State could save billions with pension reserve fund, analyst says

The state could save more than $5 billion in future payments to the Alaska Public Employees’ Retirement System by immediately putting $2 billion into a pension reserve fund, according to Legislative Fiscal Analyst David Teal.

Over the past five years, the state has contributed about a billion dollars to the retirement system, which has an unfunded liability estimated at $11 billion. Teal told the Senate Finance Committee today (Wednesday) that if nothing is done, yearly payments in the millions of dollars will continue through at least 2030.

“If we were to contribute an additional $2 billion now, it would allow us to stop making state assistance payments in the future,” Teal says. “Another way to look at it is: The cumulative contributions without a deposit would be $8.3 billion. Well, the cumulative contributions with the deposit are $3 [billion], for a savings of $5.3 billion over the life of this model.”

Senate Bill 187 – sponsored by the Finance Committee – would set up the $2 billion reserve fund, which could be used to supplement PERS as needed. The money would come from state savings, which currently total more than $10 billion.

Because the fund would be separate from the retirement system, Teal says the state could eventually get its money back once the PERS deficit disappears. But he says that won’t be for several years.

“One way you could look at this bill is that it’s a loan to the retirement system, and that we get our money back. But it’s a very long-term loan. You’re not talking about ten years and you get your money back. You’re talking about somewhere out there in 2050 or 2060,” says Teal.

That prompted Sitka Republican and Senate Finance Co-Chair Bert Stedman to ask, “Mr. Teal, do you plan on being here to make sure we get our money back?”

“I plan on getting my own money out by then, Mr. Chairman,” Teal responded.

This was the first hearing for the bill, which was set aside for further review. Stedman said the committee will take public comment at the next hearing.

The amount municipalities pay into the retirement system is currently capped at 22 percent of their payroll. Under SB 187 that number would stay the same.

Governor Sean Parnell has said he’s opposed to the idea of creating a reserve fund to help supplement PERS. The governor says he’d rather not create another pile of money that’s off-limits in case of an emergency, which also would be subject to the whims of the stock market like the retirement system.

PERS’ unfunded liability has been attributed to market woes, the rising cost of health care, and the extended life expectancy of retirees.

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