Workforce Development

Alaska’s Bold Pension Reforms

By Nick Oswald

Unfunded pension liabilities are becoming a greater and greater threat to state budgets. However, the American Legislative Exchange Council’s publication, Keeping the Promise: State Solutions for Government Pension Reform, outlines reforms from across the states that protect retirees and taxpayers. Specifically, Keeping the Promise analyzes Alaska’s pension reform as a positive model for other states to follow.

The Last Frontier was one of the first states to enact bold pension reform. In 2006, Alaska adopted pension legislation that created a 401(k) style defined-contribution plan for new employees and teachers hired after July 1, 2006. This included positions ranging from state janitorial positions all the way up to police officers, firefighters, and teachers. Under the new defined-contribution plan, employers make an 8 percent pre-tax contribution to their employee’s retirement accounts. Furthermore, state employees contribute 5 percent and school employees contribute 7 percent to their retirement.

Retirees, current workers, and taxpayers have benefited from Alaska’s pension reform. A defined-contribution plan gives employees greater freedom, choice, and control over their retirement investments. The state is held accountable for contributing money for each employee’s retirement. By switching to a defined-contribution plan, Alaska has a stable fiscal future.  For example, Standard and Poor’s  increased Alaska’s credit rating from “AA” to “AAA” in 2012. S&P refers to the “aggressive steps the state has taken to reform its pension and retirement systems, which will limit the accumulation of new liabilities,” as a key component of Alaska’s upgraded ranking.

As other states struggle with unfunded liabilities, Alaska is a great example of positive pension reform that benefits retirees, current workers and taxpayers. For more information on reforms that stabilize retirement funds and protect taxpayers, please download your free copy of Keeping the Promise: State Solutions for Government Pension Reform at www.alec.org.


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