Opinion | Alabama’s Retirees Helped Pay for My Vacation

Alabama’s $14.3 Billion Pension Gap Is Financing Gulf Coast Hotel Deals

• Alabama’s pension system is only 68% funded, leaving a $14.3 billion shortfall.
• Retiree dollars subsidize beachfront hotel stays for tourists, including the author.
• Investments in tourism yield below-market returns, widening the funding gap.
• Blue-state parallels show pension funds dabbling in risky, low-yield projects.

Retirees bankroll vacations while their own financial security erodes.

ALABAMA PENSION CRISIS—Mobile, Alabama—When my family booked a long weekend along the Gulf Coast, we expected seafood platters and sunset views. We did not expect our $189-a-night historic hotel tab to be quietly subsidized by the retirement savings of 180,000 Alabama teachers, troopers, and civil servants. Yet that is exactly what happened.

Alabama’s Retirement Systems of Alabama (RSA), facing a $14.3 billion unfunded liability, owns a string of hospitality properties marketed to tourists. The goal: boost state tourism and, in theory, earn investment returns. The reality: the fund’s own financial disclosures show hotel revenue falling short of projections, while the pension’s funding ratio has slid from 75 percent in 2014 to 68 percent in 2024.

This investigative feature unpacks how a pension system that can’t pay promised benefits is still cutting hotel deals that lower room rates for out-of-state visitors—an arrangement that retirees, taxpayers, and even some RSA board members are beginning to question.

The Gulf Coast Deal: How Pension Dollars Subsidize Tourists

When RSA bought the 150-year-old Battle House Renaissance Hotel in downtown Mobile for $75 million in 2006, officials hailed it as a triple win: preserve a landmark, spur downtown revival, and generate 8 percent annual returns for retirees. Eighteen years later, the hotel’s net operating income has never once hit the 8 percent target, according to RSA audit records obtained through a public-records request.

Room rates below market

Weekend rack rates for gulf-view rooms averaged $189 this spring—$31 below comparable historic properties in Charleston and Savannah, market data from STR show. The gap is possible because RSA, as owner, accepts lower cash-on-cash returns than private investors demand. Effectively, the pension fund is the silent partner picking up part of the tab for every guest.

State retirees like Becky Knight, 67, a former Montgomery County teacher, feel the pinch. ‘My pension check is $2,340 a month,’ Knight said. ‘Knowing tourists stay in RSA-owned hotels for less than market rate while my COLA is frozen doesn’t sit right.’ Knight’s cost-of-living adjustment has been suspended since 2008, saving the system an estimated $1.2 billion in cumulative payouts.

Alabama isn’t alone. Colorado’s Public Employees’ Retirement Association owns a Denver hotel; California’s CalPERS invested $130 million in a struggling Hawaiian resort. Yet Alabama’s exposure is disproportionate: hospitality and real-estate assets equal 9 percent of RSA’s $32 billion portfolio, triple the 3 percent median for large U.S. public pensions, according to the National Association of State Retirement Administrators.

The implication: every subsidized vacation widens the funding gap that future taxpayers—or retirees—must close.

A Pension System in Slow-Motion Crisis

Alabama’s pension crisis has been decades in the making. In 2001 the system was 98 percent funded. By 2010, two recessions and generous benefit enhancements dropped the ratio to 70 percent. Today’s 68 percent level means the fund holds only 68 cents for every dollar owed to retirees over their lifetimes.

Contribution shortfalls

Annual required contributions have not once been fully met by the legislature since 2008, RSA actuarial reports show. The cumulative shortfall: $3.9 billion. Meanwhile, payroll-covered employees have shrunk 11 percent since 2014, reducing the contribution base just as 42 percent of the active workforce becomes eligible to retire within the next decade.

Investment returns have also lagged. RSA’s 10-year annualized return is 6.2 percent versus 7.4 percent for the median public pension, according to Boston College’s Center for Retirement Research. Each 1 percent underperformance adds roughly $1.4 billion in unfunded liabilities over ten years, RSA’s own actuaries calculate.

