Whenever a downturn in financial investments occurs, and it continues for an extended time frame, you can rest assured that pension or retirement plans will be among those experiencing difficulties. When that occurs, pension plans look for ways to save the plan money and protect assets for those pension obligations that unquestionably must be paid. The areas that are targeted more quickly are disability claims and other optional benefits, such as various forms of early retirement. Accordingly, when financial times are tight, you will typically see an increase in disability claim denials or even pension disability terminations for those on a claim. After that, other early retirement benefits are targeted.

Pensioners work many years for their benefits. They forgo pay raises and pay extra toward optional benefits like disability, forms of early retirement, and plant closing benefits. It is unfair to see the extra paid into a pension go toward general pension assets. Those who paid more have no more than those who paid less. There is often a great deal of anger and frustration with pension plans acting adversely.

Accordingly, it is likely that you will see more calls regarding such matters during these difficult financial times. Of course, it is understandable that a pension plan would want to preserve assets, but at the same time, that does not permit it to act inconsistently and unfairly. It must continue to follow the rule of law, regardless of its financial position. Even as different forms of early retirement pension benefits must go through the proper procedures to alter or terminate the allowance of such benefits.

This concern does not arise only with private pensions governed by ERISA. It can also arise with state retirement or pension systems such as the Retirement Systems of Alabama (RSA). CEO David Bronner, who has led the RSA since 1973, was recently quoted in AL.com as saying, “This particular, fiscal year was probably the most difficult that I've ever seen in my years of managing money,” said, “And the reason for that is real simple. Enough things hit that every market was negatively affected.”

He further explained, “When you had stock market corrections before, the bond market usually does pretty good,” Bronner said. “Or if the bond market does bad, the stocks do well. Well, they both got hammered.” AL.com reported ERS stock investments dropped 17 percent for the fiscal year, which ended Sept. 30. Fixed income investments fell 13 percent. The overall losses dropped the value of the ERS pension from $15.5 billion to $13 billion.

In contrast, during the 2021 fiscal year, ERS investments gained 22 percent, a net increase of $2.9 billion. However, Bronner was not overly concerned, given that the prior year was so strong that the overall gain remained at 9% over the last two years. If the financial downturn continues through 2023, however, his job will be all the more difficult.

Looking at the RSA from the outside, this writer believes that the RSA has been relatively well managed for decades, and this should continue. This issue, however, may impact the timing of retirement. Teachers participating in the TRS (Teacher Retirement System), which is one plan governed within the RSA, and state and local government employees participating in the ERS (Employee Retirement System), another plan governed by the RSA, may seek to retire before their are any changes to benefits.

Hopefully, those disabled, after participating in the ERS or TRS for ten years or more, will not see an increase in refusal to honor disability claims. Additionally, it is hoped that those receiving their disability retirement benefit will not see an increase in claim terminations. The RSA notes in its disability application that ongoing eligibility will be reviewed once each year for the first five years and once every three-year period thereafter until age 60 (age 52 for State Police) in Tier 1 and age 62 (age 56 for State Police and FLC) for Tier 2 Members. I have not seen a significant issue increase in these reviews, but I would expect that if hard times continue. Certainly, something to watch for – we are all here to help people.