in Alabama

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The historical Alabama pension information below applies to prior calendar years. The tabs below may contain information from several different fiscal years; for example, the tab labeled "As published 2015" contains information from fiscal years 2013 and 2012 (the most recent data available at the time of initial publication). For more current information regarding Alabama's pension system, click here.

As published 2016[edit]

Alabama information (2015)

Total contributions: $1,981,399,000

Employee contributions: $747,686,000

Government contributions: $1,233,713,000

Total payments: $3,474,620,000

Total cash and investment holdings: $34,929,238,000

Number of state and local pension systems: 24

Active membership: 233,535

Inactive membership: 25,087

Key terms

Actuarial value of assets (AVA) • Unfunded actuarial accrued liability (UAAL) • Annual required contribution (ARC) • Discount rate • Funded ratio • Rate of return • Active member • Inactive member • OPEB

Hover over the above terms for definitions.

Note: This page utilizes information from a variety of sources. The information presented on this page reflects the most recent data available as of August 2016.

Alabama public pensions are the state mechanism by which state and many local government employees in Alabama receive retirement benefits.

According to the United States Census Bureau, there were 24 public pension systems in Alabama as of 2015. Of these, seven were state-level programs, while the remaining 17 were administered at the local level. As of fiscal year 2015, membership in Alabama's various pension systems totaled 258,622. Of these, 233,535 were active members.^[1]

According to a 2013 report by Morningstar, an independent financial research group, most states' pension plans continued to be funded below the 80 percent level considered necessary for a healthy fund. Decreased funding and increasing liabilities since the 2008 recession continued to put pressure on local and state budgets, in some cases leading to bankruptcy. Higher pension costs can have the following consequences:^[2]

• higher taxes
• less intergovernmental aid for services
• lower credit ratings
• higher interest rates on state borrowing

State pension systems can vary in their organization, management, and accounting principles, making them difficult to compare. The basic information on this page comes from the U.S. Census Bureau, as reported by the states and pension funds themselves for fiscal year 2015.

General information[edit]

See also: Pension data, U.S. Census

According to the U.S. Census Bureau, Alabama had seven state pension plans as of 2015:

1. Alabama Employees' Retirement System
2. Alabama Teacher's Retirement System
3. Alabama Judicial Retirement Fund
4. Alabama Peace Officers Annuity and Benefit Fund
5. Alabama Port Authority Hourly Pension Plan
6. Alabama Port Authority Terminal Railway Plan
7. Alabama Clerks and Registrars Supernumerary Fund

In addition to the aforementioned state-level pension systems, there were 17 locally administered pension systems in Alabama.^[1]

The table below provides general pension system information for Alabama and surrounding states.

General pension system information, 2015
State	Systems		Total members	Active members		Inactive members
	State	Local		Members	Percent of total	Members	Percent of total
Alabama	7	17	258,622	233,535	90.30%	25,087	9.70%
Florida	1	N/A	735,418	598,369	81.36%	137,049	18.64%
Georgia	11	45	678,637	400,285	58.98%	278,352	41.02%
Mississippi	4	0	295,054	157,918	53.52%	137,136	46.48%
Source: United States Census Bureau, "State- and Locally-Administered Defined Benefit Pension Systems - All Data by State and Level of Government: 2015"

Contributions[edit]

See also: Pension contribution and payment data, U.S. Census

Pension contributions are the funds paid into pension systems. These contributions come from the employer (in the case of public pensions, the government) and employees. Investment earnings are the main source of increases in the fund and are listed separately in the rightmost column in the below table.

In fiscal year 2015, the most recent year for which information is available, total contributions of approximately $2 billion were made to Alabama's state and local pension systems. Of this amount, $747.7 million came from employees. The remainder came from state and local governments. The table below provides information about pension contributions in Alabama and surrounding states in fiscal year 2015.^[1]

Pension contributions, fiscal year 2015 (dollars in thousands)
State	Total contributions from employees and employers	Employee contributions		Government contributions		Earnings on investments
		Contributions	Percentage of total	Contributions	Percentage of total
Alabama	$1,981,399	$747,686	37.74%	$1,233,713	62.26%	$631,266
Florida	$5,724,529	$1,627,838	28.44%	$4,096,691	71.56%	$8,587,428
Georgia	$3,376,261	$832,412	24.65%	$2,543,849	75.35%	$3,944,124
Mississippi	$1,590,127	$560,099	35.22%	$1,030,028	64.78%	$938,353
Source: United States Census Bureau, "State- and Locally-Administered Defined Benefit Pension Systems - All Data by State and Level of Government: 2015"

Payments[edit]

See also: Pension contribution and payment data, U.S. Census

Payments are the amounts paid to pension recipients by their pension plans. Pension payments include benefits and withdrawals. Benefits are the regular payments made by a pension plan to the plan's recipients. Pension beneficiaries may also withdraw funds before they are due to receive regular benefits.

