An overhaul of the Florida Retirement System is in for a close vote in the 2014 legislative session, Senate President Don Gaetz said Thursday.
The Senate Community Affairs Committee voted 5-4 on Tuesday for a bill by its chairman,Sen. Wilton Simpson, R-Trilby, that would set up a “cash-balance” pension plan in the FRS for newly hired employees. One Republican, Sen. Jack Latvala of Clearwater, joined three Democrats on the committee who voted against the bill, saying members did not have financial data to demonstrate that changes would be beneficial for employees or their government employers.
“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.”
He emphasized that 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.
The Legislature deadlocked over FRS changes last year. The House passed a bill making all new hires go into the “defined contribution” pension plan, similar to the 401(k) investment system prevalent in the private sector, but Simpson countered with a bill that would have let them stay in the “defined benefit” plan popular with most state workers. Simpson’s bill offered a reduction in payroll fees, from 3 percent to 2 percent, for those who opted into the defined contribution plan.
This year, he proposed the cash-balance option — a hybrid in which employees would still be assured a set pension amount when they retire, with a guaranteed 2 percent growth rate. Any earnings above 2 percent would be split between employer and employee.
The pending bill would also exempt special-risk retirees, mostly police and firefighters, who get a 3 percent pension credit per year. They could remain in the existing defined benefit plan, unless they wanted to opt into the portable, faster-vesting cash-balance plan.
Gaetz said an unidentified senator recently showed him a headcount indicating 18 senators are opposed to FRS changes. 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, when Simpson offered his alternative.
The powerful Senate president 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. 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. I think it’s going to be a close vote,” Gaetz said. “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 an issue like this crops up, isn’t true. There’s no effect on current retirees or employees.”
House Speaker Will Weatherford, R-Wesley Chapel, was behind last year’s unsuccessful bill that would have made all new hires join the defined contribution plan. He has voiced support for the cash-balance compromise this year, making it a top priority to phase out the $500 million cost of funding the actuarial liability in the FRS.
Opponents argue that a dwindling number of active employees in the defined benefit plan would jeopardize continued payments of benefits for retirees. They also contend that the FRS is funded at about 86 percent, assets to liabilities, and actuaries consider anything above 80 percent to be financially healthy.
Source: The Florida Current