Florida public pensions

Florida public pensions Pension system Number of pension systems 1 State pension systems: • Florida Retirement System System type: Pension and Investment Local pensions Number of local pension systems 302 Pension health Estimated liabilities:* $141,485,280,000 (2011 PEW study) Percent funded: 84% Unfunded liabilities: $25,637,645,000 ($25.6 billion) State employees Number of state public employees: 213,910 Total pension fund members (active and inactive): 633,098 Beneficiaries receiving payments: 302,987

Contents 1 Pension Plans 1.1 $100,000 Club 2 Funding levels 2.1 Funding Problems Older than 2008? 2.2 Increased State Funding Request 3 Contribution rates 4 Pension amount 5 Cost of living adjustments 6 Benefits 7 Rate of return 8 Pension reforms 8.1 Increased Contributions 8.2 Lawsuits 8.3 New retirees 9 Local public pensions 9.1 Local Pension Reforms 10 Transparency 10.1 Data availability 10.2 Fund performance data 10.3 Rate of return 10.4 Unfunded liabilities 10.5 Oversight 11 See also 12 External Links 13 References

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Florida public pensions refer to the Florida Retirement System (FRS), a pension system including Florida state employees and teachers. There are 655,000 members in the FRS, nearly half of whom are school district employees.^[1] In the FRS, the employee selects from a pension plan and investment plan. Only the state pays into the plan, employees do not contribute.^[2] Florida's retirement fund is the third largest of any state.^[3]

Florida has 213,910 total public employees as of 2010.^[4] In Fiscal Year 2010, the state has a total of 633,098 active and inactive pension fund members, with 302,987 receiving periodic benefit payments. ^[5]

The state has made at least 90% of its required contribution each year since 2000. Although the state did not make the entire contribution in four of the past 12 years, it over-contributed in other years, averaging 102% of what it was required to pay.^[6] The state has legally mandated that pension surpluses of less than 5% of total liabilities will be reserved to pay for unexpected losses in the system.^[6]

According to the United States Census Bureau, the state has 302 locally-administered pension systems.^[7]

Pension Plans

Plan	Current Value	Percentage funded	Unfunded liabilities	Total state employees	Avg. pension
Florida Retirement System	$124.2 billion	87.9 percent	$16.7 billion	655,000 active members	$23,000

Just 43.7 percent of Florida's full-time, full-year workers participated in an employer-based retirement plan, according to the nonprofit Employee Benefit Research Institute. ^[8]

$100,000 Club

Gov. Rick Scott posted a list of 542 pensions in Florida of at least $100,000 per year in 2011 on FloridaHasARightToKnow.com. The list of names and addresses of retired state workers is confidential under state law, so only some information is posted. ^[9]

Funding levels

The state's pension liabilities can be calculated in a variety of ways, which yield different numbers. Below are the numbers as calculated by the Pew Center on the States^[10], the American Enterprise Institute^[11] and Professors Robert Novy-Marx of the University of Chicago and Joshua Rauh of Northwestern University, Kellogg Graduate School of Management.^[12]

In Thousands

PEW	AEI	Kellogg (2009)
($1,798,789)	$98,505,110	$8,980,000

Other information from the Pew Center on the States Feb. 2010 publication "The Trillion Dollar Gap":

State Pension Funding Levels 2008 (figures are in thousands)^[6]

Latest liability	Latest unfunded liability	Annual required contribution	Latest actual contribution
$129,196,897	-1,798,789	3,005,387	3,130,378

State Retiree Health Care and Other Non-Pension Benefits Funding 2008 (figures are in thousands)^[6]

Latest liability	Latest unfunded liability	Annual required contribution	Latest actual contribution
$3,081,834	$3,081,834	$200,973	$87,825

Underfunded pension liabilities

Number of pension plans	Pension assets ($bn)	Stated liabilities ($bn)	Funding status (% of tax revenue)
1	$97.2	$124.1	-326%

This data is based on projected data from 2008 census data.^[13] In 2008, $1.94 trillion was set aside for pensions, but it is estimated that states have $5.17 trillion in unfunded liabilities.

