More than $6 billion gap in state pension funding draws concern

The Senate Finance Committee discusses the state retirement systems, Feb. 14, 2018. There is a $6.6 billion projected funding shortfall. (Photo by Andrew Kitchenman/KTOO)

Some state senators are expressing concern about the projected shortfall in funding Alaska’s public employee pensions. But those who manage the pension funds say the shortfall will likely remain manageable.

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Anchorage Republican Sen. Natasha von Imhof said it may be necessary to reduce retiree benefits in the future. She spoke during a Senate Finance Committee hearing on pensions on Feb. 14.

“To simply say, ‘make the payments,’ that crowds out public safety, education, among other things, as we’re seeing in our budget challenges that we have now,” von Imhof said.

It would take an amendment to the state constitution to reduce benefits. The Alaska Supreme Court has interpreted the state constitution to protect both pensions and retiree health benefits from cuts.

The pension systems currently have $25 billion in assets. That leaves a gap of $6.6 billion between what the state has in pension assets and the projected future cost.

That gap could grow. State consultants have advised the state to expect lower investment returns in the future.

Eagle River Republican Sen. Anna MacKinnon said the Legislature should consider paying more into the fund in the coming years.

“That $6 billion is going to eat us alive over the next 10 years, if we don’t try to knock it down while we still have cash reserves,” MacKinnon said.

Soldotna Republican Sen. Peter Micciche said it’s premature to raise the possibility of a constitutional amendment to cut benefits.

“I just want to make sure that we don’t fire off an alarm that has the people of Alaska believing our system is about to implode, when in fact, if we maintain it properly in the future, I think we avert that situation,” Micciche said.

Gov. Bill Walker proposed paying $263 million into the pension system in the budget that starts in July. That’s $80 million more than the current budget. Since 2006, new public workers have a different retirement system and don’t receive defined-benefit pensions. Instead, they receive a defined-contribution system.