Pension Reform in Tallahassee - an Update
March 28, 2011
Breaking News:
Yesterday (4/1) the Senate budget committee introduced SB2100 as a committee bill, exceeding the provisions of SB1130 for pension reform. Including a 3% across-the-board contribution (replacing the tiered system of 1130), elimination of the DROP program, closing the defined benefit plan to new hires, and stopping the COLA for accruals (all after July of this year), it comes much closer to the Governor’s proposal than the earlier bill or even HB1405. (See SB2100 )
The bill text presents the employer contribution, effective in July, as 5.09% for regular class, and 13.8% for special risk (versus 9.63%/22.11% today). From this we can calculate that the savings to the county if the bill were to become law would be $42M ($82M with schools included).
It appears that it will exceed the $58M savings of HB1405 (which this week passed out of Appropriations essentially intact, much to the chagrin of the 40 or more police and fire union folks who showed up (in uniform) to oppose the bill. See House Committee Backs ‘Modest’ Pension Reform for State Employees
When last we looked at the House and Senate bills for FRS reform (Pension Reform and Implications for Palm Beach County), the House bill had not yet been introduced and the Senate bill, though a pale shadow of what the Governor wanted, at least offered some reform in the area of employee contributions.
Senate Bill SB1130 has now been passed out of Government Oversight and into the Budget commitee, and the provisions it maintained are really of no consequence to serious reform. From what we have been told, the employee union lobbyists descended on the Senators of the Government Oversight and Accountability Committee, outnumbering pro-reform forces by a large margin. The capitulation was total. Gone is any mention of accrual changes, and the employee contribution is tiered in such a way that few will pay more than pocket change. As a matter of fact, this bill has a provision that totally eliminates any employee contribution if the system returns to 100% funding. The requirement for new hires to be eligible for only the defined contribution plan remains, but only for those positions whose starting salary exceeds $75,000. Our TAB analysis of the impact to Palm Beach County indicates that this bill could actually cost the county $1.7M MORE than the existing pension scheme. Both of our Senators Bogdanoff and Benacquisto sit on this committee and voted for this extremely disappointing bill. Click HERE for the latest commitee staff analysis of SB1130.
HB1405 started out reasonably close to the Governor’s proposal, but has been weakened also. The 5% contribution has been dropped to 3%, there are no accrual class changes, and no mention is made of COLA adjustments or plan eligibility for new hires. It does still eliminate the DROP program after July of this year, but with a few committees yet to go, can this survive? The House bill does save money though – with a 3% contribution, the county could potentially see a $58M savings ($28M for county government not counting the schools.) Click HERE for the latest committee staff analysis of HB1405.
It was our understanding that the almost $4B budget hole was to be filled (in the Governor’s plan) with a contribution of $1B in savings from FRS. With an overwhelming majority in both houses, the Republicans in Tallahassee have the opportunity to accomplish real fiscal reform. This is not a very auspicious start. Hopefully, Governor Scott will not accept this faux reform and send the legislators back to the drawing board until they get it right.
The following table illustrates the differences between the Scott proposal and SB-1130 / HB1405 in their current state.
| Current FRS | Rick Scott Proposal | SB1130 | HB1405 | |
|---|---|---|---|---|
| Accrual Rates | 3% special risk 1.6% general + 3 others |
2.0% special risk 1.6% all others |
NO CHANGES to current plan | NO CHANGES to current plan |
| Participant Contributions | None | 5% across the board | Tiered 0-$40K, 0 $40-$70K, 2% $70K+, 4% |
3% across the board |
| Defined Contribution Plan | Offered, with few takers | Only option for new hires | Only option for new hires with starting salary > $75K | NO CHANGES |
| COLA | fixed 3% / year | Eliminated for accruals past July 2011 (protects current retirees and accumulated benefits) | NO CHANGES to current plan | NO CHANGES to current plan |
| DROP Program | Continue working for 5 years while pension accumulates, then lump sum | Eliminated after July, 2011 | NO CHANGES to current plan | Eliminated after July, 2011 |
The following chart illustrates the effect the Scott proposal would have on the county budget, compared to the Senate and House bills. Maybe it is time for the taxpayers to remind our legislators why they were elected.
| Group | Number of employees | Average Salary | Scott Proposal Savings | SB1130 Savings | HB1405 Savings |
|---|---|---|---|---|---|
| County Staff | 5,731 | $45.9K | $13.2M | -$0.3M | $9.1M |
| PBSO (general risk) | 1,808 | $53.0K | $4.8M | – $0.1M | $3.3M |
| Fire/Rescue (general risk) | 208 | $85.0K | $0.9M | $0.0M | $0.6M |
| Schools | 20,986 | $41.3K | $43.3M | -$1.1M | $30.1M |
| TOTAL (contr.) | 32,147 | $62.2M | -$1.5M | $43.1M | |
| Governor 2% accrual | |||||
| PBSO special risk | 2111 | $77.7K | $20.3M | -$0.1M | $8.5M |
| F/R special risk | 1303 | $88.6M | 14.3M | -$0.1 | $6.0M |
| TOTAL (accr.) | 3414 | $34.6M | -$0.2 | $14.5M | |
| TOTAL (both) | $96.8M | -$1.7 | $57.6M |
NOTE: Assumptions are: 1) contribution savings = total payroll x contribution rate, 2) special risk accrual going from 3% to 2% would drop employer contribution from 23.25% to 15.5% over time (2/3). 3. Payroll is projected from 2009 data. Employer contribution rates from bill text used if available.