FLORIDA PENSION NEWS STORIES ON POLICE AND FIREFIGHTERS

Prepared by Fred Nesbitt, Director of Public Information This e-mail address is being protected from spam bots, you need JavaScript enabled to view it   March 2013

 BRAINARD SAYS PLIGHT OF PUBLIC PENSIONS NOT SO OMINOUS: Writing for BNA Pension & Benefits Reporter, Keith Brainard, Director of Research at the National Association of State Retirement Administrators, responded to an earlier BNA article that painted an ominous picture of the current state and future of public pension plans.  Fortunately, the actual condition of pension plans covering the vast majority of employees of state and local government is far better. The previous piece's pessimism relies on a careful selection of sources, and disregards use of credible experts. It also errs in treating public pensions as a single, uniform entity, and by overlooking the effects of substantive pension reforms approved in recent years by nearly every state.  The earlier author begins by contending that states and local governments failed to fund public pension promises.  In fact, most states and cities in recent years have paid all or most of their required pension contributions; some have not. As with most public pension issues, the answer is not black and white, but rather, varies widely from state to state and plan to plan.  In her book State and Local Pensions, What Now? (See C & C Newsletter for February 14, 2013, Item 5), Alicia Munnell, director of the Center for Retirement Research at Boston College, states:
 
       A relatively small group of states -- Illinois, Kentucky, Louisiana, New Jersey, and Pennsylvania -- could be considered bad actors in terms of pension funding... . These states have led many observers to conclude that public pension plans generally have been mismanaged. But an equally large number of states -- Delaware, Florida, Georgia, Tennessee, and New York -- have done a good job in terms of providing reasonable benefits, paying the ARC (annual required contribution), and funding. They, like all entities, have been battered by the financial collapse and ensuing recession, but their funding status should improve as the economy recovers.
 
According to the Public Fund Survey, the average annual required contribution received by public pension plans since 2001 has been nearly 90 percent. This number includes many plans that have consistently received 100 percent or more of ARC and some that have consistently received far less. An overarching image of public pensions depicted by the first author is that all public pension plans are unsustainable and in poor condition. In fact, a wide range exists in public pension funding levels and conditions, even within some states. In its 10th Annual Public Pension Funding Review, Loop Capital states:
 
      Despite the continued clamor, our view remains fundamentally the same as last year: the public pension plan problem is state specific and not systemic in nature; the pace of improvement across the states is uneven, with some states making little or no progress while others advance; each state has its own unique path to recovery.
 
The treatment of public pensions as a single, uniform entity is similarly addressed by Nuveen Asset Management:
 
     Though headlines and various reports may discuss municipal issuers and their pension obligations as a uniform problem, the reality is that the municipal market remains highly individualized and does not lend itself to sweeping generalizations.
 
The author of the previous piece also cites estimations of liabilities that are calculated through use of a so-called risk-free interest rate. When calculating pension liabilities, the lower the interest rate, the higher the liabilities. Because the Federal Reserve Board's current monetary policy is artificially keeping interest-rate yields near record lows, this method for assessing liabilities produces a record and artificially high calculation. The $5 trillion estimate of aggregate liabilities cited by the other author is based on an interest rate of 3.36 percent. This rate is substantially lower than not only the rate used by public pension plans, but it is also far lower than the rate used even by corporate pension plans. Moreover, this calculation has little practical value: it is not helpful for determining a pension plan's required contributions or how a pension fund should invest its assets. In reality, this approach reveals more about the nation's bond market than anything else.  The charge of ‘‘lax accounting practices'' used by public pensions presumably refers to the manner in which they calculate their liabilities. Rather than using current interest rates, public pensions calculate their liabilities using expected long-term investment return, typically 7.5 percent to 8 percent. This method is intended to promote stability and predictability in the cost of the plan and to ensure each generation of taxpayers pays for the cost of public services it receives. During the past 10-, 20- and 25-year periods, public pension funds have met or exceeded their expected long-term investment returns.  The use of the long-term expected investment return has also been endorsed by the Governmental Accounting Standards Board. After several years of consideration and debate, GASB recently issued new standards for how public pensions determine and report their liabilities.  GASB heard from a wide variety of industry observers and participants, and considered all perspectives. Ultimately, GASB rejected the economists' preferred method for valuing pension liabilities, instead preserving the use of the plan's long-term expected investment return as long as the plan is projected to have assets. A former director of the Pension Benefit Guaranty Corporation recently said ‘‘the discount rate should not be based on the interest rates we see right now. It should be based on what we think those liabilities are likely to cost over decades. An average, or a smoothed, interest rate makes much more sense.''  The national benefits consulting firm Milliman said it believes a discount rate of 7.65 percent is appropriate for public pensions.  States and cities have a long track record of making changes necessary to maintain sustainability of their pension plans.  Investment markets continue to recover, and public pension funding levels will improve as a combination of lower benefits, higher employee contributions and rising investment markets reduce unfunded pension liabilities and pension costs.

