House speaker calls for pension reform as state Supreme Court weighs 2011 pension law

Gov. Rick Scott has an important ally in his fight to fulfill a campaign promise on state workers' retirement plans.

House Speaker Will Weatherford, R-Wesley Chapel, wants to eliminate the state's pension plan as an option for new hires, as a way to protect the state from future liability.

Currently, state workers have two options for retirement. Most choose the "defined benefit” pension plan, designed for career employees. The pension plan provides a guaranteed lifetime monthly benefit after retirement, based on how long the employee worked and peak salary.

One in six employees chooses the 401(k)-like investment plan, in which a portion of a worker's earnings is invested in the stock market, and the worker gets that investment at retirement. This plan is aimed at short-term employees.

Weatherford wants new workers to be on the less popular investment plan, which he said is what 90 percent of the private sector is already doing.

"The idea of a defined benefit plan is old and archaic,” Weatherford said at a Nov. 13, 2012, news conference with reporters.

His call for reform comes at a tenuous time. The Florida Supreme Court has yet to issue its ruling on the state's last attempt to shake up the retirement plan for 560,000 state and local employees.

The 2011 law

In his first year in office, Scott called for a 5 percent pension contribution for employees.

The Republican-dominated Legislature passed an expansive law that, among other adjustments, cut public workers' salaries by 3 percent to offset the state's contribution to the pension fund.

Employees' paychecks are automatically deducted 3 percent, regardless of the plan, with the state contributing between 3.3 and 4 percent.

Scott's signing of the bill into law was enough to move this campaign promise to Promise Kept on our Scott-O-Meter.

"It is unfair for public sector employees to have a guarantee that the private sector does not," Scott wrote while approving the letter at the time.

Court developments

A month later, the Florida Education Association sued Scott over the law. FEA President Andy Ford said the law "breaks promises made to these employees when they chose to work to improve our state."

In March 2012, a Leon County Circuit Court judge agreed. In her ruling against Scott, Judge Jackie Fulford called the law an "unconstitutional taking of private property without full compensation” that violated employees' collective bargaining rights.

"The 2011 Legislature, when faced with a budget shortfall, turned to the employees of the State of Florida and ignored the contractual rights given to them by the Legislature in 1974,'' she wrote.

She ordered the state to return the money -- with interest. The state appealed the decision.

"I don't understand the ruling. It doesn't make any sense to me," Scott said on the day of Fulford's ruling. "We are appealing it and I'm sure it will be held constitutional, but think of the adverse impact it has on our state. ... That plan is getting more unfunded every year."

The First District Court of Appeals allowed the case to go directly to the Florida Supreme Court, which heard oral arguments in September. (Read a Tampa Bay Times/Miami Herald recap of some of each side's points here.)

Scott and legislators who supported the plan said the decision would create a $1 billion hole in the 2011-12 budget and another $1 million gap in the 2012-13 budget, plus a  $600 million blow for counties with employees in the retirement system.

Weatherford's policy idea

It's unclear how the Supreme Court's decision could influence the legislation Weatherford wants passed. Legislation has not yet been filed.

Doug Martin, a lobbyist for the American Federation of State, County and Municipal Employees, told the Tallahassee Democrat that making new hires take the investment option would hurt the retirement system. As fewer workers pay into the pension fund, more retirees would withdraw money, he said.

"Closing the pension plan to new hires would destabilize it and add billions in costs over the next couple of decades," Martin said, according to the Democrat. "It would create a spiraling unfunded liability."

Weatherford asked the Department of Management Services to study the financial impact of closing the pension plan to new members effective Jan. 1, 2014. The study is due Feb. 15, 2013.

What's the rating?

To recap: The 2011 law that cut public salaries to offset the state's pension contribution has been ruled unconstitutional by one judge. The state Supreme Court has not yet issued its ruling on the appeal.

And the new House speaker wants pension reform talks in the mix during the 2013 legislative session.

The court's decision or legislative action could affect this rating down the line. For now, it remains Promise Kept.