As has been widely reported, many states are facing a funding crisis in their public pension systems. So much so, that states like Illinois, New Jersey, and cities such as Memphis are attempting to renege on the promises made to current employees and retirees by increasing their contribution rates. Other cities, like Detroit, MI and our own Prichard, AL, simply defaulted altogether on paying out retirement benefits. Alabama must uphold its obligations to those already in the pension system, but for this to be feasible over the long-term, the state must rein-in benefits offered to new employees.
Notably, the judicial retirement funds of many states face the most significant unfunded liabilities as they dole out the richest benefits. Alabama’s Judicial Retirement Fund (JRF) is no exception. In Alabama, the current average judicial pension is $95,000. That benefit represents a flat 75% of a judge’s final salary for life once he or she reaches retirement eligibility. In some instances, that eligibility can be reached with only 10 years of service. There is currently no minimum age for retirement, while all other state employees are subject to a minimum age requirement of 62.
While the Teachers’ Retirement System (TRS) and the Employees’ Retirement System (ERS) are both funded at 66% and 65%, respectively, the Judicial Retirement Fund has a funded ratio of only 58%.
It’s important to understand the impact that the unfunded liability has on the state’s contribution to these pensions. When the state pays the employer share for each employee, a large percentage of that contribution goes toward the accrued liability of the fund. The accrued liability for the JRF is a substantial 26% of the total employer contribution, while it is under 10% in the TRS and 12% for the ERS. It’s true that the required employee contributions for those in JRF is half a percentage point higher (8.0% rather than 7.5%), but the employer benefit contribution (called the normal rate) is 13.4% for JRF compared to only 0.74% and 0.33% for TRS and ERS, respectively.
Although cost-saving reforms to the other two systems were adopted in 2011 and 2012, none were applied to future judges, justices, clerks or district attorneys. Now, there is a Senate-passed proposal (introduced by Senator Orr-Decatur) awaiting House action that would bring judicial employee pensions more in balance with teachers and other state employees, helping to get these high costs under control.
Tomorrow, the House Judiciary Committee will give consideration to this legislation that will
– raise the employee contribution rate for future JRF employees from 8.0% to 8.5%
– set a minimum age of retirement at 62
– replace the current, mandatory pension of 75% of an employee’s final salary with a benefit factor of 3.0% of the members’ average final compensation multiplied by years of service
– establish a “District Attorneys’ Plan” within the JRF so that the proposed changes would also apply to district attorneys and clerks
Not only would these reforms save the state between $10-15 million annually, it is expected to save the state at least $100 million over 30 years.
At a time when agencies, including the judicial system, are clamoring for general fund dollars, lawmakers should give serious thought to the increasing amount of money that goes into propping up judicial pensions. It is expected that the state’s contribution to the JRF will go up 2.9% between 2015 and 2016—from $15.5 to $18.4 million. A legislature so desperate for dollars simply cannot justify inaction on this proposal.