State/National News

Retirement Could Change Again

Tallahassee Democrat 04/03/2012, Page A01

Retirement could change again
New proposal would ‘equalize’ plans by cutting payments to investment plans

By Bill Cotterell

Florida Capital Bureau

Gov. Rick Scott wants government workers to buy into the kind of personal investment plans favored by the private sector, rather than traditional pensions, but Republican legislators gave public employees a big incentive to stick with the old system.

On the hectic last day of the 2012 session, the House and Senate rushed through a budget conforming bill (HB 5005) that substantially cuts employer payments into the 401(k)-style defined contribu­tion retirement plan for about 100,000 public employees in state and local governments. A legislative staff analysis of the complex package said the purpose of the change was to equalize employer contributions with the tra­ditional defined-benefit pen­sion plan.

“The state was saying when you were employed that they’d pay 9 percent — and now they’re changing it,” Howard Moyes, a Depart­ment of Revenue employee, said Monday. He recently wrote to Scott, requesting a veto of the bill.

Moyes added that the law specifying employer contri­bution rates for the invest­ment plan contained no pro­visions for changes. “It was set at 9 percent of gross sal­ary, period,” he said.

Sen. Bill Montford, D-Tal­lahassee, who voted for the change, said “it was a fair­ness issue.” He said employ­er contributions to the lon­gevity- based pension plan and the portable investment plan had to be the same, even though “it was a disincen­tive for joining the invest­ment plan.”

Sen. Mike Fasano, R-New Port Richey, said he voted against the bill because it swept through the House and Senate with little explanation of its purpose or need. He was the lone Republican voting against the bill, which zipped through the Senate 34-2 and the House 82-35 on March 9.

“The governor himself is trying to get people to move from the defined-benefit to the defined-contribution plan,” said Fasano. “I’d be surprised if you don’t see a lot of people trying to go back from defined contribution to defined benefit, if they can now.”

The bill has not yet reached Scott for his decision.

Despite the lowered employer contribution rate, the investment plan would still have some advantages for new enrollees. The vesting period is one year in the defined-contribution plan, compared to eight in the traditional pension system, and investments are portable when an employee goes into the private sector or takes another government job – while defined-benefit pensions can only be transferred between FRS and about 1,000 employers.

State Division of Retirement figures indicate there were 540,635 active members in the defined-benefits system as of July 1, compared to 103,045 in the investment option.

Doug Martin is a lobbyist for the American Federation of State, County and Municipal Employees, which favors the traditional defined-benefits plan. He said the lowered employer contribution rates will save the state and local governments money at the expense of employees who opt for the investment plan. “That’s the future,” said Martin. “That’s why they want employees in definedcontribution plans — because they can define their contributions as low as they want.”

The defined-benefit plan is calculated on years of service, multiplied by a percentage of average peak earnings. For instance, a Career Service employee with a 1.6 percent accrual rate could retire at 48 percent of average salary after 30 years on the job.

In the defined contribution system, pension payments are put into investment accounts, controlled by the employee, which may gain or lose value over a career. Most employees have stuck with the old system, although Scott and the GOP legislative leadership favor the investment plan. The Legislature slapped a 3-percent retirement contribution on public employees last year. It has been blocked in court for employers working before last June 30, pending appeal, but the fee applies to new hires. About one-fifth of Florida Retirement System members are state workers. The rest are in county, city, schools, higher education and special-district agencies.

The employer contributions for the regular class of employees in the investment plan would drop from 9 percent of earnings to 6.3 percent, under the bill. With employees contributing 3 percent, the state or local government bite would fall to 3.3 percent.

In the special risk class for law enforcement, the employer contribution would drop from 18.3 percent to 12.3 percent.

“With this, they’re essentially changing the rules of the game in the middle,” said Moyes, who has worked 10 years for the state. “Now they’re saying, ‘We promised we were going to pay 9 percent toward your retirement,’ and that’s down to 6 now with the employee contribution, and now they’re taking it down to 3.3 percent.”