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Widening gap in Alabama pension fund, Prompts Lawmaker to Call for New Strategy

Bill Britt

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By Bill Britt
Alabama Political Reporter

MONTGOMERY—According to a recent report by the Pew Center on States, Alabama’s state retirement fund is on a downward trend. The report gave the pension fund a “Serious Concern,” rating and the retiree healthcare fund a “Needs Improvement,” rating. These warning are not new but they bring about calls for improved performance.

“We have known there have been problems but now we are learning that it is a little bigger problem than we thought it was,” said Senator Cam Ward (R-Alabaster).

In an effort to reform Alabama’s pension system, the state legislature recently increased the retirement age from 62 to 65 in 2011, along with increased employee contributions. Although it paid 100 percent of Pew’s recommended contribution in 2010, Alabama remains one of 34 states that were less than 80 percent funded.

“Where this really affects us is that whenever we do not have our liabilities funded the legislature has to come up with the money to cover it,” Ward said. “Now, that worked for a number of years but with a tough budget crisis we just don’t have that kind of money anymore.”

This year around one billion dollars of state taxpayers’ money will go to shore up the troubled fund. The Retirement Systems, (RSA) has repeatedly come under fire over the last year. Meanwhile the Governor and the Legislature have been working together with RSA CEO Dr. David Bronner to fix the problems at the pension fund.

Ward says that while the fixes were necessary he believes the fundamental way the fund is working needs to be addressed.

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“I think they [RSA] needs to change their investment strategy because they are getting toward the bottom of the states in return on investment,” says Ward. “I hear what they say about, ‘We are promoting tourism,’ and that is nice, but we already have a tourism department and that’s what they do.” Ward says the job of the RSA is to “manage and adequately uphold the promises in the retirement pension plan.”

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Ward continues, “I hear them talk about ‘We do economic development,’ that is nice too, but that is not their mission.”

There has been talk about the state legislature taking over the trouble plan but Ward thinks that would be a mistake.

“There are other states that have done that and I would be highly opposed to ever doing something like that,” Ward said. “The last thing we need is the state legislature micro managing the state retirement system.”

Ward admits that what the Alabama Legislature passed in hopes of reigning in the losses in the RSA fund fell short of what other states have done, he says he feels a “philosophical changes to the investment strategy is what is most needed.”

Ward also said, “We can tinker with the program itself but if how the money is being handled on the investment side is not correct all the laws in the world are not going to change anything.”

Over the past year or so there have been calls for a leadership change at RSA but Ward says he thinks that is not necessary.

“The changes that need to be made can be made by the Broad of Directors calling for a change in investment strategy, not by Dr. Bronner asking to step down,” Ward said.

Ward believes the light that has been shed on the pension plan not only here in Alabama but across the country demands that there be a “rethinking and asking how can we do this better and reap a better return on investment.”

He further states, “There needs to be a good strong board in place but we don’t want the Legislature trying to run things. We don’t want the legislature making political appointments to the RSA board period.”

Over the last few years the money to shore up the fund has been coming out of the Education Trust Fund.

Ward agrees that most Alabamians would be shocked to know that over a billion dollars that was suppose to be going to education is and has actually been spent on funding the state worker retirement fund.

Ward says, “We can’t keep going down a road of maintaining such a high unfunded liability level.” But Ward says he wants to be cautious about any further reforms on the legislative side, “I am a firm believer in reform be slow and well thought out.”

He reintegrates that it is a new approach to investment not new laws that will bring about a positive long-term solution.

Bill Britt is editor-in-chief at the Alabama Political Reporter and host of The Voice of Alabama Politics. You can email him at [email protected] or follow him on Twitter.

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