Elected officials’ pension benefits cost thousands

Posted: Tuesday, February 14, 2006

Most people naturally assume city and borough workers and school teachers get pretty good benefits as government employees, but not many know some of those same benefits are passed on to elected officials, as well.

The pension and retiree health insurance benefits for one official can cost more than $400,000, based on actuarial assumptions — a large portion of which are taxpayer dollars.

Although some opt out of the benefit plans, council, borough assembly and school board members are eligible to receive Public Employee Retirement System (PERS) pensions and retiree health insurance.

At a time when governments are struggling to meet PERS liabilities for their employees and leaving no stone unturned seeking ways to stretch budgets, some are starting to take a closer look at the benefits provided to elected officials.

Almost as quickly as Kenai Resolution 2006-02 hit the deck a couple of weeks ago, council member Michael Boyle yanked the provision, which would have excluded elected officials from participating in PERS.

Boyle explained he needed more time to study the impact of the resolution, and the city council agreed to give it more consideration closer to budget time this summer.

In a memo from Kenai Finance Director Larry Semmens, the city’s total liability for one elected public official who becomes vested in the plan after 10 years of service, retires and collects benefits for 22 years would be more than $434,000, according to an analysis by state Rep. Paul Seaton.

A key point is that the person vests in PERS after 10 years of service.

Most elected officials are elected for one three-year term, but the 10 years can be a combination of service as an elected official or as an employee of a city, borough or school district that allows PERS participation. A person only receives one year of credit if working as a PERS-covered employee and serving in a PERS-covered office at the same time.

The cities of Homer and Seward have opted out of providing PERS benefits to elected officials — an option first allowed by the Legislature in 2000.

Also, some individuals have opted out, as did two of Soldotna’s six city council members and a few from Kenai.

In and of itself, the pension benefit is not that damaging to city coffers, considering the formula for calculating it is based on salary and council members generally receive only a monthly stipend in the neighborhood of $50.

According to Seaton’s analysis, if the council member served for 10 years at $600 per year, he or she would be entitled to the minimum $3,000 annual pension, or $66,000 over the 22-year projected lifespan of the retiree.

The big ticket item, however, is retiree medical insurance.

If that same council member lives 22 years following retirement after serving 10 years, the total liability for medical benefits would be $368,545.

Seaton says the total liability — $434,545 for pension and health — is the liability of the organization.

A provision in Soldotna’s city code, however, states: “A current or former elected official shall be solely responsible for all financial contributions required by PERS for retirement benefits.”

Soldotna City Manager Tom Boedeker said the PERS contribution rate this year is 6.2 percent from employees and 14.7 percent from the city.

For council members, the total 20.9 percent is deducted from their pay.

The intent is that elected officials pay the employer-designated contribution portion as well as the amount the state says the employee must contribute.

In Kenai, according to Semmens’ memo, the amount council members pay into the system is relatively small because they have a relatively small salary.

“The employer must make up the difference in the total cost of benefits and the amount the employee puts in,” Semmens said.

Another aspect of PERS potentially raises the local government’s liability even higher.

If a council member ever works for a PERS employer in a regular salaried position, the cost of the pension benefits are to be shared proportionately by the number of years of service at each employer, though the proportions are not exact.

In other words, if a council member served for 12 years, then went to work at a high salary for a PERS employer for four years, the city would be liable for 75 percent of the pension benefit.

According to Semmens, who is a member of the Alaska Retirement Management Board, beginning July 1, elected officials and local government employees who become eligible for PERS will be classified as “tier 4.”

The PERS pension benefit for tier 4 participants is a defined contribution system, like a 401 (k), Semmens said.

Semmens said the ARM board has been asked by the state Ways and Means Committee to come up with specific recommendations to solve the contribution shortfall problem.

He also said Seaton is “pushing to have every municipality opt out of PERS for elected officials.”

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