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RSA is in Center of a Political Storm

By Brandon Moseley
Alabama Political Reporter

The State of Alabama does not have enough money. There is never enough money to do all of the things that legislators want to do. Poverty, joblessness, declining wages, changing workforce needs, the macro economy are the major causes of Alabama’s failure to bring in enough dollars to meet the needs of Medicaid, the State prisons, and other State agencies. A more specific concern for many legislators is the high cost of maintaining Alabama’s commitment to it’s current and future State retirees.

To that purpose last year the legislature appointed a Joint Committee on Public Pensions. They have been studying why Alabama’s Retirement Systems of Alabama (RSA) costs the state what it costs and how the State can reform RSA so that it costs the state less in the future. That committee is co-chaired by State Representative Lynn Greer (R-Rogersville).

Chairman Greer and the Alabama Policy Institute’s Katherine Green Robertson wrote a column on Monday outlining the case for prison reform. The pair warn that the Alabama pension system faces significant funding challenges and that, “Alabama’s pension costs have doubled over the last ten years, despite the fact that the legislature has never missed paying the steadily increasing annual required contribution. In the past, this payment was made with little fanfare, but ongoing budgetary woes have demanded a higher degree of scrutiny.”

Rep. Greer and Vice President Robertson wrote, “The haze of misinformation surrounding the debate often obscures the reality: the State has at least a $15 billion funding gap that will not be closed until 2050, at the earliest. Over the next twenty-five years, the projected amount of the State’s yearly contribution–the cost of paying for new benefits earned and a portion of the existing unfunded liability–as presented on a bar graph looks like a steep staircase, topping out at over $2 billion in 2044. That staircase only leads to full funding by 2050 if the State does not accrue any additional unfunded liabilities between now and then.” The pair cite a recent report from the PEW Charitable Trusts estimates that claims that if Alabama’s pension investments return 6.25 percent rather than 8 percent over the next 40 years, Alabama’s funded ratio would dip below 60 percent while the annual contribution would top out at $5 billion around 2050. By comparison, Alabama only collects around $10 billion per year in State taxes.

While acknowledging the political challenges Greer and Robertson maintain that: “One thing is certain: pension reform will come to Alabama. Responsible reforms can be adopted now, or the state will be forced to make hasty, draconian changes during the next severe economic downturn. The involuntary, reactive option will present a much uglier scenario for retirees, taxpayers, and politicians alike.”

A group of Huntsville firefighters responded to the Greer and API claim: “Not only do we fight fires in Huntsville for a living, today we have to fight the legislature, the Pew Foundation and others to protect our future retirements. As indicated by Rep. Lynn Greer’s editorial in yesterday’s al.com newspapers, our pension funds in Alabama are very much under attack.”

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The firefighters argue that, “Alabama state employees could face approximately 35 percent to 55 percent reduction in retirement benefits if the bill introduced by State Representative Lynn Greer and approved by the Alabama Joint Legislative Pension Reform Committee, becomes law, according to a new study conducted by The International Association of Firefighters.”

Huntsville firefighter David Harer wrote that, “Members of State firefighter associations have spoken out against the proposed change in part because the reduction of Tier 2 from Tier 1 benefits in 2013 already forces employees to stay on the job for many more years. “For example, under the Tier 2 plan, a firefighter would have to work 36.5 years to reach the same benefit as a Tier 1 firefighter receives after serving 25 years. The cash balance plan will drastically reduce the retirement benefit again to levels that will not let us afford retirement until reaching the age of social security and or Medicare. Under this plan there will be firefighters riding on fire trucks until they are 65 or 70 years old. This scenario is good for no one. The same situation will happen in other high stress and physically demanding jobs such as police officers and utility workers. In our system the disability rates double between 50 and 55 and triple by age 60. That is for state and local employees. If firefighters were determined separately the rates would be even higher.”

Huntsville firefighter Geoff Statum wrote, “Rep. Greer has stated repeatedly that the pension reform committee that he co-chairs would take no action that would hurt current RSA members or retirees. He has already broken this promise as co-chair by individually introducing several bills that would negatively impact current RSA members and retirees while still saying he will propose a major structural change to new employees with his cash balance plan this session. No one, including Representative Greer, knows how that will impact the current system that we are depending on now and into the future.”

Rep. Greer has introduced 9 bills this legislative session. 7 of the 9 affect RSA members or retirees.

On Tuesday May 26, RSA wrote, “The Joint Committee on Alabama Public Pensions, which was formed by joint resolution during the 2015 Legislative Session, held its final meeting on March 16, 2016. After more than six months of meetings (at which the Pew Charitable Trusts made numerous presentations and RSA responded when given the opportunity), the Committee voted on a number of recommendations to make to the Legislature.”

RSA said that they have serious concerns about the cash balance plan introduced by Chairman Greer and authored by Robertson and API. “This recommendation was made over objections from RSA and without allowing RSA a meaningful opportunity to present its objections to the plan.” RSA wrote that there are potential IRS qualified plan issues with the Greer plan and, ‘According to RSA’s actuaries, Pew and NASRA, there is no other cash balance plan with these features in existence. And due to the unique elements in the plan design and omissions in the draft bill, the actuaries have had difficulties running accurate projections on the plan.” “Participating employers (such as schools, State agencies, universities, etc.) may also have concerns regarding the proposed cash balance plan as the plan will provide lower benefits than benefits offered under Tier II and may impact recruiting efforts by these employers.” As of Tuesday the cash balance plan bill has not been filed yet.

RSA wrote that, “Statutory proposals which contained provisions recommended by the Committee have been filed in the House and Senate. HB466, by sponsor Rep. Phil Williams, would implement auto-enrollment in RSA-1 for new employees of ERS and TRS participating employers. HB467 and SB376 require certain investment reporting and stress-testing by RSA. HB468 and SB387 adopts a section from the Alabama Uniform Trust Code and codifies case law from the Alabama Supreme Court that sets forth the categories RSA may consider in making investment decisions. RSA objects to the stress-testing requirements in HB467/SB376 and the adoption of the Alabama Uniform Trust Code provision in HB468/SB387 as these provisions are not in the best interest of the system. Furthermore, these provisions were not included in the recommendations made by the Committee.”

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RSA has no objections to the substituted versions of HB466, HB467, and HB468.

Chairman Greer has been critical of Dr. David Bronner’s management of RSA and the comfortable lifestyle that he allegedly lives. Greer wrote on Tuesday, “The hard working people of Alabama, many who do not even have a pension plan, are funding this. Maybe we’ll get a warm feeling as we drive past one of the golf courses on our way to work.”

API has estimated that RSA’s liabilities are $10 to $15 billion more than the value of it’s assets. RSA disputes the API assertions.

 

Brandon Moseley
Written By

Brandon Moseley is a senior reporter with over nine years at Alabama Political Reporter. During that time he has written 8,297 articles for APR. You can email him at [email protected] or follow him on Facebook. Brandon is a native of Moody, Alabama, a graduate of Auburn University, and a seventh generation Alabamian.

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