North Jefferson News, Gardendale, AL

Opinion

October 19, 2012

Steve Flowers: New retirement law will save Alabama money

COMMENTARY — One of the most far reaching and significant accomplishments enacted by the legislature earlier this year is the revamping of the state’s retirement benefit system for state workers. The legislature’s changes to pension benefits for future teachers and public employees should save taxpayers billions and ensure the viability of the state retirement system for decades.

The changes will only affect new employees. All current public employees are unaffected. The new measures will apply to future employees beginning January 1.

These changes are a sign of the times. A good many states are passing similar measures that bring pension benefits for future public employees more in line with the private sector.

Some of the changes affecting new state employees coming on board after the first of the year are that system participants will have to turn 62 before they can start collecting their benefits. Now, most state employees and teachers can work for 25 years and start drawing their retirement even though they may be only 46 or 50 years old.

Employees will have their pension benefits calculated on the average of their five highest paid years of work. Currently benefits are calculated on the average of the three highest paid years.

New public employees will have one advantage. They will only pay 6 percent of their paycheck towards their retirement. Current employees pay 7.5 percent into the retirement system.

There are exceptions. State judges will not be affected by the plan. Their lucrative retirement plans remain unaffected. Also, new state correctional officers, law enforcement officers and firefighters will be able to retire at 56 and will not have to wait until 62 like other workers.

This alteration of the state retirement system also affects all city and county retirement programs throughout the state. It will save local governments that pay for their workers to take part in the state Employees’ Retirement System an immense amount of money.

The annual savings for the state in contributions to the teacher’s retirement system and Employees’ Retirement System will be $162 million a year or more than $5 billion over the next 30 years. These pension plan changes passed by the legislature should ensure that Alabama’s sound retirement system remains viable for decades to come.

Our two state retirement systems have been properly funded and well managed over the years. They are actuarially solid. However, investment returns for the Employees’ Retirement System have trailed returns of most public pension funds nationwide. This disparity has been occurring for a while according to a recent survey. Our pension fund’s investment return has lagged behind other states for one, three and five years and even in 10 and 20 year periods.

This new information gives detractors of Dr. David Bronner a large target to shoot toward with their darts and arrows. Over the years it was assumed that Bronner was a financial guru and genius. These recently released results from the premier analytical investment surveyor, State Street of Boston, prove otherwise. Investment returns were comparatively worse for the ERS over three, five, 10 and 20 years. Each time Alabama ranked in the bottom 10 percent among pension funds in the State Street Survey in each of these benchmark ratings.

Dr. Bronner defends his shortfall by arguing that he could have earned higher returns had he not invested heavily in Alabama. Bronner said had he built a hotel, office building or golf course in California rather than Alabama he would have gotten a higher return. A good many editorialist have taken issue with Bronner’s argument. They say that higher investment returns obviously mean the state pays less tax revenue to fund the retirement plans.

As I said in a column earlier this year, Dr. Bronner’s invest at home approach has been good for Alabama. His vision in building the Robert Trent Jones Golf Trail has paid untold dividends for the state as well as creating an incomparable favorable image for our state. The Golf Trail will be Bronner’s crowning jewel.

See you next week.

[Editor's note: The Retirement Systems of Alabama is a principal investor in Community Newspaper Holdings Inc., which owns The North Jefferson News.]

Steve Flowers is Alabama’s leading political columnist. His column appears weekly in more than 70 Alabama newspapers. Steve served 16 years in the state legislature. He may be reached at www.steveflowers.us.

 

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