Incoming House Speaker Will Weatherford Wants 401(k) Plans to Replace State Pensions
FlaglerLive | November 13, 2012
Calling the current pension system “old and archaic,” incoming House Speaker Will Weatherford said Tuesday he wants to revamp the state retirement program for new employees and make it more like the private sector.
Weatherford, a Wesley Chapel Republican, said new state employees should be required to enroll in 401(k)-type plans instead of counting on regular pension payments from the state. Most large corporations have moved to such plans, which help them control retirement costs while also placing more responsibility on workers to make investment decisions.
“It (pension costs) is a ticking time bomb in every state and in every city across the country, and it’s time for us to get real and do what the private sector has done,” Weatherford told reporters, as he prepares to formally begin presiding over the House next week.
But trying to change the pension system likely would be controversial. The Republican-controlled Legislature in 2011 approved a plan to require workers to contribute 3 percent of their salaries to the retirement system — a move that has touched off a legal battle now at the Florida Supreme Court.
Rep. Dwayne Taylor, a Daytona Beach Democrat who has served as a trustee on his city’s fire and police pension board, said requiring new employees to enroll in 401(k)-type plans would jeopardize the actuarial soundness of the pension system. That is because fewer people would be paying into the system, while it would still owe benefits to retirees and workers who would be entitled to the more-traditional pensions.
“There’s a domino effect when you start tinkering with the system,” Taylor said.
The Florida Retirement System includes state employees and many local-government workers, such as teachers. Weatherford said he would have to look at whether his proposal would also apply to local governments.
People in the retirement system currently can choose whether to enroll in pension plans or 401(k)-type plans, though most have chosen pensions. As of Aug. 31, 540,352 active employees were in the pension plan, while 107,040 were in a 401(k)-type plan.
Under Weatherford’s proposal, already-hired workers would continue to be able to choose a pension of a 401(k)-type plan, which might help avert legal problems. The key question in the court battle about the 2011 law is whether the state can force already-employed workers to contribute 3 percent of their salaries to the retirement system. Opponents have not legally fought the requirement for new employees.
The financial health of public pension plans has been a major issue in numerous states. Florida’s pension plan has an estimated balance of $125.1 billion, though, on an actuarial basis, it is not fully funded. An October report from state economists said it was funded at 86.9 percent.
Any changes to the retirement system are closely watched by groups such as public unions, and Weatherford’s idea could touch off a political fight. The unions and their legislative backers argue, in part, that pensions and other benefits are a way to make up for lower salaries that workers earn working for the government instead of in the private sector.
But Weatherford said pension costs are a “real problem for the state long term.”
“I think when it comes to pensions, this is not anything radical,” Weatherford said. “Ninety percent of the private sector has a 401(k)-based plan.”
–Jim Saunders, News Service of Florida