5 years ago

Unfunded liabilities in Alabama’s pension system have increased 500% since 2003. It’s time for reform.

An RSA tower in Mobile at night (Flickr user Steve Driskell)
An RSA tower in Mobile at night (Flickr user Steve Driskell)

An overwhelming majority of economists believe that, without pension reform, states will be forced to resort to austerity budgets, federal bailouts, and/or default.

This is especially a concern for Alabama, given that we are already finding it difficult to balance our budget. Many states, including Alabama, have established committees to analyze the health of their state pension system and to explore potential reforms. Half-measures and partial reforms within the same structure, however, will only temporarily patch over the problem. Only structural reform could ensure public employees, teachers, and judges their hard-earned retirements and minimize the strain of underfunded retirement systems on current and future taxpayers.

As a major policy issue facing Alabama, in forthcoming research with my Johnson Center colleague, John Dove, we will provide an in-depth analysis of the health of the Retirement Systems of Alabama (RSA) and offer avenues for structural reform.


RELATED: How an Alabama state employee built a billionaire’s lifestyle in a taxpayer-funded job (opinion)


First, we have to accurately assess the funding health of the RSA as it stands today. One method that has been frequently used to examine the financial position of the RSA is the growth in Total Assets Under Management (TAUM). The RSA’s TAUMs have increased an impressive 43.15% since 2000. But, adjusting this data for inflation drops the increase down to 9.44%. Even this growth rate reflects, primarily, increased state and member contributions to the RSA. If we hold state and employee contributions per member constant at the level they were in 2001, TAUM growth drops to a negative 2.51%. And that is despite the fact that state contributions from nearly 160,000 withdrawn members over this period are still included in this total. This is because contributions made by the state on the behalf of members who withdraw from the system are not given to these employees or even returned to the state; they remain in the RSA.

Another telling, and more appropriate, way to analyze the health of the RSA system is by projecting and comparing actuarial assets and actuarial liabilities to get the funded ratio. The funded ratio tells us the percentage of actuarial liabilities that are covered by actuarial assets. A 100% funded ratio indicates that all liabilities are covered by assets, a 0% funded ratio indicates that no liabilities are covered by assets.

In every annual edition between 2000 and 2005 of the RSA’s Pension Trust Fund section of the State of Alabama Comprehensive Annual Financial Report accurately states that, “Analysis of this percentage [the funded ratio] over time indicates whether the respective system is becoming financially stronger or weaker. Generally, the greater this percentage [funded ratio], the stronger the retirement system.” According to the RSA’s own projections, the funded ratios of the Teacher’s Retirement System (TRS), Employee’s Retirement System (ERS), and Judicial Retirement Fund (JRF) have drastically declined. In fact, the RSA reported that the TRS and ERS were fully funded in 1999. Since then, their funded ratios have fallen to 66.2% and 65.7% respectively (the JRF went from 84.2% in 1999 to 58.7% in 2013).

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For 2013, the RSA reported a total of $15.4 billion in unfunded liabilities in the TRS, ERS, and JRF (in 2014 dollars). That is nearly 1.7 time more than total state tax revenue in 2014! That represents an increase in unfunded liabilities of nearly 500% since 2003. In addition to underfunded pension liabilities, Alabama’s retiree health care systems for public employees adds another $11 billion in unfunded liabilities.

It is clear that partial pension reform will not be sufficient to meet these liabilities. Our study points to several avenues for structurally reforming the RSA, including successful reforms implemented in Utah and Michigan. While legislators cannot – and should not – change obligations already incurred, they can reform the pension system for future employees and offer current employees the voluntary option to transition to a new system.

