Just how efficient is the Governor’s “Efficiency Task Force” on FRS?

We would ask if the Task Force really studied the issue or just had a little guidance from the Governor as to what “efficiencies” they should look for?

Just how efficient is the Governor’s “Efficiency Task Force” on FRS?

 

It is no secret Florida Governor Rick Scott is putting FRS benefits back in his sights for the 2013 legislature.  Every day the papers and internet post more stories about FRS being scarily underfunded and the taxpayers are being unfairly burdened by “overly generous” pensions to public workers.  We can only guess that, this being an election year, the legislators made an effort to appease FRS members (and their votes) with few and minor changes in the 2011 legislative session.  It does not appear that will be the case next year.  Scott recently went on the record saying that pension plan reform is one of his key financial challenges for the state.

The Governor’s “Government Efficiency Task Force” stacked with his supportive favorites, Senate President Haridopolis  and House Speaker Cannon  brought back recommendations that coincide with the Governor’s mandates for “pension reform”.  No surprise there!  We can’t help but wonder if the Task Force really studied the issue or just had a little guidance from the Governor as to what “efficiencies” they should look for?  They identified the FRS Pension Plan as one of their key areas for legislative change.  Again, there is no surprise to those who have been watching how politics really work.    The task force commentary creates more questions for us than it answers.

“Scott has identified funding for the pension plan as one of the two key financial challenges facing the state”.

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FRS Contribution Changes …

The FRS Investment Plan, as a Defined Contribution Plan, will see 30% less money going into their retirement plans as a result of the lowered contribution requirements.

There appears to be considerable interest in the recent decrease in contributions (MyFRS.com Contribution Changes) to the Florida Retirement System by HB 5005, and most notably the effect of that decrease to the members of the Investment Plan.  We have been repeatedly asked to help educate our readers on the process, and to that effect, we have attempted to shed some light on the recent changes.  Hopefully this will dispel rumor and false belief, and provide a background and some insight for members to understand what is happening, and what their FRS Options may be.  Because the Pension Plan is a Defined Benefit Plan, the reduced contributions will have no effect on Pension Plan members.  There were no changes to the Pension Plan benefits this year.  On the other hand, the Investment Plan, as a Defined Contribution Plan, will see 30% less money going into their retirement plans as a result of the lowered contribution requirements.  While Florida law may necessitate the changes, it seems counter-intuitive to see the Investment Plan members get punished, as the desired goal of the legislators is to have members move to the Investment Plan.

According to Florida Law, Statute 1121.71, Contributions to the Florida Retirement System are determined on an annual basis by a study of the FRS plan by the designated actuary.  You may follow this link to the actual statute (Florida Statutes regarding annual retirement contributions).  We have quoted the pertinent paragraph here:

1121.71 Uniform rates; process; calculations; levy.—(1) In conducting the system actuarial study required under s. 121.031, the actuary shall follow all requirements specified to determine, by Florida Retirement System employee membership class, the dollar contribution amounts necessary for the next fiscal year for the pension plan. In addition, the actuary shall determine, by Florida Retirement System membership class, based on an estimate for the next fiscal year of the gross compensation of employees participating in the investment plan, the dollar contribution amounts necessary to make the allocations required under ss. 121.72 and 121.73. For each employee membership class and subclass, the actuarial study must establish a uniform rate necessary to fund the benefit obligations under both Florida Retirement System retirement plans by dividing the sum of total dollars required by the estimated gross compensation of members in both plans.

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A few words about SB 5005

The actuaries want to lower the contributions into the Florida Retirement System

FRS Options has received many requests in regard to the posting on the MyFRS.com site concerning SB 5005. We hope this will help. SB 5005 was simply a proposal by the legislature to match the contributions into the Florida Retirement System to the amounts required by the actuaries.  SB 5005 was not passed, and was sent to the Conference Committee for final resolution.  The results of the committee are not yet known to us.