In fiscal year 2015, Alabama's state and local pension systems made payments totaling $3.5 billion. The table below provides pension payment information for Alabama and surrounding states in fiscal year 2015. The columns labeled "Benefits," "Withdrawals," and "Other" are subsets of total payments. All dollar amounts displayed should be multiplied by 1,000 ($240,000 is equal to $240,000,000).^[1]

Pension payments, fiscal year 2015 (dollars in thousands)
State	Total payments	Benefits	Withdrawals	Other
Alabama	$3,474,620	$3,321,752	$115,293	$37,575
Florida	$10,923,236	$9,986,122	$177,232	$759,889
Georgia	$6,788,499	$6,478,447	$172,125	$137,926
Mississippi	$2,510,513	$2,284,168	$119,557	$106,788
Source: United States Census Bureau, "State- and Locally-Administered Defined Benefit Pension Systems - All Data by State and Level of Government: 2015"

Other post-employment benefits[edit]

See also: Other post-employment benefits, data

In addition to standard pension payments, some plans may offer pensioners additional benefits. These benefits, sometimes referred to as "other post-employment benefits," or "OPEBs," consist of health insurance, life insurance or other benefits that the pensioner may have received while employed. The cost of these benefits can prove complicated for actuaries to calculate because of the changes in fields like medicine. This, coupled with the normal challenges in calculating and meeting pension requirements, can result in funding shortages for pension plans.

Unfunded liabilities totaled nearly $500 billion throughout the country for OPEBs. Alabama was reported to have about $3.2 billion in unfunded liabilities for OPEBs. This was equal to about 0.65 percent of the country's total unfunded liabilities for these other services.

The chart below displays the unfunded liabilities for Alabama and its surrounding states. All dollar amounts displayed should be multiplied by 1,000,000. For instance, $300 translates to $300,000,000.

Unfunded actuarial accrued liabilities for other post-employment benefits, fiscal year 2013 (dollars in millions)
State	Unfunded liabilities	Percent of total
Alabama	$3,216	0.65%
Florida	$4,879	0.98%
Georgia	$18,239	3.66%
Mississippi	$690	0.14%
U.S. total	$497,693	100%
Source: National Association of State Retirement Administrators, "Retiree Health Care Benefits for State and Local Employees in 2014," accessed April 30, 2015. Note: Although this article was dated for 2014, all figures were reported to have come from fiscal year 2013 reports.

Cash and investment holdings[edit]

See also: Pension data, U.S. Census

Investments are a crucial part of the pension process. The goal is that, by investing pension contributions, the pensioner will receive more money when he or she retires than he or she and the employer were able to contribute. These investments can come in the form of cash investments, short-term investments, securities, or other investments. Cash investments are usually low-risk, short-term investments that have a lower rate of return than other types of investments. Other short-term investments are riskier than cash investments, but have the potential for greater returns. Securities can refer to stocks, bonds, or other types of financial certificates that hold some sort of financial value. As the values of these securities change, they can be traded to make a profit. While there are other applications of securities investments, this represents one of the most common practices.^[3][4][5]

As of fiscal year 2015, Alabama's state and local pension systems held $34.9 billion in total cash and investment holdings. The table below summarizes pension system cash and investment holdings for Alabama and surrounding states. The columns labeled "Total cash and short-term investments," "Total securities," and "Total other investments" are subsets of the grand total. All dollar amounts displayed should be multiplied by 1,000 ($240,000 is equal to $240,000,000).^[1]

Total cash and investment holdings, fiscal year 2015 (dollars in thousands)
State	Grand total	Total cash and short-term investments	Total securities	Total other investments
Alabama	$34,929,238	$1,273,620	$29,607,122	$4,048,497
Florida	$187,394,077	$4,238,924	$170,690,044	$12,465,109
Georgia	$93,581,148	$1,944,579	$91,096,395	$540,175
Mississippi	$28,363,655	$1,338,969	$23,201,929	$3,822,757
Source: United States Census Bureau, "State- and Locally-Administered Defined Benefit Pension Systems - All Data by State and Level of Government: 2015"

Pension fund management fees[edit]

See also: Public pension fund management fees

In July 2013, the Maryland Public Policy Institute (MPPI) and the Maryland Tax Education Foundation released a report detailing the fees paid for the management of state pension systems. According to MPPI, the 10 state pension funds that paid the most in management fees relative to net assets experienced lower returns over a five-year period than the 10 state pension funds that paid the least in management fees. For example, in fiscal year 2012, South Carolina's pension system paid approximately $296.1 million in total management fees (1.31 percent of total net assets at the beginning of the fiscal year), and its five-year rate of return was 1.46 percent. By contrast, Alabama's pension system paid roughly $13.3 million in management fees (0.05 percent of total net assets), and its five-year rate of return was 7.53 percent.^[6]

The table below presents the information collected by MPPI for Alabama and surrounding states. For each state's pension system, total net assets are listed (both for the beginning and end of the fiscal year in question), as well as the total amount paid in management fees. In addition, the rates of return for the pension systems are presented. In fiscal year 2012, Alabama paid the fewest total management fees when compared to surrounding states.

