#AKLEG Advocacy: Fix Our Broken Retirement System
NEA-Alaska has been working to educate legislators in the House and Senate about the damaging effects of our current system while simultaneously offering them a solution which would protect the state from an unfunded liability or unexpected costs in the future. The pension systems in other states have proven that this is a possibility – Alaska just needs political courage and legislative will to follow suit.
Prospects for a legislative fix
It is an unfortunate reality that Alaska’s “worst in the nation” retirement system desperately needs a fix at the very same time we find ourselves in the midst of a once in generation fiscal crisis and a major struggle to transition from a state government 90% funded by oil revenues.
Since 2013, Alaska has spent almost $14 billion dollars in savings. The state budget has been cut 44% over that same time period. Oil revenue is down dramatically and throughput on the Trans Alaska Pipeline has continued to decline.
To close the revenue gap left by declining oil revenues, in 2017 lawmakers passed Senate Bill (SB) 26 to use earnings from the Permanent Fund to fund the state government and pay out a Permanent Fund Dividend (PFD) to all eligible Alaskans. SB 26 limits the draw to 5% of the average fund value. This limit serves to protect and grow the corpus, or Permanent Fund endowment, so the annual draw to fund state services and PFDs can grow over time. “Overdrawing” the Permanent Fund earnings would eventually lead to an erosion of the ability of the fund to provide sustainable payments
Even with no dividend payment next year – Alaska is projected to have a $400 million deficit.
Alaska has been facing a fiscal crisis for nearly a decade and the legislature has failed to act on new revenues in any meaningful way. The fiscal crisis and annual budget fights it has created has in some ways paralyzed legislators from leading on issues like the retirement system.
In addition to the fiscal crisis, the Alaska TRS and PERS systems both still have unfunded liabilities. Legislators are wary of exacerbating unfunded liabilities and exposing state budgets to future outlays. However, NEA-Alaska’s hybrid proposal is cost-neutral to the State of Alaska and has mechanisms to prevent unfunded liabilities and share risk.