A House committee Friday approved an overhaul of the Florida Retirement System, despite opposition from public worker unions and less-than-resounding support from a financial analyst advising Republican leaders.
Breaking along party lines, the House budget panel voted 13-9 for the measure (HB 7011), which would close the traditional pension plan to new employees.
New hires seeking a retirement account would instead be required to join a defined contribution investment plan beginning Jan. 1. The bill also bars new employees from being eligible for disability benefits, a prohibition fiercely fought by police and fire unions.
The legislation is a top priority of House Speaker Will Weatherford, R-Wesley Chapel, who maintains that the FRS is underfunded and will command increasing millions of dollars from Florida taxpayers to keep it afloat in future years, a stance disputed by many experts.
“We as legislators should be able to acknowledge that the defined benefit structure is no longer an irrevocable structure but, rather, we should be open to negotiation … and reform,” said Rep. Jason Brodeur, R-Sanford, sponsor of the measure.
“If we can do that, I think we can accomplish something for the common good,” he said.
Democrats, however, side with union allies in casting the legislation as not only unnecessary but potentially dangerous to the $126 billion pension fund, which is used by more than 623,000 state and local government workers and another 335,000 retirees.
The FRS is considered 87 percent funded, with most analysts acknowledging that 80 percent is the benchmark for a fund considered to be on solid financial footing.
Republican leaders, however, say that unfunded actuarial liability is $19.2 billion — a level they say is alarming. Still, those defending the fund say the shortfall exists only if every pensioner demanded their full payments at once, which analysts say would never happen.
“Stop beating us to death with these … ridiculous statements people make,” Ray Edmondson, a Tallahassee retiree, told the committee. “You’re trying to fix something that is not broken.”
Current FRS employees can choose between the traditional pension or, for the past decade, an optional investment plan. But the pension remains the favorite — with more than 500,000 employees enrolled, compared with only about 100,000 in the 401(k)-style fund.
Under a traditional, defined benefit pension, workers are promised a specific monthly payment based on earnings and years of employment. The State Board of Administration directs the fund’s investments.
In a 401(k)-styled account, workers play a bigger role in directing how their individual retirement funds are invested. Their benefits also will ebb and flow, based on the economy.
Democrats dismiss the change as risky for many lower-wage public employees.
“This is a solution looking for a problem,” said House Democratic Leader Perry Thurston of Fort Lauderdale.
Republican leaders say the proposed change will ease the burden on taxpayers — with lawmakers poised to spend more than $500 million this year to close an unfunded pension balance, largely created when lawmakers failed to properly finance the fund for the past three years.
An actuarial consultant hired by the House, Robert Dezube of Milliman Inc., also acknowledged that the state’s costs aren’t likely to change soon — even if new employees are barred from the pension.
But he did say that shifting employees into a 401(k)-styled defined contribution plan will prove a mixed bag for many workers. “Some people are going to do a lot better, and some are not,” Dezube told the committee.
Dezube also acknowledged that Milliman’s analysis of the proposal showed that even those currently in the traditional pension could be affected by the change. If new workers are blocked from the fund, it will eventually shrink and represent a mostly older population — likely changing the investment strategy for money managers.
All told, unions see the move as the latest attack by the Republican-led Legislature against organized labor, a political force that usually lines up with Democrats.
Two years ago, lawmakers ordered employees in the FRS to pay 3 percent of their salaries to the FRS — the first time in almost 40 years these workers have been required to contribute to their retirement.
Unions sued, claiming the change was unconstitutional. But in January, the Florida Supreme Court narrowly upheld the Legislature’s action — adding fresh firepower to Weatherford’s drive.
The Senate, however, doesn’t want to go as far.
Legislation (SB 1392) proposed this month by Sen. Wilton Simpson, R-Trilby, would give new public employees an incentive by cutting their payroll contributions to 2 percent if they join the investment plan. If they choose the traditional plan, they’d pay 3 percent.
The only new workers required to join the investment plan would be senior managers, under Simpson’s bill. Senate President Don Gaetz, R-Niceville, came out Friday in favor of Simpson’s more moderate proposal.
Brodeur on Friday said he wasn’t ready to start talking about deal-making with the Senate. The Legislature is just completing its opening week.
“We’ve got plenty of time left in session,” he said, “and I want to make sure we are doing what’s right for both our state workers and the taxpayers.”