Alaska to Issue up to $5B in POBs under New Pension Funding Plan

April 11, 2008 ( - Alaska Governor Sarah Palin is expected to sign a measure granting authority for the state to issue up to $5 billion in pension obligation bonds (POB).

According to a news report on, legislative approval of the bond bill follows passage of an earlier measure Palin signed on Tuesday in which the state said it would assume responsibility for a large chunk of the retirement liabilities of Alaska local governments and school districts. The unfunded liabilities of the state’s Public Employees’ Retirement System and Teachers’ Retirement System exceed $8 billion.

The newest bill creates a new Alaska Pension Obligation Bond Corp. to issue the debt, though it also authorizes the Alaska Municipal Bond Bank Authority, Alaska Housing Finance Corp., and the state bond committee to issue POBs, according to the news report (See  Alaska to Issue Pension Obigation Bonds ).

If Alaska uses its full authorization, the POB deal would be the second-largest on record, according to Thomson Financial data. The credit is rated Aa3 by Moody’s and AA by both Standard & Poor’s and Fitch.

Brian Andrews, deputy commissioner of the Department of Revenue, said in the news report that the earliest the bonds could be issued is August or September.

The object would be to issue the taxable pension bonds to borrow money long term at a rate at least 1.5% lower than the 8.25% assumed investment returns of the retirement system, according to a staff report prepared by Andrews for lawmakers, the news report said.

The state’s pension funding issues came to the fore in 2006 when the funds presented local governments with new contribution calculations charging them between 40% and 54% of payroll. The bill Palin signed this week caps contribution rates at 22% of payroll for Public Employees’ Retirement System employers and 12.56% for employers in the Teachers’ Retirement System.

The state will make up the difference, at a cost projected to top out at $452 million annually in fiscal year 2010, according to a staff report prepared for lawmakers.

Similarly, Connecticut is in the process of pricing a $2 billion pension offering that would, at least for now, be the fourth largest (See  Nutmeg State Ready to Launch POB Sale ).