Defined benefit plan digs deeper hole

Becky Hultberg

This past legislative session, bills were introduced to reopen the state's public employee and teachers' defined- benefit retirement plans to new employees. The Parnell administration opposes these bills, which would extend long-term pension promises to a new generation of state employees at a time of declining oil production and uncertainty regarding future state revenues. Nevertheless, we recognize that some legislators and labor unions wish to reopen these plans and are committed to a civil dialogue on the proposals.

Defined-benefit plans are extraordinarily expensive and risky. The unfunded liability of the closed PERS and TRS defined-benefit plans is currently a staggering $11 billion and the benefits payments are projected to exceed $3 billion a year from 2026 to 2047. The state and the 220 municipal and school district employers have a constitutional and moral obligation to pay these benefits.

Although the unfunded liability puts a strain on state resources, we believe the state, the employers and the plans have the resources to pay benefits when they come due. To do so, we will have to forego projects (schools and roads) and services in order to keep the promises we have made to our public servants.

To address our unfunded liability problem we must first not dig a deeper hole. The bills introduced last session ask us to decide whether to extend risky and expensive defined-benefit promises to a new generation of employees. To make this decision we must ask ourselves: What revenues will the state have after 2050 to make good on these new promises? Will there be oil in the trans-Alaska pipeline? Will there be a gas line? Or are we committing our children and grandchildren to pay for these promises with large new taxes?

Alaskans deserve the facts. A recent Compass piece by Francis McLaughlin supporting the reopening of the defined- benefit plans makes numerous factual errors. These should be corrected:

• "PERS Tier 4 started an unfunded liability in the state's public employee retirement system."

Incorrect. PERS Tier 4 was created by the Legislature in 2005 to address an existing unfunded liability in the defined- benefit plans of several billion dollars.

• "It will be much cheaper for the state to put PERS Tier 4 employees back into PERS Tier 3 than for the state to pay into it for the next century."

Incorrect. The plans' actuary has advised that had the defined-benefit plans not been closed, the unfunded liability would be even larger than it is today. In fact, the bills to reopen the defined-benefit plans will require an appropriation from the general fund to pay off the new unfunded liability that will be created. New unfunded liabilities can appear at any time for a variety of reasons, such as investment losses and decreased mortality rates.

• "Recognizing Alaska's inferior retirement plan, many public employees have already left our state."

Misleading. In FY 2005, prior to the closure of the defined-benefit plan, the rate of employees leaving state employment was 15 percent. In FY 2010, the rate of employees leaving state employment decreased to 12 percent.

Alaska's public employees teach our kids, fight our fires, keep our streets safe and help maintain Alaska as a fair, just and civilized society. We need and value our public employees. In recognition of that fact, when the Legislature closed the defined-benefit plans in 2005, it created an excellent defined-contribution plan for new employees.

The PERS Tier 4 plan is an outstanding defined-contribution plan. Including the supplemental annuity program and employee contributions, a new State of Alaska PERS employee has an amount equal to over 25 percent of their paycheck invested in an account they control. The employee has the option of investing in state-of-the-art low-cost "target date" funds that adjust the mix of investments automatically based on the employee's age and date of retirement. We believe this plan enables new state employees to adequately provide for their retirement.

As this discussion continues, we encourage Alaskans to get the facts on this important issue.

Becky Hultberg is commissioner of the Alaska Department of Administration.