Alaska Gov. Mike Dunleavy last month vetoed House Bill 78, legislation that would have reversed the state's 2005 reform shifting public workers from traditional pensions to defined contribution retirement plans. According to commentary published by Reason Foundation on June 12, 2026, the governor cited major flaws that could have imposed hefty, unnecessary risks on the state's future budgets. While legislative actuaries projected the bill would add $89 million to annual costs in the short term, Reason Foundation modeling found the change could have increased total costs to Alaska's state and local governments by more than $7 billion over the next 30 years.
The commentary details that Alaska's legacy pension plans remain only 71% funded and are $7.4 billion short on assets to pay for benefits promised over 20 years ago. Alaska's public pensions currently use a 7.25% assumed investment return, down from 8% a decade ago but still above the national average of 6.9%. The state's police and firefighters receive a combined employer-employee defined contribution rate of 25.26%, below the industry standard minimum of 30% for public safety workers not participating in Social Security. A separate proposal this session, Senate Bill 55, would have added an estimated $55,280 in annual benefits for a retired teacher by enrolling Alaska's teachers in the Alaska Supplemental Benefits System Annuity Plan.
The report finds that HB 78 was the most robust attempt yet to undo Alaska's defined contribution policy, receiving more actuarial review than proposals in previous years and evolving to include risk-mitigating features not previously present. According to the commentary's author, Zachary Christensen, managing director of Reason Foundation's Pension Integrity Project, the bill's sponsors cited growing concerns with recruiting and retaining public workers as the reason for the proposal—concerns that were "called into question by an analysis conducted by the Reason Foundation." Unlike previous legislative proposals that would have completely closed the state's defined contribution plans and moved all employees back into legacy pensions, HB 78 was later amended to keep the existing DC plan open as an option for new and existing public workers.
The commentary explains that HB 78's retroactive approach to granting pension benefits created unprecedented risks. Transferring defined contribution balances to a pension fund as if they had been there all along would effectively add 20 years of legally guaranteed pension liabilities overnight, creating a situation where any stock market downturn or lowering of investment return assumptions would generate significant unfunded liabilities after just one bad year. The report notes that annual actuarial reports show contributions have not been sufficient to cover unexpected costs, with the bulk stemming from investment results below assumptions and the prudent reduction of those assumptions over time. If Alaska's pensions were to lower their investment return assumption again—described as "a move that is likely necessary and very probable"—a reestablished pension benefit would instantly generate more unplanned unfunded liabilities.
The report recommends that before taking on proposals to fundamentally change the core retirement plan, lawmakers should prioritize improvements to current defined contribution offerings, which could address perceived needs without undermining previous reform objectives. The authors suggest addressing the lack of a Social Security replacement for teachers and below-standard contributions for police and firefighters, noting these changes would require significant budget commitments but would improve retirement benefits without undoing two decades of progress. According to the commentary, lawmakers need to understand and appreciate the original intent of the 2005 reform: to eventually eliminate all of the state's pension debt and free future budgets from the risk of unexpected costs. Alaska is still far from achieving that aim, but they need to stay the course.