Alaska State Legislature’s Senate Finance Committee
Ghilarducci provided the following testimony before 2018 Alaska Senate Finance Committee on January 23, 2024. Read the entire testimony here.
Executive Summary: Defined Benefit Plans And Alaska Public Employees
Alaska faces severe staffing shortages in teaching, public safety, and vital public services. The main cause of these shortages is high turnover, closely followed by limited recruitment. Cost savings from reinstating a defined benefit (DB) retirement plan for Alaska public employees would primarily be achieved by reducing turnover and secondarily by enhancing financial returns.
A defined benefit plan significantly decreases turnover, and a dollar invested in a DB plan yields a higher rate of return compared to a dollar contributed to the currently designed defined contribution (DC) plan.1 The initial costs of reinstating a DB plan must be properly discounted and netted against the benefits of a DB plan.
For Alaska, the most conservative – and incomplete -- estimated cost savings created by switching to a DB plan is $76M per year. This estimate is incomplete because it does not include direct employer contribution cost savings and the indirect, but real, gains to attracting private investment and economic development stemming from better public services. Nor does it include the indirect, but real, gains to higher quality teaching, police and fire, and other public services.
The reinstatement of a defined benefit retirement (DB) plan for public employees could lead to substantial and sustained benefits in raising the quality of Alaska public services and making the state an attractive place to live and invest.
In sum: the costs of reinstating a defined benefit retirement plan should be weighed against its benefits.