Key Points
  • Modern, 401(k)-style plans are now commonplace in the private sector. For state workers, however, traditional pensions are still the norm.
  • In the public sector, defined-benefit systems are woefully underfunded – putting current workers, retirees and taxpayers at severe risk.
  • Using a fair market valuation, State Budget Solutions estimates that America’s state pensions are in a collective $4.7 trillion hole – far deeper than official government accounting standards would suggest.
  • Unlike traditional pensions, 401(k)-style retirement plans offer state employees true retirement security, with the advantages of flexibility and mobility.

Modern, 401(k)-style plans are now commonplace in the private sector. For state workers, however, traditional pensions are still the norm. As former Utah State Senator Dan Liljenquist wrote in Keeping the Promise: State Solutions for Government Pension Reform, this is not a partisan issue, but a math problem.

State Budget Solutions, a project of the ALEC Center for State Fiscal Reform, tracks the unfunded pension liabilities of the fifty states. Using a fair market valuation, State Budget Solutions estimates that America’s state pensions are in a collective $4.7 trillion hole – far deeper than official government accounting standards would suggest.

If states are to keep their promises to retirees as well as current workers, pension reform is essential. Alaska, Michigan, Oklahoma, Rhode Island and Utah are examples of states that have enacted reforms to enhance the retirement security of current and former workers alike. In addition, the ALEC Task Force on Tax and Fiscal Policy has developed a variety of practical, nonpartisan solutions that all states would do well to consider.

Unlike traditional pensions, 401(k)-style retirement plans offer state employees true retirement security, with the advantages of flexibility and mobility. With private retirement accounts, state employees would finally have real ownership and control, while minimizing costs for the state taxpayers they serve.

Publications

+ All Pension Reform Publications

Model Policies

  • ALEC Statement of Principles on Sound Pension Practices Final

    Stability – Government pensions should be secure and safe from high risk assumptions. State and local governments should eliminate incentives to underfund pension commitments, or to over-expend benefits beyond available revenues. Predictability – The pension obligations of states should be predictable and structured to foster certainty for taxpayers and policymakers.

  • Pension Funding and Fairness Act Final

    Model Legislation {Title, enacting clause, etc.} Section 1. {Definitions.} (A) Emergency. “Emergency” means extraordinary circumstances outside the control of the Legislature, including: (1) Catastrophic events such as a natural disaster, terrorism, fire, war and riot; (2) Court orders or decrees. (B) Increase in Revenue. “Increase in revenue” means any …

  • ALEC’s Statement of Principles on Fixing State and Local Government Defined-Benefit Plans Final

    Primary Reforms Cap employer cost to a maximum amount of salary state will pay towards employee benefits Require the full ARC (or Normal Cost) of the plan to be paid each calendar year Require the ARC (or Normal Cost) to be calculated using a realistic discount rate, such as the US …

Task Forces

Tax and Fiscal Policy

The ALEC Tax and Fiscal Policy Task Force is dedicated to researching and promoting sound policy aimed at creating a …

Press Releases

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