Senate Finance hears that Alaska pension plans remain underfunded as ARM board evaluates 15‑year amortization

Christopher Novell, chief financial officer for the Division of Retirement and Benefits, told the Senate Finance Committee on Feb. 9 that the Public Employees Retirement System (PERS) carries a draft FY2025 liability of $17.3 billion and an actuarial value of assets of $12.2 billion, leaving about $5.1 billion unfunded (70.3% funded). The Teachers’ Retirement System (TERS) showed a draft liability of $8.1 billion and assets of $6.4 billion, about $1.6 billion unfunded (79.8% funded).

Novell said the division’s FY2025 draft valuation uses a smoothing method that recognizes 20% of five‑year gains or losses each year. He also noted the assumed investment return used in the projections has remained at 7.25% since 2022. "The assumed actual earnings rate has remained at 7.25% since 2022," Novell said.

Actuary David Kirschner of Gallagher confirmed the committee’s projection slides assume that 7.25% assumption continues unchanged into the future, and he noted an experience study required by statute will be discussed by the ARM board and could prompt changed assumptions for 2026 valuations.

Chairman Stedman emphasized the policy stakes: the committee has repeatedly put substantial additional funding into the plans yet the dollar unfunded liability has not meaningfully declined since the 2015 infusion. "We put $1,000,000,000 in PERS and $2,000,000,000 in TERS in 2015," he said, adding that despite those contributions the dollar liability remains high. Stedman cautioned, "There’s 0 probability of them not getting a check," while urging the committee to focus on reducing the dollar unfunded liability.

The presentation outlined a scenario using a 15‑year layered amortization that aims to reach 100% funding by 2039. Under that scenario, Novell showed projected additional state contributions and employer payments that together approach an estimated $2.5 billion in past‑service funding from now through 2039; one example projection showed roughly $182 million in additional contributions for FY2027. Novell clarified that "additional state contributions" in these charts mean appropriations from the general fund toward past service cost, not the normal ongoing employer cost.

Committee members pressed for more detail on the drivers of the present underfunding and on choices embedded in the amortization scenarios. Senator Kaufman asked for a later, deeper review of the realized risks—investment timing, actuarial assumption changes and other drivers—that produced the current funding picture. Kirschner said the ARM board and actuarial experience study will review assumptions and that the projections shown use the current set of assumptions rolled forward.

The presentation also contrasted pension and retiree health funding: health care trusts appear overfunded (Novell reported actuarial value ratios above 130%), while pensions remain materially below 100%. Novell and members repeatedly said the two types of funds are statutorily separate and cannot be used to offset each other.

The committee asked the division to provide updated details on non‑state employers (municipalities, school districts and other local entities) that are in arrears or have catch‑up agreements so members can better assess the local tax and payroll impact of past‑service costs.

The ARM board will consider amortization and contribution recommendations in coming months; the committee scheduled a separate briefing to discuss policy choices before making any legislative recommendation. Chairman Stedman also reminded the committee of a House introductory hearing on House Bill 78 (Retirement Systems Defined Benefit Option) later that day.

The hearing included extensive slides and questions but no committee vote or formal action on policy changes.