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 Draft

    Stability – Government pensions should be secure and safe from unsystematic risk. Pensions should be funded as they are earned and state governments should eliminate incentives to underfund pension commitments. Predictability – The pension obligations of states should be predictable and defined. Furthermore, the benefits of government pensions should be …

  • Pension Funding and Fairness Act Sunset Review

    Pension Funding and Fairness Act Summary The Act combines a traditional spending limit with debt paydown, rainy day fund, and taxpayer refund provisions.  First, the Act establishes a Spending Growth Index of inflation plus population growth which is used as a limit on state spending each year.  Second, …

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

    ALEC’s Statement of Principles on Fixing State and Local Government Defined-Benefit Plans Summary To solve the funding crises in state and local defined-benefit plans for public employees {insert state} recommends that defined-benefit plans be replaced by defined-contribution plans.  However, should a state or locality choose to continue with a …

Task Forces

Tax and Fiscal Policy

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