Retirement system for public employees now headed for big trouble

What others say

Posted: Wednesday, June 09, 2004

It is well beyond time for Alaska to establish another tier in its employment scheme, one with a different approach to health and retirement benefits.

The Public Employees Retirement System is underfunded by about $2.9 billion, and if all of the system's obligations came due today, it would be able to pay only about 73 percent of them. Officials say there is no reason for alarm, that retirement plans across the country are facing the same problem. Over the years, they say, it will be fully funded.

PERS, as the system is known, serves municipal and state workers alike. Only a few years ago it was more than fully funded. No more. A combination of factors convinced actuaries that more funds are needed to ensure it can fully meet its obligations in the years ahead. Skyrocketing health costs, people living longer and a shaky stock market all forming a financial ''Perfect Storm,'' if you will worked against the system.

Employee contributions are set. To get more money will require better returns on investments and increased employer contributions, which are figured as a part of their total wage costs.

For fiscal 2005, employers faced a 5 percent increase in contributions, to 11.77 percent. In fiscal 2006, that will increase to 16.77 percent. The actuaries who annually evaluate the fund had suggested 24.91 percent for 2005 and 25.63 percent the next year to get the system on track.

What all of this means on the local level is that property taxpayers eventually will get stuck with the tab or face reduced services if contributions continue to increase, jacking up costs.

One of the problems is that the state system is a ''defined benefit'' program where the employer takes all the risks and employees are guaranteed an outcome. More common in the private sector are ''defined contributions'' systems where employees assume the risks and are promised nothing. A good example is a 401(k) program that rises and falls with its investments.

The state now has three tiers of employment, the last two adopted as cost-saving measures. Because state employees' benefits are protected by the state constitution, new tiers for new workers were required to trim future benefits and save money. A fourth tier is needed now.

The state Public Employees' and Teachers' Retirement systems, together about $5 billion in the hole, have formed a committee to explore such a change to control costs.

We hope that it will consider changing to a ''defined contribution'' program with more health care costs being assumed by workers. Without such a change there is every likelihood that each year cities and the state will simply have to pour more money into the system.

If that were to continue, we all eventually will feel the bite.

The Voice of the (Anchorage) Times - June 3



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