An Alaska legislative panel and a handful of experts racked their brains Thursday to find a way to dig the state out of a $6 billion sinkhole in the public pension system.
Rep. Bruce Weyhrauch, R-Juneau, spearheaded the hearing in Anchorage with the House Ways and Means Committee, which heard from financial experts across the country and locally.
Alaska is not alone in the struggle to pay for retirement, which is becoming more expensive due to rising medical costs, inflation, retirees living longer and market upsets. Illinois leads the nation with a $35 billion burden.
According to the U.S. Census Bureau, major public pension plans paid out $78.5 billion in 2000. The amount had grown to $117.8 billion in 2004, a 50 percent hike.
The panel was pressed to consider borrowing billions of dollars in the form of pension obligation bonds and investing it in markets to pay for an increasing unfunded liability that one actuary commissioned by the state believes will reach $7 billion in the coming years.
A few states have gone this route to pay for their shortfalls. But Tom Boutin, Alaska Department of Revenue deputy commissioner, is not keen on recommending the bonds for Alaska because of the risks. New Jersey found itself further in debt after investing $2.7 billion in 1997, shortly before the market went south.
"It's like taking a second mortgage on your home and giving it to the stock market," Boutin said.
Alaska cities and school districts, along with the state, are responsible for paying the pensions.
Employers' contributions have risen from 6.77 percent in 2001 to 16.77 percent today on behalf of public employees and from 12 percent to 21 percent on behalf of teachers.
But in order to pay what the pension system is actually costing, actuaries say employers need to contribute 28 percent and 42 percent of those workers' salaries respectively to catch up.
Michigan-based actuary Joseph Esuchanko, who was hired by the state to give an analysis of the pension system, said one of the biggest factors raising pension costs was the demand for prescription drugs advertised on television.
"Every year you do not contribute to the actuarial rate, you can expect to add additional liability," said Melanie Millhorn, director of the Alaska Retirement and Benefits Division.
Paying the increases compounds problems for municipalities already hit by high gas prices and lack of state support, taken away in 2003 when Gov. Frank Murkowski shed the state's revenue sharing program.
Legislators last session passed a bill that will create a new tier of public employees hired after July 2006 who will be switched from a defined benefit plan to a defined contribution plan; instead of receiving monthly pension checks, future retirees would get a lump sum amount.
The defined contribution plan was described as cheaper for the state. But the legislation, Senate Bill 141, was criticized for not addressing the shortfall.
Weyhrauch said he and other lawmakers are seeking ways to pay off the debt and prevent this from happening again.
The committee will have two more hearings this summer in Fairbanks and Juneau, though no dates are set. The panel hopes to hear from the public at those meetings.
Andrew Petty can be reached at firstname.lastname@example.org.
© 2017. All Rights Reserved. | Contact Us