A planned $10-million cut in state contributions to employee retirements could affect budgets here, officials said.
Legislators in both the Alaska House and Senate have trimmed $10 million from the previous year’s contribution to the Public Employee Retirement System, known as PERS. Gov. Sean Parnell’s budget had originally included a $3 billion infusion into the system.
PERS is a shared burden between municipalities and the state government in order to provide retirement pensions for public employees at the municipal and state level. The states, municipality, and individual employees each contribute a pre-determined allotment. Of the funds set aside for each pension, municipalities must now contribute 22 percent, Jabusch said.
“At one time, the contribution rate was about 13 or maybe 14 percent,” he said.
Small but steady increases reversed in the recent past, and the retirement system contributions got as low as 3 percent for the municipalities. This was due in part to a miscalculation an actuarial firm retained by the state. When the miscalculations were discovered, some municipalities saw their rates abruptly rise to as high as 159 percent, though Wrangell – along with a few other communities — faced a substantially lesser rise. Legislators and municipalities hammered out a compromise where smaller communities would pay artificially elevated rates in order to reduce the drag on other communities, according to Jabusch. Wrangell has thus paid an elevated rate of 22 percent for the last few years, Jabusch said.
“It was really the only way that the cities could really afford – without bankrupting all the cities in the state – to do this,” he said. “It was just a mess.”
Under Parnell’s plan, a combination of cash infusion and retaining the elevated rates long enough for employees to transition from a pension-type payout to a structure more closely resembling a 401(k), where municipalities are required only to match the employee contributions, would result in a less expensive pension system and free up state revenue funds for things like capital investment and economic development, which some municipalities, Wrangell included, desperately want. After the large-scale infusion in the first year, the state’s contribution would be reduced to an annually fixed $500,000, Jabusch said.
The legislature’s planned cuts would cause that rate to rise 2 percent annually, or 24 percent, meaning an increase of about $96,000, Jabusch told borough assembly members at the March 20 assembly meeting.
The cuts may have stemmed in part because of confusion arising from similar acronyms. A similar system for educators is called TERS, Jabusch said. School system contributions to that system typically are much lower, meaning state contributions (which are required to be accounted as school system revenues in school system budgets) are higher.
“It seems like maybe they’re more on board with that,” he said. “That’s more important to us than jacking up the employer rate.”
Wrangell and other municipalities testified to restore the revenue sharing to the original amount.
“I think we’re headed in the right direction, and it might take 20 years to get it paid off, but I think at least if you’re going in the right direction, it’ll be fine,” he said.
Reader Comments(0)