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State Retirement System Sees Big Growth

.In the three months since the legislative session ended, the Florida Retirement System has seen a substantial uptick in the number of new retirees.

Likely at least in part in response to a new law that dramatically changed the state’s retirement plan, requiring employee contributions for the first time in three decades, about 10,100 people chose to enter retirement or exited the state’s deferred retirement plan in May, June and July, an increase of more than 900 people from the same time last year.

The Florida Retirement System serves employees of state and local governments, including all public school teachers, county governments, and the state’s universities and community colleges. There are nearly 1 million participants in the program, making it one of the largest public retirement systems in the country.

Most of the FRS participants are enrolled in the pension plan, which gives employees a set amount of money each month upon retirement, with the amount depending on years in service. The retirement system also offers a 401(k)-style investment plan.

The new law requires employees to contribute 3 percent of their paychecks to their retirement, raised the retirement age for employees and reduced cost of living adjustments. Supporters of the changes, including Gov. Rick Scott, argue that public employees were receiving better benefits than private sector workers and that requiring contributions was the right thing to do to protect taxpayer dollars.

But unions that represent FRS members say pension benefits are one of the few perks of the job, with many workers going years without pay increases and earning salaries lower than private sector counterparts.

The increased number of retirees did not surprise critics of the new law.

“They are creating a lot of incentives not to work for the state,” said Doug Martin, a lobbyist for a union that represents state and local employees.

Because some of the changes under the new law go into effect on July 1, some Florida Retirement System members were incentivized to retire or exit the Deferred Retirement Option Plan (DROP) before that date.

Florida Education Association spokesman Mark Pudlow said some teachers chose retirement this year because of many changes with their profession, including the new teacher merit pay law that ties salaries to test scores.

“Some folks said it’s just not worth it,” Pudlow said. “There are a number of people who probably would have stuck around for a few more years and the constant volatility in their jobs made them decide to go ahead and leave.”

Martin, who works for the Florida chapter of the American Federation of State, County and Municipal Employees, said FRS members are concerned about changes to the popular deferred retirement plan.

Information on how many FRS members enrolled in the deferred retirement plan during the same post-legislative session time period won’t be available until early August, a Department of Management Services spokesman said.

The deferred retirement program is designed to promote early retirement. DROP participants can start drawing their pensions while still continuing to work for up to five years. The pensions sit in an interest-bearing account until the actual date of retirement, when the employee receives a lump sum payout.

But the new law changes how much interest a DROP account earns, from 6.5 percent 1.3 percent.

“For the folks that we represent, the average pay out would have been something like $72,000,” Martin said. “That is going to go down to less than $60,000. That is obviously a very significant decrease.”

Martin also said the more experienced employees are incentivized to leave.

“If you have worked 30 years for the state, you would essentially get no additional retirement benefit for staying and you would be working for less,” Martin said.

Martin said there has also been uneven implementation of the new law, with some FRS entities incorrectly taking money out of employee paychecks in June, a month before the new law went into effect.

The Florida Education Association and several other union groups have filed a lawsuit challenging the required new contributions as unconstitutional. A court date is set this fall to consider the merits of the challenge, but both sides say they expect the final arbiter to be the Florida Supreme Court.

The changes made this year by lawmakers were the most significant to the pension system since the 401(k)-style investment plan was added more than 10 years ago, and many union groups representing teachers, police officers and firefighters, and other state and county employees vehemently opposed the changes.

While Scott has hinted he is interested in more pension changes, calling this year’s law a “first step,” Martin said he doubts the Legislature is interested in making additional changes next legislative session.

“What we’ve been hearing is the Legislature is going to be primarily concerned with redistricting,” Martin said. “With the improved financial position of the state and of the retirement system and the amount of time and grief this brought to the legislators, going back and ripping that scab off that wound isn’t their first priority.”

By Lilly Rockwell
The News Service of Florida