New state PERS shouldn’t shift tax burden

Rep. Paul Seaton

As far as I can tell, my opponent and I only substantially disagree on one issue, how much debt the state should take on to fund public employee retirement. One of the most difficult issues the Alaska Legislature has addressed was putting the public retirement system on a long-term path of solvency.
In 2004, it became obvious that the system would only collect and earn about $30 billion of the $45 billion in scheduled future pension and medical payments. This created a $15 billion dollar debt for our kids and grandkids, unless we rapidly increased the state, local and school district contribution rates.  These increases threatened the solvency of cities and schools across Alaska. The state stepped in last year and assumed millions in liability so local school districts and cities could balance their budgets.
Employee unions were not willing to cooperate in a restructure of the defined benefit (DB) system to bring escalating costs and future liabilities under control.
We stopped the accumulation of new unfunded liabilities by starting new employees with a defined contribution (DC) plan in July 2006.  All past and current employees maintained their exact same plan and future benefits.  The Supreme Court has ruled that the benefit plan any employee starts his/her career with is a contract maintained for their lifetime.  I would never support charging “existing employees more for coverage they were already promised.”  Anyone who says the state could charge existing employees more just does not understand our Alaska Constitution.  
The state was having difficulty recruiting specialty employees under the old plan – (special ed teachers, electricians, nurses, auditors, biologists, etc).  The defined benefit plan shifted contribution benefits away from employees with less than 10 years and gave them to longer-term employees.  Yet the average PERS employee stayed employed for nine and one-half years, so that was unattractive for recruiting new employees.
The new DC plan ensures all employees personally get all their benefits after five years.  Their account is personally portable which integrates well with the modern workforce.  At my instigation, the new (DC) plan even has slightly higher employer contributions rates than the old plan.
Some people mistakenly think we created a privatized 401K plan.  Those 401 plans often under-perform public pension funds because employees are not necessarily good investment managers.  The state avoided that by creating personalized accounts managed by the same professional managers selected to manage the other employee funds.   
The state would create more debt for our children if we reverted to the old defined benefit plan for new employees.  The taxpayers must pay such public debt.  Oil tax surpluses could be used, but we are not generating any surpluses with oil below $75 per barrel.  Your future tire, business or other taxes may already be needed to help pay that defined benefit retirement debt. We value the service of our public employees, and they should be rewarded with professional wages and working conditions. It would be irresponsible for the state to continue a program that jeopardizes the future of our communities and shifts extraordinary debt to our children.

Paul Seaton is the incumbent running for the Alaska State House of Representatives. 

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Posted by on Oct 29th, 2008 and filed under Bay View. You can follow any responses to this entry through the RSS 2.0. Both comments and pings are currently closed.

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