Alabama public pensions
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Alabama has 107,657 total public employees as of 2010.[2] In Fiscal Year 2010, the state has a total of 258,209 active and inactive pension fund members, with 108,008 receiving periodic benefit payments. [3]
According to a study by the Pew Center on the States, although Alabama has consistently made required contributions in full, the state's pension plans are under the minimum 80% funding threshold that the Government Accountability Office says is preferred by experts.[4] Despite this performance, a recent study by economists Joshua Rauh of the Kellogg School of Management at Northwestern University and Robert Novy-Marx of the University of Chicago Booth School of Business concluded that the Alabama pension fund will run out of money in 2023.[5]
The RSA's financial statements and independent auditor's report can be found here.
According to the United States Census Bureau, the state has 7 locally administered pension plans.[6]
Pension plans
| Plan | Value | Unfunded liabilities | Percentage funded | Members | Average Pension |
|---|---|---|---|---|---|
| Employees Retirement System | $8.7 billion | $1.97 billion | 68.7 percent | 32,447 active members | $ - |
| Teachers Retirement System | $18.6 billion | $6.95 billion | 71.1 percent | 136,290 active members | $ - |
| Judicial Retirement System | $243 million | $88 million | 68.7 percent | 338 active members | $ - |
Employees Retirement System
The ERS was established in 1945 to provide benefits to state employees, state police, and on an elective basis to qualified persons of cities, towns, and quasi-public organizations. The ERS is a defined benefit plan qualified under Section 401(a) of the Internal Revenue Code.
Teacher's Retirement System
The TRS provides pension coverage for about 230,000 active, retired or other former employees of Alabama's public schools, two-year colleges and universities. It is the largest pension fund of the Retirement Systems of Alabama and held $16.8 billion in net assets, mostly stocks and bonds.
The Teachers' Retirement System posted an investment return of 1.81 percent for 2011, less than the median return of 2.15 percent that year for 63 public pension funds with more than $1 billion in assets that were surveyed by State Street Investment Analytics, a division of State Street financial services corporation in Boston. [7]
Judicial Retirement System
Qualified judges and justices are provided benefits under the JRF, which was established in 1973. The JRF is a defined benefit plan qualified under Section 401(a) of the Internal Revenue Code.
PEW report
The pension liabilities according to the Pew Center on the States, AEI and Professors Robert Novy-Marx of the University of Chicago and Joshua Rauh of Northwestern University, Kellogg Graduate School of Management.[8][9][10]
| State | PEW | AEI | Kellogg (2009) |
| AL | $9,228,918,000 | $43,544,880,000 | $40,400,000,000 |
Contribution rate
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| National Taxpayers Union |
| Action center |
Currently, public employees contribute 5 percent of their paychecks to their pensions.[11]
Pension reform
The Alabama Legislature passed a bill to reform the pension system for new state employees who are hired after January 1, 2013. The pension reform measure will save the state $5 billion over the next 30 years. Current law allows employees with 10 years of service to retire at the age of 60 and employees with 25 years of service to retire at any age. Under the new law there is a minimum retirement age of 62 for all public employees. The only exception is for individuals working in law enforcement, where the minimum age will be 56. [12]
Litigation
The case Tonya Denson and members of the Alabama Retirement System v. the Retirement System of Alabama was filed in June 17, 2011. The issue is whether Retirement Systems of Alabama executives improperly invested billions of dollars in public employees’ retirement funds over 15 years by earning lower-than-average returns in violation of the “Prudent Man Rule,” dictating that investments must be consistent with those a prudent man acting in a like capacity would make. As of May 2012, the casre is pending in circuit court. [13]
Notable investments
Under Bronner's leadership, RSA has made a number of large investments, some of them highly public. Its best known development, and likely its most successful, is the Robert Trent Jones Golf Trail, a chain of ten golf course complexes throughout the state. Since the beginning of the 21st Century, RSA has been ranked among the 20 largest internally-funded pension funds in the world.
- Robert Trent Jones Golf Trail
- Community Newspaper Holdings
- 55 Water Street, the largest privately-owned office building in New York City
- Raycom Media
- The Grand Hotel, Point Clear, Alabama
- RSA Battle House Tower, Mobile, Alabama
- RSA Tower, Montgomery, Alabama
- Renaissance Ross Bridge Golf Resort and Spa, Birmingham, Alabama
2009
The RSA manages 22 funds which are valued at $27.2 billion. The Teachers’ Retirement Sys- tem (TRS) is valued at $16.0 billion, the Employees’ Retirement System (ERS) at $7.6 billion, and the Judicial Re- tirement Fund ( JRF) totaled $210 million.[14] In 2009, the funds did not recover from their loss in 2008 with finalized returns being -7.94% for the TRS, -10.03% for the ERS, and 0.69% for the JRF.[14]
This is the ninth year that key parts of the Alabama pension funds have dropped, and the fifth year the funds have fallen below a national benchmark.[11] The RSA has increased retirees pay by 3 to 4 percent for the past nine years years without adding additional money to the system.[11]
Legislation
In 2009, 5 bills were passed which effected the Alabama Retirement System. These bills included: HB 122, HB 665, HB 746, SB 570, and SJR 150.[15] One of these extended the time the RSA has to pay its estimated pension costs that exceed estimated assets, over 30 years instead of the previous 20 years.[11]
Funding levels
| Latest liability | Latest unfunded liability | Annual required contribution | Latest actual contribution |
|---|---|---|---|
| $40,206,232 | $9,228,918 | $1,069,214 | $1,069,214 |
| Latest liability | Latest unfunded liability | Annual required contribution | Latest actual contribution |
|---|---|---|---|
| $15,950,194 | $15,549,411 | $1,313,998 | $1,107,831 |
| Number of pension plans | Pension assets ($bn) | Stated liabilities ($bn) | Funding status (% of tax revenue) |
|---|---|---|---|
| 3 | $22.3 | $41 | -637% |
This data is based on projected data from 2008 census data.[16] In 2008, $1.94 trillion was set aside for pensions, but it is estimated that states have $5.17 trillion in unfunded liabilities.
