Thursday, May 24, 2018
Editorials

Editorial: Hold off on pension reforms

The Legislature is looking less ambitious and more reasonable when it comes to changing the Florida Retirement System. But that doesn't mean the plans deserve any less scrutiny. Changing a retirement plan that will affect hundreds of thousands of future public employees for decades to come should be a sober, thoughtful exercise. With two weeks left in the legislative session, there is not enough time to do it right.

Just six weeks ago, House Speaker Will Weatherford was rallying supporters on the Old Capitol steps for his quest to close the state's traditional pension to new employees and funnel them into the system's now-optional 401(k)-style plan. That was projected to save billions over the next three decades as investment risk shifted to the plan's members instead of the state pension. Fortunately, the Senate has resisted that radical change for the second straight year.

Now Weatherford, R-Wesley Chapel, has said the House would consider a plan the Senate floated last year. Crafted by Sen. Wilton Simpson, R-Trilby, the proposal would maintain both the pension and the investment plan but would reverse the options for new workers. New employees starting in July 2015 would be automatically enrolled in the 401(k)-style plan unless they opted out and requested the pension plan. Vesting in the pension plan would increase from eight to 10 years, while vesting in the investment plan would stay at one year for any employer contributions. Also, new elected officials and senior management employees would be barred from the pension plan entirely.

The Senate plan has other features that Weatherford has not necessarily agreed to, including an employee sweetener to stay in the 401(k)-style plan. Investment plan participants would have a discounted contribution rate of 2 percent instead of the 3 percent the pension requires. But employers — including state government, school districts and county commissions — would cover that discounted cost through the blended rate the Legislature sets each year for the system. Also of interest in the Senate plan: Employees would be allowed to change their mind once during their career. They could either have their pension balance converted to a 401(k) plan or use the proceeds from the investment account to "buy in" to the pension system. But they would risk having to cover any additional costs if their investment plan is worth less than the pension buy-in.

Weatherford and Simpson say they are motivated by news across the country of failing government pensions, and they see the extraordinary annual payments the state made this year and will again in 2014-15 as signs that change is needed. But those annual payments are so large — in the $500 million range — in part because the Legislature over the past decade opted to forgo some payments. Florida's pension plan, with an actuarial funding level of nearly 86 percent, is considered among the strongest public plans in the country. The rate reflects the percentage of assets available to cover all projected benefits owed for current members.

Legislative analysts have pegged the savings from Simpson's plan at about $28.6 billion over 30 years, though it actually would cost more initially. But questions remain about the veracity of those estimates and the potential impact on employees. Getting pension reform right is more important than getting it done immediately. Simpson has put forward a provocative compromise, but vetting it thoroughly cannot be done in just the two weeks left in this session.

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