Public pension fund management fees, 2011-2012
State	Fiscal year	Total net assets at the beginning of the year	Total net assets at the end of the year	Total management fees	Management fees as % of total net assets	Five-year rate of return
Alabama	2012	$25,092,788,000	$28,374,703,000	$13,294,000	0.05%	7.53%
Florida	2012	$126,579,719,608	$119,981,464,834	$374,200,433	0.30%	1.56%
Georgia	2012	$69,563,890,000	$68,239,850,000	$53,014,039	0.08%	2.95%
Mississippi	2012	$20,840,987,000	$20,220,476,000	$47,575,948	0.23%	1.30%
1"Three states— Hawaii, Nevada and Rhode Island—were excluded because they hadn’t published CAFRs for fiscal years ending December 31, 2011 or later. West Virginia was excluded because its June 30, 2012 CAFR lacked sufficient disclosure."[6] Source: Maryland Public Policy Institute, "Wall Street Fees, Investment Returns, Maryland 49 Other State Pension Funds," July 1, 2013

As published 2015[edit]

Public pensions in Alabama

General information (2013)

Total contributions: $1,802,232,000

Employee contributions: $757,095,000

Government contributions: $1,045,137,000

Total payments: $3,195,749,000

Total cash and investment holdings: $33,251,180,000

Number of state and local pension systems: 10 (4 state systems, 6 local systems)

Active membership: 233,423

Inactive membership: 29,546

Pension health (2012)

Assets: $28,136,859,000

Actuarial accrued liability (AAL): $42,516,832,000

Unfunded actuarial accrued liability (UAAL): $14,379,973,000

Funded ratio: 66.2%

UAAL per capita: $3,051

Public pensions in the states

Alabama • Alaska • Arizona • Arkansas • California • Colorado • Connecticut • Delaware • Florida • Georgia • Hawaii • Idaho • Illinois • Indiana • Iowa • Kansas • Kentucky • Louisiana • Maine • Maryland • Massachusetts • Michigan • Minnesota • Mississippi • Missouri • Montana • Nebraska • Nevada • New Hampshire • New Jersey • New Mexico • New York • North Carolina • North Dakota • Ohio • Oklahoma • Oregon • Pennsylvania • Rhode Island • South Carolina • South Dakota • Tennessee • Texas • Utah • Vermont • Virginia • Washington • West Virginia • Wisconsin • Wyoming

Public pensions • State public pension plans • Alabama state budget and finances

Note: This page utilizes information from a variety of sources. As such, the currency of the information varies somewhat. The information presented on this page reflects the most recent data available as of March 2015.

Alabama public pensions are the state mechanism by which state and many local government employees in Alabama receive retirement benefits.

According to the United States Census Bureau, there were 10 public pension systems in Alabama as of 2013. Four of these were state-level programs, while the remaining six were administered at the local level. As of 2013, membership in Alabama's various pension systems totaled 262,969. Of these, 233,423 were active members.^[1]

According to a 2013 report by Morningstar, an independent financial research group, most states' pension plans continued to be funded below the 80 percent level considered necessary for a healthy fund. Decreased funding and increasing liabilities since the 2008 recession continued to put pressure on local and state budgets, in some cases leading to bankruptcy. Higher pension costs can have the following consequences:^[2]

• higher taxes
• less intergovernmental aid for services
• lower credit ratings
• higher interest rates on state borrowing

Background[edit]

The basic information on this page comes from the U.S. Census Bureau, as reported by the states and pension funds themselves for fiscal year 2013. Also included are comparative data from three different reports, which looked at the states' Comprehensive Annual Financial Reports (CAFRs).

General information[edit]

See also: Pension data, U.S. Census

According to the U.S. Census, Alabama's state pension system, the Retirement Systems of Alabama, had four state pension systems and plans as of 2013:

1. Alabama State Employee Insurance Board
2. Alabama Teachers Retirement System
3. Alabama Judges Retirement Fund
4. Alabama Peace Officers Annuity Benefit Fund^[8]

In addition to the aforementioned state-level pension systems, there were six locally administered pension systems in Alabama.^[1]

The table below provides general pension system information for Alabama and surrounding states.

General pension system information, 2013
State	Systems		Total members	Active members		Inactive members
	State	Local		Members	Percent of total	Members	Percent of total
Alabama	4	6	262,969	233,423	88.76%	29,546	11.24%
Florida	1	471	722,648	607,344	84.04%	115,304	15.96%
Georgia	10	24	670,198	402,790	60.1%	267,408	39.9%
Mississippi	4	0	293,905	162,455	55.27%	131,450	44.73%
Tennessee	1	14	283,137	247,390	87.37%	35,747	12.63%
Source: United States Census Bureau, "State- and Locally-Administered Defined Benefit Pension Systems - All Data by State and Level of Government: 2013"

Contributions[edit]

See also: Pension contribution and payment data, U.S. Census

Pension contributions are the funds paid into pension systems. These contributions come from the employer (in the case of public pensions, the government) and employees. Investment earnings are the main source of increases in the fund and are listed separately in the rightmost column in the below table.

