What Types of Alabama State Pensions are offered?
Alabama offers three main types of pension plans, depending on your job qualifications and tenure of service. Enrollment in these individual plans is controlled and maintained by the Retirement Systems of Alabama.
- Teachers’ Retirement System (TRS) – Plan offered for employees of state-sponsored educational institutions.
- Employees’ Retirement System (ERS) – Plan offered to all State Police officers, as well as all other qualified state government employees.
- Judicial Retirement Fund (JRF)–Plan offered for all qualifying state judges and justices.
Alabama also provides several other locally-administered government pension plans. Alabama state pensions were funded at 70% in 2012, but that level rose to 73% in 2013, although it is still below the recommended federal level of 80%.
Vesting Period and Service Conversion
Members in any Alabama state pension programs, who have accumulated ten years of creditable service, can become vested members who receive lifetime membership benefits.
Additional service credit may be purchased by converting and purchasing previous qualifying service opportunities into credit. Qualifying active military duty may be converted into usable service credit, for example. Any member may also purchase up to one year of service credit for any accumulated maternity leave without pay.
If a member passes prior to retirement, their beneficiary is eligible for some retirement benefits. If the member was not yet eligible for retirement, only the membership contributions and qualifying interest may be paid to the beneficiary. If the member was eligible to retire, dependent on the pension plan, the beneficiary is eligible for several benefit payment plans.
Members that choose to terminate their service, prior to retiring, have several options for their retirement contributions. If a member has already attained plan vestment, they may leave their contributions in the retirement account and apply for retirement normally, once the appropriate qualifications are reached.
If a member has attained at least five years of service credit, they may opt to leave their contributions in the retirement account for a later date of return. If the member fails to return to qualifying government service after five years, the contributions will automatically be repaid to the member.
Of course, any member may opt to withdraw their retirement contributions in full. Depending on the length of service, a portion of the interest accrued may be repaid.
The state of Alabama offers the Retirement Systems of Alabama (RSA) as the administrator for employees of the state. It is one of the twenty largest internally funded pension programs in the world. The Retirement Systems of Alabama hosts the Employees’ Retirement System (ERS), the Teachers’ Retirement System (TRS) and the Judicial Retirement Fund (JRF), as well as the Public Education Employees’ Health Insurance Plan (PEEHIP) and RSA-1 Differed Compensation Plan (RSA-1). It maintains a stated mission to serve member interests and preserve excellent benefits and soundness of the Systems.
Individual Benefits of the Teachers’ Retirement System (TRS)
Enrollment into the Teachers’ Retirement System is mandatory for all non-temporary employees who earn the federal minimum wage on at least one-half time basis. The TRS is currently the largest state-controlled pension plan.
- Plan membership is divided into two tiers, based on the start date of employment. Employees who accrued service credit prior to January 1st, 2013 receive Tier One membership, whereas employees accruing service credit after January 1st, 2013 are automatically enrolled in Tier Two membership.
- For Tier One members, membership contribution is 8.5% for any correctional officers, firefighters, or other law enforcement personnel. (Keep in mind that the TRS also requires that these employees be employed by a state educational institution.) All other state employees contribute at a rate of 7.5%. Tier Two members who are firefighters or law enforcement personnel contribute at a rate of 7.0%, while all other Tier Two employees contribute at 6.0%.
- Retirement benefits for Tier One members are paid out after the member has amassed ten years of service credit and is at least 60 years or older or if the member has amassed twenty-five years of total service credit. Tier Two members may only receive benefits after amassing ten years of service credit at an age of 62 years or older.
- Any member may retire on the first of the month after the date they become eligible.
Benefits of the Employees’ Retirement System (ERS)
The ERS is the pension plan offered to State Police officers, as well as all other state employees who do not qualify for any other pension plans.
- Similar to the TRS, plan membership is divided into two tiers, with Tier One employees starting employment prior to January 1st, 2013.
- Tier One members contribute at a rate of 8.5% for any law enforcement or correctional officers, while all other Tier One members contribute at 7.5%. Tier Two law enforcement members contribute at 7.0%, while all other Tier Two members contribute at 6.0%. However, Tier Two State Police members contribute at a rate of 10.0%.
