By John Kennedy
The Florida House’s push to overhaul the $136 billion pension plan used by more than 600,000 teachers, police, firefighters and other government workers is headed toward tense, end-of-session deal-making with the Senate.
But roots of the controversial reform effort are deep and stretch far from Florida’s Capitol.
Critics trace the campaign back two years — to New Orleans, where dozens of Florida lawmakers gathered for a conference hosted by a controversial advocacy group that helps corporations and conservative interest groups write bills for legislatures across the country.
Jonathan Williams, a policy director for the American Legislative Exchange Council, told The Palm Beach Post that the organization’s three days of meetings in August 2011 helped affirm the need among many legislators to take a hard look at public employee benefits.
“The momentum for pension reform is stronger today because many governments are still seeing the effects of the recession on investment returns,” Williams said. “It’s going to be a long time before things improve. Florida legislators are aware of this.”
Following contentious debate, pitting union-allied Democrats against ruling Republicans, the House last week approved legislation (CS/HB 7011) that would close the Florida Retirement System’s traditional pension to new employees.
Workers hired after Jan. 1 could join only 401(k)-styled investment plans, which opponents say would leave the retirement funds of lower-income public workers subject to wild swings of the stock market.
It also would force employees to play a central role in managing their own investment accounts. It’s a responsibility millions of private-sector workers deal with as more companies shed traditional pensions, which promise specific payments based on salary and years of service.
ALEC has advocated changes in environmental and labor laws, voter ID measures and pro-gun laws such as the “stand your ground” legislation, which came into focus following Trayvon Martin’s shooting death last year in Central Florida.
In Florida, where free-market conservative Republicans control every phase of state government, ALEC’s model bills have proved a touchstone for many policies.
The model legislation can also prove a two-way street, with ALEC’s stand-your-ground proposal being shopped nationally after first being approved by Florida lawmakers.
In recent years, the organization has been spearheading efforts nationwide to end governments’ traditional pensions, which often are expensive.
Two years ago in New Orleans, where lobbyists for a wide range of industries sponsored a “Florida Night” dinner at the landmark French Quarter restaurant, Antoine’s, ALEC was able to woo plenty of Florida leaders.
Almost 50 Florida lawmakers – all Republicans – registered for ALEC’s 2011 conference, including current House Speaker Will Weatherford and Rep. Jason Brodeur of Sanford, sponsor of the House’s proposed change and a member of an ALEC task force that examined public pensions.
“There’s a day of reckoning coming for all states with these defined benefit pensions,” Bob Williams, founder of the Freedom Foundation, told The Post last week. “The crisis is real. Florida legislators get it.”
Williams, whose organization promotes conservative fiscal policy, made ALEC’s presentation on pensions and state budgets at the New Orleans conference.
But as the legislative session nears its midpoint in Florida, the Republican-led Senate isn’t looking to go as far as its House counterparts.
Instead, Sen. Wilton Simpson, R-Trilby, is advancing a measure (CS/SB 1392) aimed chiefly at encouraging workers to join the investment plan. But the Senate would keep the traditional, defined benefit pension open to them.
“We don’t want to make a mistake. It’s a lot of money, and people’s livelihoods are at stake,” Simpson said.
House leaders defend the more drastic move, saying the Florida Retirement System is only 87 percent funded. If the more than 1 million workers and retirees in the fund sought to cash out all at once, it wouldn’t have enough money.
That so-called unfunded actuarial liability is $19.2 billion and lawmakers next year plan to put $552 million into the fund – to narrow this gap. House leaders say such big payments will be needed for years.
But much of the hole was created by lawmakers failing to make needed payments to the fund over the past three years.
It was deepened when pension contributions from governments participating in the system also were reduced several years ago – when it had more money than needed to pay those enrolled.
Most analysts say 80 percent funding is considered adequate. They also point to signs that the pension fund is slowly rebounding – as Wall Street improves.
Last week, Gov. Rick Scott and the Florida Cabinet were told that FRS investments climbed a formidable 14 percent over the past year.
“They’re trying to make drastic, long-term changes to solve a short-term problem,” Mark Davy, a Sarasota investment advisor who tracks the FRS, said of the House.
Weatherford disagrees. Analysts have said the state will reduce its costs as the number of people in the traditional pension declines.
“We can save billions of dollars” with the change, Weatherford said.
For his part, House bill sponsor Brodeur downplayed ALEC’s influence.
“I really truly believe this probably has a genesis of, we watch other states, we watch how Europe’s going broke and we just want to put ourselves in the best position,” Brodeur said. “Those ideas come from everywhere.”
Indeed, six months before the 2011 New Orleans conference, first-year governor Scott proposed a similar plan to close the traditional pension to new employees.
But it was ignored by Scott’s fellow Republicans in the Legislature.
Lawmakers did move forward with a variation on another Scott proposal – making those enrolled contribute 3 percent of their pay to belong to the pension plan.
With public employees helping to underwrite their pensions for the first time in 40 years, state and local governments saved more than $1 billion annually in payments – cash that elected officials were able to use to plug holes elsewhere in still-strapped budgets.
Unions challenged the move in court, but the Florida Supreme Court ruled 4-3 in January that such payments were constitutional.
By then, Weatherford had already declared war on pension costs.
He called them a “ticking time bomb” in every state. The FRS, Weatherford said, is “old and archaic.”
But while House Republicans are championing the change, Simpson said last week it “would be a cold day” before the Senate embraces the House proposal.
And Scott, who has been moving toward the political middle with next year’s election nearing, seems reluctant to take on unions again. He has refused to endorse the House plan.
Asked if he had a change of heart on closing the pension, Scott indicated he was satisfied with having workers contribute.
Revamping the plan is no longer a priority, Scott said.
“What I care about is that everybody in the pension plan knows they’re going to get paid out” when they retire, he said.
The Florida Retirement System
- 623,000 government workers and 335,000 retirees enrolled.
- Almost 50 percent work for school districts; 23 percent for county governments; 20 percent for state government; remainder for cities, special districts, community colleges and universities.
- Enrolled employees can choose between traditional pension or, for the past decade, optional investment plan: More than 500,000 enrolled in pension; 100,000 in the 401(k)-style fund.
What the House wants
Beginning Jan. 1, new hires would be prohibited from joining traditional pension. Instead, would be eligible only to join a defined contribution investment plan like a 401(k).
What the Senate wants
- Would require newly hired senior managers to join investment plan.
- Would give other public employees an incentive by cutting their payroll contributions to 2 percent if they join the investment plan. If they choose the traditional plan, they’d pay 3 percent.
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