Alaska's under-funded pension plans for public employees and teachers fell another $2 billion in the last year, according to the latest estimates made available to the Alaska Retirement Management Board.
Public pension systems' unfunded liability grew by more than $2 billion, and is now nearing $10 billion, according to information provided by Buck Consultants, an actuarial firm hired by the board.
Preliminary numbers for 2009 were presented to the Alaska Legislature on the final day of the legislative session, and then formally presented to the ARM Board last week.
The "unfunded liability" is the amount between what the state has set aside to pay public employee pension and health care under the Public Employee Retirement System, and for teachers under the Teacher Retirement Systems, compared to what it expects to need to pay those costs over the next 30 years.
"We're looking at a requirement for significant appropriations to the PERS and TRS funds to pay down this unfunded liability," said Kevin Brooks, deputy commissioner of the Department of Administration.
In this year's budget, an extra appropriation of $357.6 million was made to help deal with the costs, said Karen Rehfeld, director the Office of Management and Budget. Future years' budgets are expected to need similar or larger contributions, at a time when the state's oil revenue is expected to decline, state officials say.
The increase in the unfunded liability came largely from losses in the stock market and other investments that are now being included in the plan's actuarial value, the board was told.
In the last year, PERS assets lost $1.7 billion in value, with TRS assets losing another $790 million.
The PERS funding ratio, the amount of savings compared to expected expenses, declined from 69.5 percent in 2008 to 61.8 percent in 2009, Buck said. TRS' ratio declined from 64.8 percent to 57.0 percent for the same period.
As recently as 10 years ago, the plans were thought to be fully funded, but rising health care costs and new actuarial valuations have revealed deep deficits.
Alaska is suing a former actuary, Mercer, Inc., accusing it of incorrectly, and in some cases knowingly, providing the state with bad estimates of future costs. That led it to keep per-employee contribution rates too low in some years, the state's suit said. Mercer denied the allegation.
The unfunded liability led Alaska in 2005 to make dramatic changes in the state's retirement system, shifting from a traditional defined-benefit plan to a 401(k)-style defined contribution plan that shifted retirement responsibility from the state to employees.
That new defined-contribution plan is called Tier IV for PERS and Tier III for TRS. Employee unions and legislators critical of the new plans said that the previous plans, Tier III for PERS and Tier II for TRS, had solved the problems, and it was the unrestrained cost of the original plans that drove up costs.
Sen. Bert Stedman, R-Sitka, was chief architect of the new system. Stedman is co-chairman of the Senate Finance Committee, which heard the report on the new numbers. He described the unfunded liability as "basically a $9.5 billion hole" in the budget.
He said the state was going to have to continue to act to deal with the unfunded liability.
"We're going to have to get that turned around and close that gap," he said.
The unfunded liability has grown substantially since the state's new retirement plan was adopted.
Much of the increase in unfunded liability comes from declining value of the state's savings, which are invested in an effort to help pay expected future costs.
Annual investment gains and losses are averaged into the actuarial value over four years, a process called "value smoothing." That means the actuarial value and the market value typically differ.
Buck Consulting reports that the market value declines factored into this year's analysis means that the actuarial value is now 120 percent of the market value, overstating the financial health of the two systems.
Contact reporter Pat Forgey at 523-2250 or firstname.lastname@example.org.