Today’s blog was written by NPPC’s Executive Director, Bridget Early.
Today, the Florida Senate begins consideration on Senate Bill (SB) 84. This bill would close the Florida Retirement System (FRS) Pension Plan to all future employees, except Special Risk Class members, starting in July 2022. All other new employees would be placed in FRS’ Investment Plan, which is a defined-contribution plan that does not offer a lifetime guaranteed income for those who dedicated their careers in service to Florida.
Despite what opponents such as the Reason Foundation say, FRS does not require repair. In FY 2019, FRS’ funding level was at 84.1%, well above the national average of 72.2% for the same fiscal year. Florida also falls far below the national average regarding state and local government spending on normal pension costs, spending only 2.86% versus the national average of 5.2%.
Instead of keeping FRS healthy, SB 84 would prove disastrous for the state in many ways, with Florida taxpayers taking the brunt of these costs. The current bill analysis does not outline the costs the state would incur. However, as noted by Dan Doonan, Executive Director of the National Institute on Retirement Security (NIRS) in Forbes, “Because pensions largely are funded by regular employee contributions and investment returns, cutting off a key source of revenue likely will drive up taxpayer costs substantially and trigger an investment strategy that generates lower returns.”
This isn’t a theory. Just look at the states of Alaska, Michigan, and West Virginia. Each state closed its pension plan to new employees and each state watched its unfunded liability skyrocket.
Eliminating pensions for a vast majority of the state’s future public workforce will negatively impact local communities. Currently, pension spending in Florida supports 123,246 jobs that paid $5.9 billion in wages and generates $19.5 billion in economic output. That money is from retirees in Florida spending dollars in their local economies, at grocery stores, gas stations, and restaurants. Florida state and local governments also see $6.8 billion in tax revenue from pension assets’ investments.
Florida’s education system will also face difficulty in attracting and retaining teachers. Research from NIRS shows that at least 70% of teachers cite the offered pension benefit as a major reason for going into public service. Pensions also retain teachers, and in Florida, pensions help retain 1,784 teachers each year. This is vital as there is a growing teacher shortage throughout the country.
SB 84 is detrimental for Florida’s public employees, local communities, and taxpayers. The bill appears to “solve” a problem that doesn’t actually exist with a proposed solution that only weakens retirement for future employees.