- For Tier One members only, accumulated sick days can be converted into up to 16 months of service credit. However, State Police Tier One members are only eligible to convert sick days into up to 7 months of service.
- Retirement benefits for Tier One members are paid out after the member has amassed ten years of service credit and is at least 60 years or older or if the member has amassed twenty-five years of total service credit. Tier One State Police members need only be age 52 or older. Tier Two members may only receive benefits after amassing ten years of service credit at an age of 62 years or older. Tier Two State Police member need only be age 56 or older.
Benefits of the Judicial Retirement Fund (JRF)
The Judicial Retirement Fund is the third and smallest available Alabama state pension plan. It is for active members of the state judiciary bodies and all justices are required to participate.
- All JRF members contribute at a rate of 8.5%.
- Any justice is entitled to convert years of military service into qualifying years of creditable JRF service. Elected justices with previously accrued service in any other qualifying state pension plan may apply to transfer their service credit into the JRF plan.
- If a judge elects to leave judiciary service prior to retiring, all of his or her membership contributions will be refunded. Depending on the length of judiciary service, a portion of the contribution interest may also be refunded.
Despite attaining retirement status, retired justices are eligible for recall by either the state’s Chief Justice or the Governor.
The Alabama ERS
The ERS is the largest pension system, and provides benefits to state employees and state police. It also offers the option for elective benefits to qualified employees of cities, towns, and quasi-public organizations. The management and administration of the ERS is operated by the ERS Board of Control. The ERS was established and has been active since 1945. The TRS, established in 1939, provides benefits to qualified employees of state-supported educational institutions. The JRF, established in 1973, provides benefits to qualified judges and justices.
Benefits, Contributions and Funding
The ERS, as well as the other systems under the RSA, is a defined benefit plan. Under this categorization, the plan stipulates to provide a specific benefit to employees at the time of retirement. The amount of the retirement benefit is calculated by a set formula. Benefits are paid monthly for the lifetime of the member, and possibly continue for the lifetime of the beneficiary. The specifics of the formula are beyond the scope of this overview, but the governing language of the plan is contained in the Code of Alabama 1975, Title 36, Chapter 27. As of 2012, employer pension contributions were 11.94% for state employees, 30.57% for state police officers, and varied rates for local employers. Employee pension contributions were set at 5% for state employees, 10% for state police officers, while other law enforcement, correctional officers and firefighters contribute 6%. The RSA also offers RSA-1 as an optional deferred compensation plan for public employees to increase personal savings for their financial security. The program is straight-forward and offers a payroll deduction and provides tax relief today. Participation is strictly voluntary and remains flexible.
Members of the ERS can retire at any age after at least 25 years of service, or at age 60 with at least 10 years of service. This system doesn’t require separate specifications for early retirement, as full retirement is available anytime after 25 years of service. The benefit structure is identical for the ERS and the TRS. The benefits available are calculated from average salaries out of the three highest in the last ten years of employed service. The final average is multiplied by .020125 and the total number of credible years of service to determine maximum benefit. However, there is a separate formula for policemen offering a higher benefit and shorter work requirements, but it is not under the social security system.
When You Retire
Alabama ERS offers options for early retirement . However, the variety of survivor benefits is wide, and a comprehensive analysis of the options available to specific members is provided during the consultation at the time of choosing plan options. If a beneficiary is selected, pension benefits will continue for the duration of their lifetime.
The RSA also offers an online Retirement Benefit Estimate Calculator. It generates an estimate of future RSA retirement benefits but does not actual calculations at the time of retirement. The online system to calculate an estimation for your benefits is available at http://www.rsa.state.al.us/Webcalc/Calc1.asp and full information on the Retirement Systems of Alabama is available at http://www.rsa-al.gov. There is currently a movement inside the Alabama RSA be stricter about enforcing rules about working after retirement. Under policy, retirees can no longer work for he state and still receive a pension, but many still work as ‘independent contractors,’ and the review board of the RSA is working to prevent loopholes like this as a way to preserve funds.