Email Newsletter

Dear Supporter,

Courtesy: Pinellas County Democratic Party

Changing the Florida Retirement System –the Single Most Fiscally Irresponsible Mistake the Legislature Can Make�

Carl Zimmer

Many local and state workers including teachers, clerks, police officers, firefighters and other government workers in Florida currently have what is called a defined benefit plan. This, simply put, means their earnings in retirement are defined and guaranteed. Most, including teachers, accumulate 1.6% per year. Some police and firefighters that work in high risk earn 3%. Elected officials get 3%. So, for most, if a government employee works 30 years they would get 48% of the average of their 5 highest years (30 x 1.6%). If they earn an average of $46,000 (the average teacher pay in Florida), for their five highest earning years they could get 48% of $46,000 or $22,080 per year ($1840 per month). This is reduced if a survivor benefit is chosen, reduced by any federal income tax assessed and reduced by a very hefty amount for health insurance. This is a far cry from the huge retirement hauls you sometimes read judges and other rich folk are getting.

Florida teacher pay is ranked 37th in the country and far lower compared to private sector earnings. However, job security and benefits have always been part of the compensation.

For workers currently in this plan, forcing them out of it would probably fail in the courts. The courts have considered this "deferred compensation". In other words it has been part of their compensation package for the past number of years and the employer can't go back and change that in the same manner that your employer can't go back and say they feel they paid you too much for the past twenty years and they want you to pay it back.

The plan Scott wants to switch government workers into and what the legislature seems eager to accept is called a defined contribution plan. Typically it works like this: you put in (x) amount and the employer matches it to some degree and it gets invested. If it makes a lot of money, you do well. If the stock market or other investments do poorly, oh well, you get what's left and deal with it. This is a great plan for business because they (in this case the government) have no responsibility for the employee either now or in the future. Most companies had defined benefit plans in the past, but raided the investment funds (think Enron) and then couldn't pay the retirements. Rather than face the legal consequences under ERISA (Employee Retirement Income Security Act of 1974), it is better for the company to have no responsibility to their employees.

Currently Florida's retirement fund has 125 billion dollars. It is one of the most successful and healthiest plans in the world. If those that are currently in it have to start paying into it as Scott wants (5%), the amount the state was paying in could be diverted into other things. In other words what is currently part of their compensation would now be used to pay down the budget shortfall or other government bills.

Legally, it is widely believed they can't force current workers in the defined benefit plan to switch. The defined contribution plan is more likely to begin with new hires. That's the safest approach they can take without risking the whole thing be thrown out in court down the road. But there are severe problems they don't appear to be accounting for. First, the retirement plan currently receives money for every government employee beginning from when they are first hired. However, as high as 60% of those employees don't stay in the system long enough to be vested (at 6 years). They go into the private sector to make real money or they jump in a lake - who knows. But that money stays in the pool and keeps it healthy. Should the plans switch, that money would stop. In addition, ALL the new hires would no longer contribute to the pool. Instead, as current employees retire it would be drained. Eventually, there wouldn't be enough money to sustain it, however the state will still be legally responsible to pay the retirement benefits those workers are due. And there lies the problem.

How will our government leaders come up with what could be hundreds of billions of dollars more when they can't come up with the current $3 billion shortfall for this years budget?

They would be forced to purchase annuities from insurance companies, which would be equally devastating. Currently governments aren't able to purchase the federally discounted annuities from The Pension Benefit Guaranty Corporation because that is only available to private companies.

It is fiscally devastating for this state to consider switching plans in this manner. While it may make sense to take the government out of being responsible for paying yearly retirement contributions, it makes no sense for the government to cut off the money supporting its retirement obligation for the next 60 or 70 years as all the current employees in the system move through, retire and eventually die. That simple mistake will ultimately be the single most fiscally irresponsible thing this current administration could ever do. The best choice they could make for Florida would be to ease the members into contributing, ease the state out of contributing, and keep the defined benefit plan. It has been and will continue to be self-supporting with these changes and a prohibition against the government using or borrowing against the existing fund.

Carl Zimmerman

Carl Zimmermann is a former candidate for Florida State House and a teacher at Countryside High School, Clearwater, Florida.

Yours in Solidarity,

Polk County Democrats