Pension Reform News: Alaska isn’t experiencing a public employee turnover crisis

In This Issue:

Articles, Research & Spotlights 

• Alaska Isn’t Experiencing a Public Employee Turnover Crisis
• San Diego’s Avoidable Pension Problem 
• An Opportunity for Public Pensions to Bolster Long-term Security
• Modern Government Workers Need Modern Retirement Solutions

News in Brief
Quotable Quotes on Pension Reform
Reason Foundation in the News
Data Highlight
Contact the Pension Reform Help Desk

Articles, Research & Spotlights

Alaska Is Retaining Public Workers Better Than Most States

Lawmakers in Alaska are considering bringing back pensions to address challenges in recruiting and retaining teachers, police officers, and other public employees. A new analysis by Reason Foundation’s Mariana Trujillo indicates that Alaska’s retention of workers is consistent with trends observed in other states that primarily offer pensions. Contrary to the prevailing perception in the state, and in spite of significantly higher turnover rates in the private sector, Alaska actually retains its public workers better than most other states. According to data from the Bureau of Labor Statistics (BLS), national and state employers faced an average turnover rate of 20.6% in 2022, while Alaska’s Executive Office reported a turnover rate of only 17.5% for the same year. These results demonstrate that, despite notable challenges in retaining workers within the state’s private sector, Alaska’s state and local governments do not experience the same high turnover issues.

Extreme and Rising Public Pension Costs Force Trade-offs in San Diego

With a projected 2025 deficit of $170 million and expectations that the city’s annual shortfalls could add up to over a billion dollars by 2030, San Diego faces growing fiscal challenges that will have tangible impacts on its citizens. What should irk the city’s taxpayers is that much of this problem could have been avoided if not for a legal reversal of cost-saving pension reform. In 2012, voters approved a pension reform that put new city hires in a defined contribution retirement plan and was instrumental in reducing the city’s pension debt, but the reform was challenged in the courts by public worker unions and undone. In this op-ed published in the San Diego Tribune, Reason Foundation’s Mariana Trujillo writes, “As it reinstates traditional employee pensions, San Diego must choose between raising taxes, cutting services, or pushing more debt onto future taxpayers.”

Public Pensions Should Capitalize on Strong 2024 Returns To Build Long-term Stability

The 2024 investment results are in for nearly all public pension plans, and most had a very positive year of returns. On average, public pension plans achieved a 9.9% return, safely above the average long-term assumed rate of return for plans (7%). These are just one year of investment returns, and the ultimate success of these pension plans lies in their ability to hit or exceed expectations over decades to fund the benefits promised to workers. However, policymakers ought to see a positive year like 2024 as an opportunity to build up reserves in preparation for the eventual and inevitable year of lower-than-expected returns. Reason Foundation’s Steve Vu uses our pension plan data to analyze the variation in returns results over the last three years.

Traditional Government Pensions Alone Do Not Work for New Employees

Most people would agree that the purpose of a retirement plan is to foster adequate savings every year an employee works and gets closer to their post-employment life. However, pension plans for public workers have maintained a benefit structure that leaves many of them with poor and sometimes inadequate savings for a good portion of their early careers. Reason Foundation’s Rich Hiller highlights the growing trend of today’s public workers changing jobs more frequently and shows how very few newly hired teachers and other public workers stay in jobs long enough to enjoy the full benefit of a defined benefit pension. It is crucial for public retirement plans to evolve by offering adequate savings for both those who stay for a long career and those who move on to other opportunities. 

News in Brief

Hedge funds take advantage of predictable pension rebalancing 

A new working paper from researchers at Duke University, Capital Group, and Ohio State University examines how pension funds and other institutional investors rebalance their portfolios—adjusting asset allocations to maintain target investment mixes. The study finds that this routine “automatic” rebalancing moves markets, causing predictable sharp fluctuations in stock prices. Using data from 1997 to 2023, the authors estimate that these predictable trades cost pension funds and other institutional investors $16 billion annually by temporarily driving stock prices down when funds sell and up when they buy. The paper also finds that hedge funds and other traders exploit this pattern through front-running, executing trades ahead of pension funds to profit from anticipated price movements. The authors suggest that more flexible rebalancing policies, rather than following quarterly or monthly schedules, could help pension funds reduce costs and limit opportunities for market manipulation. The full study is available here.

Quotable Quotes on Pension Reform

“This is not touching the hard-working dollars that our men and women who educate Nebraskans put into their retirement fund. […] We are talking about future dollars, prospective dollars, that the state puts in, not what the employee puts in, not what the employer puts in.”
—Kenny Zoeller, director of the Nebraska’s governor’s Policy Research Office, quoted in “School retirement changes to play role in Nebraska school funding, budget talks” Nebraska Examiner, Feb. 3, 2025. 

“Much progress has been made financially in the state in the last 15 years in paring back some of that state debt and building reserves, but the pension and the healthcare liabilities have only grown.”
— North Carolina State Treasurer Brad Briner quoted in “NC Treasurer Briner sounds alarm on pension and Health Plan deficits” The Carolina Journal, Feb. 6, 2025. 

“Not only are the public pension systems stronger today as result of the 2022 reforms, but the state’s upfront investments will save taxpayers billions over the next two decades.”
— Vermont State Treasurer Mike Pieciak quoted in “Reform measures boosting health of Vermont’s pension funds, treasurer says” Pensions and Investments, Jan. 9, 2025. 

Reason Foundation in the News

In a published debate— “Should public pensions invest in private equity?” —Pension Integrity Project Policy Analyst Mariana Trujillo took the “No” side against Drew Maloney, president of the American Investment Council, an interest group advocating for the private equity industry. The debate, featured in CQ Researcher, is part of an academic report aimed to be distributed to high school and college students. Trujillo referenced findings from Reason’s Annual Pension Solvency and Performance Report, which showed that as private equity grew in public pension portfolios, pensions became exposed to significant risks, incurred high fees, and yet still achieved lower returns than passive index funds. The report is available here. “Over the past 20 years, 99.5 percent of the 296 largest public pension funds have failed to outperform the S&P 500. Sixty percent of pensions underperformed a gold standard 60/40 stock/bond benchmark. If pensions were underperforming public markets because of a lower-risk strategy, that would be acceptable. But they are underperforming despite embracing high-risk, high-fee investments,” Trujillo writes.

Data Highlight

Each month, we feature a pension-related chart or infographic from our team of analysts. This month, we highlight a graph taken from the 2024 Pension Solvency and Performance Report, showing the persistent gap between actual and assumed public pension investment returns. From 2000 to 2023, the average annual pension return was just 6.5%, well below the 7.6% average assumed rate of return (ARR). While pension plans have gradually lowered their ARRs to reflect market realities—with the average assumed rate declining from 8% in 2001 to 6.9% in 2023—this mismatch remains a key driver of unfunded liabilities. An overview of the 2024 Annual Pension Solvency and Performance Report is here, and you can interact with the data here.

The post Pension Reform News: Alaska isn’t experiencing a public employee turnover crisis appeared first on Reason Foundation.

Source: https://reason.org/pension-newsletter/alaska-isnt-experiencing-a-public-employee-turnover-crisis/