David Draine, senior officer at Pew Charitable Trusts, warns: ‘When a pension drops below 70 percent funded, it enters a zone where compound interest works against you. Alabama is past that threshold and still chasing riskier assets like hotels.’

The consequence: without benefit changes or higher contributions, Alabama would need to allocate an additional $1.9 billion—equal to 17 percent of its entire General Fund—every year for the next 30 years to reach full funding.

Risky Bets: Why Hotels Over Bonds?

So why does RSA keep buying hotels? The answer lies in a 1985 constitutional amendment that earmarks 10 percent of state lodging-tax revenue to the pension fund when its investments own Alabama hospitality assets. In effect, every RSA-owned hotel unlocks a dedicated tax stream that can be booked as contribution revenue.

Constitutional loophole

This structure lets lawmakers claim they are ‘fully funding’ pensions without tapping the General Fund. Last year the tax kick-back added $42 million—equal to 5 percent of total employer contributions. Critics call it fiscal sleight-of-hand: the tax would flow to the Education Trust Fund if RSA divested, creating pressure to keep the hotels even when returns falter.

Take the Grand Hotel in Point Clear. RSA bought the 405-room resort for $57 million in 2010 and has since poured another $53 million into renovations. STR data show occupancy rates rose from 56 percent to 68 percent, yet net operating income yields have averaged 4.1 percent—below the 4.8 percent yield on 30-year Treasury bonds over the same period.

Finance professor Joshua Rauh of Stanford notes: ‘Pensions should seek the highest risk-adjusted return, not political side benefits. Alabama’s lodging-tax earmark distorts that calculus.’

The upshot: retirees bear equity-like risk but reap bond-like returns, while tourists enjoy subsidized luxury stays.

Could Retirees Lose Their Benefits?

Alabama’s constitution protects accrued pension benefits, but that does not guarantee current purchasing power. Since 2008 retirees have forgone $1.2 billion in COLAs, and statutes allow the legislature to suspend them again whenever the fund’s amortization period exceeds 30 years—currently it stands at 32 years.

Legal limits

Unlike private-sector pensions, public plans have no federal backstop. If a state fund exhausts assets, retirees must sue for payment, a scenario that has never been tested. actuarial stress tests by RSA show a 22 percent probability of asset depletion by 2043 if current contribution and investment trends persist.

States such as Rhode Island and Michigan have cut COLAs or moved workers to hybrid plans after funding ratios fell below 60 percent. Alabama could follow. ‘The legal protections are strong, but the fiscal math is stronger,’ says Jean-Pierre Aubry of Boston College.

Retiree groups are mobilizing. The Alabama State Employees Association commissioned a poll in March showing 61 percent of voters support requiring full actuarially required contributions each budget year, even if it means raising taxes.

The takeaway: benefit checks will likely keep arriving, but their real value could shrink if pension tourism subsidies continue to underperform.

What Are the Alternatives?

Fixing Alabama’s pension gap without slashing retiree benefits requires higher contributions, lower costs, or both. The legislature’s Permanent Joint Study Commission on Pensions is weighing three options: raise employer contributions from 15.8 percent of payroll to 19 percent; increase employee contributions from 7.5 percent to 9 percent; or reduce the benefit multiplier for new hires from 2.0125 percent to 1.75 percent.

Privatize the hotels?

An independent appraisal commissioned by RSA estimates the hotel portfolio could fetch $420 million in a competitive sale—enough to wipe out one-third of the annual required contribution shortfall. Proceeds invested in a diversified bond-equity mix could yield 6.5 percent, beating the 4.1 percent current hotel yield, according to analysis by Municipal Market Analytics.

Utah’s pension system faced similar real-estate underperformance in 2015 and liquidated its hospitality holdings within 24 months, boosting its funding ratio from 75 percent to 87 percent today.

State Senator Arthur Orr, chair of the Senate Finance & Taxation Committee, says he will sponsor a 2025 bill to cap hospitality exposure at 3 percent of RSA assets. ‘We can’t subsidize tourists while short-changing retirees,’ Orr told reporters.

The path forward hinges on whether lawmakers value fiscal prudence over the political allure of tourism-driven job headlines.