More importantly, portable and customizable retirement options will benefit – and help recruit – future state workers. The Bureau of Labor Statistics reports that the median state and local employee will stay at their current job only 7.4 and 7.9 years, respectively. The RSA’s 10 year vesting period does not provide an attractive or fair retirement plan for workers in today’s economy when compared to the private sector. For instance, Vanguard reports that 47% of participants in their employer plans offer immediate vesting of employer contributions. An additional 26% of participants are fully vested within three years. Withdrawn RSA members, including some of the spouses of our military service members, even receive a raw deal on their own contributions; while the RSA assumes an 8% rate of return, withdrawn employees receive only 2% interest on their own contributions if they leave between 3 and 16 years (they receive 0% interest if they leave in under three years).

One objection to reform is that while it will save taxpayers money in the long-term, costs will increase in the short-term. This would certainly be a dilemma for a state like Alabama facing difficult budgetary times. This objection is based on a misunderstanding of the accounting rules for public pensions. While our suggested reforms do require a change in the accounting methods used in the RSA’s reporting, legislators are not required to change how they have been funding the system based upon the new accounting standards. Thankfully, the RSA’s actuary, Cavanaugh MacDonald, cleared this up in their capacity as the consulting actuary for the Kansas Public Employees Retirement System, stating that the accounting rules were “strictly related to accounting for pension benefits, and does not represent a requirement to fund the plan under the standard.”

Undertaking structural reforms in our public pension system is the only way to avoid substantial budgetary problems down the road. The good news is that structural reform of our public pension system will make Alabama more attractive for public employees and, especially, future taxpayers.


Daniel J. Smith is the associate director at the Johnson Center for Political Economy and an associate professor of economics at Troy University. Follow him on Twitter: @smithdanj1

1 hour ago

State Rep. Tracy Estes announces reelection campaign

State Rep. Tracy Estes (R-Winfield) has announced his reelection bid to the Alabama House of Representatives, serving District 17.

Estes, a first-term lawmaker, serves on the Education Policy, Public and Homeland Security, and Children and Senior Advocacy Committees.

“Serving my district in Montgomery has proven to be one of the greatest honors in my life,’’ said Estes. “More importantly, serving in this capacity has given me the opportunity to represent the people of Northwest Alabama while giving them a voice in state government. With a second term in office, I am committed to honoring the promise I made the residents of Lamar, Marion and Winston counties on the campaign trail in 2018 – to be hard working, transparent and accessible. Without hesitation, I believe I have honored my word.’’

In the earliest stages of the global coronavirus pandemic, Estes said in a release he was at the forefront in efforts to bring “much-needed federal financial assistance” to House District 17.

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The release cited his work with hospitals in Winfield, Hamilton and Haleyville to secure more than $15 million in financial aid. The first-term lawmaker noted the assistance his office provided to his constituents in obtaining jobless benefits.

Estes led the legislative in the lower chamber to pass Aniah’s Law, which if passed through statewide ballot measure, would expand judicial authority to deny bail to those accused of committing violent crimes.

The press release stated that Estes has managed to secure funding for eight highway projects for his district, totaling more than $4 million.

He has been an ardent supporter of public education and has sponsored numerous legislation relating to education since assuming office, earning him recognition from the Alabama Association of School Boards and the School Superintendents of Alabama.

Estes serves as a deacon at Winfield First Baptist Church and sings lead in a Southern gospel quartet.

In closing, Estes offered a direct plea for reelection to voters of House District 17.

“I believe the voters in this district still honor and respect hard work,” said Estes. “I can honestly say I have poured all of my energy into working hard on your behalf over the last few years while also being transparent and accessible to everyone in the district regardless of age, gender, community or economic background. I worked for everyone in this district and have considered it an honor to do so.”

Dylan Smith is a staff writer for Yellowhammer News

3 hours ago

Britt: Border crisis ‘a result of the weakness of the Biden administration’

Republican U.S. Senate candidate Katie Britt appeared Thursday on News Talk 93.1’s “Dan Morris Show,” where she was interviewed by guest host Apryl Marie Fogel.

During the interview, she was asked by Fogel whether some of the recent turmoil overseas and at the border was attributable to the transition in the executive branch.

