Retirement Benefits in Florida Governments

David S. T. Matkin, PhDResearch Fellow, LeRoy Collins Institute

Assistant Professor of Public AdministrationFlorida State University

Florida Clerks and Comptrollers Meeting

June 11th, 2012

Agenda

• Municipal Pension Plans– Cities and Special Districts– Size and source of the problem– Possible solutions

• Other Post-Employment Benefits– City and County– What are they?– Potential problem?– Governmental responses?

Municipal Pension Plans

• Defined Benefit Plans• Trends in Assets & Liabilities• Actuarial Assumptions• Annual Costs• Retirement Payments

TABLE 1: GRADING SUMMARY

GRADE PERCENT FUNDED NUMBER OF CITIES

RECEIVING

PERCENTAGE OF CITIES RECEIVING

A

More than 90% funded

30

14%

B 80 to 90% funded 48 23% C 70 to 80% funded 63 30% D 60 to 70% funded 36 17% F

Less than 60% funded 31 15%

Pension Plan Grades

LEROY COLLINS INSTITUTE RECOMMENDATIONS

Recommendations

Recommendations for state government on health benefits:

1. Among other options, Florida lawmakers should give much consideration to repealing current Florida law requiring the implicit subsidization of healthcare benefits for Florida local governmental retirees.

2. State oversight by a relevant state agency should be provided in statute to manage local retiree health benefit obligations. This agency should establish standards and provide technical assistance, if desired, to local government staff and local officials.

Recommendations Recommendations for state and local governments on

administration and transparency:

1. Municipalities should set a minimum contribution rate to ensure minimal contribution levels during good years and reduce the need to significantly increase contributions during periods of fiscal stress.

2. The statutory restrictions on the use of premium tax dollars that link increases in tax premium funds to the provision of additional benefits should be reduced or removed. Municipalities and counties should be able to use premium tax dollars to cover their current pension obligations.

3. Localities should improve the accessibility of funding, actuarial reporting and liabilities information to its taxpayers.

COUNTY AND CITY OPEB PLANS

The OPEB Concept

• Other Post-Employment Benefits– Retirement insurance subsidies (primarily healthcare)

• Explicit and Implicit Benefits

What did governments do?Increase Benefits?

What did governments do?Decrease Benefits

YEAR 2003 2004 2005 2006 2007 2008 2009 2010 Total

Qualifications Made More Restrictive 1 1 2

Reduce Size of Defined-Benefit 1 1

Switch from Percent-Benefit to Defined-Benefit Value

1 1 1 1 1 5

Reduce Size of Percent-Benefit 1 1 1 2 1 6

Capped Benefit at the Current Level 1 1 2 4

Explicit Benefit to Defined Contribution 1 1 2

Closed Explicit Benefit 4 1 1 1 4 2 13

Plan Reduction Totals 9 6 332 2 6 4 1 3

What did governments do?• Fund the Liability

– Explicit Benefits (n=67)• Pay-as-you-go = 45• Prefund (Non-GAAP qualified) = 4• Prefund (GAAP qualified) = 18

– Implicit Benefits (n=83)• Pay-as-you-go = 76• Prefund (Non-GAAP qualified) = 2• Prefund (GAAP qualified) = 5

What did governments do?• Explicit Benefits, FY2010

What did governments do?• Implicit Benefits, FY2010

Recommendations

Recommendations for local governments on retiree benefits:

1. The minimum age before a retiree qualifies for benefits should be gradually raised. A reasonable age to begin receiving benefits could be approximately 60.

2. Localities should not include overtime or additional earnings/bonus pay in the base salary used to calculate pension benefits.

Questions and Discussion