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Report: Alabama State Pension System Vastly Underfunded

HUNTSVILLE, Ala.(WHNT)-A new fiscal report card gives unflattering marks to Alabama’s state pension system, with questions growing over the program’s long-term sustainability.

The new study from Morningstar Inc. shows Alabama is on the hook for more than $43 billion in pension payouts to state employees, even though there’s just over $29 billion in the bank. That’s a funding ratio of only 67%, and puts Alabama in the bottom third of state rankings.

Alabama’s pension model is based on a forecast of 8% yearly returns from its various investment funds, but actual returns over the last several years have been far less than that. Faltering tax revenue from a slumping economy has also added to the pension hole. State Sen. Arthur Orr (R-Decatur) said its an issue lawmakers will tackle when they return to Mongtomery in February.

“These costs have to be borne by someone,” said Orr, who mentioned spending cuts in other areas and higher paycheck contributions by state employees as two possible options. “We’re going to have a difficult time in our legislative session because of our retirement system…It will have to come from the budget, or we’ll have to look to our employees to make up the difference. But we’re going to do our best to get it out of the budgets.”

State lawmakers passed a pension reform bill earlier this year which set the minimum retirement age at 62, but the new provision only applies to new hires starting in 2013.

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