Florida Senate Passes Bill to Move Most State Workers to DC Plan

The Florida state Senate has passed a bill that would eliminate the option for nearly all new state employees to participate in a defined benefit (DB) plan, instead requiring them to join a defined contribution (DC) plan.

The bill, which was sponsored by Republican Sen. Ray Rodrigues, would require new hires as of July 1, 2022, to enroll in a 401(k)-style investment plan. Employees are currently given the option to participate in either the DB plan or the DC plan. The bill excludes “special risk class” employees such as firefighters and police officers.

Senate Republicans lauded the bill, saying it “modernizes” the Florida Retirement System (FRS) and cited as a need for the legislation the system’s $36 billion in unfunded actuarial liabilities reported by the state actuary.

“The rising costs of pension obligations crowd out funding for other priority issues such as education, transportation, security, and assistance to the most vulnerable among us,” Rodrigues said in a statement. “Traditional pension plans place investment risk for changes in economic conditions that impact the retirement plan’s funded status squarely on the taxpayers.”

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However, the plan was panned by labor organizations and teachers’ associations, which said it is unnecessary and would hurt state workers’ retirement savings as well as the state’s ability to attract top employees.

“We already have a serious problem recruiting and retaining teachers here in Florida—the very people who are preparing our future workforce,” Nancy Hosie, president of the Florida Retired Educators Association (FREA), said in a statement. “Watering down teacher compensation via benefit cuts is short-sighted, dangerous, and fiscally irresponsible. We hope Florida lawmakers will reverse course.”

FREA blamed the FRS funding shortfalls on Florida lawmakers diverting required pension contributions to Florida’s general fund during the Great Recession.

“Legislators used state employees’ retirement savings to balance Florida’s budget to the detriment of the FRS pension funding,” the FREA said. “This money still has not been fully returned to the educator’s retirement plan.”

National Public Pension Coalition (NPPC) Executive Director Bridget Early wrote in a blog post that that contrary to what Senate Republicans argue, the FRS “does not require repair,” noting that the pension’s funding level was 84.1% as of fiscal year 2019, compared with the national average of 72.2% for the same year.

Early also cited statistics from the National Association of State Retirement Administrators (NASRA) that show that spending by Florida governments on pension costs is only 2.86%, compared with the national average of 5.16%. The bill “appears to ‘solve’ a problem that doesn’t actually exist with a proposed solution that only weakens retirement for future employees,” Early said.

As of June 30, the Florida Retirement System consisted of 980 total employers and had more than 640,000 active members, over 430,000 retired members, more than 15,500 disabled retirees, and nearly 33,600 active participants of the deferred retirement option program. The $183 billion FRS is overseen by the Florida State Board of Administration (SBA).

The bill now heads to the Republican-controlled state House of Representatives.

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Tags: Bill, Bridget Early, Defined benefit (db) pension plans, Defined Contribution, Florida, Florida Retired Educators Association, Nancy Hosie, National Public Pension Coalition, Pension, Ray Rodrigues, Reform, Senate

Illinois Gov. J.B. Pritzker has signed into law legislation that increases benefits to the Chicago firefighters’ pension fund, despite calls for him to veto the bill by fellow Democrats and business leaders.

“I’ve always believed that hardworking men and women who have earned their pension shouldn’t pay the price for local or state budget challenges,” Pritzker said in a statement. “HB 2451 creates a system that gives all firefighters certainty and fair treatment.”

The bill, which was sponsored by State Senator Rob Martwick, D-Chicago, removes a birth date restriction for beneficiaries in the Firemen’s Annuity and Benefit Fund of Chicago who were born after Jan. 1, 1966, and sets the annual cost of living adjustment (COLA) to 3% from 1.5% for firefighters born after that date. The fund has approximately $1.1 billion in assets and $5.1 billion in unfunded liabilities, and was 18.4% funded as of the end of 2019.

“If we ever hope to right our financial ship, we must finally put an end to the irresponsible behavior that put us here in the first place,” Martwick said in a statement. “This law simply ensures that the city confronts the true costs of its pension obligations and makes the difficult decisions it needs to make today.”

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Martwick argues that the new law doesn’t actually increase the benefits being given to city firefighters, but merely codifies a practice he said has been going on for nearly half a century.

“For 45 years, the city has given every firefighter a higher benefit than was written into the law,” said Martwick. “This change makes the law comply with those four decades of practice to ensure the city budgets the appropriate amount for that benefit.”

However, Chicago’s Democratic Mayor Lori Lightfoot, along with business groups, had called on the governor to veto the bill, saying it would be too expensive for taxpayers and could more than double the city’s pension costs to $30 million a year from $12 million. Lightfoot also said that because the new law doesn’t provide a way to pay for the increased benefits, Chicago’s city council will have to find a source for the money.

“Mayor Lightfoot believes strongly that we must work toward a comprehensive pension solution which keeps the promises made to retirees and which sets pension funds across the state on a path to solvency,” the mayor’s office said in a statement in January after the state Senate passed the bill. She added that the bill “accomplishes neither of these important objectives, but does pass on a massive, unfunded mandate to the taxpayers of Chicago at a time when there are no extra funds to cover this new obligation.”