Kenai pensions lack funds

Miscalculation leaves city owing millions to cover PERS costs

Posted: Friday, January 06, 2006

Prefacing his comments by saying he did not want to alarm anyone, the Kenai city finance director told the city council of projected shortfalls in Kenai’s pension plan funding.

Larry Semmens said the city has always paid the Public Employees’ Retirement System rate the state of Alaska said the city needed to pay in order to fund the plan in accordance with actuarial projections.

“Until 2001, we were more than 100 percent funded,” Semmens said.

Actuarial projections, however, were wrong, and by 2002, the city was shown to be only 80 percent funded — down from 106 percent the previous year.

Semmens explained that the actuarial projections were based on a number of assumptions such as health care costs and mortality tables that reflect normal life spans.

When the assumptions were corrected in 2002, the city’s liabilities to PERS were dramatically increased, he said.

“By fiscal year 2010, the PERS rate will be 30 percent of payroll and will stay there for 25 years,” Semmens said.

He said the total payroll for the city is approximately $5 million.

In a prepared memorandum to the mayor and council members, Semmens said, “The bottom line is that the city went from a funding surplus in (fiscal year) 2001 to an $11,565,000 unfunded liability in three years.”

Revised actuarial reports show Kenai should be paying 26.17 percent in fiscal year 2006, but the city currently is paying only 13.67 percent.

In fiscal year 2007, the actuarially required rate will be 29.81 percent and the city is slated to pay 18.67 percent.

“Clearly our liability will grow if we pay significantly less than the actuarially required amount,” Semmens said.

He said Kenai is not alone in facing the retirement funding dilemma.

It is an issue for the state of Alaska and most municipalities and school districts, he said.

“Soldotna increased its payment by $1 million toward PERS to bring down their unfunded liability,” Semmens said.

“We should carefully consider paying down our PERS liability,” he said.

As a member of the Alaska Retirement Management Board, Semmens said the group will make a report to the state legislature this month, which will include short-term and long-term strategies for addressing the problem.

He advised the council to keep the situation in mind when deciding whether or not to pave Kenai streets or approve other expenditures.

He said that although the city paid what the state said it should pay all along, and the state’s projections were wrong, it is the city’s problem.

“It’s the city’s obligation to its employees,” Semmens said.

Council member Linda Swarner disagreed, saying the state was to blame for the shortfall.

“It’s the city that promised past workers their pensions,” Semmens said.

“There will need to be service cuts or revenue increases to fund PERS,” Semmens said.

He also said the state should reinstitute a revenue sharing program for municipalities that it once had.

“In 1982, we got 50 percent of general fund expenditures from revenue sharing. Now we get zero,” Semmens said.

While the situation is expensive for the city of Kenai, he said, “For the state of Alaska, it’s a $6 billion problem.”

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