Attacks on state pension plan not over
As Will Weatherford tells it, his plan to shut down the state’s pension fund to new hires won’t affect people already in it.
“We want to leave you alone; we want to protect that pension for you,” the House speaker said in a recent Florida Channel interview.
But the people who represent many of the 900,000 current employees and retirees in the Florida Retirement System aren’t so sure. State workers comprise about a quarter of pension plan members; the rest are teachers and local government workers, including police and fire.
By cutting the pension plan off from new members, they say, it starves the fund of that revenue stream of contributions from new employees and employers.
“If you want to make a numbers argument, you’re not going to win,” said Will Newton, who represents Pinellas and Pasco counties for the Florida Professional Firefighters union. “That’s how they’re looking at this, and it’s not reasonable.”
This isn’t just an academic exercise for Newton and others: Weatherford’s pension overhaul bill didn’t pass this legislative session, but he promises to bring it back next year.
And that adds to the worry of current employees that the golden promise of public employment – a guaranteed pension – may not be there for them when they need it.
Many of those are lower-paid secretaries, data entry clerks and groundskeepers who want to rely on a guaranteed pension and not some form of welfare in their retirement, said Jeanette D. Wynn, president of AFSCME Florida Council 79, which represents 60,000 state workers.
A pension “was the promise for their future,” Wynn said.
In the wake of the Great Recession, public pension plans around the country took a hit, compounded by years of states shorting them or even skipping annual contributions. Illinois’ state retirement system is in free fall, $97 billion short of funds needed to pay benefits.
“What I don’t want to see happen in Florida is us wake up one day in five or 10 years and our $19 billion problem becomes a $50 billion problem, or a $60 or $70 billion problem. And that can happen,” said Weatherford, a Wesley Chapel Republican. “And so we’ve got to be responsible. We have to protect our citizens from the possible tax increases it would take to pay for that unfunded liability.”
Florida’s pension pool is valued at $133.7 billion and, over 2012-13, beat expectations with a total fund return of nearly 11 percent, according to the State Board of Administration, which manages the fund.
At the same time, the fund has a $19 billion gap – or “unfunded liability” – between the money it has and the money it needs to cover current and expected future payouts.
“That unfunded liability costs us $500 million a year,” Weatherford said. “That means every year, we’re going to have to take $500 million away from the education system, away from our infrastructure, away from our health care, and we’re going to have to put it into a broken pension system.”
The system is perhaps not so broken for most House members, however. At least 65 are in the traditional pension plan, and 39 are in an investment plan, according to House records made available last week. Weatherford practices what he preaches; he’s in an investment plan.
What Weatherford wants to do is grandfather in current pension fund members and force new hires into individual investment accounts similar to 401(k) plans, also called “defined contribution’’ plans. Workers now can pick between a pension, called a “defined benefit’’ plan, or a 401(k)-style plan. A House study predicts the plan would save the state $9.8 billion over 30 years.
This year’s bill (HB 7011) passed the House 74-42 but later died in the Senate by an 18-22 vote, with eight Republicans voting against it. A competing Senate proposal kept pensions but would have made 401(k)-style plans the default option for new employees.
“We’re going to work with those senators who voted no, and see what it would take to get them to vote yes,” Weatherford said.
One of them said he’s willing to listen, but it will be a hard sell.
“I just feel like we are jumping into a firestorm,” said Sen. Charlie Dean, an Inverness Republican and a former Citrus County sheriff. “We’re being short-sighted when we say, ‘Well, it costs too much.’ Everything costs too much. And we know it’s sound.”
Financial experts generally call pension plans healthy if they’re at least 80 percent funded. That’s because employees retire at different times, meaning a run on the bank is unlikely. Florida’s pension fund is about 87 percent funded.
Keith Brainard, research director for the National Association of State Retirement Administrators, doesn’t necessarily agree with the 80 percent figure, but said, “I will tell you the Florida pension plan is a well-funded plan.”
Moreover, he said when states move from pensions to 401(k) plans, they “lose an important tool to recruit and retain good workers.”
But Weatherford thinks that for new employees, “it’s OK for us to tell you ahead of time, you’re going to be in the defined contribution plan,” he said. “I don’t think that’s unreasonable. Most of the private sector is in a defined contribution plan.”
Most American companies have moved away from pensions to 401(k)-style plans. One reason is that it’s less hassle: Retirement investment risk moves to the employee from the employer. But that also means future retirement income depends on the whims of the marketplace.
“Retirement income is insurance; it’s not about the pursuit of wealth,” Brainard said. “It’s a guarantee that retirees can continue to feed themselves and keep a roof over their heads.”
Florida workers hadn’t contributed toward their own pensions, but in 2011, the state required plan participants to start kicking in 3 percent of their pay toward their retirement. Lawmakers later took that money to help plug a hole in the state budget instead of banking it in the pension fund. The Florida Supreme Court upheld the contribution requirement earlier this year after a challenge from a state teachers’ union.
On the final day of this past session, Weatherford was able to get a bill through the Legislature and signed by Gov. Rick Scott that requires counties to pay an extra $264 million into the pension fund. Hillsborough County’s cost is about $7 million, according to county budget director Tom Fesler.
Many county officials complained it was a stealth move, though Fesler said he knew it was coming as early as April.
“We incorporated that into our budget,” Fesler said. “It is the most significant item affecting our budget, but at the same time we’ve been lucky.
“We finally turned a corner,” he added, mentioning increases in property values and revenue for the first time since 2007. “That provided us the ability to absorb that.”
For now, Weatherford’s goal is to lay the groundwork for a win next year.
“In politics, most of our public servants talk a lot about what they did, or how they did it, but we very rarely explain to the public why we’re doing something,” he said. “I’m going to spend some time between now and next session really explaining to the citizens of Florida, and to my colleagues in the House and Senate, why I think pension reform is so necessary in Florida.”