We asked you: Should Florida end traditional pensions for new public employees?

Orlando Sentinel, March 8, 2013

We asked you: Should Florida end traditional pensions for new public employees?

YES 45%

NO 55%

(Editor's note: There were no comments supporting an end to traditional pensions.)

Kingsley Guy: Pensions adjustment long overdue

By Kingsley Guy, Sun Sentinel, March 10, 2013

Defined benefit pensions for public employees threaten the economic viability of states, counties and municipalities. It's time for politicians in Florida to find the fortitude to say "no" to public-employee unions, and switch government pensions to defined contribution plans, as the private sector has done.  A complete transition to a 401(k)-style state retirement system is long overdue.  It's time to make the change, lest Florida end up in a financial mess as big as Illinois' or California's.  Many municipalities have found themselves in crisis because of pension obligations.  Public employee salaries are now often higher than those in the private sector. Everyone deserves appropriate compensation for the work they perform, but society is badly out of kilter when public employees receive more in pay and benefits, and also job security, than the private sector workers whose tax dollars pay for their compensation. 

Will Weatherford says Florida's pension fund needs $500 million for next 29 years to stay 'afloat' - Fact Check

Will Weatherford, House Speaker, Miami Herald, March 5, 2013

Florida's retirement system is not sustainable or modern, House Speaker Will Weatherford warned on the opening day of the annual legislative session.  Weatherford is proposing an overhaul of the state's retirement system during the 2013 legislative session. He wants the only option for new public employees to be the 401(k)-like investment plan, which is less popular than the pension plan. Doing so will keep the fund, recently valued at $132 billion, in good health for the long-term without burdening taxpayers, he says.  We thought it prudent to check out his claim about how much the Legislature needs to spend to "shore up" the pension fund. Is it really about to capsize?  Weatherford also didn't mention that when the pension was overfunded, lawmakers spent the surplus by reducing employer contribution rates and increasing benefits for special-risk employees. The pension fund would have been in a better position to weather the economic downturn had they not made those choices, Florida Retirement Security Coalition said.  Weatherford's comments on the need for big reform make no mention of the fact that the pension fund was in a surplus for the better part of the 21st century.

Senate panel OKs version of state pension overhaul

By James L. Rosica, Miami Herald, March 28, 2013

 Florida lawmakers in the House and Senate may be on a long road to compromise as they advance starkly different plans on overhauling the state retirement system.  The Senate Appropriations Committee cleared a bill (SB 1392) that keeps the option for new state and county employees and teachers to have a traditional pension. It now goes to the full Senate for approval.  But the House's plan (HB 7011) closes the state pension plan to workers hired as of Jan. 1, 2014, and forces them into 401(k)-style investment plans for their retirement. It has already passed the full House.  Overhauling the pension plan has been a priority of House Speaker Weatherford's. He has said changing the pension system would save nearly $10 billion over 30 years and relieve taxpayers of the burden of another $19 billion in unfunded liabilities.  Pension plans offer reliable income, and states generally have to guarantee them with tax dollars. But a retiree invested in a 401(k)-style plan must suffer the ups and downs of the market. Those now in the Florida Retirement System can select a traditional pension or a 401(k)-style plan.  Among other things, the Senate bill:  Extends the vesting period for a pension from eight to 10 years,  Requires employees who don't pick between a pension and an investment plan to "default" into an investment plan, and Reduces the employee contribution rate from 3 percent to 2 percent of earnings for investment plan participants.

