§ 16-25-21 — Method of Financing

Alabama § 16-25-21

• Jurisdiction: Alabama
• Title 16: Education
• Ch. 25: Teachers’ Retirement System
• Art. 1: General Provisions

Text

Effective October 1, 1997, all the assets of the retirement system shall be credited according to the purpose for which they are held among three funds, namely: The Annuity Savings Fund, the Pension Accumulation Fund, and the Expense Fund. The operation of the former Pension Reserve Fund and the Annuity Reserve Fund shall be discontinued as of such date, the balance of the former Pension Reserve Fund shall be transferred to the Pension Accumulation Fund, and the balance of the former Annuity Reserve Fund shall be transferred to the Pension Accumulation Fund.
(1) The Annuity Savings Fund shall be a fund in which shall be accumulated contributions from the compensation of members to provide for their annuities. Contributions to and payments from the Annuity Savings Fund shall be made as follows:
a. Each employer shall cause to be deducted from the salary of each member on each and every payroll of such employer for each and every payroll period five percent of his or her earnable compensation. For all pay dates beginning on or after October 1, 2011, each employer shall cause to be deducted from the salary of each member on each and every payroll of such employer for each and every payroll period seven and one-quarter percent (7.25%) of his or her earnable compensation. For all pay dates beginning on or after October 1, 2012, each employer shall cause to be deducted from the salary of each Tier I plan member on each and every payroll of such employer for each and every payroll period seven and one-half percent (7.5%) of his or her earnable compensation. For all pay dates beginning on or after January 1, 2013, each employer shall cause to be deducted from the salary of each Tier II plan member on each and every payroll period six percent (6%) of his or her earnable compensation; except in the case of a Tier II plan member who is a correctional officer, firefighter, or law enforcement officer as defined in Section 36-27-59, the rate of seven percent (7%) shall apply. For all pay dates beginning on or after October 1, 2021, each employer shall cause to be deducted from the salary of each Tier II plan member on each and every payroll period six and two-tenths percent (6.2%) of his or her earnable compensation; except in the case of a Tier II plan member who is a correctional officer, firefighter, or law enforcement officer as defined in Section 36-27-59, the rate of seven and two-tenths percent (7.2%) shall apply. In determining the amount earnable by a member in a payroll period, the Board of Control may consider the rate of annual compensation payable to such member on the first day of the payroll period as continuing throughout such payroll period, and it may omit deductions from compensation for any period less than a full payroll period if a teacher was not a member on the first day of the payroll period, and to facilitate the making of deductions it may modify the deduction required of any member by such an amount as shall not exceed one tenth of one percent of the annual compensation upon the basis of which such deduction is to be made.
b. The deductions provided for herein shall be made notwithstanding that the minimum compensation provided for by law for any member shall be reduced thereby. Every member shall be deemed to consent and agree to the deduction made and provided for herein and shall receive for his or her full salary or compensation, and payment of salary or compensation less such deduction shall be a full and complete discharge and acquittance of all claims and demands whatsoever for the service rendered by such person during the period covered by such payment, except as to the benefits provided under this chapter. The employer shall certify to the Board of Control on each and every payroll or in such other manner as the board may prescribe the amount to be deducted; and each of the amounts shall be deducted, and when deducted shall be paid into the Annuity Savings Fund and shall be credited, together with regular interest thereon, to the individual account of the member from whose compensation the deduction was made.
c. In addition to the contributions deducted from compensation as hereinbefore provided, subject to the approval of the Board of Control, any member may deposit in the Annuity Savings Fund by a single payment or by an increased rate of contribution an amount computed to be sufficient to purchase an additional annuity which, together with his or her prospective retirement allowance, will provide for him or her a total retirement allowance not to exceed one half of his or her average final compensation at age 60. Such additional amounts so deposited shall become a part of his or her accumulated contributions except in the case of retirement, when they shall be treated as excess contributions returnable to the member in cash or as an annuity of equivalent actuarial value and shall not be considered in computing his or her pension. The contributions and interest credits of a member withdrawn by him or her, or paid to his or her estate or to his or her designated beneficiary in event of his or her death, shall be paid from the Annuity Savings Fund. Should a member cease to be a member other than by retirement under the provisions of this title, an amount equivalent to the difference, if any, between his or her accumulated contributions and the amount then paid shall be transferred to the Expense Fund. Upon the retirement of a member or the death of an eligible member where an allowance to the surviving spouse is payable, his or her accumulated contributions shall be transferred from the Annuity Savings Fund to the Pension Accumulation Fund.
