With lawmakers returning to Tallahassee for a legislative session Tuesday, significant changes to the pensions for school teachers, bus drivers, office workers and other public employees could be in the works.
After a decades-long attempt to steer workers away from the traditional pension plan offered by the Florida Retirement System (FRS), one proposal has emerged to make it more attractive to workers, and another would allow a group of workers who had opted out of the plan to rejoin it.
A bipartisan proposal in the Florida Senate restores a 3% annual cost-of-living adjustment (COLA) denied to new hires beginning in 2011. If passed, some 151,000 retired state, county and municipal workers would see an increase.
A second proposal would allow those who had left the pension plan when the state started a 401k-style retirement option in 2003 and switch back to the traditional pension, or “defined benefit” plan. More than 3,000 current workers would be eligible.
The state provides benefits to more than 400,000 retirees and their survivors. It paid out $12 billion last year in pension and healthcare coverage, according to the State Board of Administration, which manages the Florida Retirement System.
The plan is considered a well-funded pension by actuarial standards: With $184 billion in assets, there is enough money to pay 82% of obligations if, hypothetically, all 629,000 working members retired today. Financial experts have long said pension plans at least 80% funded are considered healthy because employees retire at different times.
But the remaining 18% represents an unfunded liability of more than $38 billion that fiscal conservatives warn could grow and jeopardize the state’s finances. Republican leaders have focused on the unfunded liability, which fluctuates with swings in the stocks and investment markets, since taking control of the Legislature in 1996.
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After a proposal to phase out the pension plan failed three years ago, the sponsor — then-state Sen. and now State University System Chancellor Ray Rodrigues — said the Legislature lacked the political will to implement reforms needed to erase the liability.
New in 2024: COLAs for everyone…
When lawmakers denied cost-of-living increases for new hires during the Great Recession to balance the state budget, they created a two-tiered pension system. Last year, more than half of the retirees received, on average, a $620 boost in the annual payout while the rest received a pro-rata adjustment for work before 2011 or no increase at all.
Eventually no retirees will be entitled to a COLA.
“You can work for the state for 30 years but your last pension check will be the exact same amount as your first one. Once you retire, the state forgets about you,” said David Jacobsen, president of Local 79 AFSCME-Retirees, about the impact of the 2011 repeal.
Inflation in the U.S. since 2011 has averaged 2.5%, which means the average pension, at about $18,625, would have lost nearly $7,000 of its purchasing power since 2011 without a raise.
A bill (SB 242) by state Sen. Ed Hooper, R-Palm Harbor and a retired firefighter, and co-sponsored by Sen. Lori Berman, D-Palm Beach, expands the annual 3% COLA, first provided in 1987, to all pensions. That’s regardless of when the worker was hired.
The bill and its companion (HB 151), by Rep. Demi Busatta Cabrera, R-Coral Gables, says that it is a “legitimate state purpose” to provide retired public employees with “fair and adequate benefits that are managed, administered and funded in an actuarially sound manner….”
…and a switchback option
Another proposal (SB 1022/HB 973) by Sen. Ana Maria Rodriguez, R-Miami, and Rep. John Paul Temple, R-Wildwood, provides current workers the option to drop the 401(k)-style option and sign up for the traditional pension and annual 3% COLA, that is, if it’s approved this session.
The investment plan was first offered in 2003 with a 90-day period for workers to opt in. After an initial grace period the opt-in was irrevocable.
According to a Fidelity Investments analysis, workplace-based retirement accounts like 401(k)s have grown on average by 4% since 2018, with losses as high as 20% in some years and gains as much as 8% in others.
For those workers who do not want to subject their retirement account to the high and low swings of the stock market, Rodriguez and Temple want to offer them the stability of a traditional pension.
Temple said he has heard from teachers, sheriff’s deputies and others that they were told 20 years ago they’d have a one-time opportunity to revoke the decision to leave the traditional plan — but when they tried to, they were hit with fees as high as $10,000.
The Temple-Rodriguez proposal would defer those costs until retirement.
“They were promised they would be able to go back, but you know many of them don’t have the kind of money saved up to be able to do it,” Temple said. “This bill allows the opportunity to keep the promise that they would be able to switch back.”
The SBA counts 184,923 workers as members in the FRS investment plan, compared to the 485,689 workers in the traditional pension plan.
As of Friday, neither of the proposals had been scheduled for hearings. The 2024 session of the Florida Legislature begins Jan. 9.
The Florida state pension plan: A short history
2000
Republican-controlled Legislature introduces a defined contribution option to the Florida Retirement System. Option shifts retirement savings from a traditional pension to 401(k)-style offering. Proponents predict workers would embrace portability of new plan and would instantly boast a $13 billion fund, but 20 years later the plan only has $6.1 billion in its account.
2010
Former state lawmaker Mike Fasano, R-New Port Richey, leads charge to move public workers into defined contribution plan. His bill never clears a committee. Its companion measure is scaled back to clarify accounting procedures when a worker transfers plans.
2011
Along mostly party lines, lawmakers require teachers, firefighters and state workers to contribute 3% of their pay to the pension fund. Requirement helps state close a $3.75 billion budget shortfall by raising about $1 billion in workers’ contributions.
2012
A 15-member Task Force on Government Efficiency, a mix of public and private officials appointed by the governor and legislative leaders, recommends closure of FRS traditional pension option and moving all new hires to investment-style 401(k) plan.
2013
A proposal championed by then-House Speaker Will Weatherford passes in his chamber but dies in Senate. Then-state Sen. Wilton Simpson, R-Trilby, drops his proposal to lure workers into 401(k) plan by lowering their contribution when House rejects it.
2014
Simpson comes back with proposal to provide FRS members a lump-sum or annuity to transfer into 401(k)-style plan, close off traditional pension to new hires. Idea is submitted as committee bill, never gets heard on Senate floor.
2017
Proposal backed by then-House Speaker Richard Corcoran funnels new hires who do not select between traditional pension and 401(k)-style plan into the former. That’s triggered nine months after hiring. Passed and signed into law.
2021
Then-state Sen. Ray Rodrigues, R-Estero, files bill to close off traditional pension plan to anyone hired after June 30, 2022. Dies in committee.
2023
Proposal from state Sen. Ed Hooper, R-Clearwater, reduces retirements and eligibility in Special Risk Class to the age of 55 or 25 years of service from the age of 60 or 30 years of service. Becomes law.
James Call is a member of the USA TODAY NETWORK-Florida Capital Bureau. He can be reached at jcall@tallahassee.com. Follow on him Twitter: @CallTallahassee.