Research conducted by State Budget Solutions shows the extent to which the state has funded or underfunded its Annual Required Contribution:^[14]

Florida Public Pension Contributions
FY 2002-2011 Total Annual Required Contribution	$23.8 billion
FY 2002-2011 Actual Contributions	$23.8 billion
Difference	Even

According to the LeRoy Collins Institute, in 2006, 11 of the state’s 25 largest pension plans were funded at 80 percent or less of their liabilities. Due to the recession, in 2009 that number had climbed to 19 out of the top 30 pension plans.^[1]

A report released by the Florida legislature shows Florida's public pension is better funded, incurs lower investment fees and receives average investment returns compared to other states. The report indicates the plan is 87.9 percent funded as of June 30, 2010, which is higher than Gov. Rick Scott has suggested. Under actuarial rules, the state has 30 years to make up the shortfall through investment earnings. In his campaign for governor, Scott ran ads claiming that the fund had lost $24 billion. At the time he ran the ads, the fund had recovered all but $6 billion as a result of the Wall Street collapse, and has since restored almost all of its 2007 value, which the governor used as a benchmark. ^[15]

The turbulent stock market over the later part of the summer of 2011 hurt the funding levels of Florida's pension. Florida's pension fund has lost about $9 billion since June 30, a decline of 7 percent for a fund valued at $119.4 billion at the beginning of August. ^[16]

Funding Problems Older than 2008?

A new report by Florida State University’s Leroy Collins Institute revealed the benefits promised to county and city workers over the past few decades lie at the heart of the current pension mess, not the financial crisis of 2008. The report said the problem of unfunded pension liabilities, according to researchers, is a “problem that has been years in the making,” pointing to a flawed model that has been too generous without asking for more in return. Researchers also find that 2010 was the first year where payouts exceeded contributions, sparking concerns that will resonate with many in economically strapped cities and towns in the Sunshine State. ^[17]

Increased State Funding Request

Ash Williams, executive director of the State Board of Administration, requested the Florida legislature increase funding to the state's pension system. His concern is relying on investment returns may not be achievable in the wake of the financial crisis and record-low interest rates that have made it harder to yield large investment returns. Williams suggested the state increase its funding by 2 percent and to lower its expected return on investments to 7.25 percent. The state assumes a 7.75 percent return on investment, but the state has not consistently met those return targets. ^[18] Any change in investment targets could have a negative impact on the state's unfunded liabilities.^[19]

Florida House Speaker Will Weatherford warned the state's pension system is not sustainable. To keep the current system afloat, he said it will take $500 million per year for the next 29 years. Weatherford is proposing an overhaul of the state’s retirement system during the 2013 legislative session. He wants the only option for new public employees to be the 401(k)-like investment plan. ^[20]

Contribution rates

Starting in 2011, state employees were required to contribute to the state pension fund for the first time: they were required to contribute 3% of their salary.^[21]

Under the FRS investment plan, the state contributes a fixed percentage of the member’s gross monthly salary, which is currently 9% for Regular Class employees and 20% for Special Risk employees.^[2] The percentage is determined by the state legislature.

Pension amount

For most state workers, their pensions are calculated by multiplying 1.6 percent of salary by years of service. Lawmakers and other elected officials receive a pension that is 3 percent of salary multiplied by years of service. ^[21]

Cost of living adjustments

The FRS pension plan includes a 3% increase each year as a cost of living adjustment.^[2]

Benefits

State retirees receive both disability benefits and retiree Health Insurance Subsidy (HIS) payments, regardless of whether they are in the FRS pension or investment plan.^[2]

Rate of return

Florida presumes a 7.75 percent return rate on its pension investments.^[6]

Florida Retirement System returned 0.29 percent on its investments for the fiscal year ended June 30, according to preliminary figures released by the Florida State Board of Administration, which oversees the plan. The plan ended the fiscal year with $122.7 billion in assets. In the 12 months ended June 30, 2011, the plan returned 22 percent. ^[22]

As of June 30, the retirement system returned 11.77 percent over three years, 1.56 percent for five years, 6.43 percent for 10 years, 6.11 percent for 15 years, 8.08 percent for 20 years and 8.38 percent; for 25 years. All multiyear returns are annualized. In each of the periods, the plan outperformed its benchmark. ^[23]

Pension reforms

Incoming House Speaker Will Weatherford proposes to make the state retirement system more like the private sector by suggesting new employees enroll in 401(k)-type plans instead of relying on regular pension payments from the state. ^[24]

