Pension Bills Ready for Conference
April 9, 2011
Much has happened to the two pension reform bills winding their way through the Legislature this week. Both Senate Bill SB2100 (replacing SB1130) and House Bill HB1405 have survived a vote (mostly along party lines) in their respective chambers. As there are differences between the bills, a conference committee will attempt to resolve them, probably starting next week. Although they do not go as far as the Governor’s original proposal (no change to special risk accrual for example), the changes are significant and it is expected that Governor Scott will support the result.
HB1405 requires an across the board 3% contribution from plan participants, increases the retirement age (for those entering the system after July) from 62 (or 30 years service) to 65 (or 33 years service), and terminates the DROP program starting in July. Special risk classes would see the retirement age go from 55 or 25 years of service, to 60 or 30 years. It does not change the 3% COLA. Employer contribution rates are set for 2012 at 6.16% for regular class and 16.95% for special risk, with a “surcharge” of .25% and 1.17% respecively to address the unfunded actuarial liability. Click HERE for the details of HB1405.
SB2100 requires an employee contribution that is tiered, starting with 2% for income under $25,000, 4% for income between $25,000 and $50,000, and 6% above that. Cost of living adjustments (COLA) are eliminated on a pro-rata basis, eliminating any COLA for accruals after July of this year. Like the house bill it ends the DROP program, but not until 2016. Retirement age is increased as in the house bill for all except the special risk class which is unchanged. The Senate bill also addresses the calculation of “Average Final Compensation” (AFC), excluding all but 300 hours of overtime from consideration, and allows only 500 hours of accumulated leave time that was earned prior to July of this year. Employer contribution rates are set for 2012 at 5.09% for regular class and 13.8% for special risk, with no “surcharge” for unfunded liabilities, although there is a section in the bill that allows for this to be added. Click HERE for details of SB2100.
From a Palm Beach County Perspective, both of these bills will result in significant savings. By using the stated employer contribution rates (compared to the current 9.63% and 22.11% special risk), we calculate savings between $23M and $40M in the county budget, and $28M to $39M to the school system.
The county is facing a significant budget hole this year with rising costs and decreasing revenue from non-ad valorem sources (including state and federal grants) and a projected 5% decline in property values. These FRS savings could go a long way to offsetting the need for a millage increase in the 2012 budget year.
For some analysis and political perspective on these bills see House Backs State Employees’ Pension Reform on Party Lines Vote and Florida Senate moderates public employee pension bill
The following table illustrates the differences between the Original Scott proposal and SB2100 / HB1405 in their current state.
| Current FRS | Rick Scott Proposal | SB2100 | 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-$25K, 2% $25-$50K, 4% $50K+, 6% |
3% across the board |
| Defined Contribution Plan | Offered, with few takers | Only option for new hires | Only option for new hires after July except special risk class | NO CHANGES |
| COLA | fixed 3% / year | Eliminated for accruals past July 2011 (protects current retirees and accumulated benefits) | Eliminated for accruals past July 2011 (protects current retirees and accumulated benefits) | NO CHANGES to current plan |
| DROP Program | Continue working for 5 years while pension accumulates, then lump sum | Eliminated after July, 2011 | Eliminated after July, 2016 | Eliminated after July, 2011 |
| Retirement Age | age 62 / 30 years age 55 / 25 years (special risk) |
age 65 / 35 years age 55 / 25 years (special risk) |
age 65 / 35 years age 60 / 30 years (special risk) |
|
| Copyright 2011, Palm Beach County Taxpayer Action Board | ||||
The following chart illustrates the effect the Scott proposal would have on the county budget, compareed 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 | SB2100 Savings | HB1405 Savings |
|---|---|---|---|---|---|
| County Staff | 5,731 | $45.9K | $13.2M | $11.9M | $8.5M |
| PBSO (general risk) | 1,808 | $53.0K | $4.8M | $4.4M | $3.1M |
| Fire/Rescue (general risk) | 208 | $85.0K | $0.9M | $0.8M | $0.6M |
| Schools | 20,986 | $41.3K | $43.3M | $39.3M | $27.9M |
| TOTAL (contr.) | 28,733 | $62.2M | $56.4M | $40.1M | |
| Governor 2% accrual | |||||
| PBSO special risk | 2111 | $77.7K | $20.3M | $13.6M | $6.5M |
| F/R special risk | 1303 | $88.6M | 14.3M | $9.6 | $4.6M |
| TOTAL (accr.) | 3414 | $34.6M | $23.2 | $11.1M | |
| TOTAL (both) | 32,147 | $96.8M | $79.6 | $51.2M | |
| Schools Only | 20,986 | $43.3M | $39.3M | $27.9M | |
| County Only | 11,161 | $53.5M | $40.3M | $23.3M | |
| Copyright 2011, Palm Beach County Taxpayer Action Board | |||||
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.