Florida Pension Changes Rooted in ALEX Model Legislation

By  This e-mail address is being protected from spam bots, you need JavaScript enabled to view it , Florida Center for Investigative Reporting, March 27, 2013

A new plan that would overhaul the state's pension system can be traced back to the American Legislative Exchange Council, or ALEC, The Palm Beach Post reported.  State lawmakers are changing the current state pension plan by eliminating it for any new hires. Instead, new state employees would choose from private plans, which are already offered to state workers.  ALEC is a mostly corporate‐funded group that pushes corporate-friendly laws. ALEC has been behind a slew of anti-worker, anti-environmental and anti-regulation bills in the past few years. The group was also behind many of the more restrictive voting laws that caused problem in several states in the last election.  According to a 2012 report by Progress Florida, about a dozen bills have been introduced in the Florida Legislature that have based on ALEC's model legislation. Some, such as Florida's controversial "stand your ground" law, are on the books right now. Most Republicans in the state legislature are also dues-paying ALEC members.

Editor's Note:  A copy of the Palm Beach Post story:  Florida House pension limits rooted in controversial group

Pension reform gets too real for Florida Senate Republicans

By William Patrick, Florida Watchdog, March 28, 2013

The Florida House passed a sweeping pension reform bill that, if successful, would save Florida's taxpayers billions in pension obligations.  But the bill emanating from the Republican-dominated House faces one major obstacle: Senate Republicans.  In a curious intra-party rift, senior Republican Sen. Jack Latvala has said the House pension reform is "ill conceived," while fellow Tampa Bay area GOP Sen. Wilton Simpson is sponsoring an alternative plan that makes only minimal changes to the Florida Retirement System.

Cities need flexibility to keep their pension plans affordable

By Dominic M. Calabro of Florida TaxWatch, Sun Sentinel, March 3, 2013

Reform of local government pensions is currently under consideration in the Florida Legislature, as it always seems to be.  Most everyone agrees that changes are needed, but pension reform is politically difficult, particularly when it comes to our first responders. Pension benefits for these hard-working public servants are richly deserved, but sensible changes are needed to make sure their pensions are secure and sustainable, while protecting the interests of current and future taxpayers.  There are numerous reasons for the pension problems facing cities, but two of the major factors are the current law governing the use of an important revenue source used by cities to meet pension obligations, and the makeup of powerful local pension boards.  A Florida League of Cities study found that the makeup of these boards "does not reflect the relative share of city and member contributions to the fund." In other words, the membership is too heavily weighted toward police and fire representatives.  In general, state law requires five-person boards to be made up of two city representatives, two police or fire representatives and one mutually agreed-upon member.  There is no simple solution to such a complex problem. But there are places that we can start - like re-establishing budgeting flexibility for local governments and changing the makeup of pension boards - to help keep our local governments on their feet, and our pension plans affordable.

Lawsuit windfall results in checks in mail for government pension plans

By Lisa J. Huriash, Sun Sentinel, March 3, 2013

Municipal employee pension funds - some covering general employees, firefighters, police and utilities - across South Florida and the state, are expecting a windfall of cash within the next week as part of a settlement reached with the former Merrill Lynch.  The $8.5 million class-action lawsuit alleges Merrill Lynch breached its responsibility to the pension funds by acting in its own interest when selecting and promoting money managers - which included having associations with those money managers while acting as consultants to the retirement plans. And, Merrill Lynch failed to adequately disclose that "12b1 fees" - charges to cover marketing and research - were folded into the overall management fee. The alleged actions happened from 2000 through 2008, when Merrill Lynch stopped providing investment consulting services to Florida governmental pension plans. The investment banking firm was purchased by Bank of America later that year.

Coalition Group Calls Pension Reform ‘Unnecessary'

WFSU, March 26, 2013

With the Florida House passing pension reform last week and the Senate vote coming up, the debate over state employees retirement plans isn't quite finished, but one group said if it's not broke, don't fix it. 

"Florida has one of the most well-funded pension systems in the nation, and is one of only 11 states to achieve a solid performer rating from the Pew Center on the States."   The House plan, lowers returns on investments, raises taxpayer cost, and hasn't worked in other states that closed their pension plans. Sarabeth Snuggs served 9 years as the Director of the Florida Division of Retirement, until she retired in December of 2012.  Snuggs said there is no pressing reason for the changes to the current retirement packages.  "Forcing all employees into a defined contribution plan, as the House plan does, is a misguided solution in search of a nonexistent problem," Snuggs said.

Titusville reaches deal with firefighter union

By Scott Gunnerson,  Florida Today, March 6, 2013

The city council ratified a union contract that ends firefighter furloughs and one battle over pension reform.  The collective bargaining agreement negotiated with the Local 2445 of the International Association of Fire Fighters freezes firefighter wages, puts member contributions to retirement at 8 percent of pensionable earnings and closes the DROP plan to new participants on July 2. The same deal has been offered to the police union. 