In fiscal year 2013, the most recent year for which information is available, total contributions of $1.8 billion were made to Alabama's state and local pension systems. Of this amount, $757.1 million came from employees. The remainder came from state and local governments. The table below provides information about pension contributions in Alabama and surrounding states in fiscal year 2013.^[1]

Pension contributions, fiscal year 2013 (dollars in thousands)
State	Total contributions from employees and employers	Employee contributions		Government contributions		Earnings on investments
		Contributions	Percentage of total	Contributions	Percentage of total
Alabama	$1,802,232	$757,095	42.01%	$1,045,137	57.99%	$4,338,491
Florida	$4,314,456	$1,280,521	29.68%	$3,033,935	70.32%	$20,082,030
Georgia	$2,786,217	$771,885	27.7%	$2,014,332	72.3%	$13,327,765
Mississippi	$1,464,067	$550,047	37.57%	$914,020	62.43%	$2,673,187
Tennessee	$1,584,479	$321,690	20.3%	$1,262,789	79.7%	$4,299,832
Source: United States Census Bureau, "State- and Locally-Administered Defined Benefit Pension Systems - All Data by State and Level of Government: 2013"

Payments[edit]

See also: Pension contribution and payment data, U.S. Census

Payments are the amounts paid to pension recipients by their pension plans. Pension payments include benefits and withdrawals. Benefits are the regular payments made by a pension plan to the plan's recipients. Pension beneficiaries may also withdraw funds before they are due to receive regular benefits.

In fiscal year 2013, Alabama's state and local pension systems made payments totaling $3.2 billion. The table below provides pension payment information for Alabama and surrounding states in fiscal year 2013. The columns labeled "Benefits," "Withdrawals," and "Other" are subsets of total payments. All dollar amounts displayed should be multiplied by 1,000 ($240,000 is equal to $240,000,000).

Pension payments, fiscal year 2013 (dollars in thousands)
State	Total payments	Benefits	Withdrawals	Other
Alabama	$3,195,749	$3,032,398	$106,928	$56,423
Florida	$9,321,799	$8,646,349	$88,880	$586,583
Georgia	$5,911,278	$5,682,504	$105,722	$123,052
Mississippi	$2,206,114	$2,029,121	$108,536	$68,457
Tennessee	$2,657,352	$2,505,227	$69,999	$82,126
Source: United States Census Bureau, "State- and Locally-Administered Defined Benefit Pension Systems - All Data by State and Level of Government: 2013"

Cash and investment holdings[edit]

See also: Pension data, U.S. Census

As of fiscal year 2013, Alabama's state and local pension systems held $33.2 billion in total cash and investment holdings. The table below summarizes pension system cash and investment holdings for Alabama and surrounding states. The columns labeled "Total cash and short-term investments," "Total securities," and "Total other investments" are subsets of the grand total. All dollar amounts displayed should be multiplied by 1,000 ($240,000 is equal to $240,000,000).^[1]

Total cash and investment holdings, fiscal year 2013 (dollars in thousands)
State	Grand total	Total cash and short-term investments	Total securities	Total other investments
Alabama	$33,251,180	$899,195	$29,333,158	$3,018,827
Florida	$163,785,916	$3,657,093	$135,199,658	$24,929,164
Georgia	$82,222,704	$2,579,828	$79,285,360	$357,516
Mississippi	$23,017,265	$1,071,566	$20,085,810	$1,859,889
Tennessee	$45,050,770	$1,034,517	$41,077,655	$2,938,598
Source: United States Census Bureau, "State- and Locally-Administered Defined Benefit Pension Systems - All Data by State and Level of Government: 2013"

Pension health[edit]

Pension health is a term used to describe the overall state of pension systems. It can be difficult to gauge pension health in each state, but many studies use calculations to determine the average liabilities, unfunded liabilities, funded ratio and other data. Most experts believe that pension systems need to be funded at least 80 percent to be considered healthy. This information is then used to provide a snapshot of the state's overall pension health. This section provides information from three studies regarding the health of pensions in Alabama and neighboring states. They found the following:

• According to the Pew Charitable Trusts, Alabama paid 100 percent of its required contribution and its funded ratio was only 66 percent in fiscal year 2012.
• According to Morningstar, the state had a per capita pension debt of $3,051 and a funded ratio of 66.2 percent in fiscal year 2012.
• According to State Budget Solutions, which assumed a lower rate of return, Alabama had a per capita pension debt of $13,450 and a funded ratio of 31 percent in fiscal year 2013.

Pew research[edit]

See also: Pew Charitable Trusts pensions study, 2014

According to a 2014 report by the Pew Charitable Trusts, “Many states are seeing their pension debt continue to increase, despite reform efforts, because of missed contributions and the continued impact of investment losses.” The funding gap between what state pension systems have promised in benefits (liabilities) and current funding (assets) increased by $158 billion from 2010 to 2012 (14 percent), leaving state-run retirement systems with $915 billion in unfunded liabilities. Only 15 states made at least 95 percent of the annual required contributions (ARCs) for their pensions between 2010 and 2012; the aggregate shortfall in funding for all state plans was $21 billion. Data on these state pensions come from the Comprehensive Annual Financial Reports (CAFRs) that each state’s pension plan prepared for fiscal year 2012; these reports include actuarial valuations based on “the expected rate of return on investments and estimates of employee life spans, retirement ages, salary growth, retention rates, and other demographic characteristics.”^[9]

All dollar amounts displayed should be multiplied by 1,000,000 (e.g., $240,000 is equal to $240,000,000,000).

