Facing heavy opposition, Dunleavy administration withdraws plan to cut funding on pension debts

The Dunleavy administration plan to reduce funding for the state retirement systems based on one exceptional year of stock market growth drew unanimous opposition from the public Monday.

About 65 written comments and several speakers said the plan would have put the long-term health of the retirement systems at risk.

The Retired Public Employees of Alaska called upon the retirement management board of trustees to reject the plan by Revenue Commissioner Lucinda Mahoney to reduce retirement fund contributions in the next few years by more than $200 million. The reductions would have to be made up in future years.

Randall Burns, writing for the retirees, said the board should not “abandon long-held, sound fiscal policy” for short-term benefits.

As the trustees heard from financial experts and discussed the Mahoney plan, it appeared that there was little enthusiasm to “reset” the value of the funds as of the end of the last fiscal year and treat the 28 percent gains of the last fiscal year as permanent.

Instead of having the plan rejected, however, Mahoney withdrew it and said it could be considered next year after more study. The plan should never have been presented in the first place.

It was an attempt to cut the annual appropriations needed to make the retirement systems whole on the grounds that the strong stock market returns of the past year have made the systems much stronger.

The projections for future investment returns of the retirement system assets did not provide a substantial test or consider the possibility that there may be bad years ahead. The projections did cover what would happen with a year of breaking even and a year of a four percent return, but did not analyze years in which the funds could lose 20 percent as happened after the economic collapse in 2008.

The Dunleavy plan was to reduce payments to system by more than $200 million over next 3 years, followed by higher payments when someone else will be governor. "Pay me now or pay me later," as one consultant put it.

“We are concerned you are setting yourself up for future budgetary pain,” Paul Wood of Gabriel Roeder Smith wrote. “Reducing a contribution in any given year does not really create ‘savings.’ The long-term cost of the plan is unchanged.”

A representative of Callan, a major consulting firm, said the company was aware of no other public pension systems in the U.S. that planned something similar to what Mahoney proposed for the Alaska plans based on earnings of more than 25 percent in the past year.