Pension Reform - the Final Bill
May 9, 2011
On Friday May 6, the conference committee put the final touches on FRS Reform and sent SB2100 to the Governor. Although it is not as far-reaching as the Governor wanted, it is significant, both in the precedent it sets (employees must now contribute to their pensions) and in the budget savings for both the state and the counties that participate in FRS.
The conference staff analysis summarizes the highlights of the bill as:
- All FRS members must now contribute 3% of their earnings to the system.
- For pension dollars accrued after July 1, 2011, the Cost of Living Allowance (COLA) of 3% is eliminated. (This is grandfathered in the bill in 2016, which leaves it up to a future legislature whether it will be restored. Sort of like the “Bush Tax Cuts”.)
- For participants who enter DROP after July 1, interest accrues at 1.3% instead of 6.5%.
Additionally, for those who enroll in FRS after July 1, 2011:
- “Average Final Compensation” (AFC) is the average of the highest earning 8 years (not 5).
- Vesting occurs after 8 years (not 5).
- Age and service requirements change to age 65 / 33 years (not 62/30) for regular class and to age 60 / 30 years (not 55/25) for special risk class.
To calculate the budget impact to the county, we must refer to the “employer contribution” section of the bill that starts on page 180 of the final conference amendment. The contributions are 3.28% of gross compensation for regular class, and 10.21% for special risk. (This compares with 9.63% and 22.11% this year).
That’s not the end of it though – the final amendment adds a section to “address the unfunded actuarial liabilities of the system” with an additional employer contribution of 0.49% and 2.75%, starting July 1 for regular and special risk, respectively. This amount then bumps up to 2.16% and 8.21% in 2012.
Taking these figures and applying them to our database of county employee compensation, finds that the county-wide savings in the first year would be $48M ($98M including the schools) and $26M in the next year. The first year savings breaks down as follows: $15.4M in county staff, $20.6M in PBSO, and $11.6M in Fire/Rescue.
The Florida Association of Counties has done a similar analysis state-wide and calculated that the savings for all counties would be $615M in the first year.