Pension health metrics from the Pew Charitable Trusts report, 2010-2012 (dollars in millions)
State	2012			Funded ratio			Percent of ARC paid
	Liability	Unfunded	ARC	2010	2011	2012	2010	2011	2012
Alabama	$42,517	$14,380	$947	70%	67%	66%	100%	100%	100%
Florida	$157,068	$28,956	$2,547	82%	82%	82%	107%	80%	59%
Georgia	$86,384	$16,776	$1,375	85%	82%	81%	100%	100%	100%
Mississippi	$35,290	$14,860	$767	64%	62%	58%	100%	101%	101%
Tennessee	$40,069	$3,389	$1,003	90%	92%	92%	100%	100%	100%
Totals in the U.S.	$3,298,643	$914,653	$87,213	75%	74%	72%	78%	77%	77%
Source: The Pew Charitable Trusts, "The Fiscal Health of State Pension Plans: Funding Gap Continues to Grow"

Morningstar report[edit]

See also: Pension data, 2013 Morningstar report

In 2013, independent investment research firm Morningstar released "The State of State Pension Plans 2013," a report detailing various metrics of pension system health in all 50 states. Morningstar found a $1.2 trillion gap in 2012 for the largest 100 U.S. public pension plans (according to the actuarial firm Milliman). Based on two key drivers in Morningstar’s analysis—the funded ratio and the unfunded actuarial accrued liability (UAAL) per capita—the fiscal solvency and management of these plans varied greatly. Overall, the firm found that "more than half of all states fall below Morningstar’s fiscally sound threshold of a 70 percent funded ratio" and all state plans combined were "72.6 percent funded with a UAAL per capita of roughly $2,600.”^[2]

According to Morningstar's research, Alabama's state pension system was funded at a rate of 66.2 percent in fiscal year 2012. The table below provides state pension system health metrics for Alabama and surrounding states in fiscal year 2012. Figures in the columns labeled "Assets," "AAL," and "UAAL" are rendered in thousands of dollars (for example, $2,400,000 translates to $2,400,000,000). Figures in the remaining columns have not been abbreviated. To view the full report, click here.

Pension health metrics from the Morningstar report, fiscal year 2012
State	Assets	Liabilities (AAL)	Unfunded liabilities (UAAL)	Funded ratio	Unfunded liabilities per capita
Alabama	$28,136,859	$42,516,832	$14,379,973	66.2%	$3,051
Florida	$127,891,781	$148,049,596	$20,157,815	86.4%	$1,089
Georgia	$68,054,871	$83,100,245	$15,045,374	81.9%	$1,589
Mississippi	$20,274,489	$34,933,825	$14,659,336	58%	$4,983
Tennessee	N/A	N/A	N/A	N/A	N/A
Totals in the U.S.	$2,157,578,916	$2,979,267,860	$821,688,945	72.40%	N/A
Source: Morningstar, "The State of State Pension Plans 2013: A Deep Dive Into Shortfalls and Surpluses," accessed September 16, 2013

State Budget Solutions report[edit]

See also: Pension data, State Budget Solutions report

State Budget Solutions is "a nonpartisan, nonprofit, national public policy organization with the mission to change the way state and local governments do business."^[10] It should be noted that although the organization is technically nonpartisan, its ideology and mission have conservative leanings. In November 2014, the organization released a research report that used a fair market valuation based on a discount rate of 2.743 percent to determine the unfunded liabilities of public pension plans. The group concluded that "state public pension plans were underfunded by $4.7 trillion in 2014, up from $4.1 trillion in 2013. Overall, the combined plans' funded status ... dipped 3 percentage points to 36 percent. Split among all Americans, the unfunded liability [was] over $15,000 per person."^[11][12]

According to the State Budget Solutions report, Alabama's pension plans were funded at a rate of 31 percent. To read the full report, click here.

Note that all dollar amounts displayed (excluding those under the "Unfunded liability per capita" column) should be multiplied by 1,000 (e.g., $240,000 is equal to $240,000,000).

