JUNEAU (AP) — The board that oversees the assets of the state’s retirement system wants officials to do more to address Alaska’s $12 billion unfunded pension liability.
The Alaska Retirement Management Board is advocating a $2 billion cash infusion over four years, in addition to having the state frontload payments it’s already making to cover the unfunded liability, APRN reported.
Since the cost of those payments is expected to increase over time, board member Kris Erchinger argues it’s better to pay more money now, while the state has flush reserves. Erchinger made the case during a Senate Finance Committee meeting last week in Anchorage.
“The point of that isn’t just to get more money in the system,” Erchinger said. “It’s so that that money can earn interest that will pay pension benefits, reducing the need for future contributions from the state down the road.”
The state has been dealing with a pension shortfall for more than a decade, due in part to faulty actuarial projections. But the liability really began to grow in 2008, when the state lost a fifth of the money it had saved in the recession.
The state has taken steps to try to address the issue, including closing the pension system to new state workers and instead putting them on 401(k)-style plans. The state also is making scheduled payments to reduce the shortfall and hopes to see a high rate of return on existing investments.
Parnell administration officials told the committee there was an “emerging consensus” for a cash infusion of some sort, but they made no immediate recommendation on an amount.
The director of the Legislative Finance Division, however, cautioned against overreaction. David Teal said the state is on a plan to close the unfunded liability without putting extra pressure on the budget for the next 10 years.
“The road to recovery from large losses can be very long, so long that the system can appear to be broken,” said Teal, whose nonpartisan agency advises legislators on budget issues. “And I think that’s where we are right now, is that people think the system is broken. I would argue that the system is unlikely to stay broken in the long run, because if you pay what you owe, the system will fix itself.”
Gov. Sean Parnell is expected to release his budget recommendations next month.