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

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Table of Contents#

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

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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 the formula: (Years of Credited Service x 1.65% x Average of Highest 5 Consecutive Years of Salary from Last 10 Years), with a maximum benefit capped at 80% of average final salary.

Prior to recent legislative reforms, core plan rules included a 10-year vesting requirement, a minimum full retirement age of 62 with at least 10 years of service (or age 60 for fire and law enforcement correctional members with 10 years of service), a 6.2% pre-tax employee contribution rate for most members (6.0% for ERS members), and no automatic post-retirement cost-of-living adjustment (COLA).

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Key Legislative Changes to the Tier 2 Plan#

The most significant recent reform came through Alabama House Bill 134 (HB134), sponsored by Rep. Alan Baker, R-Brewton, which passed the Alabama House unanimously (102-0) on February 3, 2022, was enacted into law on April 7, 2022, and took effect for the 2022-2023 plan year.

2.1 Contribution Rate Adjustments#

2.2 30-Year Service Retirement Option#

2.3 Sick Leave Conversion for Retirement Credit#

2.4 Enhanced Beneficiary Benefits#

2.5 COLA Status#

There has been no change to the cost-of-living adjustment structure for Tier 2 retirees. Alabama education retirees (both Tier 1 and Tier 2) have not received a COLA since 2007. The state legislature has instead provided periodic one-time bonus checks. As of April 2026, the legislature approved a one-time retiree bonus of $1 per month of service (e.g.,$360 for 30 years of service) in the FY 2027 education budget.

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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 (they retain their existing benefits)
• Current Tier 2 retirees already drawing benefits (COLA and bonus provisions apply separately)
• First responders enrolled in the separate RSA Public Safety Employees Retirement System

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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: 0.3% increase = approximately $156 more deducted annually, or about$6 per biweekly pay period
• Retirement age change: Previously qualified for full benefits only at age 62; now qualifies after 30 years of service at any age (subject to the 2% per year early reduction if before age 62)

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

• Vesting: Still requires 10 years of credited service to vest; no change to the vesting period
• Sick leave: Can now convert unused sick leave to retirement service credit, potentially increasing the pension calculation if they return to public service

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

• Will reach 25 years of service at age 61; now qualifies for full retirement benefits at age 61 (with 30 years of service) instead of waiting until age 62, reducing the early retirement penalty from 2% to 0%

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5 Action Steps for Tier 2 Members to Maximize Benefits#

1. Log into your RSA Member Portal: Confirm your current contribution rate is applied correctly and check your updated vesting status via the official RSA member portal.
2. Use the RSA Retirement Calculator: The RSA provides a free online calculator that reflects current rules, so you can generate an accurate estimate of your monthly retirement benefit based on your current tenure, salary, and planned retirement date.
3. Adjust your monthly budget: For TRS members, the 0.3% contribution increase translates to modestly less in take-home pay. Update your spending plan to avoid unexpected shortfalls.
4. Confirm vesting status if you plan to leave public service: The vesting period remains 10 years. If you are considering leaving state employment, check if you are close to the 10-year threshold to avoid leaving employer contributions on the table.
5. Attend a free RSA informational webinar: The RSA hosts regular webinars for Tier 2 members to answer personalized questions about benefits and retirement planning. Visit the RSA website for upcoming events and registration.

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Frequently Asked Questions#

Q: What is the current employee contribution rate for Tier 2 members?#

A: For TRS members, the contribution rate is 6.5% of earnable compensation for regular employees and 7.5% for fire and law enforcement correctional (FLC) members, as set by HB134. For ERS members, the rate is 6.0% for regular employees and 7.0% for FLC members. These rates are mandatory for all active Tier 2 members.

Q: Can I retire before age 62 under Tier 2?#

A: Yes. Under HB134, you may retire after 30 years of credited service at any age, but your benefit will be reduced by 2% for each year you are under age 62 at the time of retirement.

Q: How is my retirement benefit calculated?#

A: Your annual benefit is calculated as: Years of Credited Service x 1.65% x Average of Your Highest 5 Consecutive Years of Salary from the Last 10 Years. The maximum benefit is 80% of your average final salary.

Q: Have Tier 2 retirees received a COLA?#

A: No. Alabama education retirees have not received a cost-of-living adjustment since 2007. The legislature has provided periodic one-time bonus checks instead, including a $1-per-month-of-service bonus approved in the FY 2027 budget.

Q: Can I roll over my pension balance if I leave public service?#

A: If you leave public employment before vesting, you may withdraw your own contributions with interest. If you are vested (10+ years of service), you are eligible for a lifetime retirement benefit. Contact RSA directly to discuss your specific rollover and withdrawal options.

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References#

1. Retirement Systems of Alabama. Employer Contribution Rates. Retrieved from https://www.rsa-al.gov/employers/trs/
2. Retirement Systems of Alabama. ERS Member Handbook - Tier 2. Retrieved from https://www.rsa-al.gov/uploads/files/ERS_Member_Handbook_T2_bookmarked.pdf
3. Retirement Systems of Alabama. TRS Member Handbook. Retrieved from https://www.rsa-al.gov/uploads/files/TRS_Member_Handbook.pdf
4. Alabama State Legislature (2022). House Bill 134: Teachers Retirement System, 30-year service retirement, member contribution rate increased. Retrieved from https://legiscan.com/AL/bill/HB134/2022
5. Equable Institute (2022). Alabama House Bill 134: Retirement Security Policy Scores. Retrieved from https://equable.org/alabama-house-bill-134/
6. Alabama Daily News (2022). House votes to change teacher retirement age requirement. Retrieved from https://aldailynews.com/house-votes-to-change-teacher-retirement-age-requirement/
7. Alabama Reflector (2025). Why haven't Alabama's education retirees received a COLA increase? Retrieved from https://alabamareflector.com/2025/02/02/why-havent-alabamas-education-retirees-received-a-cola-increase/
8. Alabama Reflector (2026). Alabama Senate passes $10.5 billion education budget with pay raises, retiree bonuses. Retrieved from https://alabamareflector.com/2026/04/03/alabama-senate-passes-10-5-billion-education-budget-with-pay-raises-retiree-bonuses/
9. Auburn University Office of Human Resources. Mandatory Retirement (Retirement Systems of Alabama). Retrieved from https://www.auburn.edu/administration/human_resources/benefits/mandatory.php
10. University of Alabama Human Resources. Retirement. Retrieved from https://hr.ua.edu/benefits/retirement/