The amount state agencies will contribute to retirement funds will go up by $90 million for the 2013 fiscal year which begins October 1.
Estimates compiled by the Retirement Systems of Alabama (RSA) and the non-partisan Legislative Fiscal Office reflect that spending will go up for the next fiscal year. Four months into the current fiscal year, the same state officials still agree on the current estimate of $784.3 in state agency contributions across all three of the state's funds managed by the RSA.
In order to reach that figure, the Teachers Retirement System (TRS) makes up $621 million, the Employees Retirement System (ERS) for all non-education employees makes up $152.5 million excluding local agencies, and the Judicial Retirement Fund (JRF) accounts for $10.8 million.
All of those estimates are slated to go up for the 2013 fiscal year. The figures do not include estimates for the costs of healthcare benefits for retirees.
"There are a number of factors that go into that" said Bill Kelley, Director of Employee Benefits for RSA. "There are more people retiring, there are higher salaries than before."
According to both the RSA and the LFO, the state is expected to contribute $878 million for the defined benefits plan when the next fiscal year begins. All three of the main funds will have to increase their rates of contribution due to varying economic factors; a system that Kelley says has been in place for a long time.
Kelley said, "This is the way the system works and it has worked for many many years this way, in good times and bad. The rates have gone up, they've gone down, they're back up. If history repeats itself it will go back down again and also it will go back up again."
In 2013 the projections are that the TRS will reach $693 million, the ERS will reach $171.5 million, and the JRF will climb to $12.5 million. The chairman of the Senate General Fund Budget committee says this growth is not something the state can sustain. He also says Alabama isn't insulated and that this is an issue facing many states.
Sen. Arthur Orr, (R – Decatur), said "You're seeing the problem across the country are grappling with the public pension cost and unfunded liabilities."
Lawmakers made efforts during the 2011 legislative session to increase how much employees contribute to the funds administered by the RSA. They approved a 2.5% increase across the board for all members of the TRS, ERS, and JRF. It was the first increase in "many dozens of years" according to the LFO.
The purpose of the increase was an attempt to generate more funds into the system in order to alleviate the burden of state agencies and the state's cash strapped budgets.
"We are trying to be responsible stewards of the state's resources" Sen. Orr said in interview.
Orr said additional policy changes are needed over a long period of time to secure a future of anyone who is a member of any of the three funds.
"It's like turning an aircraft carrier" Orr said. "You can't do it very quickly so it's going to take time, it's going to take a slow and steady course to change things but we need to be faithful to the promises that we've made."
However, with the way the statutes are written, the legislature and state agencies have their responsibilities to contribute to the funds, which is why Kelley with the RSA says no one should be surprised at the costs of maintaining the TRS, ERS, and JRF. For the 2013 fiscal year, the RSA has requested an additional $72 million for the TRS, an extra $19 million for the ERS, and an additional $1.8 million for the smaller JRF.
Those funds are distributed to state agencies which use them as contributions for retirement funds. There is not a separate byline for contributions to RSA managed funds. For example, a part of the Medicaid agency's budget is devoted to employee retirement contributions.
"Historically the legislature has always appropriated the necessary moneys to the school systems to the agencies and they have that money that they then pay to their employees for their benefits, it's not a separate amount" Kelley said.
Lawmakers will have a better handle of the budget situation after the governor makes his State of the State address. The state legislature convenes on February 7.
Copyright 2012 WSFA. All rights reserved.