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Editorial: Changing to 401(k) pension plan would be costly for Floridians and public employees

By Jac Versteeg

A key Florida House committee didn’t wait for facts and figures before moving ahead with a plan to bar new state employees from enrolling in the Florida Retirment System’s most popular pension plan. Now, the consultant’s report that was supposed to provide those facts and figures is flawed and must be reworked.

That didn’t stop Senate President Don Gaetz, R-Niceville, in an interview Tuesday with The Palm Beach Post Editorial Board, from generally supporting the plan to make teachers, many county workers and all court personnel who are hired after this year enroll in a 401(k)-style defined contribution plan instead of a defined benefit plan that pays a guaranteed pension. Sen. Gaetz said the state this year will “write a $500 million check” to “prop up” the FRS. He warned that Florida could have to raise taxes to keep the FRS solvent because it is “a pension system that doesn’t stand on its own.”

In fact, it is standard for public employers — meaning taxpayers — to contribute to pension plans. The FRS does not have a scary “unfunded actuarial liability,” a wonky term for a theoretical shortage. The FRS is one of the soundest public pension systems in the country. Because it would severely reduce new money coming into the system, the plan to bar new employees actually would increase what the state — or school districts, or counties, or the employees — would have to contribute over the next three decades to keep the system sound.

Because of errors in the study prepared for the House, we can’t yet to compare the cost of keeping the current system with the cost of switching to a new one. But it’s clear that ideology is the prime reason for the change.

Most private sector workers don’t have a “defined benefit” pension, and many are lucky to have a “defined contribution” 401(k). Legislative leaders believe that public employees should not have a benefit that private workers don’t. Do Floridians really view teachers — who are paid $10,000 below the national average — and prosecutors — who start at about $40,000 and have law school debt — with such jealousy?

Almost half of the 116,000 state employees listed on myflorida.com have annual salaries below $35,000. It would be hard for them to accumulate enough in a 401(k), even if they make the right investment decisions.

Those pushing to “reform” the FRS predict a crisis but can’t say when or if it will hit. A better idea might be to revise eligibility, contributions or payouts if necessary. Other counter-proposals blend defined contribution and defined benefit plans. But compromise assumes that the Legislature is willing to listen rather than dictate.

http://www.palmbeachpost.com/news/news/opinion/editorial-changing-to-401k-pension-plan-would-be-c/nWcFJ/

Copyright © 2013, Palm Beach Post


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