Rent Your Own Golf Carts: Florida May End Pensions for New Public Employees

A legislative push may create a 401(k)-style program instead


Enjoy your retirement, but leave us out of it.
Credit: Michael Wood, dreamstime.com

The state most famous for its retirees is looking to change the system for its own employees. Florida's legislature looks ready to push new public employees into 401(k)-style defined contribution programs rather than budget-draining public pension plans. Via The Florida Current:

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.

NEXT: The Great Penis Robbery

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  1. The first state, only about 2 decades after the last non-union company to switch from defined benefit pensions to 401k’s.

  2. 401(k)-style defined benefit

    Aren’t your 401(k) plans defined contribution plans, not defined benefit plans?

  3. I should note that FL has already changed so that workers are automatically enrolled in the 403(b) and have to do actual by-mail paperwork to get into the pension. I imagine this kept something like 3/4 of all new state employees in the 403(b).

  4. From the original article:

    Under Simpson’s bill, Senior Management System employees and elected officials would be required to take the investment plan, but Career Service employees could continue joining the traditional defined benefit plan.

    This tells me all I need to know about the relative risks involved.

  5. Just keep rubbing Illinois’ nose in it… isn’t it bad enough living here, and not to be constantly reminded of the fiscal suckitude?!

    1. Can we mention all the other types of suckitude? I mean the list is pretty long.

      1. Oh, certainly – I have come to peace with the other suckitudes…the fiscal one is probably the most galling, so I try to ignore it as best I can.

  6. 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,

    What would it cost them to cover that unfunded liability in a reasonable period of time? Say, 5 years? Another $4 billion/year would be my guess.

    1. Here’s your problem.

      -19% return in 2009, $27B fund loss, the system went from 100+% funded to 88.5% funded. So it just needs to make 3% above baseline estimates, which I believe are 5%/year, but I can’t find in the linked document.

      1. Which just goes to show the dangers of pension funds, even when managed by responsible actors.

        1. And you sure are fucked if it’s managed by CalPERS.

          Hell, I’m annoyed that my company matches my 401k in 5-year-vesting private company stock, but at least the money I contribute I have some say over.

          1. Companies can still do this after Enron? I am shocked.

            1. Lots of companies match at least partially in their stock.

      2. How much of their assets are in Treasuries and other “safe” debt instruments now earning next to nothing?

        Given that, what does the rest of their portfolio have to earn, year over year, to hit that target?

        How long will it take them to cover the shortfall if they beat the hell out of the market year over year?

        And what happens when we have another bear market and they show negative returns, again?

        1. In short, its a fantasy to think they are going to cover that $19BB in any reasonable time frame without putting up more cash.

          1. As I said, they have a decently responsible target of 4% or 5% (not the 7.5 or 8% of CALPers). They’d have to hit about 9% or better over the next 7 years to get fully funded again. They were hitting 9-11% in the early 00s. None of this is meant to defend pensions. I agree that this is the inevitable result, but I think everyone took that sort of shelling. The system, however, was not underfunded by malice, incompetence, or corruption like many other states. It just wasn’t overfunded enough to cope with the recession. The errors of complacency are probably the worst that can be laid at the FRS’s feet. It just sucks that the taxpayers are on the hook.

            And, I can’t believe I’m typing this, the legislature seems to have developed a clue as to this fact.

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