Pension health metrics from the State Budget Solutions report, fiscal year 2013 (dollars in thousands)
State	Assets	Market liability*	Funding ratio	Unfunded liability	Unfunded liability per capita	Unfunded liability as % of 2013 gross state product
Alabama	$29,419,597	$94,436,581	31%	$65,016,984	$13,450	34%
Florida	$131,680,615	$315,080,836	42%	$183,400,221	$9,380	23%
Georgia	$70,119,741	$172,429,158	41%	$102,309,417	$10,239	23%
Mississippi	$20,928,447	$76,926,497	27%	$55,998,050	$18,722	53%
Tennessee	$36,680,782	$79,109,037	46%	$42,428,255	$6,531	15%
Totals in the U.S.	$2,679,831,466	$7,416,319,293	36%	$4,736,487,827	$15,052	29%
Source: American Legislative Exchange Council, "Promises Made, Promises Broken 2014: Unfunded Liabilities Hit $4.7 Trillion"

Other factors[edit]

Rate of return[edit]

According to a 2012 analysis by the Pew Center for the States, most state pension plans assumed an 8 percent rate of return on investments at that time. Proponents argued that an 8 percent rate of return would bear out over the long-term (15-30 years). Critics asserted that this assumption was unrealistic, citing changing market conditions and lower investment returns across the board in preceding years.^[13][14]

Assuming a lower rate of return to predict investment earnings increases current plan liabilities, thereby lowering the percent funded ratio and requiring increased employer contributions (ARCs). This is because future plan liabilities are discounted based on the rate of return, so smaller expected investment returns result in larger actuarially accrued liabilities.^[15] For example, on September 21, 2012, the Illinois Teachers Retirement System voted to lower its rate of return from 8.5 percent to 8.0 percent. This change increased the state's fiscal year 2014 ARC from $3.07 billion to $3.36 billion.^[16] Similarly, when California's CalPERS reduced its projected annual rate of return from 7.75 percent to 7.5 percent in March 2012, it cost the state an additional $303 million for fiscal year 2013.^[17]

Financial crisis[edit]

In the wake of the 2008 recession, proponents of a lower assumed rate of return argued that the standard 8 percent assumptions could cause pension fund managers to engage in more risky investments and imprudent stewardship of public funds. Jeffrey Friedman, a senior market strategist at MF Global, said, "To target 8 percent means some aggressive trading. Ten-year Treasury [bonds] are yielding around 2 percent, economists say we are headed for a double-dip, and house prices aren't getting back to 2007 levels for the next decade, maybe.".^{[18][19][20][21][22]}

Advocates of the 8 percent return rate argued that the dip following the 2008 financial crisis did not prove that there was a long-term downward trend in investment returns. According to Chris Hoene, executive director of the California Budget Project, "The problem with [the market rate] argument is there isn’t significant evidence other than the short term blip during the economic crisis that there’s been that shift. It’s a speculative argument coming out of a very deep recession."^[23]

The National Association of State Retirement Administrators researched the median annualized rate of return for public pensions for the 1-, 3-, 5-, 10-, 20- and 25-year periods ending in 2013 and found it was 7.9 percent over the 20-year period, and exceeded 8 percent for the 1-, 3- and 25-year periods. It is important to note that the NASRA data reported the median returns, which means that median annualized returns of investment portfolios for half of the examined public pension funds failed to meet an 8 percent assumed rate of return.^[24]

Studies and reports[edit]

Pension fund management fees[edit]

See also: Public pension fund management fees

In July 2013, the Maryland Public Policy Institute (MPPI) and the Maryland Tax Education Foundation released a report detailing the fees paid for the management of state pension systems. According to MPPI, the 10 state pension funds that paid the most in management fees relative to net assets experienced lower returns over a five-year period than the 10 state pension funds that paid the least in management fees. For example, in fiscal year 2012, South Carolina's pension system paid approximately $296.1 million in total management fees (1.31 percent of total net assets at the beginning of the fiscal year) and its five-year rate of return was 1.46 percent. By contrast, Alabama's pension system paid roughly $13.3 million in management fees (0.05 percent of total net assets) and its five-year rate of return was 7.53 percent.^[6]

The table below presents the information collected by MPPI for Alabama and surrounding states. For each state's pension system, total net assets are listed (both for the beginning and end of the fiscal year in question), as well as the total amount paid in management fees. In addition, the rates of return for the pension systems are presented.

Public pension fund management fees, 2011-2012
State	Fiscal year	Total net assets at the beginning of the year	Total net assets at the end of the year	Total management fees	Management fees as % of total net assets	Five-year rate of return
Alabama	2012	$25,092,788,000	$28,374,703,000	$13,294,000	0.05%	7.53%
Florida	2012	$126,579,719,608	$119,981,464,834	$374,200,433	0.30%	1.56%
Georgia	2012	$69,563,890,000	$68,239,850,000	$53,014,039	0.08%	2.95%
Mississippi	2012	$20,840,987,000	$20,220,476,000	$47,575,948	0.23%	1.30%
Tennessee	2012	$33,663,308,000	$34,912,773,000	$32,379,360	0.10%	3.11%
1"Three states— Hawaii, Nevada and Rhode Island—were excluded because they hadn’t published CAFRs for fiscal years ending December 31, 2011 or later. West Virginia was excluded because its June 30, 2012 CAFR lacked sufficient disclosure."[6] Source: Maryland Public Policy Institute, "Wall Street Fees, Investment Returns, Maryland 49 Other State Pension Funds," accessed April 23, 2015. Note: To access this data, navigate to the list of links below the article and click "Exhibit A."

