Florida Lawmakers Reject Public Pension Worker Choice Bill

Published April 15, 2016

A Florida Senate committee rejected a bill to reform the state’s public pension system by changing the default option for how new government employees’ entitlements are saved for later payment.

In March, the Florida Senate’s Governmental Oversight and Accountability Committee rejected a bill sponsored by state Rep. Matt Caldwell (R-Lehigh Acres), House Bill 7107 (HB 7107). The bill had been approved by the Florida House of Representatives in February by a vote of nearly two-to-one.

If it had been approved by the Senate and signed into law, HB 7107 would have allowed new government employees to opt into the Florida Retirement System’s (FRS) defined-benefit pension program or be placed in the state’s defined-contribution program. The changes would not have applied to current employees, who would continue to be required to opt in to the defined-contribution program

Currently, public employees must opt in to the defined-contribution program, which is similar to a 401(k) pension program found in the private sector, or else they will be placed in the defined-benefit program.

Not ‘Sustainable for the Long Term’

Jonathan Williams, vice president of the Center for State Fiscal Reform at the American Legislative Exchange Council (ALEC), says Florida government pension programs may not be in as dire of straits as other states’ programs, but reforms are still needed.

“While Florida’s unfunded pension liabilities are smaller than Illinois’ and New Jersey’s, by no means is that a sign that Florida’s defined benefit system is sustainable for the long-term,” Williams said. “Using a fair market valuation of Florida’s pension liabilities shows an alarming situation for the state’s hardworking taxpayers.

“An analysis from┬áState Budget Solutions, a project of the ALEC Center for State Fiscal Reform, reports Florida’s unfunded liabilities at a staggering $183,400,221,000, with the pension system only 42 percent funded,” Williams said

Attracting ‘the Very Best’

Williams says defined-contribution plans are inherently pro-worker.

“State and local governments looking to attract the very best workers with the most dynamic skill sets can ensure that employees see retirement benefits as actual compensation, rather than benefits they may well never earn, by embracing defined-contribution plans,” Williams said.

A ‘Vesting’ Problem

Caldwell, the bill’s sponsor, says his legislation would have also helped government employees receive the entitlements promised to them.

“Sixty percent of FRS members leave before they actually serve eight years,” said Caldwell. “And eight years is the vesting period for the defined benefit program, so 60 percent of our employees leave before they would reach that vesting. They would have been better off to be in the defined-contribution plan, because then they would have an actual asset of their money and the money that their employer would be contributing would be theirs, because the vesting period for defined contribution plans is only one year.”

Caldwell says his plan would have benefited all Florida taxpayers and enhanced the entitlement program’s long-term fiscal sustainability.

“Defined-contribution plans reduce, potentially, our long-term obligations,” said Caldwell. “I would absolutely always prefer that we have a cash-basis system than a long-term accrual.”

Leo Pusateri ([email protected]) writes from Saint Cloud, Minnesota.