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State Senate unveils pension reform plan

TALLAHASSEE — Two new Senate bills would require state and local governments to close their traditional retirement plans to new hires, enroll all employees in 401(k)-style plans and limit retirement options.

The proposals, sponsored by Sen. Jeremy Ring, a Margate Democrat and chairman of the Senate Government Accountability Committee, are intended to help local governments shore up their tottering employee retirement accounts as well as relieve the mounting financial obligation local and state governments have made to their retirees. If passed, the changes would take effect July 1.

One of the bills also requires state, school and county employees to pay into the Florida Retirement System for the first time since 1974. But rather than embrace the 5 percent contribution rate sought by Gov. Rick Scott in his budget proposal, the Senate is likely to settle on a lower number. That decision, Ring said, won't be made until early March when the Senate budget committee decides how much to charge employees for their benefits.

"This is pension reform, this isn't punishment,'' Ring said. "We are in a crisis situation. What this does is make sure that taxpayers aren't on the hook for unfunded liabilities years into the future."

The Senate proposals stop short of the more aggressive pension restrictions Scott recommended in his budget. The Senate does not eliminate the Deferred Retirement Option Program, the popular program that encourages older workers to retire by allowing them to draw a pension check before retirement age, which the governor recommended. It also rejected changing the rate at which benefits are credited based on years of service — the governor wanted to cap those at 1.6 percent for most members of the Florida Retirement system. And the Senate also doesn't eliminate the 3 percent cost-of-living adjustment for new hires, also recommended by Scott.

Despite the more moderate approach, representatives of two of the most politically influential unions in Tallahassee were critical of the Senate plan.

Doug Martin, director of governmental affairs for the American Federation of State, Local and Municipal Employees, said the proposal to end the defined pension plan for new hires was "the worst move that they can make financially because that will cost cities, school boards and the state itself billions of dollars over the next 25 years,'' he said.

He warned that with no new employees going into the traditional defined benefit plan, the costs of paying off those obligations will rise. In the meantime, new employees will be paying for private management companies to invest their retirement funds.

"Suddenly Wall Street has hundreds of thousands of customers and those people are going to pay higher fees for a lower return,'' he said.

The Florida Police Benevolent Association called it a "one size fits all" approach to a problem that was spawned when officials from dozens of Florida cities negotiated contracts with union employees during the boom years and then failed to set aside the money to meet their obligations.

"This legislation imposes an unfair mandate on local officers and firefighters without any regard to the collective bargaining process,'' said Matt Puckett, executive director of the PBA. "It is a one size fits all approach that provides a taxpayer-funded bailout to fiscally irresponsible cities while being punitive to the police officers and firefighters who serve in every city. The Legislature has no reason to intervene."

But Ring said the cost of the changes do not outweigh the long-term benefits. The goal, he said, is a viable retirement program that employees can rely on while cities, now crippled by retirement obligations they can't afford, can start digging out.

Florida Leagues of Cities lobbyist Kraig Conn said the Senate plan offers the flexibility to cities they have been seeking for the last few years. The proposal removes the state mandate that employers use overtime to calculate the pension benefits for police and firefighters and, for the first time, allows cities to use insurance premium tax proceeds to pay for existing benefits.

"I would not characterize that as a bailout,'' Conn said. "I would characterize that as the state doing the right thing and removing itself from a local government decision."

Other elements of Ring's proposed bills:

• Plans must use at least 5 years to calculate an employee's average retirement compensation.

• Local plans must provide death benefit protections for the spouse and minor children of special risk employees (police, fire, paramedics, prison guards, etc.) killed in the line of duty.

• Directs the Department of Financial Services to rate the financial strength of local government defined benefit plans and post it on its website and submit a report to the governor and Legislature.

• Creates a task force to study the practice of employees drawing disability pay for health problems associated with lifestyle choices, such as tobacco use.

The bills are scheduled to get their first hearings in the Senate on Feb. 22 and 24 in Ring's committee.

State Senate unveils pension reform plan 02/16/11 [Last modified: Thursday, February 17, 2011 9:38am]
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