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Alaska Senate passes $3 billion retirement funding package

Pat Forgey

JUNEAU -- Legislators late Saturday approved spending $3 billion to pay down retirement debt, but said they want to slow future payments to retain more money to spend in those years.

Senators who passed House Bill 385 by a 20-0 vote praised themselves for taking action to strengthen the underfunded retirement system for teachers  and public employees. "Today we shore that system up by this infusion of cash," said Sen. Pete Kelly, R-Fairbanks.

The Senate's action was taken on the second-to-last day of a 90-day legislative session, scheduled to end Sunday. It now needs agreement to the changes from the House of Representatives.

The $3 billion won't solve the problem, but will help, said Sen. Johnny Ellis, D-Anchorage. "It's not a complete solution," he said.  "It is a significant, big step forward." 

The bill the Senate adopted Saturday made some significant changes to Gov. Sean Parnell's initial proposal. He hoped to put more money in the larger Public Employees' Retirement System than the Teachers' Retirement System.

But the Senate instead chose to allocate $2 billion into the TRS and $1 billion to the PERS. That will help the state treasury, Kelly said, because the state is fully responsible for funding the TRS.

The state's municipalities, which also employ many of the PERS employees, are responsible for paying off a portion of that debt. The cost to PERS employers, including the state and individual cities, will be reduced by the $1 billion into the PERS system, but far less than the impact of the $2 billion into TRS.

The Senate plan also changes how ongoing retirement calculations are made. The Alaska Retirement Management Board prompted the action by the governor and Legislature this year by changing the payment methodology to a system that would have cost the state more in early years, but saved the state money over time.

Kelly said HB 385 now calls for amortizing the retirement debt using the level percent of pay method, which will result in smaller payments initially but at a larger cost over time.

The bill also extends the period over which the state will pay off the debt, again lowering the yearly cost but increasing the total cost.

Sen. Anna Fairclough, R-Anchorage, described that change as similar to a homeowner choosing a 30-year mortgage over a 15-year mortgage. The longer mortgage has smaller annual payments but the homeowner pays much more interest over time, she said.

She said she would have preferred a flat annual payment, as proposed by Parnell, but had to agree to a different method. "It's a give and take," she said.

Kelly said that extension would give the state more money to deal with initially, and with state finances getting tight, Alaska would need that flexibility.

"What we need to do is husband our resources," Kelly said.

Fairclough said the cash infusions would mean that the Teachers' Retirement System, currently considered to be only 53 percent funded, would now be 73.3 percent funded. A funding level of 80 percent is considered adequately funded, she said.

Contact Pat Forgey at pat(at)