President Office — Press Release
FOR IMMEDIATE RELEASE
April 8, 2021
Senate Passes Legislation to Modernize, Safeguard the Florida Retirement System
No changes for current employees, Preserves pension option for new hires in Special Risk Class
The Florida Senate today passed Senate Bill 84, Retirement, by Senator Ray Rodrigues (R-Estero). The legislation modernizes the Florida Retirement System (FRS) by closing the pension plan (defined benefit) to new enrollees, except for members of the Special Risk Class, and requiring participation in the investment plan (defined contribution), effective July 1, 2022. The bill does not impact the ability of any current FRS employee to select participation in the pension plan or the investment plan. Changes included in the bill only pertain to non-Special Risk Class FRS employees initially enrolled in the system on or after July 1, 2022.
“I started looking at this issue when I was first elected in 2012. Back then the unfunded liability of our pension plan had grown from $15.4 billion in 08-09 to $21.6 billion in 12-13. The UAL of the pension plan is now up to $36 billion, having increased $5.7 billion in the last year alone. We have seen examples in other states of how quickly conditions can change and a government can experience financial crisis under the weight of its future retirement obligations. Waiting until conditions worsen in Florida to fix these problems is like closing the barn door after the horses are out,” said Senate President Wilton Simpson (R-Trilby).
“It is our duty to ensure Florida’s employees have retirement plans they can count on, and that requires us to ensure we maintain long-term solvency. Also, as policymakers we must recognize that the rising costs of pension obligations crowd out funding for other priority issues such as education, transportation, security, and assistance to the most vulnerable among us,” said Senator Rodrigues. “Traditional pension plans place investment risk for changes in economic conditions that impact the retirement plan’s funded status squarely on the taxpayers, and provide little benefit to employees who do not spend their entire career in government. Our goal is to provide a solution that is affordable for Florida taxpayers, reliable for government employees, and attractive to the newer workforce.”
Each year, the Department of Management Services (DMS) contracts with the state actuary to complete an Actuarial Valuation of the Florida Retirement System Pension Plan. The Valuation as of July 1, 2020, shows the pension plan with $36 billion unfunded actuarial liabilities (UAL), which has increased $5.7 billion in the last year alone, meaning the pension plan is only 82 percent funded on an actuarial basis.
Employers participating in the FRS not only pay the costs for benefits earned during a particular year, known as “normal cost,” but also the amortized costs for future benefits the system is unable to financially cover with just the “normal cost” contributions. For example, for a Regular Class member, the employer will pay an amount equal to 5.34 percent of the employee’s compensation for benefits earned next year. In addition, the employer will pay another 5.34 percent to pay off the unfunded actuarial liabilities. For a Special Risk Class member, the “normal cost” rate is 15.57 percent with an additional 10.45 percent to pay off the unfunded actuarial liabilities.
In addition to the UAL, the “normal costs” continue to increase as well due to member demographics and behaviors, such as members working and living longer than previously assumed. The annual recurring contributions required for state funded employees to cover the increased costs of the current FRS has grown over $1.2 billion over the levels for State Fiscal Year 2012-13.
“While there is a plan to pay off the current liabilities over the next 30 years, that plan comes at the expense of not being able to use taxpayer dollars to better fund other important priorities,” continued President Simpson. “SB 84 does not solve the current problem of a $36 billion UAL. Those costs are now a legal obligation for the Florida Retirement System. What SB 84 does do is work to ensure the FRS, and by extension the taxpayers, avoid liabilities to this scale in the future by moving new hires to a more financially responsible investment plan, more consistent with private sector retirement plans.”
The Florida Retirement System (FRS) was established in 1970 when the Legislature consolidated the Teachers’ Retirement System, the State and County Officers and Employees’ Retirement System, and the Highway Patrol Pension Fund. In 1972, the Judicial Retirement System was consolidated into the FRS, and in 2007, the Institute of Food and Agricultural Sciences Supplemental Retirement Program was consolidated under the Regular Class of the FRS as a closed group. The FRS is a contributory system, with active members contributing three percent of their salaries.
As of June 30, 2020, the FRS had 644,348 active members, 432,258 retired members, 15,512 disabled retirees, and 33,593 active participants of the Deferred Retirement Option Program (DROP). As of June 30, 2020, the FRS consisted of 980 total employers; it is the primary retirement plan for employees of state and county government agencies, district school boards, Florida College institutions, and state universities, and also includes the 177 cities and 149 special districts that have elected to join the system.