Unions are organizing last-ditch efforts to defeat legislation that would bar new state and local government employees from Florida’s public pension plan and commit the retirement income of thousands of administrators, teachers, nurses, and more to private investments.
The legislation (SB 84) would require all workers joining state government’s workforce after July 1, 2022, to forgo the traditional pension plan in favor of a “defined contribution” plan — that means investment vehicles like 401(k)s that don’t guarantee retirement income. It could hit the Senate floor as soon as Wednesday.
The bill exempts “special risk” workers — police, corrections, and probation officers, firefighters, and paramedics and EMTs. But they represent the smallest class under the retirement system and earn the most in benefits, Rick Templin, a lobbyist for the Florida AFL-CIO, said during a Zoom news conference.
Without fresh contributions from new workers, the responsibility for keeping the Florida Retirement System afloat would fall on taxpayers, Templin said.
“What the Legislature is doing is breaking the Florida Retirement System. They are breaking the bank, and they’re going to break the taxpayers with this change,” he said.
“They give away to Wall Street swindlers at the expense of every man and woman who kept this state running and will continue to do so in the future,” said Maxie Hicks, who sits on the Florida Retiree Executive Board for AFSCME.
Moreover, the legislation repudiates the deal the state makes with its state and local workforce — accept lower incomes during their careers in exchange for retirement security, said Dave Jacobsen, president of Northwest AFSCME Retirees.
“Hands off my pension. I earned it and I don’t want the legislators messing with it,” he said.
Lee County Republican Ray Wesley Rodrigues is carrying the bill, but the main force behind it is Senate President Wilton Simpson, a Republican representing Citrus, Hernando, and part of Pasco counties.
He called for the measure during his speech opening the legislative session.
“We have seen other states’ pension plans go bankrupt. People were made promises that their states could not keep. Our current retirees and every state employee should be very concerned,” he said at the time.
How the system works
More than 1 million state workers, retirees, and their beneficiaries participate in the retirement system, according to a Senate staff analysis of the legislation, plus workers for 177 cities and 151 independent hospitals and special districts.
Under existing law, workers can chose a defined-benefit plan if they like or stick with the straight pension.
The analysis estimates the proposed change would save the state $8.3 million in the first year, increasing to $109.7 million annually after 30 years.
As of June 30 last year, the plan held $164.3 billion in assets against $200.3 billion in liabilities, leaving $36 billion in unfunded liabilities. That means the system could cover 82 percent of its obligations if every covered worker retired today.
That’s not bad — certainly not compared to other states. Illinois, for example, is carrying $317 billion in unfunded pension liabilities.
And, according to Templin, the “actuarial gold standard” for unfunded liabilities is 20 percent — meaning Florida’s plan is relatively well-funded.
Ash Williams, executive director of Florida’s State Board of Administration, offered a similar take to the governor and Cabinet in early March.
“Our net pension liability is among the lowest two or three states in the country consistently,” Williams said at the time. The burden, he said, is “very manageable relative to the size of our economy.”
Part of the reason for Florida’s unfunded liabilities are that the Legislature has been using “aggressive” assumptions about its pension investment returns, he said, although leaders have been scaling back those assumptions of late.
System ranks highly
Financial ratings firms are aware of the shortfall but not overly concerned relative to the size of the state’s economy.
“Moodys ranked Florida 48th in pension liabilities per capita; 48th in pension liabilities as a percentage of state GDP; and 46th in pension liabilities as a percentage of revenues generated in-state,” Charles Millard, former director of the U.S. Pension Benefit Guaranty Corp., wrote March 9 in the Miami Herald.
“By those measures, Florida is a national leader when it comes to whether it can afford its pension liabilities,” Millard wrote.
As Williams put it:
“The actual cost to the state, by our own history, is at levels that it was at a decade ago. There aren’t a lot of things in Florida’s budget, if you look at the cost of building a highway or the cost of environmental, you know, water treatments or electricity generation or heaven forbid Medicaid or prison maintenance or law enforcement broadly — these are all public services that we need. Most of them are getting more expensive.”
Two-thirds of every dollar in benefits comes from investment earnings, Williams added.
Simpson isn’t impressed by such arguments.
“You will hear that Florida’s pension plan is better than most. And it is. That’s what every state always says right up until the time that they cannot pay the unfunded liability,” he said in his opening speech.
Templin begged to differ.
“This is being done for political reasons. It has nothing to do with sound fiscal policy,” he said.
Specifically, he said, it reflects a push by the financial services industry to steer public and private pension benefits into 401(k)s that they can collect fees against. Additionally, lawmakers want to redirect the state’s annual contributions into other priorities.
There’s no House companion bill, and the unions are lobbying heavily in that chamber, Templin said. That includes urging union members to contact their representatives directly.
“This does not seem to be a priority” in the House, “but we are working diligently to try to find a compromise,” he said.