Increased Contributions

Florida lawmakers passed legislation in 2011 that will extract a 3 percent contribution rate from members of the state pension system. The 3 percent contribution rate is projected to provide $954 million in savings for the Florida Retirement System, but because only part of the 655,000 members of the Florida Retirement System are actual state workers, the real savings to the state government is $168.6 million. The rest of the members are employees of county and municipal governments that participate in the system. ^[25] Gov. Scott had proposed an even larger pension contribution -- 5 percent -- in February, to save the state $2.8 billion over two years. ^[26]

Government staffers must pay 3 percent of salaries to their retirements under the Florida law, effective July 1, saving the state, counties, school systems, public colleges, universities and other entities $2 billion next year. ^[27]

A coalition of business groups and conservative think tanks reiterated calls on Thursday for the Legislature to move new employees into 401(k)-style defined-contribution plans, days after lawmakers approved a pension-reform plan that allows state workers to remain in the defined-benefit program. ^[28] The group acknowledged that the Florida Retirement System, which is close to 90 percent funded, is not in any imminent danger of running short of the money needed to pay the bills. But they said closing off the defined-benefit plan could avoid the temptation politicians might face to trade off long-term costs for saving money in the short term. ^[28]

Florida TaxWatch, a non-profit taxpayer institute, is pushing the Florida legislature to continue to reform the state pension code in the next session. During the past session the legislature implemented six of the 10 reforms instituted by Florida TaxWatch. ^{[29] [30]}

A March, 2012 court order declared the state's reform requiring a 3 percent contribution from members of the state pension system to be unconstitutional. The changes were intended to raise $1 billion for the pension system. Leon County Circuit Judge Jackie Fulford called the changes to promised benefits an "unconstitutional taking of private property." A state appeal has put a hold on the Judge's order to repay workers.^[3]

Lawsuits

The Florida Education Association challenged Gov. Scott's pension plan in court as unlawful and unconstitutional. Union officials also intend to challenge a new state law phasing out tenure for K-12 teachers. The suit also targets a phasing out of cost-of-living increases in retirement benefits.

Teamsters Local 79 has filed a lawsuit against the State of Florida over changes to the Florida Retirement System (FRS) requiring employees to contribute 3 percent of their salaries into the state pension fund. The plaintiffs are asking the court to permanently stop CCSB from taking 3 percent from Teamster members' paychecks. According to the CBA between CCSB and Teamsters Local 79, the Florida Retirement System (FRS) will not cost CCSB employees a thing. The new pension laws go against this—requiring a contribution that costs employees 3 percent of their pay, and according to the Florida Constitution, laws cannot be passed that impair contracts, like the CBA between CCSB and Teamsters Local 79. ^[31]

The mandated pension contributions were aimed at paring down the budget to stave off a $4 billion deficit in the upcoming fiscal year without raising taxes or fees. Florida's retirement system is among the last in the nation that does not require its members to contribute toward their pensions. The lawsuit argues that Florida law defines the Florida Retirement System as one in which employees do not have to contribute part of their salaries. The union also argues that the mandatory contribution amounts to an unconstitutional "taking of private property without full compensation" and a violation of "Plaintiff's right to collectively bargain," as guaranteed by the state Constitution. ^[32]

The plaintiffs in the lawsuit also include sheriff's deputies, a nurse, social workers and other public employees. They are all members of various unions. The Florida Police Benevolent Association joined the lawsuit. Members of the Florida Retirement System have not contributed to their pension since 1974. The system collects retirement money for more than 900 state and local government employers, covering 655,000 active workers and 219,000 retirees. ^[33] Florida is the last state in the U.S. where state and government workers do not have to pay a portion of their income to pensions to guarantee retirement income.

Set Aside

The teachers union did not seek to block the state from collecting the contributions while the lawsuit moves forward. Instead, it sought the temporary injunction to require that the money be set aside and refunded to workers with interest if the lawsuit is successful. ^[34]

After a hearing Circuit Judge Jackie Fulford refused to set aside public employee pension contributions in a separate account pending resolution of a lawsuit challenging those payments required by the new law. Fulford rejected the union's set-aside request shortly before midnight June 30. The new law requires teachers, state and county workers and some city employees to contribute 3 percent of their salaries to the Florida Retirement System. Fulford wrote that she had to assume the state would comply with a court order to return the contributions if the law is struck down although there is no statutory mechanism for such a refund. As a result of Fulford's decision, the pension fund Friday began deducting 3 percent from the pay of 560,000 public employees. The contributions are expected to save the state and local governments $806 million in the first year as their payments into the retirement system have been reduced. Some local governments are using their savings to give their workers raises to offset their contributions. ^[35]