Other post-employment benefits[edit]

See also: Other post-employment benefits, data

In addition to standard pension payments, some plans may offer pensioners additional benefits. These benefits, sometimes referred to as "other post-employment benefits," or "OPEBs," consist of health insurance, life insurance or other benefits that the pensioner may have received while employed. The cost of these benefits can prove complicated for actuaries to calculate because of the changes in fields like medicine. This, coupled with the normal challenges in calculating and meeting pension requirements, can result in funding shortages for pension plans.

Unfunded liabilities totaled nearly $500 billion throughout the country for OPEBs. Alabama was reported to have about $3.2 billion in unfunded liabilities for OPEBs. This was equal to about 0.65 percent of the country's total unfunded liabilities for these other services.

The chart below displays the unfunded liabilities for Alabama and its surrounding states. All dollar amounts displayed should be multiplied by 1,000,000. For instance, $300 translates to $300,000,000.

Unfunded actuarial accrued liabilities for other post-employment benefits, fiscal year 2013 (dollars in millions)
State	Unfunded liabilities	Percent of total
Alabama	$3,216	0.65%
Florida	$4,879	0.98%
Georgia	$18,239	3.66%
Mississippi	$690	0.14%
Tennessee	$1,694	0.34%
U.S. total	$497,693	100%
Source: National Association of State Retirement Administrators, "Retiree Health Care Benefits for State and Local Employees in 2014," accessed April 30, 2015. Note: Although this article was dated for 2014, all figures were reported to have come from fiscal year 2013 reports.

Public pensions in 2012[edit]

Pension plans[edit]

In fiscal year 2012, according to the RSA's Actuarial Valuation Reports, Alabama had a total of 218,297 active members in its retirement plans.^[25][26][27] Membership figures divide plan participants into two broad categories: active and other. Active members are current employees contributing to the pension system. Other members include retirees, beneficiaries, and other inactive plan participants (usually terminated employees entitled to benefits but not yet receiving them).^[28]

The following information was collected from the state's 2012 Actuarial Valuation Reports, which measured fund status as of September 30, 2012. Valuation reports are annual reports produced by outside consultants, using unaudited data provided by the pension systems themselves, in order to determine what employers in the system should contribute in the coming year to maintain or improve the fiscal health of the pension funds.

The Retirement Systems of Alabama (RSA) Valuation Reports for 2012 were produced by Cavanaugh MacDonald Consulting, LLC, a Georgia-based firm that exclusively provides financial consulting to public sector pension and health care plans to governments throughout the United States.^[29] The "percentage funded" was calculated by taking the current value of the fund and dividing by the estimated amount of total liabilities. The current fund value is calculated assuming an 8 percent rate of return. The Government Accountability Office (GAO) and Pew Research Centers cited a percent funded ratio of 80 percent as the minimum threshold for a healthy fund, though the American Academy of Actuaries suggested that all pension systems "have a strategy in place to attain or maintain a funded status of 100 percent or greater."^[30][31] The column "SBS figure" refers to a market liability calculation of the fund by the nonprofit organization State Budget Solutions. This analysis uses a rate of return of 3.225 percent, which is based upon the 15-year Treasury bond yield. The organization calls this a "risk-free" rate of return, which would make it easier for states to hit their pension requirements in the future. Since 2006, all private sector corporate pension plans have incorporated market costs into their funding schemes.^[32]

Basic pension plan information -- Retirement Systems of Alabama (RSA)
Plans	Current value	Percentage funded		Unfunded liabilities		Membership
		State figure	SBS figure[33]	State figure	SBS figure[33]
Employees' Retirement System[25]	$9,116,551,305	65.7%	N/A[34]	$4,768,444,247	N/A[34]	84,169 active members
Teachers' Retirement System[26]	$18,786,007,955	66.5%		$9,465,359,317		133,791 active members
Judicial Retirement Fund[27]	$234,299,529	61.6%		$146,170,275		337 active members
TOTALS	$28,136,858,789	66.2%	34%	$14,379,973,839	$55,279,430,000	218,297 active members

Annual Required Contribution[edit]

Annual Required Contributions (ARC) are calculated annually and are a sum of two different costs. The first component is the "normal cost," or what the employer owes to the system in order to support the liabilities gained in the previous year of service. The second component is an additional payment in order to make up for previous liabilities that have not yet been paid for. According to a report by the Pew Center on the States, between 1999 and 2008, Alabama paid 100 percent of its annual required contribution.^[35][36]

On June 25, 2012, the Government Accounting Standards Board (GASB) approved a plan to reform the accounting rules for state and local pension funds. These revised standards were set to take effect in fiscal years 2013 and 2014.^[37] As a result, ARCs were removed as a reporting requirement. Instead, plan administrators and accountants were instructed to use an actuarially determined contribution or a statutory contribution for reporting purposes.^[38]

ARC historical data[39]
Fiscal year	Teachers' Retirement System		Employees' Retirement System		Judicial Retirement Fund
	Annual Required Contribution (ARC)	Percentage contributed	Annual Required Contribution (ARC)	Percentage contributed	Annual Required Contribution (ARC)	Percentage contributed
2012	$618,306,000	100%	$317,520,000	100%	$10,747,000	100%
2011	$779,644,000	100%	$394,998,000	100%	$10,906,000	100%
2010	$776,421,000	100%	$377,898,000	100%	$10,814,000	100%
2009	$753,518,000	100%	$451,139,000	100%	$10,326,000	100%
2008	$729,995,000	100%	$329,339,000	100%	$9,880,000	100%

