefits, and base benefits on a larger number of years of service.

• Eric Fry can be reached at eric.fry@juneauempire.com.