And they’re off …. HB 525 introduced to cut FRS benefits

And they’re off…

The Florida House of Representatives session does not begin until January, but already Representative Ritch Workman has introduced a bill that will cut benefits to Florida Retirement System members.  While it is too early to give it much attention, it is obviously a harbinger of things to come.  Workman, if you remember introduced a bill last year that was intended to radically cut benefits, has introduced HB 525 months before the session even begins.

Some of the changes include:

The proposal would change the default plan in the Florida Retirement System from the Pension Plan to the Investment Plan.  Currently when a member enrolls in FRS they are automatically in the Pension Plan.  Workman would like to change that to the Investment Plan.  It appears that he would like to limit the ability to enroll in the Pension Plan to the first 12 months of service.  If you don’t (or are unaware of your options) move to the Pension Plan in those first 12 months, you lose your right to ever go into the Pension, and are then limited to participation in the Investment Plan from then on.  We would construe this as an introduction to the elimination of the Pension Plan for new employees in the near future.  (Lines 220 to 243, and 426 to 429).

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The “New” FRS COLA

As of July 1, 2011 there will be some changes made…you will receive no further credit for COLA for the five years after July 1, 2011.

As you are aware, one of the better benefits within the Florida Retirement System has been the automatic 3% Cost of Living Adjustment that FRS adds to your Pension checks each year.  Over the course of a 24 year retirement, the COLA would almost double your annual pension, which would hopefully allow your standard of living to keep up with rising prices and inflation.

COLA is a simple process.  Each year, beginning on July 1, your pension check is increased by 3% more than what it had been for the previous 12 months.  That 3% compounds each year, meaning next year’s 3% pension increase will be added to last year’s pension increase, which was added to last year’s pension hike, and so on.  To illustrate, let’s assume you Pension check is $2500 at retirement.  Next year, it will be $2500, plus 3% ($75), so your pension check will be $2,575.  Year three FRS will add 3% to the Second year amount which is $82.50, so the third year checks will be $2,657.50, and so forth.  If you retire at 62, by the time you reach age 85 your monthly pension check will be almost $4,900!

As of July 1, 2011 there will be some changes made.

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Florida House and Senate Agree on FRS Reform!

The changes are substantial, but not nearly as dire as Governor Scott wanted. Employees to contribute 3%, DROP stays at 1.3%

It appears we have a Final Agreement between the House and Senate on changes to the Florida Retirement System.  The changes are substantial, but not nearly as dire as Governor Scott wanted.  There will be NO changes for those already retired, or those already in the DROP, your benefits remain the same. Many of the more radical changes only affect those hired after July 1, 2011.  Changes for new hires only are:

For members after July 1, AFC become the highest 8 fiscal years.

Increases retirement age for all new hires after July 1:

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Rep. Tobia offers severe amendments to HB 1405!

Representative John Tobia (Republican from Melbourne) offered five new amendments to House Bill 1405. The amendments would bring HB 1405 in line with Governor Scott’s recommendations

Representative John Tobia (Republican from Melbourne) offered five new amendments to House Bill 1405.  The amendments would bring HB 1405 in line with Governor Scott’s recommendations.  As we read and interpret the changes, they include:

  • ·         Reduces the service credit for future years of service in the Special Risk, Elected Officers, and Judges from 3% to 2%.    Amendment 460885
  • ·         Eliminate the Cost of Living Adjustment for Pensions and the DROP after July.  Amendment 279579
  • ·         Eliminate overtime in the calculation of the Average Final Compensation.  Amendment 696491
  • ·         Raises the Employee contribution up to 5% across the board (it had been reduced to 3% in committee).  Amendment 328909
  • ·         Reiterates the closing of the Pension Plan after July 1, and mandates all new members to the Investment Plan.  Amendment 251959

 

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Your Nest Egg in Volatile times

Seems like wherever we turn, we are at risk of losing our hard earned savings. Interestingly, it is just that volatility that makes them attractive. We have all heard the adage, no pain no gain.

We have spent a great deal of time lately dwelling on potential changes in Florida Retirement System benefits.  Since the legislative session is over until next winter, we can breathe easy at least until then.  In the meantime, the news is full of dire financial news and predictions.  We are in year three of a terrible recession, and the devastating crash in real estate prices has set us all back a few years.   So what is a person to do to try and protect their nest egg?

In order to discuss how to protect one’s nest egg, we should probably start with trying to figure out what risk is, and how do we deal with it.  For this discussion, let’s define risk as the possibility of losing money!  Does that sound fair?  The legislature has added risk to our pensions by threatening us with the loss of benefits we thought were secure.  The real estate market has become risky as the value of our homes has declined, and the stock market goes up and down on a regular basis.  Seems like wherever we turn, we are at risk of losing our hard earned savings.  Interestingly, it is just that volatility that makes them attractive.  We have all heard the adage, no pain no gain.  Without risk, there can really be no reward!

Over the last twenty five years, I have witnessed some seemingly cataclysmic events – all having dire consequences on savings and investments.  Remember the stock market crash of 1987?  That was probably my first real taste of risk.  I was old enough to have some assets and investments and remember being horrified that they were losing money so quickly.  When something like that happens, it is easy to err on the side of fear, and sell into the panic.  The fight or flight mechanism kicks in and since we don’t really understand what is going on, we run!  Unfortunately, as often as it happens – we know it will be a mistake.  The average investor buys when they should be selling, and sells when they should be buying.  After several hundred years of experience, we know that time will cure most of the markets ills.  The crash of 1987 was regained in a mere two years.  The fall after 9-11 took less than six months.  Even the devastation after the fall of Lehman Brothers in September of 2008 triggered the worst financial panic in our history was regained in about 18 months.  The Florida Retirement System Pension plan has rebounded to $118 billion from a low of $83 billion (Current FRS Plan Balance).  Had you sold into the panic, those losses become real, with no real way of regaining your losses.  On the contrary, had you maintained your holdings in a well diversified portfolio, you would have been made whole in relatively short order!

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DROP Rate Dropped!

the document states the interest rate paid on DROP will be reduced from the current 6.5% to a new rate of 3% for all participants who enter the DROP on or after July 1, of 2010. W

The fears we voiced on Monday have come true on Wednesday.   In a document we secured today, which was introduced this morning at 10:00 am, titled “State Budget Conference Chairs bump issues Senate offer Conforming and Implementing Language” (click on the title to be directed to the link) has some last minute introductions that were claimed to be tabled.

Line 1 of page 7 of the document states the interest rate paid on DROP will be reduced from the current 6.5% to a new rate of 3% for all participants who enter the DROP on or after July 1, of 2010. We have further confirmed that this is already in the budget, so it appears to be a done deal.  At 3% the Deferred Retirement Option Program loses its attractiveness as a viable retirement option.  We will address this in detail in a later post.

The following lines of the document spells out that the door will be open for EMPLOYEE contributions beginning in 2011!  This would indicate that your contributions are already in process, and it is simply a matter of how much you are to contribute.

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