Pension Sustainability: Alaska

Retaining Effective Teachers Policy

Goal

The state should ensure that excessive resources are not committed to funding teachers' pension systems.

Meets
Suggested Citation:
National Council on Teacher Quality. (2011). Pension Sustainability: Alaska results. State Teacher Policy Database. [Data set].
Retrieved from: https://www.nctq.org/yearbook/state/AK-Pension-Sustainability-9

Analysis of Alaska's policies

As of June 30, 2009, the most recent date for which an actuarial valuation is available, Alaska's defined contribution pension plan is fully funded for its members' accounts. The state's current defined contribution system is financially sustainable according to actuarial benchmarks.

Alaska does not commit excessive resources toward its defined contribution teachers' retirement plan. The mandatory employee contribution rate to the defined contribution plan is 8 percent, and the current employer contribution rate is 12.56 percent (7.96 percent funds the defined contribution plan and the excess helps pay the unfunded liabilities of the now-closed defined benefit plan). Both of these rates are reasonable, 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 is 38.56 percent, with 12.56 percent from districts and 26 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. 

The state is commended for switching to a financially sustainable system, but the debts of the closed system still add a burden to districts and the state. 

Citation

Recommendations for Alaska

State response to our analysis

Alaska recognized the factual accuracy of this analysis.

Research rationale

NCTQ's analysis of the financial sustainability of state pension system is based on actuarial benchmarks promulgated by government and private accounting standards boards. For more information see U.S. Government Accountability Office, 2007, 30 and Government Accounting Standards Board Statement No. 25.

For an overview of the current state of teacher pensions, the various incentives they create, and suggested solutions, see Robert Costrell and Michael Podgursky. "Reforming K-12 Educator Pensions: A Labor Market Perspective." TIAA-CREF Institute (2011).

For evidence that retirement incentives do have a statistically significant effect on retirement decisions, see Joshua Furgeson, Robert P. Strauss, and William B. Vogt. "The Effects of Defined Benefit Pension Incentives and Working Conditions on Teacher Retirement Decisions", Education Finance and Policy (Summer, 2006).

For examples of how teacher pension systems inhibit teacher mobility, see Robert Costrell and Michael Podgursky, "Golden Handcuffs," Education Next, (Winter, 2010).

For additional information on state pension systems, see Susanna Loeb, and Luke Miller. "State Teacher Policies: What Are They, What Are Their Effects, and What Are Their Implications for School Finance?" Stanford University: Institute for Research on Education Policy and Practice (2006); and Janet Hansen, "Teacher Pensions: A Background Paper", published through the Committee for Economic Development (May, 2008).

For further evidence supporting NCTQ's teacher pension standards, see "Public Employees' Retirement System of the State of Nevada: Analysis and Comparison of Defined Benefit and Defined Contribution Retirement Plans." The Segal Group (2010).