RSA chief concedes $1B in yearly taxpayer funding is keeping Alabama pension system afloat

MONTGOMERY, Ala. — Retirement Systems of Alabama (RSA) CEO David Bronner, who oversees state employees’ pension program, revealed recently that the system would devolve into a “crisis” if taxpayers do not continue propping it up to the tune of $1 billion per year.

The Alabama Legislature’s newly formed Joint Committee on Pensions this week began work to address the looming problem in the state’s public pension system. The RSA’s billions of dollars in unfunded liabilities have been buttressed by the surge in the stock market since the doldrums of the Great Recession, but at the end of 2013 the RSA’s investments were still significantly short of what it will be required to pay out to retirees over the next several decades.

In an attempt to narrow the gap, the Alabama legislature passed reforms requiring employees to contribute more to their retirement plans. Pensions have also been made less generous for new employees coming into the system. In the mean time, Alabama taxpayers have been covering the gap.

But Bronner downplays the shortfall, saying it is not a problem, as long as the state keeps covering it.

“It’s like a house mortgage,” said Bronner. “So long as you’re making your payment, and the state has done a good job doing this, the state is going to be fine in the end. If you don’t make a payment in the end, the state is going to have a crisis.”

The RSA’s obligations are currently around 60 percent funded, according to information RSA general counsel Leura Canary provided the Joint Committee on Monday.

Senator Arthur Orr (R-Decatur) said that “optimally” the funding would be closer to 85 or 90 percent, but he conceded that “it’s always going to fluctuate.”

The system’s unfunded liability has fluctuated significantly over the last decade, but regardless of the shortfall’s size, it is Alabama taxpayers who must cover the benefits promised to retirees when the RSA’s investments cannot.

The Alabama Policy Institute (API), a non-partisan free-market think tank, has long advocated for reforms that would alleviate some of the risk to taxpayers while still protecting retirees. In a study published earlier this year in conjunction with researchers at Auburn University, API revealed that the amount RSA has requested from the legislature has increased by an average of 11.9 percent annually for the last several years.

“Expressed as a percentage of the overall discretionary budget, the state’s contribution of $938.2 million to RSA during 2015 is a weighty 12.0% of the entire combined budget,” the study’s authors wrote. “To put this figure into perspective, the state’s payment to RSA to cover the cost of past and current pensions is the second-largest expense in all of state government (only behind education) and is larger than any single line item in the entire General Fund, nearly as large as Medicaid and Corrections combined.”

While the RSA maintains that retirees and current employees should not be concerned over whether they will receive their promised benefits, Bronner’s concession that Alabama taxpayers are “paying the mortgage” on a house that’s underwater could spur the Joint Committee toward considering more significant reforms.

RELATED: RSA CEO David Bronner unloads on Alabamians for opposing tax hikes and ObamaCare (Video)

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— Elizabeth BeShears (@LizEBeesh) January 21, 2015