TALLAHASSEE — The Florida Retirement System is far from broke — actuaries consider it quite healthy — but Gov. Rick Scott and legislative leaders are determined to fix what they see as its potential financial pitfalls. The debate will play out against a backdrop of election-year politics and the specter of fiscal failures that have other governments scrambling to patch holes in their pension pots.
“People say we're totally different from Detroit,” state Sen. Wilton Simpson, R-Trilby, said in an interview last week. “Well, Detroit was totally different from Detroit — until it happened.”
The House passed a bill last year to make all new employees join a 401(k)-style “defined contribution” pension system, popular in the private sector, rather than the “defined benefit” plan now in place, with its uniform monthly payouts based on years of service.
Simpson countered with a Senate plan that would have kept the “defined benefit” plan open to new hires while dangling before them a reduction from 3 percent to 2 percent in their payroll contributions for the Florida Retirement System.
The bills died in a House-Senate standoff, so staff aides worked on compromises for the past nine months. Speaker Will Weatherford, R-Wesley Chapel, has made a top priority of getting the state on track to phase out a $500 million annual budget expenditure to meet an actuarial liability recently hiked to $21.6 billion.
“If our pension fund is so great, why are we having to take a half-billion dollars a year that could be going to our schools, that could be going to health care, that could be going toward a whole host of other things?” Weatherford said at a recent meeting of news gatherers from across the state.
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Simpson plans to have his Senate Community Affairs Committee propose three bills this month that would offer future state, county and local government members of the Florida Retirement System the option of joining a “cash balance” pension plan — a hybrid defined-benefit system that assures them a set rate of return on retirement accounts.
He said new employees would qualify to receive payments in five years, rather than eight, and would receive a 2 percent rate of return on their retirement savings.
If the fund makes more than 2 percent, he said, three-fourths of the overage would go to the employee and the other 25 percent would go to the employing agency. State employees make up about 20 percent of the Florida Retirement System, with the bulk of its 623,011 members working for counties, universities and local governments.
Another part of Simpson's 2014 plan would provide a state match for up to 2 percent of earnings employees stash in their deferred compensation accounts. This would be limited to employees earning $60,000 a year or less, to tilt the system toward lower-paid career workers.
People in the Florida Retirement System who don't work for the state would have the option of matching part of deferred compensation but it would not be required of them.
One point all sides emphasize is that any changes enacted this year would affect only those hired in the future, probably after July 1, 2015. All existing members of the retirement system could keep what they've got, voluntarily switch to the existing investment plan or, if Simpson's bill passes, opt into the cash-balance plan.
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One wild card is a House proposal to exempt so-called “special risk” workers — mostly police, firefighter and prison employees — from the proposed changes. Special risk workers get a 3 percent annual pension credit, compared to 1.6 percent for office workers, and they can retire earlier than regular employees.
Leaving them out of the changes could neutralize potential opposition from the Florida Police Benevolent Association and Professional Firefighters of Florida, who aren't taking the bait just yet.
“Obviously, that's much appreciated but we'll have to look at it,” said Matt Puckett, executive director of the police and fire union. “Special risk has always been a different gig than some other public employees' jobs. Our biggest concern is that it doesn't harm the overall system.”
Weatherford and Senate President Don Gaetz, R-Niceville, ordered up a financial analysis Jan. 17 and a report from the Milliman actuaries is expected about midway through the 60-day 2014 session of the Legislature, which convenes March 4.
Dennis Mackee, communications director for the State Board of Administration, said the Florida Retirement System is funded at 85.9 percent, assets to liabilities, which works out to a gap of $21.6 billion.
He likened that to a homeowner adding up all monthly mortgage payments for 30 years and comparing the total to expected income over that period. But, since the whole tab won't come due at once, Mackee said actuaries agree that “anything over 80 percent is considered healthy.”
That puts the Florida Retirement System in fine shape compared to some city pension pots.
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In December, the Senate Governmental Oversight committee unanimously approved a separate bill (SB 246) defining healthy and unhealthy municipal pensions and allowing cities below the 80 percent mark to use half of new insurance premium tax revenues to shore up their funds.
Committee chairman Jeremy Ring, D-Margate, and Sen. Rob Bradley, R-Flemming Island, co-sponsored the measure in a show of bipartisan support.
“The situation we have right now with regard to the local government pensions can correctly be described as a ticking time bomb,” Bradley said.
These local governments are not Florida Retirement System employers but the fallout from news about hemorrhaging city police and fire pensions will touch on the state debate. Sen. Bill Montford, D-Tallahassee, who represents the largest concentration of state workers in the Senate, said it's important to separate the local, pension problems outside the Florida Retirement System from the state fund.
“Our state retirement system is one of the most stable in the country,” Montford said. “I'm confused sometime as to why people are concerned with the financial health of it. It's fully healthy, nothing wrong with it. Why would we want to tinker with a system that has worked well for years?”
Montford and Ring were also concerned about “peeling off” special-risk members, and leaving office workers and laborers alone in the new pension system.
“I'm torn on that,” Ring said. “I understand the value of special risk but I also understand the value of our teachers. I think that one is going to be contentious.”
Aside from providing secure retirement for employees, Sen. Simpson said there are two other rea sons to shed the unfunded liability.
That $500 million a year could be spent on education, health care and even employee raises, he said. And the unfunded liability counts against the state's assets when bond rating companies evaluate Florida's overall financial footing.
If changes in the economy cause the state's triple-A bond rating to slip, Simpson said, taxpayers would have to shell out another $200 million or more, on top of the half-billion already needed to let the liability ride, with nothing to show for it.
“We have an AAA bond rating and if we were to get downgraded a notch, we would have to come up with an additional $200 million or $300 million just to pay the interest, with no services added.
“Our pension is in pretty good shape today,” he said. “A year from now, it could be completely different.”