d. Notwithstanding the preceding provisions, no deductions shall be made from any member’s salary on account of which the employer’s contribution is in default.
(2) The Pension Accumulation Fund shall be the fund in which shall be accumulated all reserves, other than amounts held in the Annuity Savings Fund for the payment of all pensions and other benefits. Contributions to and payments from the Pension Accumulation Fund shall be made as follows:
a. On account of each member there shall be paid monthly by the employer an amount equal to a certain percentage of the earnable compensation of each member to be known as the “normal contribution” and an additional amount equal to a percentage of his or her earnable compensation to be known as the “accrued liability contribution,” and these two amounts shall be paid monthly into the Pension Accumulation Fund. The Teachers’ Retirement System shall recommend to the Legislature on or before the first legislative day of each regular session of the Legislature the rate for the following fiscal year. The Legislature shall set the rate in the annual appropriation bill.
b. On the basis of regular interest and of such mortality and other tables as shall be adopted by the Board of Control, the actuary engaged by the board to make such valuation required by this title shall, immediately after making such valuation, determine the uniform and constant percentage of the earnable compensation of the average new entrant which, if contributed on the basis of his or her compensation throughout his or her entire period of active service, would be sufficient to provide for the payment of any pension payable on his or her account. The rate per centum so determined shall be known as the “normal contribution” rate. The normal contribution rate shall be determined by the actuary after each valuation.
c.1. The accrued liability contribution rate shall be computed by the actuary on the basis of each valuation as the per centum rate of the total annual compensation of all members which is sufficient to liquidate the unfunded accrued liability over a period to be determined by the Board of Control which shall be not less than 10 nor more than 30 years.
2. The unfunded accrued liability shall be computed by the actuary as the total liabilities of the system which are not dischargeable by the assets of the Annuity Savings Fund and the Pension Accumulation Fund and the present value of the aforesaid normal contributions. For purposes of computing the unfunded accrued liability the assets shall be determined as follows:
On June 30, 1997, the assets shall be determined by using the market value of such assets. For subsequent years the value of the assets shall be determined by the system’s actuary using a five year smoothed market value.
d. The total amount payable in each year to the Pension Accumulation Fund shall be not less than the sum of the per centum rates known as the normal contribution rate and the accrued liability contribution rate of the total compensation earnable by all members during the year.
e. All interest and dividends earned on the funds of the retirement system shall be credited to the Pension Accumulation Fund. The amounts needed to allow regular interest on the reserves in the Annuity Savings Fund shall be transferred in accordance with this chapter from the Pension Accumulation Fund. The Board of Control, in its discretion, may transfer to and from the Pension Accumulation Fund the amount of any surplus or deficit which may develop in the Annuity Savings Fund or the Expense Fund.
f. Upon the death of a member on account of whom no survivor allowance is payable under subdivision (2) of subsection (i) of Section 16-25-14, the death benefit as provided in subdivision (2) of subsection (i) of such section equal to the accumulated contributions not to exceed five thousand dollars ($5,000) shall be payable from the Pension Accumulation Fund.
(3) The Expense Fund shall be the fund from which the expenses of the administration of the retirement system shall be paid, exclusive of amounts payable as retirement allowances and as other benefits provided herein. Any amounts credited to the accounts of members withdrawing before retirement and not returnable under subsection (i) of Section 16-25-14 shall be credited to the Expense Fund. Any additional contributions required to meet the expenses of the retirement system shall be made as provided in paragraphs c., d., and e. of subdivision (4) of this section.
