Fasano says goodbye pensions, hello savings
Bill Cotterell • November 16, 2009
Mike Fasano wants to get state government out of the pension business.
The Republican state senator from New Port Richey has re-filed his bill that would rename the Public Employee Optional Retirement Program the "Retirement Investment Program" for public workers. The name change signals a new pension philosophy — leaving the safe, relatively low-paying assurance of a "defined benefit" pension for the market-driven, possibly more profitable "defined contribution" retirement system.
Under Fasano's 91-page bill (SB 660), all new employees would have to join the defined contribution plan after Jan. 1, 2011. All current Florida Retirement System members, whether they work for the state or one of the hundreds of school boards and local governmental units whose pension funds are invested by the State Board of Administration, would still be guaranteed their regular pension benefits.
The PEOPR allows employees to manage their own retirement money in 20 investment options — including safe money market and bond funds or riskier stocks. In the traditional defined-benefit system, the state calculates your monthly pension as a percentage of salary multiplied by years of service.
Employers make pension contributions ranging from 9.85 percent of payroll for regular workers to 20.92 percent for special-risk employees. About 123,000 public employees at all levels of government, roughly 14 percent of the FRS membership, are now in the optional plan and — despite last year's market convulsions — membership continues to grow.
There was a stagnant period around October and November of 2008, and PEORP members tended to take cover in the bonds and money market funds. But the SBA reports a trend back toward equities this year.
So why does Fasano, an investments executive by trade, want everybody to put everybody in the market? Two reasons — he figures the state, counties, school boards and other public employers will be able to reduce their contribution rates, eventually, and the SBA will have some cushion on its necessary investment earnings rates.
"It will save, in the short run, not much money," Fasano said. "But in the long run, it will save literally hundreds of millions of dollars for the taxpayers."
Like the state, Fasano said, counties and cities all over Florida are having to look for places to cut their spending.
Fasano was the sponsor of this year's law, taking effect next year, forbidding more "double dippers" to retire and go back to work for the state while drawing pensions. His new bill, he said, will phase out the Deferred Retirement Option Plan, once every employee is in the investment system.
"Eventually, you will no longer have a DROP program. That'll be long after you and I are gone, but eventually, everyone will be in the defined contribution plan," said Fasano.
Meeting pension payouts requires a 7.75-percent rate of return on SBA investments. Except for last year's fiasco, going back to 1976, the long-term earning rate has comfortably exceeded requirements.
That can't last, says Fasano.
"There is no way the State Board of Administration can keep up with what they need to earn in the retirement system on an annual basis, to pay the benefits that people have been promised," he said.
Fasano filed the bill last session but didn't move it. He said he wanted an actuarial study of what it would mean, which will be completed before the 2010 session in March.
He said this is the trend of the future in government employment.
"I believe as you see new leadership come in both chambers in the next couple of years," Fasano said, "you're going to see both the Senate and the House move in a direction that would put new employees into the defined-contribution plan."
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