Senate Bill 84 would automatically enroll all new hires in the defined contribution component of the Florida Retirement System (FRS). A defined benefit (DB) plan (guaranteed pension) would no longer be an option for any new enrollees. Many times, there are unintended consequences to significant acts of legislation involving large administrative functions or which will impact a large constituency. SB 84 is just such a proposal. The Florida Public Pension Trustees Association would like lawmakers to fully understand the consequences of such a change before casting a vote, or supporting one. A defined benefit pension is part of state employees’ compensation, which they support with mandatory contributions out of every paycheck. Eliminating this valuable benefit will hurt state employees and will cost the state in dollars and human capital.
- FRS represents less than 1% of the state’s total budget. Florida had a total budget of $90.98 billion in 2019-2020, and the amount allocated to the FRS was $564 million, or just .62% percent of total budget.
- FRS’s funding ratio is 82%. A plan’s funding status is not static, it fluctuates with demands put on it, and with changing rates of earnings or contributions. FRS was fully funded for 11 consecutive years until 2008. Today FRS is 82% funded, which exceeds a historically consistent benchmark delineating the health of a pension plan. https://bit.ly/3qUVdQN (NCPERS, June 2020)
- FRS has exceeded anticipated returns in nearly every cycle. Proponents of SB 84 say FRS has averaged just 5.6% returns over the past 20-years. In fact, FRS has met or exceeded long-term investment objectives of actual returns on pension plan assets for the last 10-, 15-, 25- and 30-years. The last 10-year period for actual returns was 8.69%. The pension fund has a long-term objective of earning 4% plus inflation per annum. This most recent 20-year cycle has seen two significant recessions and the impact of the COVID pandemic.
- FRS pays 60+% of retirement benefits using investment earnings, not taxpayer dollars.
- Retirees receive a modest retirement benefit. The average annual benefit is $20,473.
- FRS is a model for best practices in the nation. The FRS was awarded the Public Pension Coordinating Council’s Public Pensions Standards Award for Funding and Administration in 2020.
- Defined benefit pensions support not just retirees, but the Florida economy. Retired public workers in Florida paid $2.7 billion in federal, state and local tax dollars. During the Fiscal Year 2019-20, pension benefit payments of $8.64 billion were distributed to retirees and their beneficiaries throughout the 67 counties of Florida as 86.8% of retirees remain Florida residents, and $19.5 billion in total economic output supporting jobs and wages of Florida businesses. https://bit.ly/3w5HydM . (NIRS 2020)
- A closed DB plan will cost much more money. Currently there are almost 648,000 active members and over 584,000 retirees in the state’s retirement system. SB 84 passes, it will effectively close the FRS defined benefit pension plan. Without this new lifeblood, the state will have to assume the burden of increasingly larger contributions until the last retiree beneficiary dies. https://bit.ly/3dpm7vJ (NIRS, February 2020)
- Recruitment and Retention. When the town of Palm Beach closed its defined benefit pension plan to police and fire in 2012, twenty-percent of the public safety force promptly retired or quit. Another 109 public safety officers left before retirement in the next four years. Faced with re-training costs projected to run up to $20 million, Palm Beach reinstated its DB pension plan in 2016.
- Attrition adds up. Currently 40.4% of employees covered by the FRS have 5 years of service or less, with younger workers more inclined to leave if the DB plan is closed. https://bit.ly/3dpm7vJ (NIRS, February 2020)
- Only 15.22% of the total active members of FRS are state employees (includes both DB and DC). The state will be passing the expense of retraining on to counties, school districts and others across the state that will have to deal with the loss of an important retirement benefit for public workers making recruitment and retention exponentially more difficult.
- Public sector draws the best and brightest, in large part due to the guaranteed retirement benefits offered. Public safety employees are particularly difficult to recruit because of the nature of their jobs, but so are engineers, accountants, attorneys, and high-level administrative talent, and teachers. https://bit.ly/3cpr8oA (NIRS March 2021; https://bit.ly/3dpm7vJ NIRS, February 2020)