07-24-2010, 06:35 PM
Article published Jul 12, 2010
Bill Cotterell: The pressure is on to fix pension system
State workers won't escape changes next time around
With a new governor and a different Legislature, the Florida Retirement System is likely to get a major overhaul next year.
You can see the system straining, politically and financially, like an already full balloon stretching to hold a little more volume. Lobbyists for state employee unions, and Gov. Charlie Crist, were able to keep it from popping this year — but legislators will soon have to do something to reduce the pressure.
Florida TaxWatch has assembled a 36-member task force on government cost savings. There are a few government officers on the task force, including Attorney General Bill McCollum and Chief Financial Officer Alex Sink, who are both running for governor, but most of the panel is made up of high-level business managers and people who used to be in government.
At its first meeting in preparation for the new budget cycle, the group got a presentation on pensions last month. It was grim, even if the state wasn't facing a multibillion-dollar revenue shortfall that will be further complicated by the unknown impact of the Gulf oil disaster on tourism tax collections.
There were efforts in this year's legislative session to raise retirement ages, reduce accrual rates for pensions, and limit the "special risk" benefit to police, fire and prison officers who actually work in dangerous situations every day. There was also that recurring idea of making all new hires join the defined-contribution plan — similar to a 401(k) investment package in the private sector — instead of the small-but-reliable defined-benefit pension system.
None of it passed. The Senate tried to have employees contribute one-fourth of 1 percent of earnings to the FRS, which everyone knew would grow to 3 or 4 or 5 percent in a few years, and the House tried to take away the health care subsidy for retirees. Those bills failed, and Crist vetoed one that would have cut the state's interest obligation on savings in the Deferred Retirement Option Plan from 6.5 to 3 percent.
There's a very reasonable argument that, after five years without general pay raises and none in sight next year, this is no time to mess with employee pensions. But the costs are, as Rep. Tom Grady of Naples futilely argued last session, simply unsustainable.
Grady isn't running for re-election, but someone else, probably a lot of members, are sure to be offering bills to reduce pension benefits for state and local employees in the FRS.
Consider some of the facts put before the TaxWatch task force:
· From fiscal 2005-06 to 2008-09, general revenue collections declined by $6 billion, or 22 percent, but retirement contributions by the state rose $142 million — 26 percent. The state's contribution rate is two to four times what private employers pay into their pension pools.
· Nationwide, 78 percent of state and local governments require employees to chip in to their pension pools. Florida doesn't.
· In 2008-09, FRS liabilities topped assets for the first time in 10 years, with an unfunded liability of $17.6 billion. Pension payout rose by $1.4 billion between 2005 and 2009, while contributions by state and local government employers grew by only $1.25 billion. Meanwhile, FRS investments lost $48 billion in the economic downturn.
· Cities that aren't in the FRS are imposing cost savings on employees. Sunrise increased its retirement age from 58 to 62 (which happens to be the standard retirement age for most state employees). Hollywood raised employee contributions from 7 percent to 9 percent of annual salary. Fort Lauderdale and Pembroke Pines are switching employees to defined-contribution investment plans.
· Trends in the private sector (that is, the employees who elect legislators and their employers who contribute to campaigns) are moving toward the defined-contribution plans. In 1980, 84 percent of private employees had defined-benefit plans, but last year, only 21 percent did. Alaska and Michigan have dumped the old way, and 38 states have passed some form of pension overhaul since 2007.
Different states provide examples of what might be done. Kentucky now bases its pensions on the average earnings of an employee's final five years of work, not the highest five years. New York raised its retirement age from 55 to 62 and its vesting period from five years to 10 (Florida's is six years).
Nevada reduced its accrual rate for new employees, and Wisconsin replaced cost-of-living increases with dividends — allowing pensions to rise in good years and be reduced in bad ones. Georgia cut its 2-percent accrual rate in half and implemented a matching incentive to push employees toward the defined-contribution plan.
Some ideas being studied by the TaxWatch task force for Florida include tying pension increases to the consumer price index, rather than guaranteeing 3 percent every year; raising the vesting period from six years to 10; and limiting special-risk to police, firefighters and prison officers. Another idea is to calculate pensions on only base salary, rather than allowing up to 500 hours of overtime and annual leave in the equation.
There's more. A bunch more.
Usually, the interesting things in a legislative session are not all that important and the important things often aren't very interesting. But even if you're not nearing retirement age, pension reform next session is going to be as interesting as it is important.
