And it could be closed to new employees by next year.
A bill that would prevent new employees from enrolling in the plan passed the House Appropriations Committee on Friday, providing a boost to one of the top priorities for Speaker Will Weatherford but defying the warnings of union groups and and the former director of the Florida Division of Retirement, Sarabeth Snuggs.
HB 7011 requires employees hired after Jan. 1, 2014 to enroll in 401(k)-style plans that don’t provide a guaranteed benefit. The 623,011 current workers enrolled in the program, and the 332,682 retired members who receive benefits from it now, would be allowed to remain in the pension,.
Weatherford says the bill is necessary to salvage state finances, which he says are subject to the risk of a future bailout that other states like Illinois are facing.
It passed along strict party lines, Republicans for and Democrats against.
“If we address our pension structure now, and make minimal changes, we can avoid having to deal with potential massive shortfalls in the later,” said the bill’s main sponsor, Rep. Jason Brodeur, R-Sanford.
But Democrats said there was no reason for an overhaul. The fourth largest pension plan in the nation, it’s funded at about 86.9 percent, which is above the national average of 75 percent.
“Clearly this is a situation where we have a solution looking for a problem,” said House Minority Leader Rep. Perry Thurston, D-Fort Lauderdale. “When you have a system that’s top 10 in the nation, top five in being funded, we’re tinkering with a problem that does not exist.”
Aside from ideological differences between Democrats and Republicans, part of the disagreement about a need for an overhaul of the pension centers around the confusion swirling about a study that was supposed to provide objective numbers.
The Florida Division of Management Services hired Milliman, a Vienna, VA. actuarial firm to estimate the projected costs of the changes. Upon its initial release last month, the study didn’t include important assumptions, like the fact that employees contribute 3 percent of their salaries into the pension. It also didn’t compare the proposed plan to keeping the pension plan as is.
So Milliman had to redo the study and the second version came out last week. It was supposed to be an “apples-and-apples” study that compared the costs of the pension plan with those of a 401(k)-system.
The actuary who did the studies, Robert Dezube, told the committee on Friday he was sorry for the confusion.
“I apologize for that (first) study,” Dezube said. “It was not up to our standards. When I found the mistake it was one of the hardest phone calls I ever had to make.
“If you play football and you’re a running back, you are occasionally going to fumble the ball,” he said. “What’s important is what you do after the fumble. Fumble it too many times and you’re not going to be in the game.”
Weatherford’s office touted the revised Milliman study, saying it showed that the state could enjoy significant savings -- climbing as high nearly $10 billion by 2043.
Dezube, however, said he wouldn’t depict the study as being positive or negative. He said the projections were far from precise and were based more on trends. If they were accurate projections, he’d be doing something else, he joked.
But Snuggs, who served as director of the state’s division of retirement from 2003 to 2012, said she found problems with the existing Milliman study.
“This was not an apples-to-apples comparison,” Snuggs said. “The investment plan has no disability benefits. It has no death-in-the-line of duty benefits. The benefits the proposed investment plan provides are not comparable for a career employee...The investment plan does not provide an equal benefit for a career employee in the pension plan.”
Snuggs said there was no fiscal reason for Weatherford’s proposed overhaul.
“It’s strictly a political decision,” Snuggs said.
Democrats pounced on Milliman’s acknowledged mistakes to raise questions about the latest study.
“I’m not willing to make a decision based on a report that has been admittedly filled with errors, and that had to be done two to three times over,” Thurston said. “There’s a lot bigger consequences to fumbling. The sad part is we’re not talking about a game. We’re talking about
our residents who will be at their most critical stage of their lives when they feel the impact of the decision that we’re making here today. With the information we have, I cannot in good conscience vote for this bill.”
Questions about the study left the bill’s supporters back at square one. Rather than point to concrete savings, they relied on pointing to other states that have had issues with pensions.
“It’s a good thing that our pension plan is considered technically healthy now, but in my mind, that’s only technically, we’re still underfunded,” said Rep. Stephen Precourt, R-Orlando. “Those other states who are now struggling to keep their pension in place, they thought they were healthy at one point, too. They thought, just like we did, ok, we’re close enough, let’s trust it and have a little faith, but something happened in those states. Now they’re making painful cuts, they’re raising taxes, they’re throwing good money after bad.”