New NIRS Report Details Alaska Public Worker Exodus After Switch to DC Plan

Since switching from a defined benefit pension fund to a 401(k)-style defined contribution plan in 2005, Alaskan public employees have left their positions at an increased rate, according to data published by the National Institute on Retirement Security in an April report for the state’s Department of Education. 

The percentage of workers leaving Alaska’s Teachers Retirement System and the Alaska Public Employees’ Retirement System has been significantly higher while both have offered the defined contribution plan than when they offered a defined benefit plan, the Alaska Teacher Recruitment and Retention Study found. 

This research comes out as Alaska and other communities around the country face significant teacher shortages. While there is no national source of information on teacher vacancies, an academic paper published in August 2022 estimated there are 36,000 vacant teaching positions in the U.S.  

Changing Demographics 

In July 2005, Alaska Governor Frank Murkowski signed a bill to switch PERS and TRS to defined contribution plans. According to NIRS, this was a “misguided effort” to manage the pension fund’s unfunded liability. 

Since July 1, 2006, all new Alaska public employees participate in the defined contribution plan, rather than a pension plan. The study argued that this retirement plan change did not address the funding shortfall and created more recruitment and retention challenges for public employees. 

 The study compared the tenure of workers in the DC plan to a similar set of workers in the DB plan before it was closed, although few participants in the DC plan could have more than 16 years of service, since the plan was only implemented about 16 years ago.  

The TRS plans (DB and DC combined) had 8% fewer members, or 739 fewer teachers, in 2021 compared with 2005. The number of teachers with zero to four years and five to 14 years of experience fell by 11% and 18%, respectively. This represented a total decline of 1,052 TRS participants with fewer than 15 years of service, compared with similar data from 2005. 

In contrast, the number of teachers with 15 or more years of service has increased by 11%. Because most teachers with more than 15 years of service are likely to be in the DB plan, the data suggested that a DB plan is an effective retention tool, whereas teachers with shorter tenure—who have been in the DC plan—were more likely to leave the system.  

Pensions are not the only cause of lower retention rates among those in the DC plan, but the report argued that retirement offerings are a significant component of employment terms, and retention tends to be stronger among DB plan participants. Other factors like alternative employment opportunities and salaries can also play a major role in why more teachers are leaving their jobs, the report stated. 

The report found that turnover is typically lower during the first five years of employment, in both DB and DC plans, as this is the time period before the employee is fully vested. But DC plans generally tend to have more turnover over time, the report showed. 

“DC plans are sometimes suggested as a tool to improve teacher retention during the early years in the classroom,” the NIRS report stated. “However, your experiences show that 28% of newly hired male teachers are not expected to return for a second year and 28% of those returning will not return for a third.” 

The data for newly hired female teachers in the state was similar, as only 55% of new hires were expected to reach their third year in the classroom. 

“This is significantly worse than what you experienced when the DB plan was offered and the trends in other states,” the report says.  

In addition, among 100 male teachers at age 30 in the DC plan, the report showed that only seven were expected be still working as teachers in the state at age 55. That was far short of the 38 expected to be retained in the DB plan. 

Who is Leaving and Why? 

In total, 28,592 workers left PERS and TRS employment in the past five years, the report showed. The majority of workers who left TRS (70%) and PERS (63%) while enrolled in DB plans either retired or passed away. Therefore, the turnover is more attributable to natural causes, as opposed to people quitting their jobs. 

Meanwhile, 99% of workers leaving the state’s DC plans were quitting, the report stated. Only 1% of these workers left for retirement, death or disability. This stark contrast can be partly explained by the fact that these participants were likely younger workers, and fewer are retiring.  

The study argued that improving the retention of those hired into the DC plans would be beneficial to improving overall retention outcomes, especially because the DB population will continue to decline if the plans remain closed. 

The high turnover rate in the TRS could be burdensome to the education system as a whole, because teacher effectiveness is found to improve rapidly during the early years of teaching, with the effectiveness continuing to improve at a slower rate thereafter.  

As a result, many other states have adopted a career employment model that incentivizes teachers to accrue benefits over time, which encourages educators to stay at their jobs to maximize their benefits. 

“If Alaska ends up as a teacher training ground that other states can hire from, there are both cost (e.g. recruiting, the need to increase pay) and education-quality impacts,” the report stated.  

It is likely the closed TRS and PERS plans will have worse experiences during negative market shocks in the future, and the report said if these plans are re-opened, analysts would expect a more balanced cashflow going forward.  

“If there is another period of serious market turmoil in the coming decades, reopening the plans may very well make financing the obligations that were earned by those hired before 2006 more manageable,” the report stated.