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Senate passes new approach to pension obligation

Posted: April 19, 2014 - 8:17pm

JUNEAU — The Alaska Senate unanimously passed legislation setting out a new approach for addressing the state’s pension obligation Saturday, less than three hours after the plan emerged from the Senate Finance Committee.

It will be up to the House to decide whether to accept the Senate plan, which advanced on the 89th day of the scheduled 90-day session. If the House doesn’t, the bill could go to a conference committee.

The Senate, like Gov. Sean Parnell, proposed moving $3 billion from the constitutional budget reserve fund to help cover the state’s nearly $12 billion pension obligation. But the Senate plan would divvy the money differently, putting $2 billion toward the teachers’ retirement system, which is in poorer shape, and $1 billion toward the public employees’ system.

Parnell had proposed about $1.1 billion to the teachers’ system and the rest to the public employees’ system.

The governor praised the Senate bill.

“With this legislation, we are strengthening the state’s AAA bond rating and ensuring future generations are not saddled with this debt,” he said in a release.

The Senate Finance Committee’s rewrite of HB385 calls for a contribution rate determined by what’s known as a level percent of pay method for 25 years. While the bill itself does not include dollar amounts, information provided by the Legislative Finance Division and Buck Consultants indicates combined annual payments for the two systems starting at about $345 million in 2016 and slowly building to about $514 million in 2038. It calls for a final payment of about $490 million the following year.

The information shows the Senate Finance approach extending payments by three years beyond Parnell’s plan, which called for annual payments of $500 million between the systems after the infusion, and costing slightly more — about $13 billion total for Parnell’s plan compared with about $13.3 billion under the committee approach.

These are projections, not predictions, Buck and Legislative Finance Division Director David Teal have pointed out.

Revenue Commissioner Angela Rodell told the committee earlier Saturday that the Parnell administration did not have any problems with the proposed changes. “We think that this works very well for PERS and TRS,” she said, referring to the acronyms for the two systems.

Sen. Anna Fairclough, R-Eagle River, said in an interview that she preferred paying more now and liked the flat, $500 million payments Parnell proposed. She said she looked at it like credit card debt: If you only make the minimum payments, it will take longer to pay off the bill. But Fairclough said she understood the balancing act that the committee co-chairs were trying to achieve, given the state’s budget considerations.

On the floor, she called it a balanced approach and said bond rating agencies would be pleased with it.

The teachers’ system has been in the danger zone in terms of the health of retirement systems, Teal has said. With the infusion and this approach, both pension plans would be “much healthier” than they are now, he said.

A driving force behind the Senate Finance Committee’s approach was to improve the health of the pension systems while also lowering payment costs in the years ahead in light of other budget obligations and revenue concerns. It’s an effort — in the words of co-chair Pete Kelly, R-Fairbanks — to preserve reserves a little longer, though he noted that spending and revenue will greatly dictate what happens with the reserves.

He said the vote represented the state putting $2 billion into teachers, a nod to the recent debate in the Capitol over public school funding.

The House passed Parnell’s bill 38-2 on Thursday, after a previous proposal by the House Finance Committee to address the teachers’ system fell flat. It was expected that the Senate would try to craft a new version.

Online:

HB385: http://bit.ly/1kTMS8u

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