Pension Sustainability: Alaska
Pensions Policy
Analysis of Alaska's policies
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.
Recommendations for Alaska
State response to our analysis
Alaska was helpful in providing information that enhanced this analysis.
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Alaska
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Delivering Well Prepared Teachers
- Admission into Teacher Preparation
- Elementary Teacher Preparation
- Elementary Teacher Preparation in Reading Instruction
- Elementary Teacher Preparation in Mathematics
- Early Childhood
- Middle School Teacher Preparation
- Secondary Teacher Preparation
- Secondary Teacher Preparation in Science and Social Studies
- Special Education Teacher Preparation
- Special Education Preparation in Reading
- Assessing Professional Knowledge
- Student Teaching
- Teacher Preparation Program Accountability
Expanding the Pool of Teachers
Identifying Effective Teachers
- State Data Systems
- Evaluation of Effectiveness
- Frequency of Evaluations
- Tenure
- Licensure Advancement
- Equitable Distribution
Retaining Effective Teachers
Exiting Ineffective Teachers
Pensions
Research rationale
Teacher salaries are just one part of the compensation package that teachers receive. Virtually all teachers are also entitled to a pension, which, upon vesting, provides compensation for the rest of their lives after retirement. In an era when retirement benefits have been shrinking across industries and professions, teachers' generous pensions remain fixed. In fact, nearly all states continue to provide teachers with a defined-benefit pension system, an expensive and inflexible model that neither reflects the realities of the modern workforce nor provides equitable benefits to all teachers.
Under defined benefit systems, states have made an obligation to fund fixed benefits for teachers at retirement. However, the financial health and sustainability of many states' systems are questionable at best. Some systems carry high levels of unfunded liabilities, with no strategy to pay these liabilities down in a reasonable period, as defined by standard accounting practices. Without reform, these systems are a house of cards, vulnerable to collapse as funding cannot keep up with promised benefits. And it is taxpayers who will have to pay if it all tumbles down.
Pension plans disadvantage teachers early in their careers by overcommitting employer resources to retirement benefits.
Pension Sustainability: Supporting Research
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.