Our office is receiving a number of calls from members with questions about the contribution change to the FRS Investment Plan (formerly known as the Defined Contribution Plan). SB 5005 was adopted last night by the Legislative Budget Conference Committee At-Large which means that the contents of that legislation will be adopted into law unless Governor Scott vetoes it (Highly Unlikely). Contained within SB 5005 is a change to the investment plan contribution from 20% to 14%... A 6% reduction.
Why is this happening? This change is a result of the evaluation the state's actuary has performed to determine what the "normal cost" is to operate the overall benefits of the Florida Retirement System. Based on the evaluation, the normal cost to fund the FRS places the investment rate contribution at 14%. Remember the changes implemented by the Legislature last year,specifically the increase in vesting, increasing the age requirement and length of service for normal retirement, and the suspension of the Cost of Living Adjustment for the the Pension Plan (formerly known as the Defined Benefit Plan), drastically reduced the cost of the fund. Therefore, the Legislature can lower the contribution.
More on the contribution. The law requires each FRS employer to pay a blended/uniform rate per employee regardless of the plan an employee chooses to participate in. So an employee who participates in the pension plan will receive the same blended rate contribution as the employee who participates in the investment plan. The employer and you (at least for now) pay a fixed contribution and the Division of Retirement spreads the contributions to the appropriate entities based on the formula.
However, there is an additional rate to the pension plan that will not be charged to the investment plan. The pension plan has a rate to cover the Unfunded Actuarial Liability (UAL). The UAL is the estimated shortfall in the pension fund which must be paid back in order to fully cover the guaranteed accrued benefits. This shortfall is what Governor Scott and others have used to beat everyone over the head with in their quest to cut pension plan benefits. The investment plan does not have a UAL associated with it, which is why it is so attractive to the Governor. If you look at SB 5005, you will see an additional contribution to the pension plan required to pay down the UAL. This UAL contribution is on top of the blended rate contribution. Remember the pension plan guarantees a fixed benefit; whereas, the investment plan allows you to keep whatever your investment earns, but there is not a guarantee.
To sum it all up, the change you are seeing in the investment plan rate is legal. Yes, it is lower than last year's rate, but changes to the cost of the FRS allow it to be lower. The blended rates are the same for both the pension plan and the investment plan, but the pension plan also must pay down the UAL.
Hopefully, that helps explain what is happening in the FRS with this legislation. Please feel free to contact us if you have any further questions. As always please stay safe out there.
Either way the investment plan employees just took a 6% cut!
Emails obtained by The Associated Press show that while Scott wants more changes to the state pension plan, he and his staff agreed to wait until 2013 before pursuing them.
Brian Burgess, a spokesman for Scott, said Monday that governor remains committed to making the pension plan “fiscally sound” and looking for a “path forward on pension reform.”
But additional emails show that Jon Costello, the governor’s legislative affairs director, asked other top officials in the governor’s office to think twice before sending out the letter to legislators. Costello noted that Scott was “hot about pensions the other day and I am not sure he considered what this may signal when he sends it.”
In another email Costello wrote: “Since we don’t plan on tackling this in 2012 we are telegraphing a fight that we don’t even want to have, furthermore (budget director) Jerry (McDaniel) has indicated that in our budget we likely can fund no more than normal cost, meaning we won’t be showing any leadership in our budget on closing the funding gap. I think this is something we tee up post session and then push for further reforms in 2013.”
Link to the full article excerpted above, which was published on December 5, 2011:
He's not done with us yet!!
If he's planning on taking more money out of our paycheck next year (say another 3%), does this mean we can't expect a pay raise in the next legislative session? With the price of gas going up and causing the price of everything else like groceries to go up, the state employees at the bottom of the rung are going to be working for free pretty soon. They'll be spending all their paycheck on their pension, insurance, and gasoline to get to work.
Hard to believe, but we've got some State Troopers that voted for this guy. Considering he barely won the election, you can thank them for all your misery. If Rick Scott wasn't the governor, none of this would ever have happened. It was the main issue he was campaigning on. He told you what he wanted to do and you voted for him anyway. Unbelievable
I have a few questions to make about your post. If I understand it correctly, the state makes the same blended rate contribution for each employee regardless of which plan they are in. The investment plan has been 20% for special risk since I started. The pension plan contribution has varied slightly, it was at 18% when I started and went all the way up to 21% at one point. Why didn't the investment rate change along with it? When I was given the initial election choice 7 years ago, the choice was either the investment plan at 20% or the pension plan with a 3% multiplier and a 3% annual cola after retirement. If I had known that the state would drop their contribution down to 11%, I would have chosen differently. And my main question is if the state is crying that that pension plan is insolvent and not properly funded, they WHY DID THEY REDUCE THEIR CONTRIBUTION AMOUNTS??? It makes absolutely no sense!!!
