Guest Author
NOTE: The views of state Sen. Jack Latvala, a Clearwater Republican, may influence the outcome of proposed legislation concerning state pensions and the Florida Retirement System.
Dear Senator: Perhaps you hold some sway over this matter.
In a little over a week, the Florida Legislature will make another momentous decision regarding Florida’s public retirement system. And despite disingenuous claims that the proposed reforms will only affect future employees, such changes could have serious implications for hundreds of thousands of current employees and retirees of state and local government, including 67 school districts.
In the blink of an eye, probably somewhere between midnight and 2 a.m. on the last day of the session, a public retirement system whose financial viability is the envy of the nation — at least it was before the Legislature stopped fully funding the state portion three years ago — is likely to undergo a profound transformation for no good reason.
The Legislature’s proudly anti-government leaders have made no bones about their reluctance to continue providing the funds necessary to maintain the long-term solvency of the retirement system for state employees. They have made it clear they have more important things to do with state revenues than keep past pension assurances to mid-career employees and current retirees: namely, cut taxes for corporations; reduce motor vehicle fees; and reward political donors through crony capitalism.
One major proposed change to the pension system takes the form of an option for new employees to forego the traditional defined-benefit plan in favor of a 401(k)-like individual defined-contribution investment plan, where the employee manages the investment decisions and incurs the accompanying risks.
The state will even provide incentives to choose this option by establishing a nominal vesting requirement and a lower employee contribution level, as well as by expanding the traditional pension plan’s vesting period from eight to 10 years. Purportedly, offering this optional investment plan will save the state billions of dollars over a few decades and save the system from ruin, all while protecting employees’ self-interest. Sounds almost too good to be true.
There is nothing wrong with allowing new state employees to choose an individual investment plan over the current defined-benefit pension plan, especially if they plan to work in the public sector only a few years.
In fact, senior management employees have this option now for that very reason. But others should be leery of this option, especially when the stated purpose of its creation is to save state government money. Someone who plans to live longer than the average life expectancy might also be wary because he or she will probably last longer than the investment-plan money. But on the bright side, if the investment-plan participant and spouse die before their time, unlike those with defined-benefit pensions, they will be able to leave any unspent retirement funds to their kids or a favorite charity.
More importantly, current employees and retirees should be apprehensive about the proposed changes despite glib assurances to the contrary. The Legislature’s own policy analysis arm, OPPAGA, concluded back in 2010 that funneling future employees into the individual investment plan would actually cost the system more money, not less. One of the reasons is that a significant part of the money that funds the current retirement system comes from state revenue allocated annually on behalf of employees who wind up working fewer than the eight years now required to “vest” and earn the right to receive a pension, which is no small percentage of all employees in the system. These are precisely the people who would be wise to choose the individual investment plan.
However, OPPAGA warned that if a significant number of new employees were channeled into the individual investment plan, state retirement contributions that otherwise would have been made on behalf of these employees but never paid out to them because of their failure to “vest” would no longer be available to help fund the pensions for vested employees.
In other words, the state would need to come up with additional funding to fill the financial hole created by this great new windfall to a large number of employees who in the past would not have received any retirement benefits. For this and other data-driven policy analyses, which usually contradicted the ideology-based, cynicism-driven premise of legislative leadership, OPPAGA was summarily dismantled.
Subsequent analyses performed by private-sector firms have all fallen short of providing definitive answers to the concerns raised early on by OPPAGA. And yet another such report is due to surface any minute now, which is conveniently much too late for a thorough vetting, especially since substantive policy committees have already stopped meeting to consider bills this session.
Once the 2014 pension reforms become law and the additional costs finally materialize, affected state employees and retirees will be at the mercy of the same legislative leadership to take further action to maintain the financial viability of the state’s retirement system.
The Legislature could appropriate the additional funds needed to replace those no longer going into the defined-benefit portion of the program. Alternatively, it could cut benefits to current employees by raising the retirement age, increasing employee contributions, or prolonging the vesting period.
Of course, it might also decide to eliminate the cost-of-living adjustments that safeguard the pensions of current and future retirees against the ravages of inflation. After all, for many years it has saved state government a great deal of money by all but eliminating cost-of-living adjustments for current state employees, effectively cutting their wages year after year.
Senator, perhaps you can weigh in on this issue as a voice of common sense and prudence to ensure the Legislature adequately funds a retirement system that respects the value and dignity of former, current, and future public employees. How about it?
Until retiring in 2011, Michael Richardson was assistant secretary of the Florida Department of Community Affairs under Gov. Charlie Crist. He has also been a committee staff member in the Florida Senate, a policy adviser to Govs. Bob Graham and Bob Martinez, and from 1990 through 2006, a self-employed management consultant to state and local governments. Column courtesy of Context Florida.
