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Rising health care costs are battering Alaska's public employee retirement programs at the same time a declining stock market is making those retirements more difficult to pay for, according to new studies.

Annual actuarial studies for the Public Employee Retirement System and the Teacher Retirement System show the state will need $23.5 billion to pay pension and health care costs for retirees over the next 25 years, but the state is expected to have only $16 billion to pay those costs.

The deficit, what is known as the state's "unfunded liability," is $7.5 billion.

Figuring out how that amount grew so large and how to cope with it has been a controversial issue at the Legislature for several years.

Three years ago, the Legislature made radical changes to the state's pension plans, abandoning the state's traditional pension plan, known as a "defined benefit" plan. Instead, the state switched to a 401K-style plan called a "defined contribution" plan.

Under the state's new structure, all employees hired after the change will set money aside and their retirement is then based on how well they invest that money.

The change was aimed at stemming the growing liability, but it continued to grow anyway. Retirement benefits, once promised by the state, are guaranteed.

"Once you provide a benefit, you can't take it away," said Rep. Cathy Muñoz, R-Juneau, who is working to return the state to the old system.

Buck Consulting identified a total unfunded liability increase of about $100 million this year in the draft reports on each of the systems. They are expected to be reviewed and adopted by the Alaska Retirement Management Board in June, said Pat Shier, director of the Division of Retirement and Benefits.

The assessment of the unfunded liability was based on data from June 30, 2008, so it does not included billions of dollars in investment losses the retirement funds incurred since then, although in the last few months those losses moderated somewhat.

Because of the sometimes wide variations in stock market values, the retirement funds' official valuations are set on a multi-year average. Each individual year's market gains or losses are only gradually included in the overall calculations.

Muñoz and other advocates of returning to traditional pension plans question whether the radical change accomplished its goal.

The PERS system has employees in four separate tiers, depending on when they joined the system. New employees, in the 401K-style plan, are in Tier IV. It was the first two tiers, in which the state's most senior employees are enrolled, that created most of the costs, Muñoz said.

"Everybody acknowledged that Tier I and Tier II were too expensive to the state," she said.

Tier III may have solved those problems, and Muñoz, Rep. Beth Kerttula, D-Juneau, and former Sen. Kim Elton, D-Juneau, introduced legislation in the last session to allow new employees to enroll in Tier III.

Muñoz said she hopes to get the state to conduct a study of whether a return to Tier III could be done at no additional cost to the state, and then provide better retirement to public employees.

The new Buck studies found that the plan's total liabilities continued to rise substantially during the last year, with TRS liabilities increasing 6 percent and PERS liabilities increasing 9 percent.

Most of that was due to increased assumptions for future health care costs, Shier said.

The ARM Board this year changed its assumptions of future growth to more accurately anticipate rising costs, he said.

"The board decided we weren't looking at enough variables to account for all the future costs," he said.

That means that while the state's retirement savings grew as past years' market gains were included and the Legislature contributed additional money, anticipated liabilities grew even faster.