Alaska Municipal League warns net pension liability, layered amortization strain local budgets

Nils Andreasen, executive director of the Alaska Municipal League, told the House Finance Committee that the state's long history of blended accounting, changes to amortization methods and other policy choices have shifted substantial pension costs onto nonstate employers and local governments.

Andreasen said employers and municipalities have been carrying past service costs that result from earlier actuarial errors and policy choices. He told the committee the move in funding policy from level‑dollar amortization to level percent of payroll deferred near‑term payments and raised total long‑term costs. He described a mix of symptoms: a 2008 salary‑floor rule that forces contributions based on 2008 payroll levels for some employers, dozens of seriously delinquent employers with compounded interest and the practical effect that small employers may be unable to participate or afford their ongoing liabilities.

Why it matters: many local governments, school districts and other nonstate employers participate in PERS and TERS and are directly affected by past service amortization choices, delinquency penalties and system design. Andreasen said the state’s share of payroll makes decisions at the state level particularly consequential for smaller employers.

Key points Andreasen made

Normal cost versus actuarial rate: Andreasen presented calculations showing large gaps between the normal cost plus past‑service cost and the actuarially required employer rates for certain tiers; for example, he cited a combined rate for a PERS Tier 1 employee that would reach 47.41% (normal cost plus past service) versus an actuarial rate the state reported as lower, generating material differences employers must absorb.

Delinquency, salary floor and small employers: He highlighted a list of employers with missing payroll filings and large accrued interest (some listings ran into many thousands of missing payrolls), noting that the 1.5x penalty and compound interest can make remediation effectively impossible for very small communities. He suggested removing or reforming the 2008 salary floor, easing high penalties, creating earlier triggers and off‑ramps for stressed employers, and providing a more active state role to help small employers address liabilities.

Amortization policy and funding method history

Andreasen traced a multi‑decade history that began with separate employer accounting in the 1960s, the creation of a blended retirement reserve account in 1971, subsequent actuarial errors in the early 2000s and corrective actions that included the state's 2014 amortization choices. He said the state had re‑amortized liabilities multiple times and that layered amortization moved roughly $2 billion of costs past the previously targeted pay‑down year (2039 in documents the AML cited), increasing amortization burden for employers.

Recommendations and tools

He suggested tools other states use—employer incentive funds, rate projection tools and tailored member‑redirect options—and urged the legislature to work with participating employers to design mechanisms that reduce the immediate burden on small jurisdictions and create realistic exit options. He also called for tighter reporting and a five‑year audit of terminated employer liabilities.

Ending

Andreasen closed by urging the committee to consider structural fixes in any pension‑reform discussions and noted the AML’s willingness to work with the sponsor of HB78 to include employer protections and operational remedies in future drafts.