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Last year, the legislature looked poised to overhaul FRS with a move to place newly hired eligible workers into a plan similar to a 401-K investment fund where the employee could build a nest egg from their earnings and defer income tax liability until retirement. The Legislature deadlocked over the proposed FRS changes.
Senate President Don Gaetz said yesterday in published reports that an overhaul of the Florida Retirement System is in for a close vote in the 2014 legislative session. The Senate Community Affairs Committee voted 5-4 on Tuesday for a bill that would set up a hybrid “cash-balance” pension plan in the FRS for newly hired employees.
“The Senate is divided on the issue,” Gaetz said. “There are those who don’t want to make any changes at all, and there are those who believe that we have to create a more secure future for the retirement system that’s not dependent on draining $500 million out of the budget to fund the unfunded liabilities of the pension system.”
Tuesday’s four dissenters, one Republican, Sen. Jack Latvala of Clearwater, and three Democrats on the committee, said members did not have financial data to demonstrate that changes would be beneficial for employees or their government employers.
County and state employees, and some other local agencies in Florida, participate in the Florida Retirement System — the majority of which are beneficiaries of an antiquated “pension” plan with a defined contribution, but an open-ended checkbook required to pay benefits for life.
Retirement vehicles have evolved since the advent of Social Security, railroad and military pensions. The largest employers in the nation, who once used pension plans as a way to lure highly sought after key employees, have moved to “defined benefit” models; faced with the economic realities of such investments.
The advantage to such a move for county and state taxpayers would be containment of the cost to subsidize pension payment shortfalls for state workers who are living longer and retiring at an earlier age.
Everything will depend on an actuarial study of defined benefit, defined contribution and cash-balance options, which is expected in late March or early April.
“There are about 18 senators right now who are opposed to any change.” Gaetz told reporters in Tallahassee. “Sen. Simpson is going to have to overcome objections. He’s going to have to make it clear that some of the demagoguery that sometimes occurs when issues like this crop up isn’t true.”
Under the latest Senate bill, no current employees or retirees would be affected by the change. Only employees hired after July 1, 2015, would have to join the cash-balance plan, or the existing investment plan.
Gaetz said the clincher, for him, is the $500 million a year the state spends on funding the FRS liabilities — a $21.6 billion gap between assets and liabilities that lawmakers want to shed over a period of years.
While a 22-18 vote would still pass the bill, if all members were present, loss of just two would defeat it — as happened to the House bill last year.
Photo by Bill Cotterell
Tags: Florida Retirement System, FRS, investment plans, pensions, unfunded mandates
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