State Politics

Major pension reform battle looms

TALLAHASSEE -- As 90-year-old Ed Hoffman stood before a House committee and urged them “not to reduce the benefits for officers and law enforcement who put their lives on the line,” his eyes welled up with tears.

“You could not hold a gun to my head and make me go into a correctional institution for $31,000,’’ said Hoffman, a former West Palm Beach firefighter.

He spoke of the five police officers and the corrections officer killed in the line of duty in Florida in the last two months. “Those people don’t deserve to be treated in a manner that would make them contribute to a pension system without adequate salaries,” he said. “It’s not fair. It’s not right.”

The question of whether Florida’s government workers should have their benefits scaled back to help balance the state budget goes to the core of the emotional pension reform debate that lies ahead for Gov. Rick Scott and the Florida Legislature.

During the 60-day session, which begins Tuesday lawmakers plan the broadest overhaul to the Florida Retirement System since 1974, the last time workers paid directly into their retirement accounts. On one side are employees and unions who argue that they have already made financial sacrifices to fill a $3.6 billion budget gap.

They say they have agreed to wage concessions, overtime, furloughs and increased responsibilities in the past few years to preserve their benefits packages amid deep budget cuts. And they say they are willing to make more concessions, with the hope that legislators will restore cuts when the economy improves.

On the other side is Gov. Rick Scott, lobbying groups for the state’s largest corporations, and a disparate but growing Tea Party movement in Florida. They believe the pension system has a glaring inequity: it doesn’t require an employee to contribute to their retirement account and it gives two-thirds of all workers a guaranteed pension, regardless of investment returns.

For Scott, who spent a lifetime in the private sector and drew a public paycheck only when he was enlisted in the Navy, Florida’s pension is simply unfair. In the private sector, the governor says, employees are expected to contribute to their retirement accounts, most of which are 401(k)-style plans that don’t guarantee returns.

“I think it’s only fair that those who participate in the pension plan contribute,’’ Scott said.

He argues that it is not right for state workers to rely on taxpayer-financed pension plans that guarantee an income stream when those same taxpayers face a future of uncertainty because of the Wall Street turmoil in the declines in their investments. His argument is echoed by Barney Bishop, director of Associated Industries of Florida, a business-backed lobbyist group.

“We support efforts to bring Florida’s pension system more in line with the private sector,’’ Bishop told the Senate Governmental Oversight and Accountability Committee in February.

He said the corporations that back his group want reforms that require state employees to have a defined contribution plan “so that state employees have some skin in the game. To date, the public sector has not felt the pain of the private sector in terms of unemployment.’’

To that end, the governor called for scrapping the defined benefit plan for new hires and requiring that all new employees get 401(k)-style defined contribution plans that they can take with them when they leave government.

He also proposed ending the Deferred Retirement Option Program, known as DROP, beginning July 1. The popular program encourages older workers to retire early, before their health insurance expenses rise, by allowing them to draw their pension check and return to work. Critics say it allows state workers to receive two state paychecks.

Scott also proposed eliminating cost-of-living adjustments and reducing the annual service credit for retirement benefits to 1.6 percent for most members of the Florida Retirement System (FRS), and 2 percent for police, fire and other special-risk employees. The estimated savings to state and local governments to the governor’s plan: $1.4 billion, money the governor would pour back into the state budget.

Employee groups counter that the governor’s plan fundamentally mischaracterizes the intent of the pension plan. They say their retirement funds, combined with their salaries, equal their full compensation package and together it is their “skin in the game.”

In negotiations with state and local governments, they have agreed to defer payment from their salaries into their retirement accounts as a trade-off.

In recent years, however, some local governments violated that pact when they failed to make contributions to the retirement accounts, negotiated richer benefits than they were willing to fund, or borrowed against it by taking our surplus revenues. And the crash of stock markets only worsened the situation. The result left a number of cities owing more money into their pension plans than they now pay in salaries.

It will be up to the Legislature to sort things out. So far, the Senate is the only chamber to have proposed a compromise. It is taking a two-pronged approach: addressing the call for strengthening local government retirement plans in one bill and modifying the FRS and adding employee contributions in another. One Senate plan would require employees to contribute 2 percent of their salaries into the retirement funds but not eliminate the defined benefit program.

Complicating the solution is the state’s $3.6 billion budget deficit and the promise from the governor and legislators that they will raise taxes or close tax loopholes to do it. State workers salaries are seen as an available target.

Legislators were faced with a different set of problems in 1974, when they moved away from having employees contribute a portion of their salaries into their retirement accounts. At the time, employees contributed 4 percent of their salaries, while special-risk members (police, firefighters, prison guards) contributed 8 percent.

Under that arrangement, an employee who left the state workforce was entitled to have his pension fund contribution returned in the form of a refund. In 1974, those refunds cost the state a whopping $30 million and left a big hole in the pension plan. Since employees couldn’t take the employer’s share of the retirement fund when they left, the state agreed to pay all of the retirement benefit and cut back on employee salaries.

The result was an increase in the state’s contribution from 4 to 9 percent for regular class members -- where it remains today -- and from 8 to 13 percent for special-risk members.