Align state employee pension contributions with other states
Align "state employee pension contributions with other states" to save almost $1.4 billion.
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Align "state employee pension contributions with other states" to save almost $1.4 billion.
In a rare legal victory for Gov. Rick Scott, the state's highest court upheld a 2011 law that reduced state employees' earnings by 3 percent to offset the state's contribution to their retirement.
In its 4-3 decision, the Florida Supreme Court reversed a lower court's ruling and upheld the law. (Read the ruling for Scott v. Williams here.)
Scott, who had pledged to align state employees' pensions with other states and signed the pension reform law, celebrated the news on Twitter.
"The court's ruling today supports our efforts to lower the cost of living for FL families," Scott tweeted on Jan. 17, 2013.
House Speaker Will Weatherford, R-Wesley Chapel, and Senate President Don Gaetz, R-Niceville, issued statements saying they were still reviewing financial aspects of the decision but were pleased. Weatherford, who wants new workers to be on the state's 401(k)-like plan over the pension option, got a little more candid on Twitter, tweeting, "This day just got $2 billion better. ://bit.ly/Ux07A1 #penniesfromheaven."
He was referring to the lower court judge's order that the state reimburse, with interest, the money withheld from state workers' paychecks as a result of the law. Because the state continued to withhold 3 percent from paychecks, the possible hit was expected to reach $2 billion by June 30, 2013, the end of the fiscal year.
In a March 2012 ruling, Leon County Circuit Judge Jackie Fulford called the law an "unconstitutional taking of private property without full compensation" that violated employees' collective bargaining rights. She criticized the Legislature for citing the state's pension liability as its reason for the paycut but using the savings to plug a $3.6 billion budget hole instead.
Supreme Court justices agreed with the state, arguing they were bound by legal precedent to uphold the state's actions. Those justices were Charles Canady, Chief Justice Ricky Polston, Jorge Labarga and Barbara Pariente.
Justices Peggy Quince, James E.C. Perry and Fred Lewis dissented.
The Florida Education Association led the original lawsuit against the pension reform law. In a statement, FEA president Andy Ford said, "We are more determined than ever to change the face of the Florida Legislature. The next elections in 2014 can turn this decision around."
Scott's pledge remains Promise Kept.
Tampa Bay Times/Miami Herald, "Florida Supreme Court upholds law requiring state workers to contribute 3 percent of pay to state pension plan," Jan. 17, 2013
PDF of Scott v. Williams decision, via Miami Herald
Gov. Rick Scott has an important ally in his fight to fulfill a campaign promise on state workers' retirement plans.
House Speaker Will Weatherford, R-Wesley Chapel, wants to eliminate the state's pension plan as an option for new hires, as a way to protect the state from future liability.
Currently, state workers have two options for retirement. Most choose the "defined benefit” pension plan, designed for career employees. The pension plan provides a guaranteed lifetime monthly benefit after retirement, based on how long the employee worked and peak salary.
One in six employees chooses the 401(k)-like investment plan, in which a portion of a worker's earnings is invested in the stock market, and the worker gets that investment at retirement. This plan is aimed at short-term employees.
Weatherford wants new workers to be on the less popular investment plan, which he said is what 90 percent of the private sector is already doing.
"The idea of a defined benefit plan is old and archaic,” Weatherford said at a Nov. 13, 2012, news conference with reporters.
His call for reform comes at a tenuous time. The Florida Supreme Court has yet to issue its ruling on the state's last attempt to shake up the retirement plan for 560,000 state and local employees.
The 2011 law
In his first year in office, Scott called for a 5 percent pension contribution for employees.
The Republican-dominated Legislature passed an expansive law that, among other adjustments, cut public workers' salaries by 3 percent to offset the state's contribution to the pension fund.
Employees' paychecks are automatically deducted 3 percent, regardless of the plan, with the state contributing between 3.3 and 4 percent.
Scott's signing of the bill into law was enough to move this campaign promise to Promise Kept on our Scott-O-Meter.
"It is unfair for public sector employees to have a guarantee that the private sector does not," Scott wrote while approving the letter at the time.
A month later, the Florida Education Association sued Scott over the law. FEA President Andy Ford said the law "breaks promises made to these employees when they chose to work to improve our state."
In March 2012, a Leon County Circuit Court judge agreed. In her ruling against Scott, Judge Jackie Fulford called the law an "unconstitutional taking of private property without full compensation” that violated employees' collective bargaining rights.
