Gov. Rick Scott announced his plan to change Florida’s pension system in his budget proposal released last week.
In the report released on Feb. 7, Scott backs a transition to a system where state employees would contribute to their individual retirement plans. This would result in a five percent contribution by employees into a retirement fund.
This announcement comes in the wake of reports generated by Pew Research Center and The Florida City and County Management Association stating that pension plan costs are too great for cities and municipalities to maintain.
Florida is divided into counties and municipalities. Since 1971, all counties are required to be a part of the Florida Retirement System. Employees in counties under FRS contribute 100 percent into retirement funds for their employees. Municipalities have the options to be a part of FRS or to join any of the 488 other retirement programs. Florida is one of seven states that do not require all state employees to contribute to their retirement. This is negotiated directly between state entities and contracted employees.
Over the past five years, teacher and other county employees and been asked to forgo pay raises and opted for greater retirement pensions as reconciliation.
“This is a 5 percent pay cut for people who haven’t got a raise over the last 4-5 years,” said Mark Pudlow, spokesman for the Florida Education Association.
“They have taken pay cuts to increase their retirement benefits. [This proposal] represents a slap in the face.”
While changes to the pension system could save the state millions, it is a small part of the yearly fiscal budget for the state of Florida.
According to the National Association of State Retirement Administrators, Florida’s municipal pensions only account for 2.27 percent of the total budget.
However, Scott is convinced that the system needs to be reformed in order to improve the state’s fiscal health.
This view is not widely accepted.
Fred Nesbitt, media consultant for the Florida Public Pension Trustees Association, said pension funds come from earnings on investments, like the stock market and employee contributions. Pensions are not tax-dollar-driven programs as lawmakers have reported.
“Between 70-80 percent of pension plan retirees are paid from earning on the fund,” said Nesbitt.
He dispels the rumors that pensions are large unfunded liabilities.
Pensions are being negatively viewed as a strain on the state’s economy but that only would be the case if everyone in the FRS decided to retire tomorrow.
Nesbitt says that pensions are long-term investments that can survive the ups and downs of a fluctuating economy.
Pensions are good for a state’s economy, according to the results of a study conducted by the National Institute for Retirement Security.
The study showed that for every dollar invested in a municipal pension fund in the state of Florida, $1.41 is returned to the local economy by retirees who choose to live here.
To put it in context, in 2006 the NIRS reported that Florida paid out $6.47 billion in benefits to residents.
Those same residents in turn spent $9.1 billion in the state of Florida.