Public Pensions in Alaska and the Unfunded Liability
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Transcript of Public Pensions in Alaska and the Unfunded Liability
Public Pensions in Alaska and the
Unfunded LiabilityMichael Worth, Diego Bayuk, Kristen Hall, and Kim
RaymondUniversity of Alaska Anchorage
April 13, 2013
Executive SummaryChallenges faced by Alaska public pension systemLong history of pensionsBest practice modelsRecommendations
Funding FiguresPERS (Fiscal year 2012)
Unfunded actuarial accrued liability:> $6.9 billion
Funding ratio: 63%TRS (Fiscal year 2012)
Unfunded actuarial accrued liability:< $4.2 billion
Funding ratio: 54.1%
Deductions
Pension benefitsPost employment healthcare benefitsRefunds of contributionsAdministrative costs
AdditionsMember contributions:
PERS: 6.75 – 9.6% of payTRS: 6.65% of base pay
Employer contributions Contributions from State Investment Income
MercerImproper (too low) actuarial calculations
improper figures on healthcare costs for retirees under 65 consulting “real world” data on healthcare costs every 5
years insufficient accounting of raises and survivor benefits
Mistakes made in 2002; repeated (to cover up) in 2003State alleged a loss of $1.9 billion
$1.2 billion that it failed to collect from participants$700 billion in lost investment earnings
Cited as a reason for move to defined contribution plan
Pensions in HistoryPensions date back to Roman EmpireAmerican colonists and military pensionsU.S. adopted pension plans in the 1920sMassachusetts established first retirement
pension plan for general state employees in 1911Social Security Act of 1935Welfare and Pension Plan Disclosure Act
Amendments of 1962 Revenue Act of 1978
History of Alaska’s Unfunded LiabilityIn 2005 the Alaska Legislature passed a measure
taking the state’s pension systems from a defined benefit, or pension, program to defined contribution, or 401(k)- style benefit.
In 2007 Alaska passed 3 acts to related to pensions.
As of 2010 Alaska had 29,943 public employees and 48,359 active and inactive pension fund members, with 35,880 receiving periodic benefits.
National Snapshot of Liabilities
Source: Pew Center on the States, 2012
Recent Attempted Legislation2012- SB 121- Return to DB- Sen. Dennis Egan
(did not pass House finance) 2013- SB 30 – Return to DB- Sen. Dennis Egan
(never received a hearing schedule)Arguments on both sides
Source: AK Legislative Corner, 2013
Comparative AnalysisComparing Alaska’s pension policy and
fiscal situation with Utah, Florida, and Illinois
Identifying best practice models
What is a Best Practice?Smallest unfunded liabilities
Minimizes riskEnsures long term sustainability
OverfundingPreserves extra funds to cover losses in the pension
system
Successful policymakingConsensusShared vision
Why These States?Utah
Smaller population with similar public sector sizePension plan funded at 85%
FloridaOne of the best managed and funded pension plans
at 101%
IllinoisOne of the worst managed and funded pension plans
at 54%
Findings leading to successKept up with funding requirementsReduced benefits and/or increased retirement ageShared riskIncreased employee contributionsImproved policy governance and investment
oversight
Arguments for ReformYes
Private vs. Public Funding Ratios
Overly generous benefit levels
NoPrivate and Public
Pensions Not Comparable
Benefit levels typically negotiated
RecommendationsAdjust funding
ratioLower
assumption rateDiscourage
double dipping
Replacement Ratio philosophy
Tighten oversightMaintain
reserves
ConclusionUnfunded liability an issue in Alaska, but not
uniqueEvaluation of other states necessary to find best
practicesRecommendations emerge from best practices,
can and should be used concurrently