Union officials plan to continue fight against the new pension funding law, despite the ruling of Judge Fulford. The new 3 percent pay-in by state employees began in July 2011. ^[36]

Ruling

On March 6, 2012, the Circuit Court for the Second Judicial Circuit in and for Leon County, Florida, granted the Motion for Summary Judgment by Plaintiffs, holding that portions of Senate Bill 2100 imposing a 3 percent mandatory employee contribution and eliminating COLA for future services are unconstitutional as applied to individuals who were members of the FRS prior to July 1, 2011 and defendants are permanently enjoined from implementing these provisions as to such individuals. ^[37] Circuit Court Judge Jackie L. Fulford ruled that certain provisions of the bill signed by Gov. Rick Scott in May 2011 are unconstitutional. Fulford stated in the ruling that the law constitutes “an unconstitutional impairment of plaintiffs’ contract with the State of Florida, an unconstitutional taking of private property.” ^[38]

State Appeals Ruling

State lawyers challenged the ruling and took the case to the state Supreme Court. Former Justice Raoul Cantero, now a private attorney representing the state in the case, argued that Fulford’s order “runs contrary to decades of precedent.” “The Legislature’s decision to modify the FRS system was fully within its prerogatives because the right of public employees to collective bargaining does not override the Legislature’s appropriations power,” Cantero wrote. Also at the center of the state’s appeal was Fulford’s interpretation of a 1981 state Supreme Court decision involving the Florida Sheriffs Association, which pivoted on the Legislature changing benefits for future state employment.^[39]

The lawsuit was filed in 2011 against Scott and other state officials on behalf of 11 public employees who are members of the retirement system. Those suing include members of the Florida Education Association, AFL-CIO, America Federation of State, County and Municipal Employees, Fraternal Order of Police and Service Employees International Union. There are 655,000 government workers in the FRS. Scott and the Legislature last year used the $1.1 billion in pension fund payments to help close a yawning budget gap. The state’s 67 counties also saved about $600 million in pension payments by having employees contribute the 3 percent. The same payments were incorporated into the $69.9 billion state budget set to take effect July 1.^[39]

Supreme Court Hears Case

The state Supreme Court heard the case of Scott v. Williams, SC122-520, Florida Supreme Court (Tallahassee).^[40] On Sept. 7 Florida officials asked the state high court to overturn a lower-court ruling that voided their plan to make government employees pay 3 percent of their wages toward pensions.^[41] During the hour-long hearing one justice questioned why public employees argued that if they lost their jobs they still had a right to the benefits of the position.^[42]

Supreme Court Ruling

Florida’s changes to its public- employee pension system didn’t violate government workers’ constitutional rights, the state Supreme Court ruled. Florida law doesn’t bar lawmakers “from prospectively altering benefits for future service” by state workers, the court ruled in a 4-3 decision. The majority of the state’s highest court concluded that Fulford erred in finding that lawmakers didn’t have the power under Florida’s Constitution to change pension laws that apply to government workers. ^[43]

The state’s pension law “does not create binding contract rights for existing employees to future retirement benefits,” Justice Jorge Labarga wrote in the 22-page majority decision. ^[44]

The decision is a relief to local governments, particularly school boards, who would have had to find millions of dollars they have already cut or budgeted, based on the 2011 law, essentially making up for the reimbursements the retirement system would have been forced to make to public employees hired before 2011. The statewide impact would have been $2 billion. As it is, there will be no budget impact now that the ruling leave matters as they have been since 2011.^[45]

New retirees

In the three months since the legislative session ended, the Florida Retirement System has seen a substantial uptick in the number of new retirees, according to Sunshine State News. ^[46] The media outlet speculates the changes in the state's retirement plan contributed to the increase. The new law requires employees to contribute 3 percent of their paychecks to their retirement, raised the retirement age for employees and reduced cost of living adjustments. Supporters of the changes, including Gov. Rick Scott, argue that public employees were receiving better benefits than private-sector workers and that requiring contributions was the right thing to do to protect taxpayer dollars.^[46]

The Florida teachers union is still protesting proposed plans to have new hires enroll in a 401(k)-style program, saying it will lessen the amount of a teacher's annual retirement by about $8,500. ^[47]

Local public pensions

Main article: Local government public pensions

According to the United States Census Bureau, the state has 302 locally-administered pension systems.^[7]

