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Pension reform has good day for Weatherford, but is it a last gasp?

Published Apr. 11, 2014

Despite indications of a difficult path ahead, pension reform continued to advance through the Legislature on Thursday, keeping the hopes alive for the man pushing it, Florida House Speaker Will Weatherford.

The Senate's Governmental Oversight and Accountability Committee approved SB 1114 by a 7-2 vote. Hours later, the House's Appropriations Committee approved HB 7173 by a 16-10 party line vote.

The two bills are similar and resurrect a bill from last year by Sen. Wilton Simpson, R-Trilby. Essentially, it encourages employees to enroll in investment plans instead of the state's pension plan.

Currently, employees can enroll in either. But if they make no choice, they automatically get put into the state's pension system.

The average return of those investment plans in the last 10 years is 6 percent. For the pension plan, it's 6.9 percent. (Those in the pension are guaranteed a return of 7.75 percent). (CORRECTION: Enrollees in the pension plan are not guaranteed a rate of return – they are guaranteed a defined benefit. 7.75 is the return assumed by the actuaries to calculate the fund's rate of return over the next 30 years.)

For now, about 40 percent of employees choose to enroll in the pension, 35 percent default without a preference, and 25 percent choose the investment plan: so that's 75 percent in pension, 25 percent in investment plan.

The bill would somewhat reverse that breakdown, according to Ron Poppell, a senior defined contribution officer at the State Board of Administration, which administers the plan. He anticipates that with the default steering new employees into the investment plan, 40 percent to 50 percent would choose the pension plan, 25 percent would choose the investment plan, 35 percent to 25 percent would default, resulting in half in the pension, half in the investment plan.

Simpson's bill is described as "narrowly focused" bill that is nothing more than a tweak. Unlike Weatherford's attempt last year to pass pension reform, employees aren't prohibited from enrolling in the pension, with the exception of elected officials and senior management. In fact, most employees have nine months to choose.

But union leaders say the bill is intended to further erode pension membership -- the latest attempt by lawmakers to weaken and shrink the pension system so that, one day, it's no longer an option.

"The purpose of the bill is not to provide a better deal for public sector workers," said Rich Templin, legislative and political director for Florida AFL-CIO. "It's not because senators are concerned that our public sector employees aren't getting a good enough retirement. The stated purpose of this legislation has been, and continues to be, to deal with the public pension plan, the defined benefit plan, reducing the state's risk in that plan by making it smaller, moving people out of that plan, and eventually closing the plan. That's the intent of all the pension reform legislation dating back to 2011."

Public sector workers have trust issues with lawmakers. And for good reason.

Florida's pension system is widely considered to be one of the best run public pension fund systems in the U.S. -- despite what Florida lawmakers have done to it over the years.

Consider that in July 1, 1998, Florida's pension was 100 percent funded and had a surplus of $3.79 billion.

Between July 1, 1999 and June 30, 2010, the surplus from the pension system was used to reduce what the employers who paid into the system (the state, universities, state colleges, school boards, counties and participating cities) so that they were lower than the normal cost of benefits.

It saved employers, but it cost the pension about $7 billion in contributions that could have produced billions more in return.

When the 2008 recession came, the portfolio dropped, and soon after the fund was no longer fully funded.

The $135 billion fund is now about 86 percent funded. Typically, actuaries say a fund is in good health if it's over 80 percent, which means if all the employees retire at the same time, there will enough money to pay the benefits for 80 percent of them.

Of course, that won't happen. If it did, there would be bigger problems to worry about, like, why are the state workers, teachers, county workers and university employees all retiring at the same time?

The message from lawmakers is a confusing one. The House sponsor, Rep. Jim Boyd, R-Bradenton, acknowledged last week that the scenario of everyone retiring at once was unlikely to happen. By admitting the obvious, he undermines Weatherford's analogy, and chief premise for reform, that the pension's $21 billion unfunded liability is a "ticking time bomb."

Instead, Boyd emphasizes how the investment plan is more suitable for the modern workforce.

"In today's workforce, employees need to be mobile and flexible to succeed," Boyd said in a release after his bill passed on Thursday. "For these employees that do not plan to stay with one employer for their entire careers, the investment plan provides a better retirement option and greater benefits. These reforms will encourage new employees to enter the plan that best fits their needs, and will result in additional financial certainty for the state and our taxpayers."

Sen. David Simmons, R-Altamonte Springs, also made the argument that the investment plan treats employees more fairly by giving them a choice.

"It seems to me that there are some people who don't want employees to have the opportunity to make a choice," Simmons said. "You've got to ask yourself, maybe they're being just a little too paternalistic. Their view is that there are just people who can't make good decisions. Well, sooner or later it gets to the point where government is making all of your decisions for you and you have no freedom."

Of course, the problem with this logic is that employees already have a choice between the pension and investment plan. It's the default that would change under the new legislation.

And Simmons undercut the whole argument that the pension is shaky by his attempt to amend Simpson's bill, which currently prohibits newly elected officials from enrolling in the pension. Simmons said this provision unfairly includes judges, who he said have been hurt by the recession and haven't received the compensation that they should be entitled to.

"It is incredibly important that we help assure that the judges on our courts stay there, that our courts attract people who are highly qualified attorneys who are willing to leave a lucrative law practice to become a judge," Simmons said, explaining his amendment to include the judges in the pension plan. He withdrew it at the urging of Simpson, who he joked "pistol whipped" him.

But the issue was serious enough for Simmons to meet with Senate President Don Gaetz before he voted on the bill. It was during that discussion, Simmons said, that Gaetz assured him that if the bill made it to the floor, the amendment to carve out the judges would be voted on. It has one more committee to clear, Appropriations, before it goes to the Senate floor. It's already headed to the House floor.

The exception for the judges opened it up for other employees. Sen. Bill Montford, D-Tallahassee, said school superintendents should be included in the pension, and proposed to include them, but his amendment failed.

What's good for the gander is good for teachers, too, said Lynda Russell, of the Florida Education Association, which represents 140,000 employees.

"We really do appreciate your amendments," Russell said to Simmons and Montford. "The Florida Retirement System is a wonderful tool to recruit and retain a quality workforce. We believe you are absolutely right. And we believe we need that tool to recruit and retain a quality workforce in our public schools."

Teachers would earn a third less in the investment plan over 30 years than in the pension, Russell said. In addition, the state isn't required to contribute to the investment plan, but is required to contribute to the pension, though its 3 percent is down from the 9 percent it contributed in 2003.

Despite Thursday's votes, the bills do have a rough road ahead. Last year, an effort to overhaul the pension failed 22-18 in the Senate, with eight Republicans voting against it. Already this year, one of those, Sen. Greg Evers, R-Baker, said he expected snow in Miami before pension reform would pass this year. And with even Gov. Rick Scott, who's facing reelection this year, saying the state's pension system is fiscally sound, many conclude the bills are a longshot at best.