The Alabama House of Representatives will consider legislation Tuesday that would create a trust fund where money can be parked and it earn investment returns. Those investment profits would then be used to pay education retirees periodic bonuses.
Senate Bill 61 is sponsored by state Sen. Donnie Chesteen, R-Dothan, and is being carried in the House by Rep. Joe Lovvorn, R-Auburn.
The Education Retirees’ Trust Fund Funding Act creates the Education Retirees Trust Fund in the state Treasury as a permanent trust to fund periodic bonus checks for education retirees.
Providing retired education retirees more money is an issue that every legislator hears from retirees in their districts. The problem is that the Teacher’s Retirement System was set up as a defined benefit plan. Money was set aside by the state and by the employees from their earnings to pay a defined benefit (pension) during retirement.
The money went to a trust fund where the Retirement Systems of Alabama managed the money in hopes of getting at least an 8 percent return. In years where the RSA failed to earn 8 percent, the Legislature makes up the difference.
Education retirees would like to receive cost of living adjustments, or COLAs, but the problem with a COLA is that it raises the benefit this year, next year, the year after, etc. for the life of the retiree, and, in some cases, for the life of the retiree’s spouse.
There was never any provision in the accounting to fund COLAs for the retirees. Past Legislatures have given some COLAs, which had a detrimental effect on the trust fund. The present leadership of the Legislature is reluctant to repeat that given that history as well as the experience of other states that have actually seen the retirement benefit decrease as a result of unfunded COLAs.
Retirees have received some one-time bonuses, usually about $500 gross, but those are paid out of the Education Trust Fund budget, not the TRS. The 2022 Education Trust Fund budget is the largest in state history; however, there were not retiree bonuses in the FY2022 budget. There was no retiree bonus in 2021, either. The Education Retirees Trust Fund would be a fund that would pay for those bonuses in the future once it was fully funded.
SB61 is the third bill on Tuesday’s House special order calendar. Tuesday is day 28 of the 2021 Legislative Session. The Legislature must conclude all of its business by the end of the 30th day.