Alaska Pension Board, Lawmakers Clash Over Asset Smoothing

The board that oversees Alaska’s pension system is involved in a public dispute with the state’s legislature over a decision by lawmakers last year to eliminate “asset smoothing” at the pension fund.

In 2014, lawmakers sought to end smoothing at the pension fund because, at the time, it decreased the contributions required from the state. But board members question whether the decision was “actuarially sound”, particularly because the lack of smoothing could drive up state contributions by tens of millions this year.

More from the Alaska Dispatch:

A legislative budget scheme that may have been used to make budget numbers look better in the past threatens this year to drive up the state budget by $45 million.

[…]

The conflict started in 2014 when the Legislature agreed to support then-Gov. Sean Parnell’s request for $3 billion to shore up underfunded pension trust funds. But legislators added a number of provisions of their own, largely aimed at reducing annual payments to pay down that retirement liability.

One of those changes was to eliminate “asset smoothing,” the process by which trust fund investment returns are averaged over a five-year period to prevent dramatic swings in contribution rates.

The Legislature instead wanted the ARM Board to use real market values each year, not the averaged or smoothed numbers, to calculate annual retirement payments.

That immediately caused the board’s actuaries to raise concerns. One of those was David Slishinsky of Buck Consultants, who warned the state would face a “roller coaster ride” in future years as numbers would go up or down.

That reduced cost to the state then, but this year it increased costs substantially. Board member Kris Erchinger, who chairs its actuarial committee, said that actuaries ran the numbers and determined that with smoothing the cost for the retirement payment in next year’s budget would be $215,866,535, while without smoothing it would be $261,038,698.

Board members are now deciding whether they actually have to continue complying with the legislature’s directive to cease smoothing.

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