Florida Retirement System Is Sound; Changing It Would Cost Taxpayers More and Provide Retired Workers Less

Florida Retirement System Is Sound; Changing It Would Cost Taxpayers More and Provide Retired Workers Less

Opponents of dramatic changes to public employees’ retirement benefits criticized proposals Wednesday that would unnecessarily cost taxpayers billions of dollars and leave firefighters, law enforcement officers and school employees with inadequate savings in their retirement years.

“There’s no fire threatening the Florida Retirement System except the fire the Legislature is lighting with unnecessary and costly legislation,” said Gary Rainey, president of Florida Professional Firefighters, a member of the Florida Retirement Security Coalition.

Rainey said a bill scheduled to be considered Thursday morning by the Government Operations Subcommittee of the Florida House of Representatives would weaken a healthy retirement system, raise taxpayer costs and force more Floridians to rely on social services.

That bill would close the current FRS defined benefit plan on January 1, 2014, and force all public employees hired by government agencies afterwards into a 401k-style plan.

Rainey and the Florida Retirement Security Coalition objected to committee action on the bill, despite the chair’s assurances that his committee would not vote on the legislation before an actuarial study detailing the costs and impacts on current and future retirees is completed.

“It’s ridiculous for legislators to consider a proposal without even knowing how much it will cost taxpayers and how it will affect workers who serve Florida and in many cases put their lives on the line every day to protect Floridians,” Rainey said.

He said the bill also insults firefighters and law enforcement officers by making no provision to provide disability and death benefits to families of fallen first responders.

The Florida Retirement Security Coalition highlighted five key facts about the Florida Retirement System.

·         There’s no good financial reason to close the FRS pension plan to new hires.   The FRS is in good condition, as Governor Scott noted in his budget presentation last week.  In fact, it is recognized as one of the strongest state retirement systems in the nation.

·         Closing the pension plan and moving new hires into a 401k-style plan would cost taxpayers more money, unnecessarily, and destabilize the system.   Proponents of the bill admit that closing the plan will cost more, but can’t say how much more or how it will be paid for.  Forcing new hires into a 401k-type system does nothing to reduce current obligations. Without replenishment from new hires, costs for current employees – and the price to taxpayers – go up.  A 2010 study conducted for the Legislature showed that closing the pension system to new hires would add hundreds of millions of additional costs to taxpayers each year.  Current workers and current retirees would be hurt by an unstable future funding source for their retirement funds.

·         Closing the plan would deliver retirees less.  In a defined contribution plan, retired workers assume all the risk of market downturns.  Their savings often are minimal because they must manage their own accounts and pay high investment fees.   They miss out on the economies of scale and expertise available through the current FRS plan.

Rank-and-file workers will have difficulty setting aside retirement savings when their average salary is below $40,000.  Inadequate savings from a 401k-type plan would leave retired publicworkers at risk of outliving their retirement savings and being forced to depend on government services like food stamps and Medicaid, at a cost to taxpayers.

·         No tax increase is necessary for the FRS, either now or in the future.  In fact, closing the defined benefit plan to new enrollees is what raises taxpayer costs.

·         The FRS, funded at a strong level already, would be even stronger if the Legislature had applied the new employee contribution the way it was intended.  The FRS is currently 86.9 percent funded, well above the recommended standard of 80 percent.  In 2011, the Legislature reduced compensation for public employees by 3 percent, supposedly to fund retirement.  The money saved should have gone back into the retirement system, but unfortunately the Legislature used those dollars to balance the state budget rather than reduce the unfunded liability.