Alaska Watchdog: Rising salaries contribute to growth of PERS/TRS unfunded liability

Fiscal Policy, Health Care — By on May 17, 2010 at 11:07 AM

By Kirsten Adams

A recently released evaluation of the Public Employees Retirement System (PERS) revealed more than $16 billion in unfunded liabilities, a number that has more than doubled since 2001.

The evaluation, conducted by Buck Consultants and presented to the Alaska Retirement Management Board on April 23, concluded that Alaska would be unable to fund 100 percent of the PERS obligations until 2034. Until then, the State would continue to make partial annual payments into the system and accrue unfunded liabilities, increasing the deficit. There was no estimate on the total amount of the liability in 2034.

Steve Hildebrand, chief budget analyst from the Office of Management and Budget, said the growing salaries included in contracts with public employee unions have caused payments into PERS and the Teachers Retirement System (TRS) to increase rapidly.

“Alaska, as many states do, does have an unfunded liability with our public employees retirement system in the order of billions,” Hildebrand said. “Those are pretty significant liabilities and it’s definitely an upward trend.”

Besides the $16 billion owed in PERS obligations, there is an additional nearly $8 billion liability for TRS. Hildebrand said the state is scheduled to pay $285 million into both systems during fiscal year 2010, with the payments increasing to $358 million during fiscal year 2011.

The obligations to fund state retirement systems are not the only increases to personnel costs for the State, with wages for the more than 15,000 State employees increasing by as much as two percent annually.

The contract between the State and the Alaska State Employees Association, which expires June 30 of this year, mandated annual wage increases as well as increases for employees working in “illustrative duty stations.” More than 20 Alaska cities and villages are classified as illustrative by the contract, and ASEA members working in Barrow or Kotzebue earn more than 40 percent above the usual wage.

The State budget has also increased rapidly along with both union contracts and PERS/TRS payments. Standing at more than $8 billion, the Fiscal Year 2011 General Operating Budget includes a 10 percent increase over last year’s budget.

Patrick Shier, Director of Retirement and Benefits, said the growth in union contract benefits and retirement payments had had a direct effect on the ballooning budget. Municipal contributions to the retirement systems are limited by State law to 22 percent of the required amount, Shier said, and the State itself is obligated to pick up the rapidly increasing balance.

“It’s a complicated matter that’s addressed over decades and can’t be summarized in a trite statement,” Shier said.

We previously reported that the TRS unfunded liability was $8 billion. The correct unfunded liability is $3.3 billion.

Kirsten Adams is an investigative reporter with the Alaska Watchdog. She can be reached at kadams@alaskapolicyforum.org.

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