“There is no doubt that this is a result of the weakness of the Biden administration,” Britt outlined. “You mentioned the border — it is a total disaster. If you look at the number of people coming over the border, both in May and June we hit 20-year highs. President Trump placed policies and enacted policies that showed strength and got the border under control. I mean, the first thing that we need to do is seal and secure the border. If you look at the safety and security of our nation, but also the humanitarian crisis that is occurring there. We are seeing so many drugs being trafficked over the border. They said they are catching over 3,000 pounds a day, but Apryl Marie, what China is sending over in fentanyl to Mexico, to then come over our border, they said could kill every American four times over.”

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“And every bit of this, it’s interesting, when Vice President Harris said, ‘Oh, I’m going go to the border to see what the issue is,’ which obviously took her, how many days did it take her? – How many months? It was absurd. But I thought, ‘You don’t need to go down there to see (the problem), just look in the mirror.’ It’s you, it’s your administration, the Biden administration’s policies. It’s the weakness that you’re showing,” Britt concluded. “We’ve got to put back Trump’s Remain in Mexico policy. We’ve also got to make sure that, as President Trump did, when people came over the border, they knew that they weren’t going to be placed on our welfare system. Those types of policies, that type of strength, that deters people from coming. Same thing in Cuba. Same thing in Israel. I mean, they see weakness in the Biden Administration, and they see that the Democrats are starting to undermine that relationship, and they are taking advantage of it. Make no mistake: this is why we have to have strength in D.C. and in the White House. We must have strength in the Senate, and we must have strength in the House.”

Tim Howe is an owner of Yellowhammer Multimedia

5 hours ago

A new-look Alabama Crimson Tide, the same old Nick Saban

Nick Saban knows you want to know what he thinks. About the prospect of COVID-19 disrupting another college football season. Name, image and likeness rights for college athletes. The revolving door on the transfer portal thanks to the one-time free transfer rule.

Winning a poll-era record seven national championships, six of the past 12, including the 2020 title, has earned the Alabama football coach a bully pulpit. It’s also earned him the right to admit he knows what he doesn’t know.

“I know there’s a lot of interest in a lot of those things,” Saban said Wednesday at SEC Media Days at the Hyatt Regency Wynfrey Hotel. “I almost feel that anything that I say will probably be wrong because there’s no precedent for the consequences that some of the things that we are creating, whether they’re good opportunities, even if they’re good opportunities, there’s no precedent for the consequences that some of these things are going to create, whether they’re good or bad.”

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Alabama Crimson Tide coach Nick Saban talks NIL, vacationing, sustaining success and a past SEC Media Days memory from Alabama NewsCenter on Vimeo.

The more college football changes, the more Saban and Alabama adapt to those changes and keep winning. They went undefeated to capture the 2020 national championship despite COVID disruptions such as Saban himself missing the Iron Bowl because he tested positive for the virus, and two games being rescheduled.

Saban explained how Alabama has handled the subject of vaccinations for the disease with its players heading into this season. He broke it down into “a personal decision” for each player and “a competitive decision” on how that choice could affect the team.

How has that approach worked to date?

“I think that we’re pretty close to 90 percent maybe of our players who have gotten the vaccine,” Saban said, “and I’m hopeful that more players make that decision – but it is their decision.”

Speaking a day earlier at a Texas high school coaching convention, Saban weighed in on the newest phenomenon affecting college athletics, NIL rights. He dropped a nugget that Alabama’s heir apparent at quarterback, sophomore Bryce Young, has earned almost a million dollars in endorsements. Saban didn’t expound on Young’s earning power Wednesday but applauded the opportunity for players to make money.

He also questioned the impact that a disparity in NIL earnings could have on the roster “because it’s not going to be equal, and everything that we’ve done in college athletics in the past has always been equal. Everybody’s had an equal scholarship, equal opportunity.”

