Following last year’s shortened legislative sessions due to the coronavirus pandemic, state legislators across the country returned to work full legislative sessions in 2021. Today we’re going to share the most significant actions they made on pensions in part one of this year’s legislative recap.
Despite what opponents such as the Reason Foundation say, the Florida Retirement System is in good shape. 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%. However, the Florida Senate decided to pursue changes through Senate Bill (SB) 84 to 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. For pension legislation, the state requires an actuarial analysis to determine the potential impact on taxpayers. Unfortunately, the analysis requested by lawmakers purposefully left out any request to evaluate the cost the state would incur by closing the system. 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.” Ultimately, since the bill failed to make it to a full vote of the Florida House of Representatives, it died when the session ended in late April.
In Kentucky, HB 258 was a significant piece of legislation that passed this year. Sponsored by Representatives Massey, Miller, Moser, and Tipton, HB 258 will put teachers and other employees in TRS who are hired after January 1, 2022, into a new tier. This hybrid plan will be partially defined benefit plan (like the existing pension plan) and part defined contribution plan, akin to a 401(k). What will that mean for those workers? They’ll have to contribute more towards their retirement benefits and will have to work at least 30 years, a change from the current minimum of 27 years. The state’s obligation will be capped at 10% of the workers’ salary. HB 258 passed the Kentucky House on a 68-28 vote on February 4th and passed the Senate with a 25-11 vote on March 15th. While HB 258 was vetoed by Governor Andy Beshear on March 24th, the House and Senate voted to override the veto on March 29th.
The Montana legislature considered several bills that would impact the pension systems. SB 387 and SB 289 would create a new tier in both the Teacher Retirement System and Public Employees’ Retirement System, placing new employees into a cash-balance system. Both bills were tabled in the Senate State Administration and died when the legislative session ended in late April. Both chambers passed, and the Governor signed HJ 8, which calls for a study of the pension systems during the interim time between legislative sessions.
At the beginning of this year, State Treasurer Beth Pearce proposed the following changes to the state pension system – increasing employee contributions and the age to qualify for retirement and eliminating cost-of-living adjustments. All of these changes would fall on the employee to address Vermont’s unfunded liability. In March, House lawmakers introduced their legislative proposal to the systems that reflected Treasurer Pearce’s recommendations, a bill that was drafted behind closed doors. Public employees showed up to the hearing to let lawmakers know how harmful this legislation would be to their retirement security. On April 2, House Speaker Jill Krowinski tabled the legislation. Lawmakers agreed and passed a bill that would create a task force that would include public employees to study the state’s unfunded liabilities and expand the membership of the Vermont Pension Investment Committee.
Lawmakers passed two pieces of legislation impacting the Wyoming Retirement System (WRS), which represents most of the public employees in the state. The first, SF 56, was a bill modifying the Wyoming Gaming Commission, which included a provision that added Gaming Commission Offers to WRS’ law enforcement plan. The second, HB 107, gives the State Auditor the ability to consider alternatives to the current way they are paying out pension benefits.
Be on the lookout for part two of our legislative recap in the coming weeks!