"A young couple struggles to repair a hopelessly dilapidated house they just purchased." That's the web site plot synopsis for my least favorite Tom Hanks movie--The Money Pit.
     'Grizzled Alaska legislators struggle to repair a hopelessly dilapidated defined contribution retirement system they just built.' That's the plot line for a potential sequel--The Money Pit: A Retirement Fixer-Upper.
     Last session we pledged to move into a hybrid defined contribution tier IV retirement system on July 1 of this year. The legislature committed to buying this new tier IV retirement home and preparing it for all public employees hired after July 1, 2006. It took 15 days in the special session and a confusing three conference committees before the House acceded to Senate demands to buy this different retirement home with its experimental architecture and untested construction techniques.
     The rationale for committing to the new tier IV place was that the mortgages we already hold on the old retirement homes, the tier I, II and III places, were too high and payments on the new place would be less. Well, surprise. The mortgage debt on the old places are high and climbing and the new tier's payments aren't any lower than on the most recent tier III retirement home.
     On the mortgage side, our pension debt isn't going down and may grow even larger because there will be fewer employees paying on the old houses--the tier I, II and III places. That's because new employees won't be moving into the tier III place and helping with the old mortgage. On the payment side, employees coming into the newly constructed tier IV retirement home will pay more for their new retirement home and, oftentimes, so will their employers. Yes, you read that right: higher costs for lower benefits.
     Not only are there no significant advantages with the tier IV retirement home, the more we look at the tier IV structure the more we find the plumbing is shot, the electrical is sparking and the foundation needs massive repair. HB 475, this year's bill to fix the problems, is growing at an alarming pace.
     HB 475 started out as a two-page list of "honey-do" projects. The bill is now 34 pages.
     Here's just a few of the fix-it things we've found so far in the tier IV retirement 'home' we haven't yet occupied:

• no COLA for survivors' pensions;
• the requirement that new employees qualify for both PERS and TRS before being able to access a Health Retirement Account;
• no funding source for the occupational death and disability benefits;
• there's double-dipping potential in disability language;
• no way for employers to terminate participation in the defined contribution plan;
• a nonfunctional appeal process; and
• we're not sure the new retirement plan is IRS compliant.

     HB 475 has grown to nearly 100 sections with nearly as many must-do fixes. In fact the longer this bill lingers, the longer it gets as new problems arise.
     Out of all the problems we've found so far, the biggest is the issue of IRS compliancy. The IRS reviews any retirement structure that removes dollars pre-tax. No scamming. The review is not perfunctory and it takes a long, long time. The IRS corps of green eyeshade accountants and nit-picky lawyers studies retirement plan details even more closely than parents review their student's report card.
     And the IRS punishes lackluster performances by making someone pay taxes on dollars that go into a flawed retirement plan. And then they can add penalties. If, like most taxpayers, you define peril as an IRS audit, then there's plenty of peril in going ahead with a brand new retirement plan while you're still finding structural issues.
     The peril and the numerous other problems compelled Alaska House members to attach to HB 475 an amendment that delays the date we move into the tier IV retirement home from July 1 this year to July 1, 2007. It's a pretty good idea. (Full disclosure on my opinion this is a "pretty good" idea: I'm sponsor of SB 293, a bill that just moved from Senate State Affairs, that delays the move to tier IV for two years. That's an even better idea.)
     But some in the Senate majority say any delay is terrible, just terrible. Check the comments on the web site for Alaska Republican legislators. There you find this quote from the chief architect of the shabby tier IV retirement home: "Tuesday's action by the House (to delay the move by one year) is fiscally irresponsible and totally unnecessary. The same parties tried unsuccessfully to stop pension reform last year and are back at it again."
     Harsh words from one Senate Republican about a House Republican who sponsored the one-year delay amendment on the floor. The amendment sponsor is pretty savvy--he's a CPA familiar with pensions and taxes. Ten members of the Republican majority supported the amendment.
     Amusing as some may find the sight of one member of a political party trashing other members of the same political party, good policymakers get nervous when it happens. I actually hope Republicans stop this internecine sniping over the tier IV retirement home they've built. It becomes destructive when one legislator augers in with divisive, over-the-top language because Alaskans expect smart government more than a smart mouth.
     Smart government, in this instance, means tarry a bit before you finally sign a new mortgage for a new retirement structure. We have long lists of problems and the fixes need to be done right, not done fast. We also know that the more we look, the more problems we find. And we know the IRS must bless this fixer-upper or we face potential, and incalculable, financial liabilities if we move into tier IV before we get a certificate of occupancy.
     And there isn't a smart mouth around that can gloss over these issues.

Phone: (907) 465-4947 Fax: (907) 465-2108 Mail: Sen. Kim Elton, State Capitol Juneau, AK 99801   Got a scoop? Call or email your tips and suggestions to any of the email addresses below: Email: Senator.Kim.Elton Jesse.Kiehl Paula.Cadiente Web: http://elton.akdemocrats.org

Capitol Undercurrents

Jet contrails--From about mid-March to mid-April the governor's jet spent 19 hours in the air and airtime costs were more than $27,000 when fuel, crew and maintenance costs (predicated on how long the engines are wound up) are totaled. Sharp-eyed observers in Fairbanks, Fort Greely, Juneau, Wrangell, Sitka, and Deadhorse may have spotted the jet. Airtime costs do not reflect ancillary ground costs. In addition to the usual suspects, 12 prisoners and their guards also flew on the jet.

The Alaskan way--Olympic medalist Rosie Fletcher added some star power to legislative hearings on health issues. The snowboarder serves on an Anchorage obesity task force and joined others in encouraging smart approaches to dealing with the obesity epidemic. She brought along her Olympic medal and, like a real Alaskan, she carried it in her purse stuffed in an old wool sock.

Hair today--Last Sunday the Anchorage Daily News included a huge visitor guide as an insert. A section on outdoor sports features a photo of Paul Wiley, a young man playing Frisbee golf--intensity in the eyes, long hair blowing in the wind. The hair is now mostly gone, cut in what we call the "earnest aide" style. Paul is working in my office this session. He's a student at APU and is interning through the UA program.

Snow job--I can't resist and suspect others have also enjoyed the opportunity to make the same punny point. Conservative Fox News commentator Tony Snow has a new job--press secretary for the President of the United States. The man matches the cliché in his new job spinning for the President.

No Delay--A resolution that says Alaskans don't want no enviro do-gooder conspiracy national heritage sites in our state had to be amended on the Senate floor Wednesday to delete Republican Congressman Tom Delay's name from the list of folks who receive the resolution. Mr. Delay is the indicted former House majority leader and soon to be ex-Texas Congressman and friend of the infamous Mr. Abramoff--lobbyist/felon. The Senate unanimously voted to delete Delay.

Not all tied up--AP reporter Matt Volz was escorted from the press table in the Senate chambers Thursday by the Sergeant at Arms for not being tied up. The men-must-wear-a-tie rule is being enforced. I think we need to amend the rules. Some of the ties worn on the floor should be banned.

Senator Elton (center) meets with (l-r) Rosie Fletcher, Dave Parrish, Suzanne Meunier, Dr. Rod Boyce, and Dr. Bob Urata. They were at the Capitol to speak to legislators about health issues.