So Rick Scott says he's worried about Florida's pension fund. Folks: at first glance, this looks to be a distraction and not about the pension fund's underlying stability. The Florida Retirement System (FRS) is the largest in the country that has neither financial experts nor stakeholders sitting on the governance board, and the St. Pete Times this week that, once again, the state's money managers are playing footsie with outside investment fund managers. (See the Times's directory page for their previous investigative reporting on the SBA.) Instead of reforming the corrupt governance structure, though, the incoming governor (who will sit on the Board of Administration) says something else is wrong.
In contract with other states, Florida's retirement system is reasonably well funded. (It's large and healthy enough that the existing conflicts of interest are merely skimming off the top.) So what is the real goal here? It's to offload the state's pension obligations onto the poorest-paid state employees. Florida has the fewest state employees per capita in the country, but most state employees are underpaid, and the FRS payback for secretaries, janitors, and teachers is lower than in most other states (if you calculate it as proportion of salary per year of service). (I am excluding public-safety officers, whose pension structure is different, and the Executive Service pension program for agency heads.)
Take for example the incoming governor's goal of making all public employees in FRS contribute to the pension system. Whether or not you think that is a good thing in terms of general pension structures and equity, the only way that mandatory employee contributions will make the pension fund healthier in a financial sense is if the mandatory contributions are on top of a continued employer contribution. But that's not what you'll see come out of the new governor's office. What you are likely to see is something that substitutes employee contributions for employer contributions. The sum contributions going into the pension fund won't change, and thus the financial health of FRS won't be affected. In other words, this has nothing to do with the pension fund's stability and is all about the budget structure for the state of Florida.
I'm going to go out on a limb and predicting what you'll see coming out of the governor's office in the budget proposal:
- A proposal that all new employees coming into FRS pay half of the annual contributions, with two important exceptions.
- Public-safety employees (police and fire) and Executive Service pension-fund participants will be exempt from this requirement.
- The governor's staff will propose that this applies to all employees in FRS if they think it won't be illegal on the face of it.
- The total contributions to FRS will not be changing (and thus the stability of the fund).
- The governor's budget proposal will also include a decrease in corporate taxes.
- The governor's budget proposal will also eliminate health-insurance subsidies for existing retirees.
So here's who I am predicting will be hurt by this proposal:
- All new employees who are not in the (highly-paid) Executive Service pension fund or in public-safety categories, whose salaries will be reduced.
- Possibly all employees in FRS who aren't in Executive Service and aren't public-safety employees.
- Existing retirees on FRS who use the health-insurance subsidy.
Where will the money go?
- Part of the money that would otherwise go to teachers, secretaries, and janitors will go to sustain high public contributions to the Executive Service categories (i.e., the bosses of teachers, secretaries, and janitors), as well as public-safety employees.
- Part of the money that would otherwise go to teachers, seretaries, and janitors will go to corporate tax cuts.
What would real pension reform look like in the state of Florida?
- A restructuring of the State Board of Administration to include financial experts whose interests are not connected to the funds overseen by the SBA, and to include stakeholder groups such as current employees, retirees, and public agencies (many of which have cash-like investments overseen by the SBA).
- Any discussion about other matters needs to be matched by an acknowledgment by all policymakers that FRS is not broke and is not likely to be broke in the near or medium-term future, and any proposals should not be floated with the pretense of a pension-fund emergency.
Disclosure: As an activist in the United Faculty of Florida, I represent hundreds of faculty who selected the Florida Retirement System as an irrevocable choice when first hired by one of the state's universities or colleges. I picked the defined-contribution program (the boringly-named Optional Retirement Program), so my personal financial interest is not at stake in nearly the same way, but I represent hundreds of colleagues who chose differently.