Alaska Pension Fund Is $2.5 Billion Short

July 30, 2003 ( - The recent downturn in the stock markets combined with skyrocketing health-care costs are being given the credit for Alaska's Public Employees' Retirement System (PERS) $2.5-billion shortfall.

Trouble began for PERS in 2001-02, when the fund, which is expected to earn 8.25% a year, lost 5.25% or $458.4 million.   This dreary performance was followed up by a 5.48%-drop in 2002-03 , according to aJuneau Empire report.

Meanwhile, rising health-care costs pushed the fund’s liability from $7.9 billion in mid-2001 up to $9.9 billion in mid-2002.   Thus, with the value of the fund at $7.4 billion on June 30, 2002, the state of Alaska was about $2.5 billion in the hole.

“They got two years of 5% losses when they were looking for 8% gains,” said Gary Bader, chief investment officer of the state Department of Revenue. “That, combined with an escalating health-care cost … is really what has impacted the system to the largest degree.”

State’s Plan

To deal with the deficits, the state plans to dramatically increase the amounts that communities and other entities will have to contribute to the plans, adding to the problems many already face due to the loss of state revenue sharing.   Currently, approximately, 150 communities, school districts, and other entities, including the state itself, use PERS to fund pension plans and post-retirement health-care for employees .

Each entity, as well as each enrolled employee, contributes a certain amount each year into the plan, with the contribution rates adjusted annually by the state based on estimates of how much money will ultimately be needed to fund the plans’ benefits. In the 2003-04 fiscal year, the average community or organization is putting $6.77 toward the fund for every $100 paid in salary to each enrolled employee.