State’s pension plans decline

Published 7:29 pm Thursday, July 1, 2010

The Retirement Systems of Alabama for years had an excellent reputation because it was among the nation’s healthiest retirement programs for public employees. But for a variety of reasons the last decade has been hard on the pension plans for state employees and teachers.

Alabama taxpayers provide nearly $1 billion a year for these plans, more than double the amount they did just five years ago; most state employees contribute 5 percent of their paychecks toward their benefits.

In a story Tuesday, The Birmingham News reported that key measures of the financial health of the plans have fallen nine years in a row and for the fifth year have fallen below a national benchmark.

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According to consultants for the Retirement Systems, assets available for the teachers’ and employees’ retirement pension plans would cover less than 75 percent of their future estimated payments.

That compares to 80 percent for an association of 125 municipal and state retirement plans nationwide. At the end of fiscal 2000, assets for both of Alabama’s plans covered more than 100 percent of their estimated payments.

Taxpayers will put a total of $967 million into the plans this fiscal year, an increase of 136 percent from little more than $410 million five years ago. Marc Reynolds, deputy director of the Retirement Systems, said the annual state payment into the plans is expected to remain unchanged for fiscal 2011, which will begin Oct. 1, and to rise slightly, by $19 million, in fiscal 2012. But the payment is expected to grow more rapidly after that.

Because of the recession, investment losses in 2008 and 2009 for the plans and the Judicial Retirement Fund totaled $8.5 billion compared to their combined balance of nearly $32.6 billion at the end of fiscal 2007, a 26 percent decline. Some other public plans and many individuals didn’t fare as well in the markets.

The health of the plans has also suffered from the Legislature’s decision to award retirees cost of living raises without giving the Retirement Systems the money for them. Retirees’ benefits were increased 4 percent in fiscal 2001, 3 percent in fiscal 2003, 4 percent in fiscal 2006 and 7 percent in fiscal 2007.

Raises like that may be fine in good years, but they still must be paid when times are bad. Mac McArthur, executive director of the Alabama State Employees Association, told The News that retirees don’t want to go without an increase much longer. Who would?

Many workers in America today are not so fortunate to have an employer-supported pension plan. And few of those company-backed private plans provide raises to retirees.

One step might be for the Legislature to increase the amount public employees pay into the plans to help shore them up. Increasing the time employees must work before collecting benefits would be another option. Today, a state employee or teacher who has worked for 10 years and reached the age of 60 can receive benefits. Any employee or teacher who was worked at least 25 years can retire at any age.

At some point, the Legislature might be forced to divert money from the state budgets to make sure the plans can continue to pay benefits. But that doesn’t look like much of an option today because revenue has fallen sharply for the state General Fund and the state school budget. As acting state Finance Director Bill Newton noted, money put into retirement plans can’t be spent on roads or hiring teachers.

Something is going to have be done to put Alabama’s public employee retirement on sounder footing, and sooner would be better than later for the employees and the public.

—Huntsville Times