Alaska has already lived this story once – and paid dearly for it. Billions in unfunded liabilities, decades of budget pressure and a retirement system that promised certainty but delivered risk to taxpayers. Yet today, lawmakers are being asked to reopen a defined benefit (DB) pension for teachers and other public employees through House Bill 78, as if the lessons of the past were merely theoretical. They are not.
Independent analysts have long warned that traditional DB pensions concentrate risk on governments and taxpayers, particularly when assumptions prove optimistic. In Alaska’s case, analysis from the Reason Foundation shows that reopening a DB system would place the entire real cost burden back on the State of Alaska – not on employees and not on school districts, but on the state itself.
Supporters of HB 78 argue that amendments have made the proposal safer. They point to optional participation, wherein new hires could choose a defined contribution (DC) plan instead of DB, and to “cost-sharing” provisions requiring employees to help cover shortfalls if returns fall below expectations. On paper, that sounds reassuring. In practice, it does not alter who ultimately bears the risk.
For Alaska teachers, school district employer contribution rates are capped by statute. When pension costs exceed those caps – as they do when markets underperform or people live longer – the state backfills the difference. Employees receive guaranteed benefits regardless of performance, and districts are insulated from volatility. The downside risk lands squarely on the state budget. This risk-shifting dynamic is well documented in public pension literature and was a major driver of Alaska’s existing TRS and PERS pension debt.
The choice before the Legislature is not between “doing nothing” and “supporting teachers.” It is between repeating a proven failure and building a sustainable system
Reason’s modeling explains why this exposure is so severe. HB 78 relies on an assumed annual investment return of roughly 7.25%, but Alaska’s actual pension investment experience tells a different story. Since 2001, Alaska’s public pension funds have averaged approximately 5.8% annual returns. Public finance research consistently shows that even small assumption gaps – one to two percentage points – compound into massive funding shortfalls over time. In Alaska’s case, that gap can translate into hundreds of millions of dollars per year in additional state operating obligations.
The exposure is compounded by HB 78’s provision allowing current employees to “purchase” years of service credit in the new DB plan using existing assets. Large-scale service credit purchases of this kind are uncommon and introduce immediate actuarial risk by increasing liabilities before offsetting assets are fully realized – a concern echoed in broader pension oversight studies.
Proponents also argue that pensions are necessary to fix teacher retention. But national data does not support that claim. Alaska is not experiencing a retention problem worse than other states; recent analysis shows Alaska retaining public workers at rates comparable to or better than most states. National surveys consistently find that retirement benefits rank well below pay, working conditions, housing availability, and family considerations in employee retention decisions.
Other states offer instructive comparisons. Oklahoma fully transitioned new hires to a defined contribution retirement system roughly a decade ago. Despite warnings of workforce collapse, Oklahoma improved its pension funding status from roughly 60 percent funded to effectively fully funded, while maintaining stable retention. Comparative data show Oklahoma now performs as well as – or better than – DB-heavy states such as Texas on public-sector workforce stability.
There are better options that benefit employees and protect the state.
A well-designed defined contribution (DC) system, paired with adequate employer contributions, provides portable and transparent benefits aligned with modern workforce realities. When Alaska enacted DC reform, it also created the Supplemental Benefit System (SBS) to replace Social Security for many public employees. Teachers were excluded – not because SBS was inadequate, but because unions opposed participation, viewing it as an obstacle to restoring a traditional DB pension in the future. That strategic calculation should not dictate today’s policy.
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DC plans can be strengthened without reopening DB. Target-date funds are already in use, but plan menus can be improved, and employee education can be expanded. Research consistently shows that improved plan design and education materially improve retirement outcomes without transferring risk to governments (Pew Charitable Trusts, 2021; GAO, 2014).
Alaska must also confront a demographic reality. Many workers come to the state for a few years – early in their careers, for opportunity or adventure – and then leave. DB systems penalize these workers through back-loaded benefits, while DC systems reflect modern labor mobility.
The choice before the Legislature is not between “doing nothing” and “supporting teachers.” It is between repeating a proven failure and building a sustainable system that serves both employees and taxpayers over the long term.
Alaska cannot afford to reopen the pension trap. HB 78 should not pass.
The views expressed here are those of the author.
