What Happened When Alaska Put Teachers In Charge of Their Own Retirement?
Pension Lessons From The Last Frontier
Policymakers are struggling to afford their defined benefit (DB) plans, where the state guarantees and pays for a specific retirement income. Between 2007 and 2010 alone, unfunded public pension liabilities grew by over $1.11 trillion.
One solution being explored? Saving money by switching to 401(k) style defined contribution (DC) plans.
Around the time of the 2007-2009 financial crisis, five states (Alaska, Michigan, Kentucky, Oklahoma, and West Virginia) experimented with such plans.
Beyond the dollars and cents, though, these kinds of reforms lead to concerns over staffing changes, in some ways a softer version of the impacts caused by the recent federal shutdown or the Department of Government Efficiency’s furloughs. In short, changing public pension plans could have unintended consequences on public employee recruitment and retention.
To inform this debate, researchers examined what happened after Alaska shifted from a DB to a DC system for state educators.
The Rare Natural Experiment
University of Texas at Dallas professor Eugenia Gorina and Georgia Tech PhD Candidate Jen Sidorova analyzed over 19,000 Alaskan educators between 2005 and 2017, and found that the switch significantly increased annual turnover rates, with the risk of separation for an average teacher going up by at least 50 percent over the first decade of employment.
Despite increased teacher attrition, Sidorova argues teacher quality didn’t decline:
“Although more teachers left their jobs after the reform, those who replaced them were, on average, just as qualified as those they replaced [in terms of educational attainment]. In other words, the system experienced more turnover, but not a decline in teacher quality.”
However, public administration professor Robert Bifulco thinks the jury is still out:
“Measuring teacher quality is a difficult thing, but a master’s degree almost never predicts anything about student outcomes. It’s about as consistent a finding in the literature as you can have.”
The social sciences are known for difficult-to-test theoretical frameworks. In contrast to laboratories enjoyed by the physical sciences, policy researchers often have to make do with what’s available.
However, whereas some theoretical predictions conflict, there’s a wide consensus on how switching from DB to DC retirement plans should impact teacher retention.
“There are lots of disincentives to changing jobs when you’d be giving up a large amount of pension wealth,” Bifulco explains. “Your wealth changes a lot under DB conditions, but not if you have a DC plan.”
Alaska’s decision, however, provided a rare opportunity — a natural experiment that’s as close to a laboratory setting as economists get. And Gorina and Sidorova were curious to put theory to the test.
“It wasn’t immediately clear to us what we would find in practice,” Sidorova explains. “Economic theory predicts retention would decrease when benefits became more portable, but we know public sector workers aren’t always informed about their benefits, especially pensions. So we expected some mobility, but we were surprised by how clearly the reform affected teacher exits, and how workforce quality stayed consistent.”
Fiscal Sustainability vs Teacher Retention
Alaska’s hand was forced after years of underfunded pension obligations eroded the state’s teacher retirement system. And unlike the old plan, which rewarded staying until retirement, the new one made benefits fully portable.
The result? Slimmer operating budgets for schools, but also higher teacher turnover.
While relieving pressure, it’s not clear whether the reform was enough to resolve the state’s budget woes, nor whether teacher compensation remained competitive enough to retain the state’s best educators.
In a piece covering ongoing contract negotiations between the Anchorage School District and teachers’ union, journalist Tim Rockey writes:
“Finance officials have said the district faces at least a $75 million deficit this year.” He continues, “In an email, Union President Corey Aist shared that we already face a retention problem. And the longer this situation continues, the more educators will leave for more competitive urban districts in the Lower 48 states.”
Lessons for Other States
Alaska’s experience offers an important case study for policymakers. Sidorova and Gorina’s analysis shows modernizing benefits leads to increased turnover while arguing the shift doesn’t necessarily undermine teacher quality.
For those weighing similar reforms, Bifulco’s perspective is worth considering: “There’s no free lunch here,” he says. Shifting from a DB to a DC program may ease fiscal strain, but it also means accepting higher turnover and the possibility of a less qualified and more transient teacher base.
As states eye the balance between sustainability and student outcomes, Alaska’s story illustrates that public policy decisions often come with painful trade-offs.
Gorina and Sidorova’s research appeared in the Summer 2025 issue of Public Budgeting and Finance.
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