Rates adjusted to address unfunded PERS/TRS gap

Fiscal Policy, Recent News — By on June 27, 2010 at 8:18 PM

Kirsten Adams

Friday, June 18

After two full days of presentations, discussions and review, the Alaska Retirement Management Board approved pension contribution rates today for fiscal year 2012 in an effort to reduce the multi-billion dollar unfunded liability.

The rates are based on 2009 valuations of the Public Employees Retirement System (PERS) and the Teachers Retirement System (TRS) and mandate what percentage of gross employee salaries must be contributed to fully fund employee pensions.

Director of Retirement and Benefits Pat Shier said the rates, set at 30.76 percent for PERS and 42.61 percent for TRS, represent an increase from previous years because of the economic downturn of 2008.

“I think we’re making it back, but there’s concern about what the unfunded liability will look like,” Shier said.

The current unfunded liabilities stand at $6.3 billion for the public employees’ fund and $3.3 billion for the teachers’ system. Legislation passed in 2008 limits employer contributions to the funds to 22 percent for PERS and 12.56 percent for TRS, Department of Administration Commissioner Annette Kreitzer said, and the State is obligated to pick up the tab for the difference.

For FY 2012, this translates to a State-funded contribution rate of 8.76 percent for PERS and more than 30 percent for TRS.

The massive economic losses of 2008 led to the current looming unfunded liabilities, but Kreitzer said the nature of the rate-setting process ensures the funds would not be overly affected by the losses.

“What we do is, you don’t take your losses all in one year, it smooths over five years,” Kreitzer said.

State Investment Officer Gary Bader said the funds, which need to earn more than 8 percent annually in order to be fully funded, are currently earning about 12 percent, and the State hopes elevated interest rates would continue to close the gaps between fund assets and liabilities.

While the unfunded liability for PERS may be the larger of the two, though, the teachers’ fund may prove to be the more alarming. Kreitzer said the State funds about 97 percent of educational costs in Alaska, whether through pension contributions, school district grants or matching funds. 

Even though individual school districts may be technically responsible for 22 percent of pension costs, Kreitzer said the money to foot that bill is inevitably provided for by State funding.

“The State is really on the hook when it comes to education,” Kreitzer said. “It’s more of a burden than you might think.”

Kirsten Adams is a reporter for the Alaska Watchdog. She can be reached at kirsten@alaskawatchdog.org.

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