Institute of Social and Economic Research, University of Alaska Anchorage
Abstract
In early 2003, financial analysts working for the State of Alaska announced that the two largest
public employee retirement systems in Alaska had become significantly underfunded.3 From
fiscal year 2006 (July 1, 2005 through June 30, 2006) to date, the state has paid 6.951billion—(anaverageof534.7 million annually)—to pay down these obligations, which will be called
“unfunded liabilities” in this paper.4
The State of Alaska has substantial unfunded liabilities remaining to pay off for these two
systems, the Public Employees’ Retirement System (PERS) and the Teachers’ Retirement
System (TRS). There is uncertainty about the size of these unfunded liabilities, and there are also
different ways of calculating them. For example, the State of Alaska’s snapshot balance-sheet
approach, subtracting the accrued liabilities from the assets, based on their actuarial value,
produces an estimate of 6.609billionforthecombinedunfundedliabilitiesofPERSandTRS.5Thatfigureisanestimateoftheunfundedliabilitiesdiscountedtothepresentday.Estimatesofthesizeoftheunfundedliabilitiesparticularlyvarybasedontheuseofdifferentcriticalassumptions,suchastherateoffuturereturnsoninvestment.Asanexample,usinganestimatedrateofreturnof2.142percentinsteadoftheStateofAlaska’sassumptionof8percentproducesanestimateof33.9 billion for the state’s unfunded liabilities.
6
The State of Alaska has committed to paying off the unfunded liabilities under a 25-year
amortization schedule that started in 2014, so another highly relevant measurement of those
liabilities appears to be the amount actuaries for the state currently project will be needed under
that pay-off plan, which runs through fiscal year 2039. The state’s actuaries project that from
fiscal year 2019 through fiscal year 2039 the state will pay a total of 10.815billioninextracontributions—called“stateassistance”or“additionalstatecontributions”inthispaper—topayofftheunfundedliabilities.7Incontrasttothestate’ssnapshotestimateof6.609 billion, this estimate of 10.815billioninstateassistancerepresentsaflowofannualcashpayments.Thatis,the10.815 billion is an
estimate of the total amount needed to eliminate the unfunded liabilities of PERS and TRS under
the 25-year amortization schedule the state adopted in 2014.
4
Note that this state assistance is above and beyond the amount the state is projected to owe in its
role as employer in the normal course of funding the two systems.8 Employers other than the
state—primarily local governments and school districts—also participate in PERS and TRS, and
the figure for state assistance covers not only unfunded liabilities attributed to the state but also a
portion of the unfunded liabilities attributed to non-state employers. As explained more later, the
state has assumed, by statute, the responsibility to pay for a share of the unfunded liability of
these other employers.
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This paper:
• Describes the structure of the Alaska public employee retirement systems in the context
of some unusual features of public employment on the Last Frontier
• Reviews how the problem of unfunded liabilities came about
• Examines how concerns over unfunded liabilities produced both changes and proposed
changes in the retirement systems over the past dozen years, including proposals for
changes in the allocation of burdens between the state and local governments in paying
for retirement benefits
• Describes current projections of future amounts needed to pay off the unfunded liabilities
• Discusses how future estimates of the unfunded liabilities might change in response to
economic and demographic factors
• Discusses legal provisions protecting the rights of beneficiaries of the retirement systems
• Lays out options for policymakers—other than the current policy of paying down the
unfunded liabilities over time—including buyout, bailout, and bankruptcyNorthrim Bank
University of Alaska Foundatio