“Now that’s probably not going to be the case. Some positions, some players will have more opportunities than others. And how that’s going to impact your team, our team, the players on the team, I really can’t answer because we don’t have any precedent for it.

“I know that we’re doing the best we can to try to get our players to understand the circumstance they’re in, the opportunity they have, and how those opportunities are not going to be equal for everybody, and it will be important for our team’s success that people are not looking over their shoulder at what somebody else does or doesn’t do.”

What Alabama does in trying to compete for another championship without 10 NFL draft picks from last year’s team, six of whom were selected in the first round, including Heisman Trophy winner DeVonta Smith, will reflect the program’s ability to adapt to the new era of college football “free agency.” Tennessee transfer linebacker Henry To’oTo’o, a potential “quarterback-type guy on defense” in Saban’s words, is one of the newcomers expected to make an immediate impact on a team that will start the season in a much different place than last season.

With eight new starters on offense and a new offensive coordinator and play-caller in former NFL head coach Bill O’Brien, the experience this time around is on defense. Just the same, Saban said, after setting school records last season with 48.5 points and 541.6 yards a game, “we’re not changing offenses.”

“We’ve got a good offense,” he said. “We’ve got a good system. We’ve got a good philosophy. Bill has certainly added to that in a positive way, and we’ll probably continue to make some changes. But from a terminology standpoint, from a player standpoint in our building, our offense was very, very productive, and we want to continue to run the same type of offense and feature the players that we have who are playmakers who can make plays, and I think Bill will do a good job of that.”

So as a new season awaits, Saban and Alabama find themselves in a familiar place in a new world, trying to defend a national championship with a new cast of featured players and assistant coaches. Saban called it “the penalty for success.”

“The challenge is you’ve got to rebuild with a lot of new players who will be younger, have new roles, less experience, and how do they respond to these new roles? That’s why rebuilding is a tremendous challenge,” Saban said. “That’s why it’s very difficult to repeat.”

Alabama Crimson Tide coach Nick Saban speaks at SEC Media Days 2021 from Alabama NewsCenter on Vimeo.

Saban, who has won back-to-back national championships just once in 2011 and 2012, is heading into his 15th season at Alabama, his 20th in the SEC, including his five years at LSU. The SEC coach next in line in seniority is Kentucky’s Mark Stoops, who’s entering his ninth year. Eight of the league’s head coaches are in their first or second year.

Someone asked Saban the secret to his longevity.

“I think that’s simple,” he said. “You’ve got to win.”

Mission accomplished. Again and again and again.

(Courtesy of Alabama NewsCenter)

5 hours ago

In Alabama, conservation is for the birds

Whether it’s the Yellowhammer State or the Cotton State, whatever you call the state of Alabama, an abundance of birds call it home. “Yellowhammer” in fact refers to the common name for the northern flicker woodpecker — which just happens to be the state bird of Alabama.

Specifically, coastal Alabama is home to a treasure trove of avian species that nest on the beach and use the area for stopover on their migratory journeys around the world. Coastal Alabama is a particularly vulnerable area, as well as the other four Gulf state coasts. The Gulf’s coast is subject to battering from hurricanes and storm surge, land loss from a lack of sediment transfers, and increased development — making coastal restoration projects all that more important.

The incredible amount of bird habitat in the Yellowhammer State is good news for outdoors enthusiasts. Birding trails and hunting opportunities are prevalent, and per Gulf Shores and Orange Beach Tourism, birding as a sector of tourism is huge. Roughly $17.3 billion is spent on wildlife-watching trips and related expenses, with an estimated 20 million Americans traveling for birding.

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“While our 32-mile stretch of sugar-white sand beaches is what draws people to Gulf Shores and Orange Beach for their vacations, the broader nature and outdoors are part of our core marketing focus, especially in the last year with the COVID-19 pandemic,” said Beth Gendler, Chief Operating Officer of Gulf Shores and Orange Beach Tourism. “The Tourism Office learned during the Deepwater Horizon oil spill just how vital it is that we protect our special environment for residents and visitors to enjoy and appreciate in the future. Birding and bird conservation efforts are a key component of this because our area is part of the winter and spring migration routes.”

