State Sen. Mike Fasano of New Port Richey is right to once again target for change how the state rewards employees for years of service when they retire – a program that has exposed taxpayers to financial risk for too long.
Fasano, a Republican, has refiled legislation that would end the state’s practice of giving guaranteed – and often lucrative – pensions to state and other government employees who are members of the Florida Retirement System.
Instead, after Jan. 1, 2011, all new employees who elect to be in the system would only have the option of participating in a “defined contribution” plan that’s similar to a 401(k), under Fasano’s recently filed bill.
Fasano tried to reform the system last session but didn’t get anywhere because he could not find a House sponsor. But this time, Rep. John Wood, R-Haines City, has agreed to take up the battle in his chamber, Fasano says.
With the state anticipating yet another budget deficit – an estimated $2 billion or more – and local governments struggling to balance budgets, this is a perfect time for lawmakers to make needed changes to the system.
Fasano has acknowledged taxpayers won’t save much money in the short-term with discontinuation of the pension program. But for the future, he figures the state will save hundreds of millions of dollars – formal estimates have yet to be compiled – because the state would no longer make such huge financial guarantees to former workers.
Florida is known for having one of the country’s best pension funds. The pensions are based on a formula that includes years of service and a percentage of salary.
But there’s a double-edged sword to it: It is fully funded, which is good for retirees relying on it. The pensions are for life, and in event of death, surviving spouses are allowed to continue receiving regular payments.
The state’s generosity leaves taxpayers responsible for any gap between the guaranteed checks and future market value of the pension fund’s investments. Fasano’s legislation would gradually reduce the risk to taxpayers.
“While the short-term benefits will be minimal,” Fasano says, “in 10, 20 or 30 years the Florida Retirement System’s overall health will be secure and able to ensure that retirees receive the pensions they were promised when they began working for an FRS employer.”
Many private companies and firms no longer provide pension programs to new hires, so what’s good for the private sector should be good for the state. That’s economic reality. Yet, Florida government retirees in the system don’t have to worry about their benefits. And they get cost-of-living increases.
Many private-sector workers in the Tampa Bay area and throughout Florida who have either lost their jobs or had their salaries reduced in the recession would love to have benefits as generous as the state offers. Instead, they have to guarantee government retirees’ pensions, which in some cases provide full salaries for life. It’s inherently unfair.
Fasano’s legislation would not be a bad deal at all for system members. Nor would it be new. The state has offered the defined contribution plan since the late 1990s – an option authored by Fasano when he was in the House. Fasano, whose business background is in investments, understands that millions of private-sector workers participate in these plans. Workers manage their own accounts, often rolling them over when leaving for new employment.
This is the type of retirement planning the state should mandate for members of the Florida Retirement System. It can be more profitable for them.
Fasano’s legislation also would have the added benefit of phasing out the state’s Deferred Retirement Option Program, which has allowed numerous public officials to “double dip” by banking hefty retirement checks while continuing to work. With all future employees in the 401(k)-type program, there eventually would be no more such bounty.
Most private industries and businesses have phased out pensions because of the risks. Taxpayers, through their elected Legislature, should do the same.