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Florida Pension Issue: A Look Forward and A Look Back

Over the course of about a year, major changes have taken place in Florida’s Retirement System. Employees are now required to contribute 3-percent to their pensions and a challenge to that is now before the Florida Supreme Court.  State lawmakers also passed a new law that forces thousands of employees in a certain 401K type plan to contribute even more towards their pensions. Supporters of the changes say they are needed to make sure the state can pay its retirees, but others say the change isn’t needed.

State employees can choose from two plans in the Florida retirement system: the defined benefit plan and the defined contribution plan.

The defined benefit plan, also known as the state’s pension plan, has the most enrollees with a total of about 541,000 people. The other 103,000 are enrolled in a 401K type plan: the defined contribution plan also known as the investment plan.

All state employees are now required to contribute 3-percent of their salaries into the retirement system, regardless of which plan they selected. That happened in 2011. Several groups have sued to block the mandatory contributions and that lawsuit is now pending before the Florida Supreme Court.

This past Legislative Session, state lawmakers took the pension changes a step further- and set their sights on the 401K style plans. Lawmakers reduced the amount of money employers would contribute. And state employees enrolled in that option, like Howard Moyes, say they’re now taking a double-hit.

Howard Moyes is the Deputy Director for Property Tax Oversight at the Florida Department of Revenue. The 43-year-old has been a state employee for about nine years.

“I think you’d have to be a fool to stay in the defined contribution plan, because 3-percent is nothing," said Moyes.  "Think you’d probably get better benefits at McDonald’s or someplace. That’s just ridiculous!”

Moyes, along with hundreds of employees, had e-mailed Governor Rick Scott, urging him to veto House Bill 5005, which allows employers to pay less into the retirement accounts of those employees who went the defined contribution route. But, Scott still signed it into law.

“So, if you’re looking at it from my perspective, the employer contribution would be going from 9-percent, which is what it was from 2002 until 2011 down to 3.3 percent effective July 1st, roughly about 65-percent reduction in retirement benefits," said Moyes. "To take it all the way down to 3.3-percent is a little draconian. “

When the Legislature first voted for the changes to the 401-K style plan this year, they claimed the change was needed to shore up pension funds. Democratic Senator Bill Montford is one of the lawmakers who voted in favor of the proposal. He says he just wanted to be fair.

“This particular House Bill [5005] equalized the participation rate from the state, in other words 3-percent regardless of the choice," said Montford. "I believe the state has an obligation to treat its employees fairly and equitably. To me, it was an issue of equity, regardless of the plan a state employee would choose.”

But, the bill had critics, like Republican Senator Mike Fasano. The New Port Richey lawmaker says now that those in the investment plan will be reduced by such an amount, that “there’s no longer an incentive.”

Fasano says the extra changes to the investment plan will have the opposite effect of what Governor Rick Scott and the Legislature had intended for the plan, which was to get more people to switch from the pension plan to the 401K type option.

Employees affected by the reduction to the investment fund, like 30-year-old Orange county employee Ray Walls, are now weighing their options.

“So, what this is going to do is push people like myself to switch from the investment plan to the pension plan, which has an undefined cost in the pension plan because basically what the pension plan says is they have to pay me retirement benefits until I die, whereas the plan I’m in now, they only have to pay whatever’s in my account and then they’re off the hook after that,” said Walls.

Under new changes that went into effect July 1st, university and state college employees who are part of the optional retirement system will also see a reduction from 7-point-4 to 5-point-1 percent, which did not sit well with Chris Robé. He's the President of the Florida Atlantic University Chapter of the United Faculty of Florida (UFF-FAU).

“You just can’t change employees’ contracts midway after they signed for something," said Robé. "You can’t run a stable university or state system when you don’t know the terms of agreement that you’re a part of. This does not make for stability or economic viability.”

Robé's union, the UFF-FAU, is affiliated with the Florida Education Association, the union that filed the pension lawsuit. And, Robé says the state could have another lawsuit on their hands now that this new law is in place.

But, he says his union will wait on the outcome of the three-percent contribution challenge, which will be taken up next month in the Florida Supreme Court.

Meanwhile, the changes come even as studies like one from the Pew Research Center place Florida’s pension fund as one of the strongest in the nation. The study said the state has enough money to pay more than 80-percent of its obligations. But the real problems with pensions are happening at the city level.

“We found that there are a number of cities in Florida that have very large pension liabilities,” said Carol Weissert, the person in charge of the LeRoy Collins Research Institute.

A study from the center says pensions in several cities around the state are severely underfunded. It specifically cited Miami, Pembroke Pines and St. Petersburg as places where retirement costs exceed 50-percent of their payrolls.

Many of the pension changes don’t affect the city funds. And, those pension issues are the ones critics say need the most work.