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Alaskanomics Blog: How is the State Dealing with the Shortfall in Pension Systems?


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Alaska runs the risk of not being able to afford the costs of paying retired public employees.

Credit: PromoRepublic

A new paper by Cliff Groh, in collaboration with ISER faculty, looks at how the state government has dealt so far with a very big problem: the state's two largest retirement systems for public employees don't have enough money to cover future costs of pensions and benefits for state and local employees when they retire. The author also discusses options the state might consider for dealing with the shortfall as time goes on.  

Public pension systems are protected in Alaska's constitution, and since discovering the shortfall in 2003, the state has made special contributions of nearly $7 billion to the retirement systems. But analysts believe it will take billions more dollars in the coming years to balance the funds. That poses a major challenge for the state, in this time of big budget deficits, as well as for local governments, which also need to help pay for the unfunded liability.  

Besides making special contributions to the retirement funds, the state also moved to hold down its future liabilities by changing, in 2006, to a defined-contribution plan for new employees. That meant new employees would not have traditional pensions when they retired but rather individual retirement savings accounts, funded with a share of their wages and an employer contribution. 

The full paper, History and Options Regarding the Unfunded Liabilities of Alaska’s Public Employees’ and Teachers’ Retirement Systems, and a summary, discuss more about what the state has done—and might do—to deal with the pension shortfall, in the face of the ongoing serious squeeze on the state's finances.

If you have questions, get in touch with Cliff Groh at cliff.groh@gmail.com.

 

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