National Institute on Retirement Security Delivers Report on Impacts of Retirement Plan Design on Teacher Retention to Alaska Department of Education
WASHINGTON, D.C., April 27, 2023 – The National Institute on Retirement Security (NIRS) has delivered a new report to the Alaska Department of Education on the impacts of various retirement benefit offerings on the recruitment and retention of Alaska’s public education employees. The report finds that switching Alaska’s public employees from defined benefit pension plans to 401(k)-style defined contribution accounts resulted in more public educators leaving their positions. The research comes as teacher shortages plague Alaska and communities across the country.
The new report, Alaska Teacher Recruitment and Retention Study: Options and Analysis Supporting Retirement Plan Design, is based on Alaska Retirement Management Board data. The study benchmarks retirement benefit offerings among state-level plans in Alaska and nationwide, and it analyzes the evolution of public retirement plans since the Great Recession of 2007 to 2009. Using available information about the retention of Alaska’s educational workforce, the report offers insights on the policy decisions involved with returning to defined benefit pensions.
“At a time when many states and communities are experiencing unprecedented teacher shortages, it’s important to understand what can be done to recruit and retain qualified public education employees,” said Dan Doonan, NIRS executive director and report author.
“The Alaska data tells a compelling story: defined benefit pensions are better at keeping teachers in classrooms than defined contribution accounts. The impact on Alaska’s classrooms is clear because the state’s data show nearly half of newly hired teachers in the defined contribution plan are leaving their jobs within two years. What is less clear is the cumulative cost of hiring so many new teachers to deal with rising attrition rates in Alaska,” Doonan said.
In 2005, the Alaska legislature voted to close its two statewide defined benefit pension plans for teachers and public employees in a misguided effort to manage the unfunded liability. Since July 1, 2006, all new Alaska hires participate in defined contribution plans rather than a pension plan. The retirement plan change did not address the funding shortfall, and it also had the unintended consequence of creating workforce recruitment and retention challenges for public employers. The lack of a defined benefit pension plan and competitive benefits often is directly cited as a major reason why Alaska struggles to recruit teachers, state troopers, and other public employees.
Key findings of the report are as follows:
- Changing demographics and actuarial assumptions, which are created by studying the workforce trends within Alaska’s plans, indicate that the percentage of workers who are leaving the Teachers Retirement System (TRS) and Public Employees Retirement System (PERS) has been significantly higher in the defined contribution (DC) plan than in the defined benefit plan. Meanwhile, based on the number of people leaving for reasons other than retirement, death, or disability, improving retention among those in the defined contribution plan presents the greatest opportunities.
- Other states have not followed Alaska in moving away from offering a pension in favor of a defined contribution plan. While changes were made to the pension plans offered by nearly all states, the vast majority still offer a pension, while some have moved towards offering a choice or a combination of the two plan types.
- Given the broad understanding that teacher effectiveness improves significantly after the first few years, teacher retention not only reduces burdens in maintaining an adequate workforce, but also has a positive impact on the quality of education that schools provide.
- There are many important considerations beyond simply whether Alaska returns to offering a defined benefit pension. The experiences of other states provide great insights regarding the tools that other states use to produce more stable pension costs, which include cost sharing, conditional post-retirement benefit increases, funding strategies, and the use of a reserve fund. While few states use all four strategies, all are viable options for consideration.
- Pensions are generally much more efficient at delivering benefits per dollar of cost. However, plan demographics and cashflows may impact decision-making as the TRS and PERS plans move toward a spend-down stage, which could make existing obligations more expensive to honor. In contrast, plans in other states (which are still open) have maintained more balanced plan demographics and cashflows.
Additional research from NIRS examining jurisdictions that have moved away from pensions includes Enduring Challenges: Examining the Experiences of States that Closed Pension Plans and Retirement Reform Lessons: The Experience of Palm Beach Public Safety Pensions.
The National Institute on Retirement Security is a non-profit, non-partisan organization established to contribute to informed policymaking by fostering a deep understanding of the value of retirement security to employees, employers, and the economy as a whole. Located in Washington, D.C., NIRS membership includes financial services firms, employee benefit plans, trade associations, and other retirement service providers. More information is available at www.nirsonline.org.