We have provided a copy of the Legal Analysis done by the Senate.  It contains some interesting language, which we have highlighted below.

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Judge Rules 3% Contribution Unconstitutional!

ruled the mandantory employee contributions to the Florida Retirement System and the members’ retirement plans to be unconstitutional

Judge Jackie Fulford has ruled the mandantory employee contributions to the Florida Retirement System and the members’ retirement plans to be unconstitutional.  In recognizing the legislature made the law in respect to the budget crisis, Judge Fulford said “This court cannot set aside its constitutional obligations because a budget crisis exists in the State of Florida.”

More to come as we investigate what is in store!  Stay tuned.

FRS 2nd Choice Calculator is back!!!!

Finally, the 2nd Choice Calculator is back on the MyFRS website for Florida Retirement System members

Finally, the 2nd Choice Calculator is back on the MyFRS website for Florida Retirement System members.  It has incorporated the legislative changes mandated last session, and once again members can calculate their lump sum amounts.

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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Be Forewarned!

The legislature may reduce future benefits to lessen plan liabilities, or may raise employee contributions to increase funding.

2012 is a major election year.  Due to the 2010 Census results, Florida will undergo redistricting for legislative purposes.  As a result, ALL Representatives and Senators will be up for re-election next year.  The legislature is already in preliminary committee meetings, and the regular session will begin in January.  It will be a big year, and we would highly urge all FRS members to anticipate another session of potential cuts to their benefits.  The writing is on the wall, and in very large letters. 

You only need to look at the MyFRS.com homepage where you will find a special notice box with the headline “Volatile Financial Markets”, there is a second headline – “Funding of the FRS Pension Planunder which you will see the following;

BE FOREWARNED: The FRS Pension Plan is less than 100 percent funded. The legislature may reduce future benefits to lessen plan liabilities, or may raise employee contributions to increase funding. The legislature may make changes to FRS at any time”.

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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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The “New” FRS DROP

there is no magic to DROP, the bulk of the DROP benefit is simply your own pension being returned to you after the 5 years.

For those of you that were interested in entering the DROP, you might not want to give up so quickly because of the decrease in interest rates.  The rate reduction from 6.5% to 1.3% initiated by the Florida Legislature as of July 1 does not necessarily make the Deferred Retirement Option Program obsolete.  Certainly, it lowers the earnings, but, the biggest part of the DROP sum is not interest, but simply your pension payments accruing each month in the DROP account.  There seems to be some misunderstanding about these numbers.  It appears that those of you choosing to enter the DROP on or after July 1 will earn the lower 1.3% interest rate on your pension payments.  If you are already in the DROP, and once you begin the DROP, you will NOT have to make the 3% employee contributions!

Your DROP amount will not decrease by 70%, only the interest earned will.  As we discussed on our web page FRSOptions.info , there is no magic to DROP, the bulk of the DROP benefit is simply your own pension being returned to you after the 5 years.

When you enter the DROP, you technically retire and begin to receive your pension.  Since you are going to continue to work, instead of the pension checks coming to you each month, those checks are deposited in your “DROP account”, and interest is then added to it.  The monthly amount going into your DROP is determined by the same calculation as your pension, which is:  Years of service, multiplied by service credit (3% for special risk, or 1.6% for regular members.  The result is then multiplied by your Average Final Compensation, which is the 5 years of your highest earnings.  For example, you have worked 30 years, and average of your highest five years of compensation (your AFC) is $50,000.   Your calculation is 30 times 1.6%, times $50,000, or a pension of 48% of $50,000, or $24,000 per year – so you would receive $2,000 per month into your DROP account.  Each year, on July 1, you will receive an annual increase by whatever your Cost of Living Adjustment (COLA) is.

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Conference Committee Amendment

The official Conference Committee Agreement has been posted on the Senate Web site.

Here is the link to the official

Conference Committee Agreement

from the Senate Web site.

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