Time to restore pension sanity - Commentary

By Manuel Maroño, Tampa Bay Times, March 5, 2013

In an era of sweeping pension reform across the country, Florida's cities, on behalf of local taxpayers, are seeking only a modest change to state law. It is a common-sense change that will protect and secure local city pension benefits for police officers and firefighters for generations to come.  For more than a decade, both firefighter and police unions have steadfastly protected their interpretation of that law and have reaped huge benefits - and benefit increases - in the meantime. But this union-backed state mandate on local city taxpayers cannot be sustained.  Let's face it. The unions won the battle in 1999 - and they won big. However, their victory has sent municipal pension costs soaring to unsustainable limits. It's now time to balance the equation and help save municipal taxpayers money by restoring some level of sanity to local city pension benefits.

Oracle of Tampa Is a Rare Breed

By Michael Corkery, Wall Street Journal, March 10, 2013

Jay Bowen's stock picking has made the Tampa Firefighters and Police Officers Pension Fund one of the best-performing public pensions in the U.S. Some retired cops and firefighters attend pension board meetings to catch a glimpse of the money manager they consider their own Warren Buffett.  But in the hypercompetitive industry of pension fund investing, Mr. Bowen is an anomaly. The 51-year-old is the fund's lone money manager, an unusual arrangement for a retirement system with $1.6 billion in assets.  As of Dec. 31, Mr. Bowen's annual returns beat pension giant Calpers-which employs 125 consultants and 1,100 money managers-over three-year, five-year and 10-year spans.  Mr. Bowen slipped a bit in the year ended Dec. 31, 2012. His 12.6% return trailed the median return of 13.3% among public pensions with more than $1 billion in assets, according to Wilshire Trust Universe Comparison Service.  Mr. Bowen blames some of that underperformance on sitting out a rally in regional banking and residential construction stocks.  The Tampa fund appears to be well funded at about 90%. It uses an unusually high annual investment target and discount rate of 10% to calculate the present value of benefits owed to retirees.  His management fee is .25%. 

Judge throws out securities fraud case against Omnicare

By Karen Freifeld, Thompson Reuters News & Insight, March 29, 2013

Omnicare Inc, a pharmaceutical services company, has won dismissal of a lawsuit accusing its executives of misleading shareholders about its compliance with Medicaid and Medicare laws.  The lawsuit said certain company executives falsely claimed that Omnicare's billing complied with government requirements, when internal audits found defective claims may have been submitted for reimbursement.

The shareholder claims stem from misconduct alleged in a whistle-blower lawsuit.  Plaintiffs included the Jacksonville Police and Fire Pension Fund in Florida. 

Hollywood's police union loses lawsuit challenging pension reform

By Susannah Bryan, Sun Sentinel, March 8, 2013

City Hall scored a key victory this week when an appeals court dismissed a police union lawsuit challenging changes made to the city's police pension plan.  The 4th District Court of Appeal sided with the lower court in saying the union should have sought relief before the Public Employees Relations Commission.  In September 2011, Hollywood voters approved a referendum allowing city officials to slash pension benefits for police, firefighters and general employees. Residents were told that if pension reform failed at the polls, taxes might increase by 23 percent to help plug a $38 million budget gap.

Two months later, the police union filed a lawsuit asking that the city's changes to the police pension plan be declared illegal and reversed. The suit said Hollywood broke an agreement made in 2006 and didn't have the right to put the issue to voters.  In another matter, the union filed an unfair labor practice with the PERC regarding Hollywood's declaration of financial urgency. The agency ruled in the city's favor. 

Public pension report ignites new spark to debate

By Anne Geggis, Sun Sentinel, March 20, 2013

It's the latest controversy in Boca, and it's pitting firefighters against some residents, who are worried the police and firefighters' pension fund is going to bankrupt the city at some point.  In 2012, the fund that pays police and fire pensions grew more than expected, but so did the number of retirements and increases in wages - and overall the pension is going to cost Boca Raton taxpayers more than last year.  "The pension fund has not stabilized," said Judith Teller Kaye, who is one half of the two-woman group that calls itself Boca Citizens for Fiscal Responsibility. "The unfunded liability has increased by nearly $7 million to $129 million despite an extraordinarily good investment year."  But John Luca, firefighter union president, said that the Boca Citizens for Fiscal Responsibility are using scare tactics in the email blasts of their newsletter that reach about 2,500 inboxes.  What is not yet on the table, however, is what citizens such as the Citizens for Fiscal Responsibility have called for: a move to a 401(k)-style benefit that defines the employer's contribution instead of guaranteeing that retirees will earn a percentage of their top-earning years that increases with the cost of living.  Boca started offering it as an option to its general employees in 2007 - the same year that a pension-style plan was started for its executives.

