2024 Guide to Recent Changes to Alabama’s Tier 2 Retirement Plan

Table of Contents#

Background: What Is Alabama’s Tier 2 Retirement Plan?
Key 2024 Changes to the Tier 2 Plan
Who Is (and Is Not) Impacted by These Updates?
Real-World Impact: How Changes Affect Your Retirement Savings
5 Action Steps for Tier 2 Members to Maximize Benefits
Frequently Asked Questions
References

Background: What Is Alabama’s Tier 2 Retirement Plan?#

Launched on January 1, 2013, the Tier 2 Retirement Plan is a defined benefit (pension) plan for all new public employees hired in Alabama after that date, replacing the older Tier 1 plan for pre-2013 hires. Retirement benefits under Tier 2 are calculated using a fixed formula: (Years of Credited Service x Average Final Salary x 2.0125%) / 12, where average final salary is the average of your highest 3 consecutive years of pay.

Prior to 2024, core plan rules included a 10-year vesting requirement, 67-year minimum full retirement age, 6% pre-tax employee contribution rate, and a 3% maximum annual cost-of-living adjustment (COLA) tied exclusively to the Consumer Price Index (CPI).

Key 2024 Changes to the Tier 2 Plan#

All changes went into effect on January 1, 2024, unless otherwise noted:

2.1 Contribution Rate Adjustments#

Old Rule	New Rule
Active members contributed 6% of pre-tax salary; employers contributed 10.5% of payroll	Active members contribute 7% of pre-tax salary; employers contribute 12% of payroll to strengthen long-term plan funding

2.2 Reduced Vesting Period#

Old Rule	New Rule
10 years of credited service required to vest (qualify to keep employer-funded pension contributions when leaving employment or retiring)	8 years of credited service required to vest, applied retroactively to all active Tier 2 members

2.3 Lower Full Retirement Age Eligibility#

Old Rule	New Rule
Full benefits available at 67 with 10 years of service, or 62 with 25 years of service	Full benefits available at 65 with 10 years of service, or 60 with 25 years of service. Early retirement is available as early as 55 with 25 years of service, with a 3% annual benefit reduction for each year retired before full retirement age

2.4 Updated COLA Formula#

Old Rule	New Rule
Annual post-retirement COLA capped at 3%, only approved if CPI exceeded 2% and plan funded ratio was above 70%	Annual COLA has a 2% minimum and 3% maximum, tied to a combination of CPI and plan annual investment returns. Automatic COLAs for retired Tier 2 members start in 2025, as long as plan funded ratio stays above 65%

2.5 Expanded Disability & Portability Benefits#

Disability update: The 5-year service requirement for work-related disability benefits is eliminated. Members with qualifying work injuries receive full disability benefits (60% of average final salary) regardless of tenure.
Portability update: Members leaving public employment before retirement can now roll over 100% of their vested pension balance to another qualified retirement plan (401k, 403b, IRA), up from 80% under the old rule.

Who Is (and Is Not) Impacted by These Updates?#

Impacted Groups#

All active Tier 2 members hired on or after January 1, 2013, including:

Public K-12 teachers and support staff
State agency employees
Public college and university staff
Local government employees (city, county, non-first responder public safety staff)
Eligible part-time public employees working 20+ hours per week

Non-Impacted Groups#

Tier 1 members hired before January 1, 2013
Current Tier 2 retirees already drawing benefits (only the new COLA formula applies to this group starting in 2025)
First responders enrolled in the separate RSA Public Safety Employees Retirement System

Real-World Impact: How Changes Affect Your Retirement Savings#

We’ve used common member profiles to illustrate the practical impact of the new rules:

Example 1: New 2020 Hire, High School Teacher, $52,000 Annual Salary#

Contribution change: 1% increase = $520 more deducted annually, ~$ 21.67 per biweekly pay period
Vesting change: Previously would vest in 2030, now vests in 2028 (2 years earlier)
Retirement age change: Previously qualified for full benefits at 67, now qualifies at 65 (2 years earlier with no benefit reduction)

Example 2: 7-Year Tenured Local Government Admin, $48,000 Annual Salary, Planning to Leave Public Service in 2025#

Vesting change: Previously needed 3 more years to vest, now only needs 1 more year to access all employer contributions
Portability change: If they leave after vesting, they can roll over 100% of their ~ $32,000 vested balance to a private IRA, compared to only$ 25,600 under the old rule

Example 3: 22-Year Tenured Teacher, Age 58#

Will reach 25 years of service at age 61, qualifies for full retirement benefits at 61 instead of 62 under the old rule (1 year earlier)

5 Action Steps for Tier 2 Members to Maximize Benefits#

Log into your RSA Member Portal first: Confirm the 7% contribution rate is applied correctly to your 2024 pay stubs, and check your updated vesting status via the official RSA member portal.
Use the 2024 RSA Retirement Calculator: The RSA updated its free online calculator to reflect all new rules, so you can generate an accurate estimate of your monthly retirement benefit based on your current tenure, salary, and planned retirement date.
Adjust your monthly budget: For most members, the 1% contribution increase translates to $20 to$ 60 less in take-home pay per pay period. Update your spending plan to avoid unexpected shortfalls.
Confirm vesting status if you plan to leave public service: If you are considering leaving state employment in the next 2 years, check if you are close to the 8-year vesting threshold to avoid leaving thousands in employer contributions on the table.
Attend a free RSA informational webinar: The RSA hosts monthly 1-hour webinars for Tier 2 members to answer personalized questions about benefits and retirement planning. You can register via the RSA events page.

Frequently Asked Questions#

Q: Are these changes permanent?#

A: Yes, all changes outlined were signed into law as part of Alabama Act 2023-345, and no additional Tier 2 plan revisions are scheduled for legislative review until 2028.

Q: I am already retired and drawing Tier 2 benefits, will my COLA change?#

A: Yes, the new COLA formula will apply to you starting in 2025, so you will receive a minimum 2% annual COLA as long as the plan’s funded ratio stays above 65%.

Q: Can I opt out of the increased employee contribution?#

A: No, the 7% contribution rate is mandatory for all active Tier 2 members, as required by state law.

Q: Does the reduced retirement age apply retroactively?#

A: Yes, all active Tier 2 members qualify for the new retirement age thresholds, regardless of their hire date.

References#

Retirement Systems of Alabama (2024). 2024 Tier 2 Retirement Plan Update Bulletin. Retrieved from https://www.rsa-al.gov/plans/tier-2/2024-updates/
Alabama State Legislature (2023). Act 2023-345: Tier 2 Retirement System Reform. Retrieved from https://alisondb.legislature.state.al.us/Alison/actsearch.aspx
Retirement Systems of Alabama (2024). 2024 Tier 2 Member Benefits Guide. Retrieved from https://www.rsa-al.gov/publications/benefits-guides/

2026-06

Thelegalist Team

Welcome to Thelegalist, where our team of dedicated professionals brings clarity to the complexities of the law.

Legal Disclaimer

No content on this website should be considered legal advice, as legal guidance must be tailored to the unique circumstances of each case. You should not act on any information provided by Thelegalist without first consulting a professional attorney who is licensed or authorized to practice in your jurisdiction. Thelegalist assumes no responsibility for any individual who relies on the information found on or received through this site and disclaims all liability regarding such information.

Although we strive to keep the information on this site up-to-date, the owners and contributors of this site make no representations, promises, or guarantees about the accuracy, completeness, or adequacy of the information contained on or linked to from this site.