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Scott wants state workers to help fund their pensions

Gov. Rick Scott believes Florida’s free retirement program for state employees is “unfair to taxpayers’’ working in the private sector. He wants state workers to contribute.


Gov. Rick Scott believes Florida’s free retirement program for state employees is “unfair to taxpayers’’ working in the private sector. He wants state workers to contribute.

TALLAHASSEE — Teachers, police and even legislators could start seeing — for the first time ever — a chunk of their paycheck going into their retirement accounts if Gov. Rick Scott and legislators get their way.

The money could be used to offset the state's nearly $5 billion budget gap, fulfill Scott's promise to cut $1.4 billion in property taxes or be rolled back into the retirement system to shore it up before the state's aging work force retires.

The details won't be known until the governor releases his budget plan on Feb. 7, and legislators won't weigh in with their budget proposals until late March.

But for the 572,000 state and local employees and 319,000 retired members in the Florida Retirement System, one thing is certain: "Reform is coming."

That blunt warning came last week from Sen. Jeremy Ring, D-Margate, chairman of the Senate Governmental Oversight and Accountability Committee.

One proposal would require employees to contribute 5 percent of their salaries to the pension plan, saving the state $1.3 billion. For a state worker making $50,000 a year and receiving 9 percent of his or her salary in annual retirement benefits, the change would mean he or she would pay $2,000 after taxes in retirement fees and the state would pay $2,000.

Florida is the last state not to require employees to contribute to their pension, while some states offer free retirement to only a limited class of workers.

Scott believes Florida's free retirement program is "unfair to taxpayers'' working in the private sector.

Legislative leaders have also suggested that it's time to end the more expensive defined benefit program, which guarantees workers a fixed benefit upon retirement. The state could save millions, they say, by steering employees into a "defined contribution'' retirement program, which allows employees to control the investment options but doesn't guarantee them a fixed benefit upon retirement — similar to 401(k) plans.

"This isn't a discussion about a flaw in the Florida Retirement System. This is about balancing the budget," said Doug Martin, legislative director for the American Federation of State, County and Municipal Employees.

He argued that the state has already saved money by having no pay increases since 2006.

Scott and lawmakers also are considering other options for saving money. Some want to raise the retirement age for new hires, while others suggest capping the amount the state contributes to the pension fund and, if the fund's investments don't raise enough to pay for the expected benefits, employee contributions would make up the difference.

Scott acknowledges that teachers, police and other government workers may consider this a pay cut, but he believes it is needed to build up the reserves in the retirement system and level the playing field between public and private sector jobs.

"I believe what's most important to them is they want to have a pension plan that they know will be there when they retire and that's what my focus is," Scott said last week. ''At the same time, I have to be fair to the taxpayers of the state."

The Legislature is also to blame for some municipal pension problems. In years when revenue was flush, lawmakers frequently raised the local government contribution rate for workers in politically influential unions, such as police and fire.

Now, state and local governments contribute between 9 and 20 percent of an employee's salary to retirement accounts, depending on the employee class.

Police and firefighters, for example, receive 20 percent of their salary toward retirement if they are considered special-risk workers. Judges receive 18 percent of their salary, legislators receive 13 percent and regular workers receive 9 percent.

Local governments have also agreed to expand retirement benefits during collective bargaining negotiations in recent years, leaving many city and county budgets strained.

Officials from Pensacola, Pembroke Pines, Jacksonville and St. Petersburg, for example, complain that they are now spending more on retirement benefits than on payroll.

The Florida Retirement System remains strong financially. A report released last week by Moody's Investor Services shows that it is among the better-funded pension funds in the nation — ranked 34th in terms of its unfunded liability.

But Scott believes it's not fiscally sound because the State Board of Administration, which invests the retirement fund, relies on investment projections that are too optimistic and invests in vehicles, such as hedge funds, that are too risky.

In a December interview on the pension fund with the St. Petersburg Times, Scott said his goal is to "make sure it's a viable program." He is expected to propose reforms to pension plan oversight and funding.

Scott's plan to lower pension costs may be complicated by his campaign promise to cut the state work force by 5 percent. A smaller work force would increase pressure to fund the existing retirement system, but Scott said he's not worried.

"I'm not going to spend taxpayers' money by keeping people employed to make a decision based on how the pension fund operates," he said in the Times interview. ''I'm going to make decisions on how you ought to run the state."

Scott's pension proposals may also help him keep another campaign promise, to lower property taxes. The governor wants to reduce the portion of the tax that pays for schools by an average of $4.29 per $1,000 in assessed valuation, saving individual homeowners hundreds of dollars. The change would reduce taxes an estimated $1.4 billion statewide and leave an equal hole in the schools' budget.

By raising the employee contribution 5 percent across the board, analysts estimate the state could save $1.3 billion in pension costs, allowing it to steer money into other pockets of the budget, such as schools.

But legislators are skeptical. Both House Speaker Dean Cannon and Senate President Mike Haridopolos say they are open to Scott's proposals. But they predict it will be difficult to cut $3.6 billion to balance the state budget, set aside another $800,000 in reserves to avoid paying more in bond debt — and cut taxes.

Other legislators are skeptical that pension reform can produce immediate budget savings.

"I don't know if the changes we're able to institute this year will be able to fix the budget that quickly," said Rep. Jimmy Patronis, a Panama City Republican who is chairman of the Governmental Operations Subcommittee.

Times/Herald staff writer Michael C. Bender contributed to this report. Mary Ellen Klas can be reached at [email protected]

Scott wants state workers to help fund their pensions 01/29/11 [Last modified: Monday, January 31, 2011 7:47am]
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