The U.S. Fish and Wildlife Service’s (Service) Gulf Restoration Office is working to implement projects ensuring these opportunities continue to exist far into the future. Within these efforts, some Service biologists are focused on land restoration, while others are looking to the sky — literally — as they track birds’ migration patterns.

Dauphin Island’s West End

Amid settlement negotiations and cleanup efforts from the Deepwater Horizon oil spill, which occurred in April 2010, one spit of land remained in focus for some Service biologists. Roughly 840 acres of coastal habitat, which until recently was privately owned, is known as the West End of Dauphin Island. Located near the mouth of Mobile Bay, Dauphin Island is a 15-mile long barrier island. The U.S. Census Bureau has designated the area as 166-square-miles, which includes about 96% open water. It offers invaluable habitat for coastal bird populations.

A major milestone on the path to restoring the Gulf of Mexico was marked recently as the state of Alabama acquired the West End of Dauphin Island. The acquisition conserves habitat for coastal bird populations that are dependent on the area. The Dauphin Island West End Acquisition project was approved as part of the Alabama Restoration Plan III and Environmental Assessment in December 2019. The 840 acres is a diverse coastal habitat made up of dunes, marshes, and beaches. Sea turtle and several bird species use these habitats for nesting. Migratory birds use the area as a prime resting spot during migrations. The Service’s team will work in close coordination with the State of Alabama and Mobile County to restore this valuable property.

“Public ownership of the West End of Dauphin Island will allow for the protection and management of its habitats,” said Chris Blankenship, Commissioner of the Alabama Department of Conservation and Natural Resources. “Through the collaborative work of the Alabama Trustee Implementation Group, and the local stakeholders, the acquisition of this land will have a tremendous benefit for coastal and water birds injured by the Deepwater Horizon oil spill.”

Among the bird species present at the West End are the piping plover and red knot. These two shorebirds are a threatened species within their Alabama range, and are protected under the Endangered Species Act. Piping plovers frequent Alabama’s quiet shoreline throughout fall, winter and spring. Red knots are known for their more than 9,300-mile annual migration, one of the longest-distance migrants in the animal kingdom. Conserving this parcel of land will ensure that the sensitive coastal habitat is protected for years to come.

Tracking birds on the go

Conserving bird habitat is vital for species conservation, but so is knowing where Alabama’s coastal birds are going and staying. A project to track seasonal movements and habitat use of two species of colonial wading birds is providing valuable information for future planning to restore wading bird species in Alabama still recovering from the Deepwater Horizon spill. The project relies on the use of electronic transmitters attached to captured birds.

The Colonial Nesting Wading Bird Tracking and Habitat Use Assessment project has been underway since last July. Biologists will use the information to better understand important colonial wading bird foraging, resting and nesting areas in coastal Alabama which will allow for more efficient and effective restoration.

“This project gives us an important way to understand the many impacts that affect colonial nesting wading bird populations, including human disturbances such as the Deepwater Horizon spill. The data provided through this project will help us to more effectively restore bird species injured by the spill,” said Kate Healy, a Service biologist who works in the Gulf restoration office.

18 hours ago

WBRC’s James-Paul Dice signing off after 26-year career in television

One of the most familiar faces on Alabama television is signing off the air tonight.

WBRC-TV’s James-Paul Dice has been the chief meteorologist at the Birmingham TV powerhouse for 13 of his 26-year career in television.

The beloved weatherman is starting a new career as a corporate pilot, flying Gulfstream IV business jets for Birmingham-based Drummond Company.

Dice will deliver his final weather forecast Friday night at 10 p.m. on WBRC TV Fox-6.

In a tweet, WBRC thanked Dice and wished him well on his new journey.

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