Public pensions in 2011[edit]

On June 27, 2013, Moody's Investor Service released its report on adjusted pension liabilities in the states. The Moody's report ranked states "based on ratios measuring the size of their adjusted net pension liabilities (ANPL) relative to several measures of economic capacity." In its calculations of net pension liabilities, Moody's employed market-determined discount rates (5.14 percent for Alabama) instead of the state reported assumed rates of return (8 percent for Alabama).^[40]

The report's authors found that adjusted net pension liabilities varied dramatically from state to state, from 6.8 (Nebraska) percent to 241 (Illinois) percent of governmental revenues in fiscal year 2011.^[40]

The adjusted net pension liability for Alabama's pension system (excluding the Judicial Retirement Fund, which Moody's did not include in its analysis) in fiscal year 2011 was ranked 28th.^[40] The following table presents key state-specific findings from the Moody's report, as well as the state's national rank with respect to each indicator.

Adjusted net pension liabilities (ANPL) relative to key economic indicators - Alabama
	Governmental revenue*	Personal income	State GDP	Per capita
State findings	36.9%	4.3%	4.2%	$1,511
National ranking	30th	29th	29th	32nd
*Moody's uses governmental revenues as reported in each state's consolidated annual financial reports; this includes not only state-generated revenue, but federal funds, as well.[40]

Historical pension plan data[edit]

Between 2007 and 2011, the plans managed by RSA gained more than $4.8 billion in liabilities, but lost more than $1.5 billion in value. This poor fund performance increased the collected unfunded liability by more than $4.8 billion, reducing the funded ratio of the plans by 12.5 percentage points.^[39]

Historical pension plan data - RSA
Year	Value of assets	Accrued liability	Unfunded liability	Funded ratio
2007	$30,687,002,000	$38,657,817,000	$7,970,815,000	79.4%
2008	$30,977,314,000	$40,206,232,000	$9,228,918,000	77.0%
2009	$30,763,098,000	$41,634,554,000	$10,871,456,000	73.9%
2010	$30,118,307,000	$42,942,101,000	$8,264,125,000	70.1%
2011	$29,122,163,000	$43,536,747,000	$14,414,584,000	66.9%
Change from 2007-2011	-$1,564,839,000	$4,878,930,000	$6,443,769,000	-12.5%

Reforms[edit]

Enacted reforms[edit]

2013[edit]

SB 303

On May 13, 2013, Governor Robert Bentley signed into law SB 303, which altered the membership of the Board of Control of the Teachers' Retirement System, increasing the number of trustees from 14 to 15 and removing the Executive Secretary of the Alabama Education Association as a member of the board, and provided for 12 elected members (up from 10 previously).^[41]

2012[edit]

SB 388

On May 14, 2012, Governor Bentley signed into law SB 388, which made significant reforms to the state's Employees' Retirement System and Teachers' Retirement System. Employees who becane members of either retirement system on or after January 1, 2013 would be enrolled in a newly created second benefit plan. This plan required members to contribute a portion of their salaries to the plan and established a new minimum retirement age (62 years old for most employees; 56 years old for correctional officers, law enforcement officers and firefighters with 10 years of service) and service requirements . The law also stipulated that the plan be administered by the Retirement Systems of Alabama.^[42] The enacted reforms were expected to save state government in excess of $5 billion dollars over 31 years.^[43]

Proposed reforms[edit]

2013[edit]

HB 32

HB 32 proposed to allow a member of the state's retirement systems who is away from work due a job-related injury and receiving workers' compensation benefits to continue making contributions to his or her retirement system at a rate commensurate with what he or she would have contributed had he or she been receiving regular compensation from the employer. HB 32 passed the House on April 24, 2013, then moved to the Senate. It was referred to the Governmental Affairs Committee, which reported favorably on the bill. The Senate adjourned on May 20, 2013, however, without having taken a vote on the bill.^[44]

2012[edit]

HB 616

HB 616 proposed a constitutional amendment to allow specified elected and appointed officials in Cullman County, Alabama to participate in the Employees' Retirement System, lifting an existing prohibition on such participation. As a result, no elected or appointed official in Cullman County would be eligible to assume a supernumerary office after the effective of the amendment. HB 616 passed the House on April 12, 2012, then moved to the Senate, where it was referred to the Constitution, Campaign Finance, Ethics and Elections Committee. The Senate adjourned, however, without having taken a vote on the bill.^[45]

See also[edit]

• Public pensions in the United States
• Alabama state budget and finances
• Tax policy in Alabama
• Pension statistics
• Public pension health by state
• Public pensions

External links[edit]

• Pension Tsunami
• Pension Calculator from Public Sector Inc.
• RSA financial report, fiscal year ended June 2012

Footnotes[edit]

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