"The 2011 Legislature, when faced with a budget shortfall, turned to the employees of the State of Florida and ignored the contractual rights given to them by the Legislature in 1974,'' she wrote.
She ordered the state to return the money -- with interest. The state appealed the decision.
"I don't understand the ruling. It doesn't make any sense to me," Scott said on the day of Fulford's ruling. "We are appealing it and I'm sure it will be held constitutional, but think of the adverse impact it has on our state. ... That plan is getting more unfunded every year."
The First District Court of Appeals allowed the case to go directly to the Florida Supreme Court, which heard oral arguments in September. (Read a Tampa Bay Times/Miami Herald recap of some of each side's points here.)
Scott and legislators who supported the plan said the decision would create a $1 billion hole in the 2011-12 budget and another $1 million gap in the 2012-13 budget, plus a $600 million blow for counties with employees in the retirement system.
Weatherford's policy idea
It's unclear how the Supreme Court's decision could influence the legislation Weatherford wants passed. Legislation has not yet been filed.
Doug Martin, a lobbyist for the American Federation of State, County and Municipal Employees, told the Tallahassee Democrat that making new hires take the investment option would hurt the retirement system. As fewer workers pay into the pension fund, more retirees would withdraw money, he said.
"Closing the pension plan to new hires would destabilize it and add billions in costs over the next couple of decades," Martin said, according to the Democrat. "It would create a spiraling unfunded liability."
Weatherford asked the Department of Management Services to study the financial impact of closing the pension plan to new members effective Jan. 1, 2014. The study is due Feb. 15, 2013.
What's the rating?
To recap: The 2011 law that cut public salaries to offset the state's pension contribution has been ruled unconstitutional by one judge. The state Supreme Court has not yet issued its ruling on the appeal.
And the new House speaker wants pension reform talks in the mix during the 2013 legislative session.
The court's decision or legislative action could affect this rating down the line. For now, it remains Promise Kept.
Rick Scott's Plan to Turn Florida Around: 7 Steps. 700,000 New Jobs. 7 Years.
Florida Channel, video of Will Weatherford press conference, Nov. 13, 2012
Tampa Bay Times" The Buzz blog, "Court hears arguments over 3 percent cut for employee retirement,” Sept. 7, 2012
Florida Retirement System, "Comparing the FRS Investment Plan and the FRS Retirement Plan,” accessed Dec. 10, 2012
Tampa Bay Times/Miami Herald, "Unions sue Gov. Rick Scott over pension overhaul, employee pay cut,” June 21, 2011
Tallahassee Democrat, State pensions under fire, Nov. 13, 2012
Tampa Bay Times, "Q & A: Pension ruling,” March 7, 2012
The Florida Current, "New Speaker will push for state pension changes,” Nov. 13, 2012
Interview with Ryan Duffy, Weatherford spokesman, Dec. 7, 2012
Interview with Katie Betta, Don Gaetz spokeswoman, Dec. 10, 2012
Interview with John Tupps, Scott spokesman, Dec. 11, 2012
Interview with Ben Wolf, Department of Management Services spokesman, Dec. 12, 2012
Florida Gov. Rick Scott didn't get all of the pension reforms he wanted for state employees during the 2011 legislative session.
But he got a lot.
For the first time in decades, state employees will be required to redirect part of their salaries to pay for part of their retirement benefits. Beginning July 1, 2011, all state employees will be required to put 3 percent of their salaries toward retirement.
Scott signed the pension reforms into law May 26, 2011, which puts Florida more in line with other states. (PolitiFact Florida recently found that only state employees in Tennessee and Utah are not being required to contribute salary toward their own retirement).
The law, SB 2100, affects about 655,000 current state and local government employees, and includes Tallahassee-based government workers along with teachers and many police officers and firefighters throughout the state.
The Miami Herald's Mary Ellen Klas provided an easy-to-understand summary of the changes. Along with making workers contribute salary toward their retirement, the changes include:
• Eliminating service credits for cost-of-living adjustments for workers between July 1, 2011, and July 1, 2016. Workers currently receive annual credits that help determine cost-of-living adjustments upon retiring. Suspending those credits will change the cost-of-living adjustments retirees receive.
