Several states have shifted from a defined benefits pension model to a defined contribution plan for public employees.
Alaska was the first state to make the change, but it’s a trend more states are considering, according to Sujit CanagaRetna, senior fiscal analyst for The Council of State Governments’ Southern region, the Southern Legislative Conference.
“It’s less onerous; it’s less of a financial responsibility for the states,” CanagaRetna said. “At the same time, people are going to be more nervous about investing in the market.”
In 2005, Alaska was facing a nearly $6 billion shortfall in its pension fund. In an effort to stop the bleeding, the legislature passed a bill to move any state employee hired after July 1, 2006, from the defined benefits plan, which would pay a guaranteed income after retirement, to a defined contribution plan, which, like a 401(k), is based on employee and employer contributions over the years.