MONTGOMERY — The leader of the Retirement Systems of Alabama has told state budget makers that he’ll need about $893 million from them in fiscal year 2014 to cover the cost of retirees’ pensions that year.
That’s an increase of about $123 million over this year’s expected state contribution.
David Bronner, chief executive officer of the Retirement System of Alabama, blames the needed increase in state money on the bad economy of recent years.
His point of view is shared by others.
RSA funds come from three sources: employee contributions, state contributions and returns on investments. In good economies, the investments make up the bulk of the revenue.
“The big dollars are on the investment side, not employer, employee (contributions),” Bronner said.
That hasn’t been the rule in recent years as the country battles through the Great Recession.
In 2011, employee contributions to all three funds totaled about $521 million, while employer contributions totaled about $1.2 billion and investments were $550 million, down from $2.1 billion in 2010, according to RSA’s annual report.
“Really, the culprit here is that the opportunity to make money is excruciatingly scarce,” said Keivan Deravi, an economist from Auburn University-Montgomery. “The state is the catchall.
RSA’s three retirement pensions are for former teachers and other education personnel, state employees and judicial system employees. In total, there were about 330,000 members in 2011.
Bronner, with RSA since 1973, said the Legislature has never failed to fund pension benefits.
“You either meet that obligation or you don’t, and if you don’t, there are consequences,” he said.
State Sen. Arthur Orr, R-Decatur, chair of the Senate general fund budget committee, said not providing the funding in 2014 is “not really an option.”
“We could do like a state like Illinois and not fully fund our pension plans to keep them actuarially sound, but inevitably it will catch up with us sooner or later,” Orr said.
News reports from Illinois show that the state pension system is underfunded by about $85 billion.
State Rep. Johnny Mack Morrow, D-Red Bay, a retired business and economics instructor at Northwest-Shoals Community College, said he hasn’t seen the numbers, but it is in the state’s best interest to keep the retirement systems sound.
“You do that by having adequate reserves to cover the anticipated liability,” he said.
The good news for lawmakers is that things appear to be getting better. Bronner recently reported significant investment increase in 2012 over 2011 and previous recent years.
“With that substantial of an increase, we may be looking at a state decrease (in contributions) in 2015,” Orr said.
But for now, the $120 million increase will be added to a growing list of other increases that are ahead in 2014.
Officials have recently said that state employees’ health insurance could cost $71 million more in 2014, though it is not yet clear if the state, employees or a combination of both will pick up the increase. Also, Medicaid is expected to cost about $30 million more in 3014.
May Sell can be reached at mary.sell@TimesDaily.com.