Justin Bogie
This week, the Retirement Systems of Alabama’s (RSA) Public Education Employees’ Health Insurance Plan (PEEHIP) Control Board met to discuss rising healthcare costs for state employees. The discussion highlights a stark reality: Alabama’s taxpayer funded benefit system for public employees is on an unsustainable path. PEEHIP and RSA, which includes the Teachers’ Retirement System (TRS) and Employees’ Retirement System (ERS), are consuming billions annually while carrying massive unfunded liabilities.
Last year alone, Alabama taxpayers contributed over $3.1 billion to pensions and health insurance for government employees. Those costs are projected to skyrocket in the next few years, forcing lawmakers to choose between tax hikes and/or budget cuts.
However, there is a third option. Alabama’s government could ask its employees to help offset some of these rising costs, like so many of their private sector counterparts are already doing.
Without reform, the burden will fall squarely on Alabamians.
In fiscal year 2024, taxpayers put $1.725 billion into RSA pensions and another $1.38 billion into subsidized health insurance premiums. TRS alone had a $15.5 billion unfunded liability with ERS adding another $8.8 billion.
PEEHIP’s situation is even more dire in the short-term. The board projects a $380 million shortfall by 2027, ballooning to nearly $500 million by 2028. To cover the FY2026 gap, the Legislature raised the state’s contribution from $800 to $904 per employee per month beginning in October 2025. PEEHIP plans to submit a budget request of $1,209 per month for FY2027 and those costs could rise as high as $1,631 per month in 2028 according to a PEEHIP valuation report released last year.
Every extra dollar devoted to pensions and health plans is a dollar not available for other educational priorities. If left unchecked, the growth of PEEHIP will rob students of opportunities.
These financial pressures are worsened by one glaring fact: Alabama’s government benefits far exceed what most private sector workers receive.
Private small‑business employees pay about $171 per month for single coverage and $751 for family coverage on average. By comparison, Alabama education employees paid as little as $30 for single coverage and no more than $307 per month for family plans in 2025. Retirees pay even less, with taxpayers covering hundreds of dollars per person every month.
The disparity is just as stark with retirement. In the private sector, employer 401(k) matches typically run 4% to 6% percent of salary. By contrast, taxpayer funded contribution rates for Alabama pensions range from 13.6 to 16.26 percent. This is not sustainable or fair to families struggling to cover their own healthcare and retirement costs while financing more lucrative packages for public employees.
Another issue is who is being covered by the state’s health insurance and retirement plans.
PEEHIP covers not just K‑12 school staff but also employees at charter schools, community colleges, four‑year universities, and specialized schools. TRS participation includes at least thirty-four additional entities such as the Alabama Education Association and the Alabama High School Athletic Association. ERS has swelled to cover nearly nine hundred local governments and quasi‑governmental agencies, from city libraries to racing commissions.
While many of these groups pay into the system, the ultimate backstop is state taxpayers. As liabilities grow, Alabama households are left footing the bill for organizations that often have only a loose connection, if any, to state government.
The common refrain at this week’s meeting was the PEEHIP needs more state dollars, whether that means increasing taxes or cutting other education funding. That ignores the third and most responsible option, reform.
So far, leaders have avoided structural fixes. When PEEHIP faced shortfalls heading into the FY 2026 budget cycle, the board sought more funding from the Legislature rather than increasing member contributions. The Alabama Legislature complied, passing the burden to taxpayers.
Alabama cannot keep throwing more taxpayer dollars at these programs.
The first step in reforming the current structure should be to align state employee contributions with the private sector. Asking state employees to pay closer to market‑rate premiums is not unreasonable.
Another step towards long-term sustainability is to freeze new entities from joining state retirement and health insurance plans and consider phasing out current non‑state participants. A modest 2025 proposal to limit future Alabama High School Athletics Association participation in TRS did not pass, but it should be revived and expanded during the 2026 legislative session.
Finally, Alabama’s government should consider modernizing how it approaches employee benefits. New hires should move toward defined contribution or hybrid benefit plans, not pensions and health insurance plans backed fully by taxpayers.
These steps may not be politically easy, but they are essential. If public benefits remain untouched, Alabama will face higher taxes, education cuts, or both.
Alabama’s public benefits system is on an unsustainable track. Costs are outpacing revenues, benefits are far richer than what most taxpayers themselves receive, and eligibility has stretched far beyond true state employees. Simply demanding more taxpayer money year after year is not a solution.
Lawmakers face a clear choice. Protect taxpayers through structural reform or continue down a path that will eventually force damaging tax hikes and budget cuts. Without reform, Alabama risks repeating the mistakes of states where pension and health liabilities spiraled until they threatened fiscal stability. The good news is Alabama still has time to act.
For the sake of Alabama’s future, and for the fairness owed to every taxpayer, it is time to choose reform.
