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PERS-TRS fix needed now

Legislature should pass reforms before it grows into nightmare

Posted: Friday, April 29, 2005

April 12 was a good news day for state, borough and local government employees who are dedicated to public service and schoolteachers who are committed to nurturing educational opportunities for Alaska families.

That was the day the Alaska State Senate validated more than a year of research and analysis in the Finance Committee by passing Senate Bill 141 to reform the state's retirement system to make it more attractive to new workers entering the work force.

The Senate measure also has important elements to address the underfunded status of the Public Employees' Retirement System and the Teachers' Retirement System (PERS and TRS), estimated at more than $5 billion.

SB 141 creates a defined contribution retirement plan for new employees entering the system. The plan strikes a balance between a fair retirement package for employees and a plan that can be sustained by employers for the long term. Further, it implements management efficiency by reorganizing three boards into a new Alaska Retirement Management Board that, for the first time, will have fiduciary responsibility to balance retirement system assets and liabilities.

The new board will have nine members, including the commissioners of administration and revenue. Board responsibilities (and a priority) will include ongoing analysis of the program's funding health and alternatives and developing recommendations for policymakers.

The traditional "de-fined benefit" pension plan will be replaced by a "defined contribution" plan similar to the popular 401 (k) plans that are common in the private sector and the Thrift Savings Plan with the federal government.

A defined contribution plan will strengthen cost clarity and predictability and provide portability between employers. A worker can rollover his or her PERS or TRS assets to another qualifying plan upon leaving state employment.

Alaska lawmakers face an important decision in the next couple of weeks. They can make a fair and visionary decision by taking the next step to disarm a $5.7 billion bullet before it becomes more lethal.

The Legislature can pass and send to Gov. Frank Murkowski legislation patterned on SB 141 to reform the PERS and TRS.

No doubt some observers will say, "But it's too late for PERS-TRS reform in this legislative session. There's only a couple of weeks left."

But that does not have to be the case. As legislative leaders work together, they can carefully persuade those who want to wait that more delays could turn a $5 billion-plus headache into an out-of-control financial cancer.

Even in Alaska, with our extraordinary cushion of permanent fund billions, $5.7 billion is too close to the late Sen. Everett Dirksen's cautionary tale that "A billion here, a billion there; sooner or later it adds up to real money."

In his January state of the state message, Murkowski warned lawmakers that increases in retirement system costs have put too great a burden on local governments.

The governor included $37.5 million in his budget proposal to cover the higher retirement system costs for local governments over the next two years.

"This buys them time to find local solutions that meet their local financial responsibilities," Murkowski said.

Delay of PERS-TRS reform will further aggravate liabilities in an outdated program hampered by stock market performance that didn't match expectations, burgeoning health-care costs and changes in actuarial assumptions embedded in a defined benefit plan. (And not to be ignored: the good news that retired workers are living longer and healthier lives.)

I talk to a lot of Alaskans. Many say they want the Legislature to pass PERS-TRS reform this session. I encourage the Legislature to take this important step to help Alaska recruit and keep dedicated teachers and public employees.

Raymond Matiashowski is the commissioner of the Alaska Department of Administration.



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