Tallahassee Democrat – February 25, 2011
The head of Florida’s major business organization bluntly told legislators Thursday state employees should “have some skin in the game” with pension payments put into investment accounts — and consider themselves lucky to have jobs.
The Senate Governmental Oversight and Accountability Committee spent two hours discussing and listening to testimony on changes to the Florida Retirement System, but took no votes on bills or amendments. Some members obviously are not ready to go as far as Gov. Rick Scott, whose budget proposal calls for state and local employees in the FRS to put 5 percent of their salaries into the pension pot, which is now entirely employer-paid.
Barney Bishop, president of Associated Industries of Florida, said many private-sector employees make pension contributions into 401(k)-style “defined contribution” investment packages, instead of the guaranteed “defined benefit” plan based on longevity and peak earnings. He added that about one in eight workers in Florida would like to trade problems with government employees.
“We support reforms that would require state employees to have a defined-contribution plan so that our state employees have some skin in the game, just like private-sector employees,” said Bishop. “To date, the public sector has not felt the same pains of unemployment that the private sector has felt for the last two or three years.”
State workers have not had a pay raise in the past five years and they would face higher insurance premiums, as well as pension restrictions, under Scott’s budget proposal. Bishop said it’s pretty much the same in the private sector.
“I know this will be taken wrong; but public employees, all employees, should be thankful that you have a job because there’s a million people in Florida who don’t,” he said.
“They’re still taxpayers and you’re expecting them to pay for your pensions, and that is patently unfair.”
Doug Martin, legislative director for the American Federation of State, County and Municipal Employees, said phasing out the defined-benefit plan in favor of defined contributions is “completely unnecessary.” He said the current system has worked well, with an optional 401(k)-style plan for those who want it.
“Legislators decades ago created a pension system that has stood the test of time and has been sustained in good times and bad,” he said. “For the workers I represent, a modest lifetime annuity, which is what a pension is, serves them far better than a small 401(k) account.”
Under the defined-benefit plan, pensions are calculated on a percentage of earnings for years served, such as 1.6 percent of high-five earning years times total years of service. In a defined-contribution plan, employees invest their pension money in funds that they can take with them when they leave their jobs, and those funds may gain or lose in the market.
The committee has held eight hours of hearings on two pension bills (SB 1128 & 1130) directed at municipal and state pensions. Chairman Jeremy Ring, D-Margate, said they will be voted on early in the session that starts March 8.
Ring said his FRS bill would require new employees to join the “defined contribution” plan, rather than the traditional defined-benefit plan. It does not set an amount for pension contributions but Sen. Jack Latvala, R-St. Petersburg, proposed capping the rate at 2 percent for regular workers and 4 percent for elected officers and senior managers.
Latvala also proposed that any employee contributions be used only to pay down the unfunded liability of the pension system, which is now at about 87 percent full valuation.
Once it reaches 100 percent or more, under Latvala’s amendment, employee contributions would stop
“If the reason we’re doing contributions is to restore the actuarial soundness of the plan, that’s one thing,” said Latvala. “If the reason we’re doing contributions is to balance the budget, that’s another thing. We ought to at least be honest about that.”