The Miami Herald and Tampa Bay Times failed to connect the American Legislative Exchange Council model legislation to the current efforts to change the pension plans of Floridians.
Ashley Lopez of the Florida Center for Investigative Reporting highlighted a piece in The Palm Beach Post that had a lengthy description of ALEC's role in the process to overhaul the state's pension system:
Critics trace the campaign back two years -- to New Orleans, where dozens of Florida lawmakers gathered for a conference hosted by a controversial advocacy group that helps corporations and conservative interest groups write bills for legislatures across the country.
Jonathan Williams, a policy director for the American Legislative Exchange Council, told The Palm Beach Post that the organization's three days of meetings in August 2011 helped affirm the need among many legislators to take a hard look at public employee benefits.
“The momentum for pension reform is stronger today because many governments are still seeing the effects of the recession on investment returns,” Williams said. “It's going to be a long time before things improve. Florida legislators are aware of this.”
Currently, the Florida pension fund is 87 percent funded. Employees already contribute 3 percent of their paychecks to the pension fund and have the option to enroll in a 401(k)-style defined-contribution plan. However, under the Florida House version of the bill to change the plan, new employees would be forced to enroll in a 401(k)-style defined-contribution pension plan instead of the current defined-benefit plan that has more than 500,000 state workers enrolled. However, in the Senate version, new employees would be automatically enrolled in the new defined-contribution 401(k)-style plan unless they request to be in the current defined-benefit plan that most pensioners use.
Forcing employees to change from the defined-benefit plan to the defined-contribution plan could have negative effects. According to a study by the independent actuarial firm Milliman, closing the defined-benefit plan (also known as a “soft freeze”) to new entrants -- as the House bill seeks to do -- would increase the contribution costs of those employees already enrolled in the system. As the actively enrolled population shrinks and the retired population grows, the benefit payments will exceed the contributions, either leaving a greater unfunded liability or requiring the state to change the way it invests in the future. As the Palm Beach Post reported:
Closing the plan to new employees will rob the traditional pension fund of its stream of new dollars, Milliman concluded. It will also create a system where only older workers looking forward to gaining larger pensions remain in the fund.
The current situation in Florida isn't as dire as the bill's sponsor, House Speaker Will Weatherford, would like people to believe. Analysts have found that an 80 percent benchmark for a fund is considered a good threshold for a public pension fund, and in Florida's case, the shortfall would only be a problem if every pensioner wanted full payment all at once, which, as the Palm Beach Post reported, “analysts say would never happen.”
The shortfall in pension funds has a lot to do with market volatility as well. Due to the financial collapse, Florida's pension fund decreased but has rebounded since 2009. For example, Pew Charitable Trusts found that in 2006 the Florida pension program was funded 106 percent; the 50-state mean at the time was 82 percent.
Instead of changing the current defined-benefit plan, the Center for Budget and Policy Priorities suggests making “moderate, common-sense steps,” which include increasing plan contributions, increasing employee contributions, and changing eligibility rules and benefit levels.