Is There Trouble In Paradise For Florida's Latest Pension Overhaul Efforts?

Feb 21, 2014

As Florida lawmakers look to overhaul the state’s retirement system, there are multiple hurdles ahead for the pension reform proposals now before the Senate. The two chambers haven’t agreed on a plan yet, a special exemption is splitting employee unions, and a study with the necessary numbers is not yet complete—pitting some Republicans against one another.

Trilby Republican Senator Wilton Simpson, who’s leading his chamber’s effort, says he’s particularly proud of the “Deferred Compensation” program.

“That’s one of the best bills we’ll do, when you’re really trying to encourage folks to save money for their retirement. What an awesome plan! You know, to get a two-percent match: they put in two-percent, we put in two-percent,” said Simpson.

Under that plan, all employees would be automatically enrolled. Starting January 1st, those making less than $60,000 could contribute up to 2-percent of their pay on top of their current retirement contribution and their employer would match the 2-percent contribution. Those making more than $60,000 would be capped at $1,200 a year.

It’s essentially a second retirement account, on top of whatever retirement option the employee chooses: pension, investment, cash balance, etc. And, employees can choose to opt out.

But, it’s his second proposal that even Simpson acknowledges will be tough to pass.

“I think it’s just that this will be a very well-debated bill...I’ve got more convincing to do,” he said, following a 5-4 Tuesday decision to advance the bill in the Senate Community Affairs Committee, a panel he chairs.

It’s a proposal that eliminates the traditional pension plan for new state employees. That’s the plan most employees currently have. Instead, new hires would be steered into a 401K-style option called the investment plan or a new “cash balance” option, a hybrid of the investment plan and the pension plan. Employees would have a guaranteed rate of return with employers bearing the risk, under that cash balance plan.

“I think these bills have a fatal flaw in the fact that they’re putting these bills out, asking us to vote on these bills, without the benefit of any actuarial study or any backup on it,” said Latvala.

Republican Senator Jack Latvala, who helped defeat last year’s pension reform proposal, says that’s why he recently voted alongside Democrats in opposition.

He says he’s also concerned lawmakers are trying to fix what he considers “one of the best retirement systems in the nation,” and he’s not particularly fond of the so-called “carve out.” That’s a provision in the bill that exempts the state’s first responders, including firefighters and police officers.

And, he says in speaking to his county Sheriff, he realized there were some employees working for the same department that would be exempt, while others that would not.

“You know, people like, evidence clerks, video technicians, and you’re treating different employees that are very similar in their jobs in different ways, giving them different benefits, and from a morale standpoint, I think that’s very harmful,” added Latvala.

Others, like the Florida Education Association’s Vice President Joanne McCall, aren’t happy with that exemption either. She says lawmakers are balancing the system on the backs of teachers and other public employees.

“I just don’t believe it’s a fair way to do things, if you’re going to carve a particular group out. Somebody’s going to pay a price for that. And, who is that? Who’s going to pay that price? It’s going to be the regular class,” said McCall.

She says the FEA is currently in talks with Simpson and in the process of researching other options to offer the Legislature.

“Appreciative to be in the conversation now, but it would have been nice to be contacted on the front-end of this issue, not at the back end. Lots of groups were met with, but it wasn’t the FEA, not until we had a press conference,”  she added.

At a recent press conference, the FEA called the “carve-out” unfair, but Florida Police Benevolent Association’s Matt Puckett has another name for it: “just more options.” And, he says first responders are already treated differently within the Florida Retirement system, and this is nothing more than the Legislature realizing the good work they do.

“Well, special-risk employees are already treated differently in statute and in the FRS. They have a larger multiplier, they have a three-percent multiplier, and they’re allowed to retire—in the old days, pre-July 1st , 2011, they could do 25 years—now they have to do 30. So, they’re already treated differently because of the nature of their work, the physical and mental acuity to do that job,” said Puckett.

Puckett says the Association won’t take an official position on the issue, though, until they see the data. The Florida Professional Firefighters Association, has already said its members are against the proposal.

Still, Senate President Don Gaetz says he likes the direction his chamber is taking, adding the Legislature cannot continue to pay half a billion dollars a year to support the state’s retirement system.

“If you look at many of the states in this country, who say, ‘well, we don’t have a problem now, we’ll just worry about it when we have problem,’ you kind of get Detroit. And, so, I think on our watch, we have an obligation to look at options,” said Gaetz.

Meanwhile, the House has not yet outlined what direction they’d like to take. But, House Speaker Will Weatherford says for now, he may be willing to let the Senate take the lead.

“We’re collaborative. But we passed it last year, so we probably want to see some activity out of the Senate,” said Weatherford.

The study everyone is waiting on will include a look at what will happen if the traditional pension plan is eliminated for new hires, the effect of exempting first responders from the pension reform changes, and what the cash balance plan might look like as a new retirement option. A spokeswoman for Senator Simpson’s office says the study should be finished in March.

For more news updates, follow Sascha Cordner on Twitter: @SaschaCordner.