Rate of return
Alabama presumes a 8.00% return rate on its pension investments.[4]
Local public pensions
- Main article: Local government public pensions
According to the United States Census Bureau, the state has 7 locally administered pension plans.[6]
Prichard, Alabama's pension system went bankrupt in 2009. The city had sought bankruptcy protection twice, but was denied. In 2010, the city stopped issuing pension payments to their retired employees.[17]
Transparency
- Main articles: Public pension disclosure and Governmental Accounting Standards Board
Data availability
Is information available on the pension fund website or on the state website? Is pension data available as a requirement under the public records law or court precedent?
The Retirement Systems of Alabama post key financial reports on their website. These include reports for all of the three funds and optional health and retirement accounts for public workers.
Are names of recipients available?
Are amounts disbursed to recipients available?
The total amount of retirees receiving benefits, and the total amount of benefits disbursed, is posted on the pension funds' website. Actuarial reports for the ERS,[18] TRS[19] and JRF[20] prepared September 30, 2010, show the following numbers for the data available as of June 14, 2012:
| Fund | Retired members and beneficiaries | Annual retirement allowances |
| Employees' Retirement System | 18,959 | $371,715,050 |
| Teachers' Retirement System | 71,691 | $1,498,941,290 |
| Judicial Retirement Fund | 323 | $24,696,542 |
Fund performance data
Is pension fund investment performance data available?
The amount of investments and assets are disclosed on the funds' annual financial report.[21] An investment summary is provided for each pension fund in this report. [21]
Rate of return
Is the assumed rate of return posted?
Unfunded liabilities
Does the fund disclose the amount of unfunded liabilities?
The fund discloses liabilities in its Comprehensive Annual Financial Report. [21]
Oversight
Is pay-to-play, the practice of investment managers making contributions to officials with influence over public pension fund decisions, addressed by state law or by pension fund rules? Are pension agents and lobbyists allowed to influence investments?
Is there an external body providing oversight to the body administering the pension fund/s? Is there an external review or audit of fund practices?
The Retirement Systems of Alabama discloses its Comprehensive Annual Financial Report online.[21]The 2011 version is available. This includes an audit by an external auditing firm Carr, Riggs and Ingram, LLC.
See also
External links
- Retirement Systems of Alabama official website
- Teachers' Retirement System official website
- Judicial Retirement Fund official website
- Alabama State Pension Fund Management - State Integrity Investigation
References
- ↑ The Retirement Systems of Alabama
- ↑ 2010 Annual Survey of Public Employment and Payroll, Census 2010
- ↑ 2010 Annual Survey of Public Employment and Payroll--Membership by State, Census 2010
- ↑ 4.0 4.1 4.2 4.3 Pew Center on the States "The Trillion Dollar Gap" Feb. 2010
- ↑ New Mexico, Study: NM state pension plan will run out of money in 13 years, Sept. 9, 2010
- ↑ 6.0 6.1 “Public Employee Retirement Systems State- and Locally-Administered Pensions Summary Report: 2010”, United States Census Bureau, April 30, 2012
- ↑ The Birmingham News, Investment returns for Alabama Teachers' Retirement System trail most public pension funds, Dec. 8, 2011
- ↑ "State Pensions and Retiree Healthcare Benefits: The Trillion Dollar Gap,” PEW Center on the States, accessed January 4, 2011
- ↑ Biggs, Andrew, “The Market Value of Public-Sector Pension Deficits,” AEI Outlook Series, no. 1 (2010)
- ↑ Novy-Marx, Robert and Joshua Rauh, 2010, "Public Pension Promises: How Big Are They and What Are They Worth," Journal of Finance (forthcoming)
- ↑ 11.0 11.1 11.2 11.3 Al.com, Alabama pension plans slipping, trail average, June 29, 2010
- ↑ Plansponsor.com, Ala. Legislature Passes Pension Reform, May 9, 2012
- ↑ Tonya Denson and members of the Alabama Retirement System v. the Retirement System of Alabama, Filed June 17, 2011
- ↑ 14.0 14.1 RES, 2009 Financial Report
- ↑ RSA, Legislation
- ↑ Northwestern University, The Liabilities and Risks of State-Sponsored Pension Plans, May 2010
- ↑ New York Times, Alabama Town’s Failed Pension Is a Warning, Dec. 22, 2010
- ↑ Report on the Actuarial Valuation of the Employees’ Retirement System of Alabama prepared as of September 30, 2010
- ↑ Teachers' Retirement System of Alabama Report of the Actuary on the Annual Valuation Prepared as of September 30, 2010
- ↑ Report of the Actuary on the Annual Valuation of the Alabama Judicial Retirement Fund Prepared as of September 30, 2010
- ↑ 21.0 21.1 21.2 21.3 Comprehensive Annual Financial Report 2011
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Portions of this article were taken from Wikipedia on 8/16/2010
