This week the House will take up a pension reform plan aimed at stabilizing the financially-strapped Retirement Systems. Here’s what you need to know:
Pension Reform – Senate Bill 388 by Sen. Orr, Rep. Ison & Rep. McCutcheon
What must change about Alabama’s Retirement System and Why:
- Taxpayers’ contributions to fund RSA have tripled since 2001 from $330 million to almost $1 billion this year. By RSA’s own projections, that funding will need to increase by another 77 percent over the next eight years in order for RSA to continue operating at its current pace.
- If changes aren’t made to the retirement system, it’s estimated that it will run out of money by 2023.
- If changes aren’t made to the retirement system, they will be forced to either painfully reduce benefits for those already in the system or massively increase taxes on Alabama families and businesses to make up the difference.
- Currently, anyone may retire with 25 years of service, no matter how young they are. Or, they can retire at age 60 as long as they’ve served for 10 years.
Governor Bentley, Legislative leaders and officials from the Retirement Systems of Alabama have all endorsed the below plan to save Alabama’s public employee pension funds by making them fiscally sound over the long term.
About the Plan:
- Proposed changes would not affect current employees or retirees whether they’re vested or not. This will only be for new employees hired beginning in 2013.
- The plan would set minimum retirement for most employees at 62, while the minimum for law enforcement would be 56.
- It would also adjust pension payments from an average of the highest-paid 3 years out of the last 10 years of service to an average of the highest 5 years.
- New hires would see their employee contribution rate decrease from 7.5% to 6.0%, meaning less money out of their paychecks and more take-home pay.
- Total estimated savings over 30 years: $5.03 Billion
- Average annual savings over 30 years: $162 Million
- These changes bring the state more in line with the private sector. While honoring the state’s commitment to current employees, this plan also provides a solid, attractive retirement for future employees as well.