Alaska Public Employees Association/AFT
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The Ongoing Problem with PERS/TRS
(another update!)
Frequently Asked
Questions 4/28/05
- What is the
problem with PERS and TRS? The
Administration and many legislators believe there is a crisis looming with a
$5.6 billion shortfall over the next twenty-five years.
- Is it really that
much? A second actuarial report submitted by Actuarial Service Co, based
in Michigan, confirmed the significant shortfall. But they disagreed with the
proposals to dramatically change the system all at once. We also know that
this coming fiscal year, the system will be $107 million short with an
additional $100 million the next year. Some $38 million of that is in the
school districts alone.
- What caused the
problem? Poor market returns each of the last three years, high medical
insurance costs, under-funding of the system and some ‘enhancements’ to the
system such as RIP’s. Retirees are living longer, drawing more in retirement.
- What is the
Legislature doing to fix it?
We currently have a defined benefit, which means the employer needs
to adjust for any changes. Many legislators would like to reverse that to a
defined contribution, which puts the entire risk on the employees.
- What exactly do they
propose? There are currently five bills, but SB 141 has emerged as the main
bill to watch. It passed the Senate by a 12 to 8 vote; passed out of (H)
State Affairs after a short time; and is in (H) Finance. SB 141, originally
sponsored by the (S) Finance Committee co-chaired by Senators Green (R-Palmer)
and Wilken (R-Fairbanks) currently does the following: (a)
combines the ASPIB, PERS and TRS boards into one (b) moves the hearing
functions into the Department of Administration; (c) puts all new
employees into defined contributions (d) deletes death and disability
benefits for new employees (e) makes it unlikely that current retirees
and employees will receive a pension adjustment (f) prohibits
University of Alaska employees from bargaining the contribution amount and
(g) drastically restricts new hires medical benefits during retirement age
as well directs the Retirement and Benefits to control medical costs on
current retirees.
- If SB 141 becomes
law, will I have to pay more? In
the version passed by the Senate you would have to pay an additional ½ % of
your salary. The current version in (H) Finance does not have that provision
but it can be returned through the Finance or during a Conference Committee.
Another concern is that if new employees no longer contribute to PERS/TRS,
there will no longer be any new money coming into the system leading to a
larger liability.
- If I do have to pay
more, would I receive more in pay to help pay for the retirement costs?
No, but benefits would remain unchanged.
- What happens to my
retirement if SB 141 passes? You
may not be impacted directly, but the problem persists. If new employees no
longer contribute to PERS or TRS, the systems will need even more cash to
remain solvent. If you are a supervisor, it may be hard to attract new
workers without a sound retirement system. Furthermore, these bills do
nothing to cope with the un-funded liability.
- Should I care if new
employees receive defined contributions?
Yes. Defined contributions never earn a fulfilling retirement for
participants. We have a responsibility to look out for the next generation of
workers.
- Why are defined
contributions bad for workers? The
entire risk is put on the employee with little or no safety net should the
markets fail or under-perform. Unlike investment pools involving large sums
of money, individual accounts typically do not earn the required sums for a
decent retirement. Management fees take a big bite out of the
personal/private accounts and the recipient cannot be guaranteed a fixed rate
once he or she retires. In short, they are a gamble.
- Where are all the
bills affecting retirement? HB
170, HB 191 and HB 238 are in the House State Affairs Committee. HB 177 is
in (H) Judiciary. SB 141, the main bill, is now in (H) Finance.
- Who serves on that
committee? (H) Finance Committee
members are Rep. Mike Chenault, Kevin Meyer, Bill Stolze, Richard Foster, Mike
Hawker, Jim Holm, Mike Kelly, Bruce Weyhrauch, Eric Croft, Reggie Joule, and
Carl Moses.
- Are funds for
education really contingent upon SB 141 passing?
Yes, monies to help the schools cope with the
$38 million owed to PERS/TRS as the share of the liability can only be
appropriated if SB 141 passes. The Senate attached the two issues but the
House rejected the attempt. At this time, the House members are holding firm
to get school funding moving without SB 141 but they are working to get the
retirement bill out.
- What can I do? Call Speaker John Harris; your own representative in the House;
and members of the House Finance Committee and tell them you are very
concerned about eroding the retirement systems.
- How do I find out
exactly what to say? You can call
your APEA/AFT Office for help. Keep the messages to legislators short and
polite.
- But what are the
specific objections to completely revamping PERS/TRS and making employees pay
more? Well, employees never caused
this problem. Ever since statehood, the State of Alaska has been committed to
a strong and stable retirement system. You work hard in public service and
believe that all employees should be equal as much as possible. Yet another
tier will create uncertainly and doubt; cause greater turnover in employees;
and not resolve the problem of the liability. We need more time to consider
more solutions.
- Could the State of
Alaska renege on my benefits? No,
but not because some individuals haven’t tried. The Constitution guarantees
your retirement. A 1991 Supreme Court decision bolstered that guarantee.
However, new and young employees are very vulnerable to the changes.
-
Do you have a website for more information?
Yes! It’s
www.apea-aft.org. Go to the link or call APEA/AFT at 586-2334 or
1-800-478-9991.
