Gov. Rick Scott joined business-backed groups Tuesday to urge the legislature to go even farther than their existing pension reform proposals and eliminate state and local government's traditional pension plans for all new employees.
"I don't think they go far enough; all new employees need to go to a defined contribution plan,'' Scott said, warning that the deficits in both the state and local systems threaten the long-time financial security of workers in the system today.
"The thought process needs to be that we want something that people can rely on," Scott said. "We should have done this before."
Scott wants all new employees put into a defined contribution, or 401k-style private plan, and pay 5 percent of their salaries into their retirement account. The House and Senate have rejected putting all employees into the defined contribution plan, with only the Senate requiring new employees who are either elected officials or senior management making more than $75,000 a year to be required to enroll in the defined contribution plan.
The reason: it creates a short-term deficit in the existing retirement fund, which is considered one of the strongest in the nation. If all 655,000 employees in the $126 billion Florida Retirement System were to retire today, the fund would be short $16.7 billion according to actuaries. However, most pension funds are designed to never be fully funded because they rely on investment returns to offset the contributions from employers and employees.
If the traditional defined benefit plan were to close, there would be a shrinking pool of employees paying into it creating a deficit until those employees die or leave the system.
"The state will be on the hook for any shortage,'' Scott said, adding that the gap should be filled now, paid for by either "taxpayers or individuals in the plan...We've got to move the direction of the private sector," he said.
The governor joined the The James Madison Institute, the Florida Chamber of Commerce, Associated Industries of Florida and the tea party-backed Americans for Prosperity, which have made their top priority getting employees moved into a 401k-style plan.
The groups have formed Floridians for Sustainable Pensions, whose goal is to move government employee retirement funds into privately-run accounts that employees can take with them when they leave government. Because employees would control the funds, state and local governments would be off the hook if the funds fall short of their investment returns. Private money managers would also have access to a vast new pool of money and profits.
After the press conference House Rep. Ritch Workman, R-Melbourne, arrived to respond to the governor, saying he believes that eliminating the defined benefit plan is premature until the existing system is fully funded and has a surplus. He predicted that if the House plan were adopted, the $16.7 billion funding gap would be closed within 36 months because employees would paying 3 percent of their salaries into their retirement accounts and the retirement age would be extended.
"This was a very vetted process through a system with hundreds of thousands of emails and phone calls from constituents telling us how they want pension reform done,'' Workman said. "160 members had input and I think you get a good solid plan...I think that our plan is a great step in the right direction."
Workman said he is confident the governor won't veto the pension reform plan. "He's asking us to go a little further and I think between the House and Senate you see as far as the people want it to go and as far as the House and Senate feel is necessary," he said.