March 23, 2010. “FEA is opposed to any changes to the Florida Retirement System,” HB 1319 not yet scheduled for consideration in House.
From Kevin W. Watson, Florida Education Association
The number of calls and emails on the various retirement bills are becoming overwhelming. Our ability to respond to all these questions is limited. Accordingly, we hope the following information is helpful.
FEA Statement of Position on All Retirement Bills:
FEA is OPPOSED to any changes to the Florida Retirement System. We are opposed to any changes or the elimination of the Deferred Retirement Option Program (DROP). We are opposed to the attempt to reduce or eliminate the Health Insurance Subsidy (HIS). We are opposed to out-of-pocket cost – an employee’s contribution – for membership in the defined benefit plan. And, we are opposed to retreating from a true Cost of Living Adjustment (COLA)
While the system experienced a short term loss in the recent market run-down, we know that the system is invested for the long term and is a financially sound, expertly run retirement system. The Legislature is focusing on the Florida Retirement System (FRS) and all employee benefits to address the state’s budget shortfall. These bills have been filed to slow or eliminate the long-term costs of employee benefit programs to the state.
HB 1319 by Rep. Grady, R-76, Naples
This bill would require that public employees hired on or after July 1, 2011 or enters the DROP program on or after July 1, 2011, to contribute one percent of their gross income to participate in a primary public-sponsored retirement plan such as FRS. The calculation of average final compensation would be revised to the total number of years an individual has worked instead of the current standard which is the average of the five highest years of employment. HB 1319 would also reduce the accrual rates for the calculation of retirement benefits. Further, the bill would remove additional payments such as overtime payments and accumulated annual leave as compensation in terms of calculating FRS benefits. Public employees enrolled in the Regular Class of FRS would achieve regular retirement after 33 years instead of the current 30 years (effective 7/01/2011) and for public employees enrolled in the Regular Class of FRS, the retirement age would rise to 65 years from the current 62 years.
IMPORTANT
HB 1319 has not yet been scheduled for consideration in the House.
Senator Alexander has a bill , SB 2022, that would likely re-establish an employee contribution – which has not existed since July 1, 1974. Starting July 1, 2010, the employee contribution rate will be 0.25 % of your annual compensation. There after those rates would be set by law in the annual rate bill. This is regardless of FRS class. It does establish methods of refund of employee contributions if you leave system before being vested. On Agenda of Policy & Steering Committee on Ways and Means, 03/26/10, 1:00 pm, 412-K.
Health Insurance Subsidy (HIS): Current and future retiring members could see a change to the HIS if the House has its way. Currently, all retirees under the FRS receive a $5 per month subsidy for every year they worked. The subsidy is capped to 30 years, which equals up to $150 per month subsidy toward their monthly insurance coverage.
The average cost of the state group health insurance plan for a non-Medicare eligible retiree is $1,018/month. The average state retirement benefit is only $14,000 so many retirees would have the entire pensions wiped out by health cost. The bill would take up to $1800 annually from teachers, police, firefighters and state workers. House Bill CEED4 would eliminate that subsidy by December 31, 2010.
If employees are not already receiving retirement benefits they will not be eligible starting July 1, 2010 – regardless of when eligibility was established, all payments will cease December 31, 2010.
Employees terminating DROP on or after June 1, 2010, will not receive any HIS payments.
June 30, 2011 – any assets remaining in the HIS trust fund shall be transferred to the FRS trust fund and applied to unfunded actuarial liability in the FRS trust fund.
Again the budget is being blamed as the reason for the cut. House members say with huge budget shortfall is the reason for the proposal. The Senate has not made a similar proposal. This bill is up today, Tuesday, March 23rd, before the House Appropriations Committee.
Deferred Retirement Option Program (DROP): We have not seen a bill or a proposal yet but one is expected.
A heavily cited report from the Office of Program Policy Analysis and Government Accountability (OPPAGA) concludes that DROP is a big cost to the state.
The report estimates that in fiscal year 2008-09, the FRS paid an additional $71.4 million to fund DROP. It goes on to state the higher cost occurred because DROP participants retire earlier than they normally would have if the program was not available. This voluntary decision increases the length of time that they draw pension benefits and reduces the number of years in which employers can fund their retirement benefits.
A potential bill might look at standardizing DROP participation rules which could eliminate the extra 36 months extension in DROP for classroom teachers. Other potential suggestions include reducing or changing the 6.5-percent interest guarantee to a “benchmark,” like the consumer price index or one-year Treasury bill yield or the prime rate charged by major banks. Or the Legislature could simply end the entire program by closing DROP to new enrollment at a date certain.
Your help is needed by becoming familiar with these issues and by calling or writing your legislators to let them that they must defend and protect the Florida Retirement System.
Kevin W. Watson
Florida Education Association
213 S. Adams Street
Tallahassee, FL 32301
850.224.2078 Office
850.228.4041 Cell
850.224.9294 Fax