The changes will only affect new employees. All
current public employees are unaffected. The new measures will apply to future
employees beginning January 1, 2013.
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% of their paycheck towards their retirement. Current employees
pay 7.5% 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 towards 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% 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. Many editorialists
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.
About the author: 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 http://www.steveflowers.us.
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