A Florida State University report grades municipal pension plans in Florida and two out of three of Florida’s 100 largest cities received a grade C or better, according an Associated Press report.Highlights of the report include: ^[48]

• The majority of the plans, about 53 percent, received “B” or “C” grades
• More than 37 percent of the municipal plans received grades of “A” or “B”; 14 percent making an “A”
• Nearly one-third of the plans earned a “D” or “F”
• Underfunded pensions plans tend to be significantly more costly than well-funded pensions plans
• General employee plans make up a larger share of the well-funded pension plans that cover other kinds of participants

Local Pension Reforms

Early reports of the pension overhaul indicated the initiative is saving local government agencies significant amounts of money and possibly saving jobs. ^[49]

Brevard County Tax Collector Lisa Cullen sent a letter out to staff June 7 announcing a 3 percent "pay adjustment" as of July 1 to cover the amount the state legislature decided they must contribute to their own retirement. Cullen's budget for 2010-11 is $9.33 million. Her payroll is $5.06 million. All regular employees, except those either making more than $60,000 or enrolled in the Deferred Retirement Option Program, will get the raise, she said. Most tax collector employees make less than $30,000 a year, and have not had a raise in over 5 years, Assistant Tax Collector Dee Dee Causey said. About 130 employees will get the pay adjustment, she said. ^[50]

Changes in the Florida's pension laws gave government agencies across the state a one-time windfall. Some agencies, such as Brevard Public Schools, will shore up an overall budget that lost $40 million in lawmakers' efforts to bring in a balanced state budget. Others, such as the Brevard County Sheriffs Office, will use it to give employees raises and cost-of-living adjustments. ^[51]

Florida municipal leaders say they expect state lawmakers will soon give them authority to rein in police and fire pension funds, which they say have mushroomed into a burden on taxpayers and drain cash from other needed services. The target for cities is a 1999 law signed by then-Gov. Jeb Bush, which requires that the growth since then of dollars flowing to cities from state taxes on property insurance premiums pay for additional benefits for police officers and firefighters. Under the law, city commissions have enacted a variety of pension sweeteners for police and firefighters, such as cost-of-living adjustments, lower retirement age, and increased “multipliers” for determining pensions based on years of service. Municipal leaders say cities have spent hundreds of millions of dollars more on pension costs since 1999. The law also has created imbalances, critics say. ^[52]

While municipal pensions underwent slight changes two years ago, lawmakers at the time approved major changes to the Florida Retirement System. Over union opposition, they ordered the more than 600,000 teachers and other government workers in the fund to pay 3 percent of their paychecks to its financing. Unions challenged the constitutionality of the 3 percent requirement and won a round in Leon County Circuit Court. The case is now before the Florida Supreme Court. If lawmakers lose, analysts have said the state would owe $1.1 billion in back pay to public employees in the state retirement system. Without the employees’ contribution, the legislature also would have to find an additional $861.2 million to finance the pension fund next year. ^[53]

Change in Law Sought

Police and fire unions as well as the Florida League of Cities want to change a 1999 law keeping cities from using $50 million in insurance-tax revenue to cover pension shortfalls. Cities must use the money to increase pension benefits and not help pay for existing ones. The league estimates $500 million in insurance-tax money has been spent on these extra pension benefits in the past 13 years. ^[54]

Transparency

Main articles: Public pension disclosure and Governmental Accounting Standards Board

Data availability

For Florida Retirement System participants, there must be an exemption from public records law to withhold information upon request. For retirees, the names and addresses in list form are exempt from a public records request. For active members, the home addresses of certain members and their families are exempt from public records, including public safety officers, judicial officers and employees involved in hiring and firing, ect.^[55]

Fund performance data

Pension fund investment performance data is available on the FRS site.^[56]

Rate of return

The rate of return from 1970-2010 is 10.1%, from 1980-2010 is 10.6% and 1990-2010 is 8.1% based on the non-rebalanced portfolio.^[57]

Unfunded liabilities

The fund discloses the amount of unfunded liabilities. A PEW study reports $1,798,789,000 in unfunded pension liability in Florida.^[58]

Oversight

External audit and oversight of pension fund is published.^[59]

Pension lobbying laws and restrictions on “pay to play” (the practice of investment managers contributing to officials with influence over public pension fund decisions) are addressed by state law.^[60]

See also

• Public pensions
• Florida state government salary
• Florida state budget

External Links

• FRS Plans Overview
• Florida State Pension Fund Management - State Integrity Investigation

References

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