House plan to close traditional pension to new workers carries costs, study concludesby John Kennedy | February 15th, 2013
The Florida Retirement System, used by more than 600,000 state workers, teachers, police officers and firefighters, would change dramatically under a state House proposal to close the plan’s traditional pension to new employees, according to a state study released Friday night.
The analysis by Milliman, a Virginia-based actuarial firm, concluded that the move would likely increase the plan’s cost for employees. These workers began contributing 3 percent of their pay to take part in the plan for the first time, beginning in 2011.
Also, within as little as seven years, more employees could belong to the 401(k)-style investment plan than the traditional defined benefit plan. The shift would contribute to a likely change in how the $122 billion FRS invests its holdings, concluded Milliman, who completed the report for the state’s Department of Management Services.
House Speaker Will Weatherford, R-Wesley Chapel, who is spearheading the pension change, said the report will help lawmakers map a course for the FRS when the legislative session begins next month.
“We are reviewing the study received from the actuary and will derive from it the fiscal impact of our plan to reform Florida’s outdated pension system,” Weatherford said. “Ultimately, we believe that reducing the taxpayer exposure to Florida’s pension liability and creating greater fiscal predictability in our budget is in the best interest of all Floridians.”
The pension fund currently is 87 percent funded — with Gov. Rick Scott recommending in his budget that state lawmakers add $552 million in taxpayer money to fund the state’s share of the fund’s liability.
It’s those payments Weatherford and other supporters of the plan would like to see reduced. Florida’s fund is currently considered strong by most analysts, with the recommended minimum level of funding usually considered to be 80 percent.
Unions oppose ending the defined benefit option for new employees.
They say the move would undermine a strong pension plan and that it is driven by politics — with the Republican-controlled Legislature intent on weakening union strength in Florida.
“This is more about ideology than money,” said Rich Templin, spokesman for the AFL-CIO.
The Florida Retirement System has 623,011 currently employed members, including teachers, state workers, and many local government employees, police officers and firefighters.
Within the system, workers currently can choose between the traditional pension or, for the past decade, an optional 401(k)-like plan. The pension remains the favorite, though, with more than 500,00 employees enrolled, compared with only about 100,000 in the inverstment plan.
The pension fund has another 334,682 retirees enrolled who already collect benefits.
Closing the plan to new employees will rob the traditional pension fund of its stream of new dollars, Milliman concluded. It will also create a system where only older workers looking forward to gaining larger pensions, remain in the fund.