· Contact Senior Political Writer Bill Cotterell at (850) 671-6545 or at bcotterell@tallahassee.com.You need to know
Top
Bill Cotterell: The pressure is on to fix pension system
State workers won't escape changes next time around
With a new governor and a different Legislature, the Florida Retirement System is likely to get a major overhaul next year.
You can see the system straining, politically and financially, like an already full balloon stretching to hold a little more volume. Lobbyists for state employee unions, and Gov. Charlie Crist, were able to keep it from popping this year — but legislators will soon have to do something to reduce the pressure.
Florida TaxWatch has assembled a 36-member task force on government cost savings. There are a few government officers on the task force, including Attorney General Bill McCollum and Chief Financial Officer Alex Sink, who are both running for governor, but most of the panel is made up of high-level business managers and people who used to be in government.
At its first meeting in preparation for the new budget cycle, the group got a presentation on pensions last month. It was grim, even if the state wasn't facing a multibillion-dollar revenue shortfall that will be further complicated by the unknown impact of the Gulf oil disaster on tourism tax collections.
There were efforts in this year's legislative session to raise retirement ages, reduce accrual rates for pensions, and limit the "special risk" benefit to police, fire and prison officers who actually work in dangerous situations every day. There was also that recurring idea of making all new hires join the defined-contribution plan — similar to a 401(k) investment package in the private sector — instead of the small-but-reliable defined-benefit pension system.
None of it passed. The Senate tried to have employees contribute one-fourth of 1 percent of earnings to the FRS, which everyone knew would grow to 3 or 4 or 5 percent in a few years, and the House tried to take away the health care subsidy for retirees. Those bills failed, and Crist vetoed one that would have cut the state's interest obligation on savings in the Deferred Retirement Option Plan from 6.5 to 3 percent.
There's a very reasonable argument that, after five years without general pay raises and none in sight next year, this is no time to mess with employee pensions. But the costs are, as Rep. Tom Grady of Naples futilely argued last session, simply unsustainable.
Grady isn't running for re-election, but someone else, probably a lot of members, are sure to be offering bills to reduce pension benefits for state and local employees in the FRS.
Consider some of the facts put before the TaxWatch task force:
· From fiscal 2005-06 to 2008-09, general revenue collections declined by $6 billion, or 22 percent, but retirement contributions by the state rose $142 million — 26 percent. The state's contribution rate is two to four times what private employers pay into their pension pools.
· Nationwide, 78 percent of state and local governments require employees to chip in to their pension pools. Florida doesn't.
· In 2008-09, FRS liabilities topped assets for the first time in 10 years, with an unfunded liability of $17.6 billion. Pension payout rose by $1.4 billion between 2005 and 2009, while contributions by state and local government employers grew by only $1.25 billion. Meanwhile, FRS investments lost $48 billion in the economic downturn.
· Cities that aren't in the FRS are imposing cost savings on employees. Sunrise increased its retirement age from 58 to 62 (which happens to be the standard retirement age for most state employees). Hollywood raised employee contributions from 7 percent to 9 percent of annual salary. Fort Lauderdale and Pembroke Pines are switching employees to defined-contribution investment plans.
· Trends in the private sector (that is, the employees who elect legislators and their employers who contribute to campaigns) are moving toward the defined-contribution plans. In 1980, 84 percent of private employees had defined-benefit plans, but last year, only 21 percent did. Alaska and Michigan have dumped the old way, and 38 states have passed some form of pension overhaul since 2007.
Different states provide examples of what might be done. Kentucky now bases its pensions on the average earnings of an employee's final five years of work, not the highest five years. New York raised its retirement age from 55 to 62 and its vesting period from five years to 10 (Florida's is six years).
Nevada reduced its accrual rate for new employees, and Wisconsin replaced cost-of-living increases with dividends — allowing pensions to rise in good years and be reduced in bad ones. Georgia cut its 2-percent accrual rate in half and implemented a matching incentive to push employees toward the defined-contribution plan.
Some ideas being studied by the TaxWatch task force for Florida include tying pension increases to the consumer price index, rather than guaranteeing 3 percent every year; raising the vesting period from six years to 10; and limiting special-risk to police, firefighters and prison officers. Another idea is to calculate pensions on only base salary, rather than allowing up to 500 hours of overtime and annual leave in the equation.
There's more. A bunch more.
Usually, the interesting things in a legislative session are not all that important and the important things often aren't very interesting. But even if you're not nearing retirement age, pension reform next session is going to be as interesting as it is important.
· Contact Senior Political Writer Bill Cotterell at (850) 671-6545 or at bcotterell@tallahassee.com.You need to know
Top