The state should ensure that excessive resources are not committed to funding teachers' pension systems.
As of June 30, 2015, the most recent date for which an actuarial valuation is available, Alaska's pension plans for teachers combined are 76.9 percent funded for its members' accounts, an increase of 22.5 percentage points since 2014. This sharp increase was due to an additional contribution of $2 billion above the regular contributions. Alaska's pension debt exceeds $12,400 per pupil throughout the state. The defined benefit plan also has an amortization period of 25 years, meaning that if the plan earns its assumed rate of return of 8.00 percent, makes its full actuarially determined contribution payments, and its actuarial assumptions hold, it would take the state 25 years to pay off its unfunded liabilities.
Alaska commits excessive resources toward its defined contribution teachers' retirement plan. While the mandatory employee contribution rate to the defined contribution plan is 8.00 percent and is reasonable, the current employer contribution rate of 17.78 percent (a portion of this is earmarked for paying down the debt of the closed defined benefit plan) is excessive, considering that teachers and local districts are not also contributing to Social Security. School districts in Alaska also must continue to contribute toward the state's closed defined benefit system. The total employer contribution computed for FY2016 reflects 12.56 percent from districts and 5.52 percent from the state. The rate is determined according to statutory requirements, which establishes a set rate that districts must pay. The state is required to fund the remaining cost needed to meet the actuarially required contribution.
State of Alaska Teachers’ Retirement System, Actuarial Valuation Report as of June 30, 2015.
Alaska was helpful in providing information that enhanced this analysis.