FLORIDA BRIEFS: Retirement appeal going to Florida Supreme Court
12:00am on Mar 17, 2012
Court to hear appeal on retirement
TALLAHASSEE -- An appeal of a ruling that struck down a requirement for public employees to contribute to their pensions is going to the Florida Supreme Court.
The 1st District Court of Appeal on Friday agreed to send the state's appeal directly to the justices.
That was a victory for the Florida Education Association and other public employee unions that challenged the new law.
It was a defeat for the state, which wanted the appellate court to make its own ruling.
The law requires public employees to contribute 3 percent of their pay to the Florida Retirement System.
That includes teachers, law enforcement officers and other state and county employees as well as some city workers.
A trial judge ruled the law violated employees' property, contract and collective bargaining rights.
Scott's spokesman says the Governor "misspoke" but PolitiFact Florida holds politicians to their words
9:52 AM, Mar 21, 2012 | 0 comments
St. Petersburg, Florida - On March 6, a judge overturned a controversial state law that required public employees to contribute 3% of their salaries toward their pensions. She ruled it unconstitutional.
Governor Rick Scott says it's an example of a judge wanting to "write the law" and he says the state law is constitutional.
But he also said the state retirement fund for employees is not funded. That's a statement PolitiFact Florida put to the truth-o-meter.
When a judge ruled Florida's pension changes unconstitutional, Governor Rick Scott didn't hide his dislike about her decision.
"I want to make sure we fix the plan so individuals can actually rely on it, because today, you can't rely on that plan, it's not funded."
This definitely caught the ears of fact checkers at PolitiFact Florida.
"People got the impression that the pension system was in dire straits which really it's not so. The fact is, the state pension system is one of the best funded state pension systems in the country," says Aaron Sharockman with PolitiFact Florida.
So PolitiFact Florida reached out to Scott's office. His spokesman says the Governor misspoke.
"They think that he meant to say underfunded, he said not funded. They said it was a misspeak. They say he talks about this all the time and there's been hundreds of cases where he's said it the right way," says Sharockman, who went on to say, "we always hold Scott, or anyone else, to exactly what they said, we don't give them a pass because they say we don't mean to say it that way."
So PolitiFact Florida rates Scott's statement: FALSE.
To learn more about how Florida's retirement system works and to see more PolitiFact Florida checks, click here: http://www.politifact.com/florida/
Recovery underway for state pension fund
Travis Pillow, 03/19/2012 - 09:53 PM
Florida's pension plan has almost recovered from a beating it took at the hands of financial markets starting in the late summer of 2011, the state's top money manager said Monday.
The latest quarterly report by the state's investment consultants shows the State Board of Administration narrowly beat its performance benchmarks, restoring the value of the pension fund to about $118.5 billion. That still left it about $10 billion below where it was at the start of the fiscal year, but that deficit that has all but been erased in recent months.
At the start of the fiscal year in July, the fund was valued at about $128.5 billion, but it shed billions as financial markets were beset by fears of financial contagion from Europe. A more recent monthly report shows the fund recovered to nearly $123 billion in January. SBA director Ash Williams said the value has continued to climb to about $127 billion since then, erasing its losses almost entirely.
"Pretty incredibly, we've almost closed a gap of more than $10 billion that was brought to us courtesy of quarters 3 and 4 of 2011," Williams said Monday during a meeting of the state's Investment Advisory Council. He added, though, that it is not certain that the recent surge in value will hold.
Another report by the consulting firm Hewitt Enniss Knupp makes a conflicting set of observations: the low yields on some safe investments such as highly rated bonds suggests the state could invest more efficiently if it moves into somewhat riskier assets, which are paying a higher premium. At the same time, other evidence suggests that the fund may be more vulnerable to short-term risks, where a series of bad years could place the fund "in a hole" from which it is difficult to recover.
The SBA's trustees — Gov. Rick Scott, state Chief Financial Officer Jeff Atwater and Attorney General Pam Bondi — will hear a report on the situation during their quarterly meeting on Tuesday.
Reporter Travis Pillow can be reached at email@example.com.
Because Rick Scott barely won the Governor's mansion by a handful of votes, but there were a bunch of idiot Troopers and other state employees that decided to vote for him, even though his main campaign theme (LETS GET TO WORK) was that he was going to screw over government employees. That's why. Expect more of the same in the 2013 session. They've already said it's their #1 priority next year.
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