As legislators, the governor, labor unions and management-affiliated groups debate the various ideas put forward to solve the financial problem in the state-run retirement systems, one idea that deserves serious attention is a changing of the programs for new enrollees.
In adding what is called a new tier for new employees, as Rep. Mike Kelly of Fairbanks has proposed, the rules would be fundamentally changed so that employees would have greater responsibility for their retirement.
As it stands now, government employees in the Public Employees' Retirement System or the Teachers' Retirement System expect to receive a defined benefit payment upon retirement. The two systems, which serve employees and retirees from a variety of state and local government entities, have a total obligation of more than $5.6 billion but also have annual employer contribution totals that have been rising sharply. For the employers the state and local governments, including the city of Fairbanks, the Fairbanks North Star Borough School District and the University of Alaska the rates are causing varying degrees of budget stress. The employees don't share in paying any of the increases.
The state-run retirement programs are generally quite different from those used by the nongovernment work force. Out in the private sector, employees are largely left on their own to prepare for retirement. People try to figure how much money they'll need once they stop working, make an estimate of what Social Security might provide, and contribute to their retirement accounts accordingly, factoring in what their employer might contribute by way of matching funds.
In the private sector, the employer's matching funds come as a defined contribution, usually a percentage of the employee's pay. The employer doesn't promise that the employee will receive a defined benefit payment in retirement.
Government should operate in a manner similar to the private sector, where profit and loss have meaning and usually lead to sensible decisions.
It is fair to have government, like many other employers, offer a retirement program as an employment enticement, but future participants in the PERS and TRS systems must be responsible for planning for their own well-funded retirement. Government shouldn't exist to guarantee a certain retirement comfort level.
Changing the program for new enrollees in the Public Employees' Retirement System and the Teachers' Retirement System makes sense now and would make sense even if the systems weren't in financial trouble.
The Fairbanks Daily News-Miner
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