By any measure, Florida needs to modernize its pension for state and local government employees. Too many loopholes allow employees to game the system, and Florida has the only state plan in the country that does not require employee contributions. But the legislative proposals — while less onerous than the governor's — fall short of serious and fair reform for a pension plan that covers 655,000 working Floridians, from teachers to prison guards.
Let's be clear about what is driving this debate. It is not about the financial soundness of the Florida Retirement System, which covers employees of the state, school districts, counties, public universities and community colleges, 182 cities and 231 special districts. The pension plan is one of the most fiscally sound in the country. This is about saving taxpayer money so it can be diverted to other state and local needs, including schools.
But in the attempt to save money, Gov. Rick Scott and the Legislature would go too far in balancing the budget on the backs of public employees. Their proposed employee contribution rates are unfair to state workers who haven't seen a raise since 2006. And some changes offered in SB 2100 and HB 1405 could be counterproductive to the pension fund's long-term fiscal health.
As they rush to cut costs and save money, lawmakers should show restraint in the next two weeks lest they do more harm than good.
None of the three major issues dominating the debate will affect the system's current 304,000 retirees or the benefits that current workers have already accrued. But going forward, lawmakers are considering changing:
• Employee contributions. Scott wants all employees to pay 5 percent of their salaries to the pension, cutting government costs by nearly $1.4 billion a year. The House would set the rate at 3 percent. The Senate has embraced a tiered approach of 2, 4 and 6 percent with the highest level applied only to earnings over $50,000. But the mechanism is needlessly complex. A better approach would be to adopt a minimum contribution rate for next year — say one-half to 1 percent — with the understanding that rates would rise when the economy has recovered and pay raises return. Otherwise, the state is just balancing state and local governments' budgets at the employees' expense and hurting governments' ability to retain or attract workers.
• Pension phase-out. The governor wants to require new employees to join a defined contribution or 401(k)-style plan. But that would raise the costs of maintaining the pension for remaining employees. The Senate offers a compromise of barring only new senior managers or elected officials who make $75,000 from the pension. The House has rejected both ideas. It's a fair issue to consider moving new employees to defined contribution plans, which shift the risks and rewards of investments from the state to the individual. That is the direction private business has been headed in for years. But such a basic question should not be decided on the fly. Lawmakers should drop the matter for this session and revisit it.
• Deferred Retirement Option Program (DROP). This generous program — where workers already qualified for retirement can bank thousands of dollars before retiring — has outlived its time. The House would halt all new enrollments after June 30. The Senate would allow enrollments for five more years. It is only fair to give workers more than three months' notice, but five years is more time than necessary.
The efforts by the governor and the Legislature to overhaul the state's retirement system to track more closely with private business models is understandable. It is entirely reasonable to require workers to contribute to their retirement and to move toward a defined contribution system. But such a sweeping policy shift should not be decided rashly or implemented abruptly — particularly in an era when employees haven't seen pay raises for years. Lawmakers should start down the path to employee contributions and other pension reforms, but they need not reach their destination in one year. Sound public policy, not the need for quick savings, should be driving this discussion.