(4)a. On or before October 1 of each year, each local board of education, the State Board of Education, the governing boards of the University of Alabama, Auburn University, and the University of Montevallo and the Executive Committee of the Alabama Education Association shall file with the Board of Control of the retirement system a certified statement containing the following information concerning the members of the retirement system employed by such boards for the scholastic year beginning on July first preceding the date: Name, address, monthly salary, annual salary, and such other information as the Board of Control may require. On or before July 31 of each year, each local board of education; the State Board of Education; the governing boards of the University of Alabama, Auburn University, and the University of Montevallo and the Executive Committee of the Alabama Education Association shall file with the Board of Control of the retirement system a certified statement containing the following information concerning members of the retirement system employed by such boards during the scholastic year ending on June 30 preceding the date: Name, address, monthly salary actually paid, total annual salary actually paid, and such other information as the Board of Control may require.
b. The collection of members’ contributions shall be as follows: Each local board of education, the State Board of Education, the governing boards of the University of Alabama, Auburn University, and the University of Montevallo and the Executive Committee of the Alabama Education Association shall cause to be deducted on each and every payroll period subsequent to the date of the establishment of the retirement system the contributions payable by each member as provided in this chapter. Each employer shall transmit monthly, or at such time as the Board of Control shall designate, the total amount so deducted to the Secretary-Treasurer of the Board of Control accompanied by an itemized statement of the contributions of each individual member of the retirement system. The Secretary-Treasurer of the Board of Control after making a record of all such receipts shall transmit the same to the State Treasurer to be held for use according to this chapter. Notwithstanding anything in this section, the Board of Control may modify the form of reports required of employers and may modify the method of collecting the contributions of members so that employers may retain the amounts so deducted and have a corresponding amount deducted from funds otherwise payable to them.
c. The employer’s contributions shall be made from the same funds used to pay salaries based on the employer cost rate determined under paragraph a. of subdivision (2).
d. Where member contributions are made from salaries paid from federal funds, the employer shall pay from federal funds to the Teachers’ Retirement System the amount calculated as a percentage of the salaries of those teachers to be contributed by the employer in accordance with subdivisions (2) and (3) of this section. Such amounts shall be paid at the same time as the member contributions are made to the retirement system. The provisions of this paragraph shall not apply to funds received under the provisions of the Hatch Act of 1887, as amended in 1955, and the McIntyre-Stennis Act (Cooperative Forestry Research Act of 1962) of the Congress of the United States, for the support of agriculturally related research.
e. Where member contributions are made from salaries paid by the Alabama Education Association, the Alabama Education Association shall pay the employer costs calculated as a percentage of the salaries of those employees to be contributed as employer in accordance with subdivisions (2) and (3) of this section. Such amounts shall be paid monthly and at the same time as the member contributions are made to the Teachers’ Retirement System.
f. To the extent that employer cost is collected for any increase in benefits payable to retired employees of local boards of education and state institutions of higher education who are retired under the Employees’ Retirement System, there shall be a transfer of funds from these funds to the Employees’ Retirement System for each year such benefits are payable.
g. Employer cost provided for in this article together with member contributions required under this article shall be paid to the Teachers’ Retirement System on the first day of the month following the month in which the related member salary is earned. Delinquent accounts shall accrue interest at the actuarial assumed investment rate beginning 30 days after the original due date. The member contributions for each member shall be reported to the Teachers’ Retirement System in a format prescribed by the Teachers’ Retirement System.

Legislative History

(Acts 1939, No. 419, p. 559, §8; Code 1940, T. 52, §369; Acts 1943, No. 61, p. 35, §7; Acts 1953, No. 41, p. 44, §4; Acts 1955, No. 280, p. 630, §2; Acts 1955, No. 495, p. 1136, §1; Acts 1959, 2nd Ex. Sess., No. 115, p. 351, §1; Acts 1963, 1st Ex. Sess., No. 43, p. 126, §6; Acts 1965, 1st Ex. Sess., No. 102, p. 118, §2; Acts 1967, No. 511, p. 1226, §2; Acts 1969, Ex. Sess., No. 26, p. 62, §2; Acts 1975, 4th Ex. Sess., No. 66, p. 292, §4; Acts 1995, No. 95-538, p. 1100, §4; Act 98-385, p. 732, §5; Act 2010-221, p. 382, §1; Act 2011-676, p. 1805, §1; Act 2012-377, p. 944, §1; Act 2021-537, §1.)