By Brandon Moseley
Alabama Political Reporter
On Thursday, November 19, State Representative Lynn Greer (R-Rogersville) said that the Committee that is looking at reforming the retirement system intends to guarantee the benefits that state employees were promised.
Representative Greer said in a statement, “During our November meeting, the Pension Committee unanimously passed a resolution that was signed by Senator Orr and me stating that the intent of the committee was to guarantee every retiree on the state pension plan and everyone still paying into the plan today would receive what they have been promised. No one has ever mentioned taking money from the pension plan and funding the two state budgets. We have been doing just the opposite, taking money from the two budgets that could be used for other purposes, including pay raises, and trying to help the pension plan become more financially sound.”
Greer referenced an opinion piece written by the Alabama Policy Institute’s (API) Vice-President Katherine Green Robertson and Auburn Economics professors: Dr. James R. Barth, and Dr. John S. Jahera. The trio said that news editorials claiming that legislators wanted to plunder RSA, Retirement Systems of Alabama, to “shore up” the State’s troubled General Fund are incorrect.
Green Robertson, Barth, and Jahera wrote that, “In reality, a handful of Alabama legislators are undertaking the mammoth task of ensuring that our State can fulfill the obligations owed to current and future public retirees. This is no small task, as Alabama’s public pensions are underfunded by at least $15.2 billion. To put this number into perspective, every household in Alabama would need to contribute $8,274 to fully fund the system….Alabama’s public pensions, unlike most private sector pensions, are based on a defined benefit formula. This means that state employees pay into their retirement accounts, as do their State employers, and the Retirement Systems of Alabama (RSA) invests that money with a guaranteed return of 8 percent. Whether or not the investments actually return 8 percent matters little to state employees, who will receive the same contractual benefit no matter what…Because the Alabama Legislature…….has been faithfully paying a large sum of taxpayer dollars to RSA each year to cover its shortfalls. This year alone, legislators sent RSA nearly $1 billion.”
That is one $billion that COULD have been used to fully fund State parks, put more State troopers on the road, give teachers and State employees long overdue cost of living pay raises, avoid tax increases, fully staff Alabama’s circuit clerks offices, and modernize Alabama’s troubled prison system. Instead those tax dollars had to go to fund the “annual required contribution” (ARC) that the legislature pays to RSA when RSA’s investments fail to produce that 8 percent return.
This has increasingly troubled legislators, especially in years like this one, where the budget battles led to: much personal rancor between the legislators, two special sessions, the closing of four State parks, shuttering of drivers license offices and ABC stores, and passing tax increases. Tax increases that most members of the Republican supermajority had promised voters they would never raise when they were running for office in 2010 and/or 2014. Republican Steering Committee Members have accused Governor Bentley and the legislature of “damaging the Republican brand” by raising taxes on cigarettes, prescription medications, and nursing home beds.
To work on a solution to the retirement conundrum, the legislature has appointed a study committee chaired by Rep. Greer and state Senator Arthur Orr (R-Decatur) who chaired the Senate Finance and Taxation General Fund Committee last year. Senate Pro Tem Del Marsh recently announced that Orr will trade chairmanships with Republican Sen. Trip Pittman (who chaired the better funded Senate Finance and Taxation Education Committee).
Rep. Greer, API Vice President Robertson and Professors Barth and Jahera insist that, “The reforms that the committee is contemplating will have no impact on the benefits of any current retiree or State employee; however, these changes would aid in protecting the retirement that these individuals have already earned.”
This is not easy task as current State employees will be retiring over the next 30 years and it will likely be another 30 or 40 years for all of them to die (the guaranteed pension benefits are promised for life). How is the state going to keep those generous promises if all the new hires retirement contributions go into a separate fund……presumably something more akin to a 401k where the benefit amount is not guaranteed so the state does not have to pay in more than the employer match.
Back stopping the existing pension liability would require money above and beyond what is already in RSA’s far flung investment empire. Robertson et.al estimate the cost of the unfunded liability at a staggering $15.2 billion. The committee has not made their plan public to this point.