After a long and starkly partisan debate, the House advanced a bill Thursday to close the Florida Retirement System to public employees hired after next Jan. 1, requiring them to join an investment systems similar to the 401(k) plans popular in the private sector.
Democrats closely questioned Rep. Jason Brodeur, R-Sanford, about his bill — a top priority of House Speaker Will Weatherford — while Republican lawmakers contended that the traditional "defined benefit" retirement system is a risky proposition for taxpayers. The bill (HB 7011) was given second-reading approval and set for a final House floor vote on Friday.
That puts the issue before the Senate, which has a very different plan. A bill by Sen. Wilton Simpson, R-Trilby, (SB 1392) would keep the FRS open for new employees, but give them financial incentives to opt into the "defined contribution" investment plan.
Under Simpson’s plan, one of the incentives for shifting away from pensions would be that employees would only need to contribute 2 percent into their retirement system rather than 3 percent (both of those numbers are rather low compared to how much people in the private market need to contribute to their retirement funds).
Florida’s pension crisis is small potatoes compared to problems in states like California and Illinois. It’s funded at more than 80 percent and costs the state about $500 million a year. Their unfunded liability is estimated at around $19 billion, compared to around $100 billion for Illinois and $300 billion for California.
Opponents (Democrats and labor leaders) are taking this as a sign that everything is fine and that Florida doesn’t need to change its pension program and not that they’re nipping a problem in the bud before it could potentially get out of hand.
Over at The Daily Beast, Megan McArdle recently wrote a lengthy, useful piece explaining how all retirement plans have risks involved. One of the frustrating components of the pension reform debate is that, even in the midst of cities filing for bankruptcy and states unable to pay their bills, pension supporters are insistent that defined contribution programs are less “risky” than 401(k) plans. It’s just not true.