• Reducing the interest future retirees receive if they decide to enter the Deferred Retirement Option Program, or DROP. DROP allows workers nearing retirement age to accumulate five years' worth of retirement pay, while they continue to work so that they can gather a lump sum upon retirement. The new law lowers the amount of interest retirees earn on that money from 6.5 percent to 1.3 percent.
• Raising the retirement age for new workers. Workers hired after July 1 will vest into the state retirement system after eight years, instead of five. Employees hired after July 1 who are regular class, senior management class and elected officials class can receive normal retirement benefits if they retire after 65 years of age or 33 years of service (current law is 62 years old, or 30 years of service). Special-risk class like police officers and firefighters hired after July 1 can retire after 60 years of age or 30 years of service or, if they have served four years in the U.S. military, they can retire after 57 years of age and 30 years of service (current law is 55 years old, or 25 years of service).
The changes, while significant, are not as drastic as what Scott first proposed. Scott wanted employees to contribute 5 percent of their salary to their retirement, proposed ending DROP all together, and called for ending the traditional defined benefit retirement plan. Scott wanted workers to join a new defined contribution, or 401(k)-style, retirement plan.
Still, the changes to the retirement system will save about $1.18 billion for state and local governments. (Scott said his plan would have saved about $1.4 billion.)
When considering the breadth of the change, the difference in dollar amounts isn't enough to dock Scott points. He consistently pushed for a plan that would require government employees to contribute part of their salary toward their retirement, as is common in most other states. He got that plan passed. We rate this Promise Kept.
SB 2100, accessed May 31, 2011
St. Petersburg Times, "Pension deal requires Florida workers to contribute 3 percent to retirement," May 1, 2011
St. Petersburg Times, "Gov. Rick Scott signs pension reform into law," May 27, 2011
Miami Herald, "A primer for FL pension changes," May 28, 2011
Legislators who need to identify at least $3.6 billion in cuts to balance the 2011-2012 state budget are climbing onto a campaign promise of Gov. Rick Scott to make state employees contribute to their own retirement.
During the campaign, Scott promised to align "state employee pension contributions with other states" to save almost $1.4 billion. Scott hasn't let up in the months since his election.
In a speech to the business community on Nov. 18, 2010, Scott said that "Florida has to bring its pension system into line with other states' plans by increasing employee contributions. Doing that will save almost $1.4 billion."
And then during a meeting with state legislators on Dec. 14, Scott claimed that Florida is "the only state in the country that state employees don't contribute (to their pensions)." PolitiFact Florida looked into that claim and found it Mostly True, noting that many employees in Tennessee and Utah still do not have to contribute toward their own retirement, although other employees in those states do.
The state retirement system covers state workers, county school teachers, state university employees and many local government employees. The system, called the Florida Retirement System, has 655,000 active members and another 304,000 people retired and receiving benefits.
In 2010, state and local governments contributed nearly $3.4 billion to the fund. Governments typically contribute between 9 and 10 percent of an employee's annual income toward retirement. (Pension plans for police and firefighters, which pay better benefits, receive contributions equal to more than 22 percent of their income.) In every case, employees are not required to contribute anything.
Like Scott, legislators have started to discuss making employees contribute to their own retirement.
"Our state employees have the best deal in the country," said Sen. Jeremy Ring, D-Margate, who chairs a committee overseeing pension policy. "They don't contribute and that's wrong."
"All government workers have to understand the pension system for the government worker cannot be superior to the private sector," added Senate President Mike Haridopolos, R-Merritt Island. "Government service comes at a price."
We've yet to see a concrete plan detailing what employees would be required to contribute, if that contribution would be offset by any type of raise -- state workers haven't received a general pay raise since 2006 -- and how much money pension reform would save. But it's clear that Scott's promise is moving along. We rate this promise In the Works.
Florida Times-Union, Florida lawmakers turning toward pension plan cuts, Jan. 27, 2011
Miami Herald, Florida pension fund is not broke, AFL-CIO claims, Jan. 10, 2011
St. Petersburg Times, Rick Scott lays out agenda in private speech to business groups, Nov. 18, 2010
PolitiFact Florida, Rick Scott targets government pension plans as a way to cut costs, suggests employees should contribute, Dec. 15, 2010
Daytona Beach News-Journal, Haridopolos: Spend less, offer stability and predictability, Jan. 24, 2011
Florida Tribune, Showdown looming over Florida's pension plan, Dec. 7, 2010