Plantation May Cut Pensions, Health Benefits For New Employee Families

By Lisa J. Huriash, Huffington Post Miami, March 21, 2013

The City Council will consider slashing benefits for new hires to City Hall, including dropping employees' spouses and children from health insurance plans and cutting off future employees from pension perks.  They want the pension re-evaluated, too, although it would not affect the police who are represented by a union.  The council was amenable to change: Councilwoman Lynn Stoner said she also wants the city to reconsider allowing employees to roll over unused vacation time, saying it's an expensive proposition.

Brandes gets bill passed for tougher pension accountability

 By Michael Van Sickler, Miami Herald, March 7, 2013

The Senate's Governmental Oversight and Accountability Committee approved SB 534 by a 7-2 vote. It requires the state's 492 publicly funded defined benefit pension plans to report a different type of information to the Florida Department of Management Services then they do now.  Many pension plans use rates of return of more than 8 percent, and Florida's $136 billion pension plan uses a return of 7.75 percent.  The sponsor said his proposed bill is a better model than what's currently used and would more accurately portray the solvency of plans.  But opponents to the measure, which include groups like the Florida Professional Firefighters and the Fraternal Order of Police, say the method would provide bad information that would only exaggerate the instability of the funds.  The sponsor thinks a 4 percent or 5 percent return would be a more accurate measure, but groups representing workers say returns have risen sharply, so many plans are showing returns of more than 12 percent.  With a projected lower rate of return to match the corporate bond rate, these plans would overnight look much worse than they actually are.

Local Governments, Workers Oppose 'Stricter' Pension Rating Standard

By Jessica Palombo, WFSU, March 7, 2013

A proposal to rate the financial health of public pension plans the same way private companies' are rated, is meeting strong opposition from public workers' unions. The measure made it past the Senate Governmental Oversight and Accountability Committee on after a lengthy debate.  Studies show, for most Florida cities, public employee pensions are underfunded. But when it comes to evaluating exactly how much Florida cities are on the hook for pensions, it gets dicey. Sen. Jeff Brandes (R-St. Petersburg) wants to create a statewide standard for rating local pensions, based on what he believes is a more accurate rating system.  And Sen. Bill Montford (D-Apalachicola) said, he's concerned about the potentially downgraded pension funds because they could lower cities' credit scores and scare investors away from buying bonds. The bill, S.B. 534, would not only create the new rating standard but require local governments to report their ratings to the state. Sponsor Brandes said, although public workers don't like the idea, he's only thinking of their ability to make informed decisions about their retirement.

Boynton's unfunded pension obligations increase

By Attiyya Anthony, Sun Sentinel, March 7, 2013

Boynton Beach is dishing out more dollars this fiscal year than last year, due to $3.8 million in increased health care costs and unfunded pension obligations for city employees. The unfunded pension obligations for fire employees increased $482,000. It also went up $2.1 million for general employees and $550,000 million for police, compared with the same time period last year. There was also an approximate 15 percent increase in health care costs for all 742 employees, totaling approximately $700,000.  The city has to figure out how to change the way the [pension] plan is set up completely. Unfortunately we're not sure if there is one item that's going to make a complete change.

Remember the facts:

· Florida's Retirement System is one of the strongest in the world.

· Changing the system to a 401k would cost taxpayers millions.

· Directly affects firefighters, police officers, EMT's and Paramedics and Dispatchers.

· Dismantling FRS would have a huge impact on Florida's economy. The FRS Trust fund is nearly twice the size of the states entire annual budget, and a huge state asset.  If this bill passes it will become a liability.

CALL THE MEMBERS OF THE HOUSE STATE AFFAIRS COMMITTEE

NOW!

TELL THEM:

"VOTE NO ON HB7011! Don't risk the retirement security of our public employees."

Democrats on the committee have committed to vote No, all Republicans are expected to vote yes to close the plan.

ACT TODAY MAKE YOUR VOICE HEARD