We owe public employees what we promised for retirement

Spectrum, by Mike Heimbuch

It's not uncommon to hear the private sector grumbling about the benefits and retirement packages for public employees.

Fiscal problems in their retirement system (PERS/TERS) are becoming a major state issue. It's not fair for the private sector to consider public pay rates separately from their retirement benefits, as though public employees deserve one but not the other.

Retirement account contributions are no less a part of one's salary than the monthly take-home pay. Our problem now is that the promises to pay retirees a certain amount and cover health care are rooted in three assumptions that have lost some validity -- life expectancy, medical costs and the rate of return on retirement fund investments.

Public employee unions wield considerable clout -- particularly the teachers union -- and they are getting understandably agitated about who is responsible for the mess and how it should be cleaned up.

The fact about retirement funding is that the unions and their public employers were forced to make projections about the future.

They did so in good faith, regardless of how hindsight faults their vision. Our contractual responsibility to pay the agreed-upon retirement benefits is written in the state constitution and has been upheld by Alaska's Supreme Court. It does not prevent us from developing different contracts for future employees, and that possibility irks teachers who believe that diminished benefits equal diminished education. To be fair, it should be noted that not all public employees currently share the same retirement requirements and benefits. There are also noticeable differences between the education retirement system (TERS) and the other public system (PERS). We should expect this entire issue to be discussed in animated fashion.

In planning for the future we cannot avoid making assumptions about life expectancy and medical costs. As people live longer, two situations occur -- retirement is paid out longer then expected in old age and younger retirees affect the job market because they don't actually quit working.

That reality forces a shift in our traditional concept of retirement, but it doesn't mean we don't owe the money. It should and will affect the attitudes of people who negotiate future contracts.

The larger problem lies in the "projected return on investment" that is used to show us how big the pot of retirement money will be. Diversified as it may be, the fund's value plummeted in the last few years and destroyed our confidence in the rate of return.

Estimates of the cash infusion needed to restore the situation range from $1 billion to $2 billion. Many public employees feel the "sky is falling" outcry is way overblown.

Those with fiduciary responsibility see it differently. Those with the money (the Legislature) are struggling to do the right thing (insure their re-election).

Much of the private sector is wondering why the state is solely responsible for retirement program shortfalls when employee unions were equally responsible in agreeing to the validity of assumptions about life expectancy, medical costs and the rate of return on investments.

Make no mistake, we owe public employees what we promised and we must pay attention to the warnings of our retirement fund management professionals.

It is only because state finances have so occupied our attention that one other touchy question remains on PERS/TERS shortfalls, and that is whether current public employees share some fiscal responsibility for their part in shaping this retirement system.

The discussion will have to be better than one side saying "You promised to pay me," and the other side saying "Yeah, but you promised not to live so long."

Mike Heimbuch

Homer