What a Ride! Legislative Changes to Governmental Pensions in Florida Bonni S. Jensen The Law Offices Of Perry & Jensen, LLC 400 Executive Center Drive,

What a Ride!What a Ride!

Legislative Changes to Governmental Pensions in Florida

Bonni S. JensenThe Law Offices Of Perry & Jensen, LLC400 Executive Center Drive, Suite 207West Palm Beach, Florida 33401561-686-6550/[email protected] 1

Laws Affecting PensionsLaws Affecting Pensions

HB 303SB 1128SB 1130HB 1405SB 2100HB 7241

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And then there were 2And then there were 2

SB 1128 – addresses municipal, police and firefighter pension plans

HB 2100 – addresses the Florida Retirement System (“FRS”)

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SB 1128 – Section 1 – SB 1128 – Section 1 – 112.63112.63Actuarial reports and statements

of actuarial impact review.◦Requires Plans to disclose the present

value of the accrued benefits using the FRS rate of return.

◦Currently, the FRS rate is 7.75%.◦Accrued benefits include vested and

non-vested as well as the total benefits.

◦Designed to promote comparability of plans.

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IMPACTIMPACTWill require a new page to the

actuarial impact statement.State will provide the FRS rate of

return on the state website.Calculation is performed using

FASB 35.

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SB 1128 – Section 2 – SB 1128 – Section 2 – 112.66112.66New subsection (11) which provides

that:◦For service earned after July 1, 2011 OR◦Service earned under a collective

bargaining agreement entered into on or after July 1, 2011

◦Benefits may be calculated using Up to 300 hours of overtime (as provided for

by the CBA or the Plan) But not payments for accrued unused sick or

annual leave

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IMPACTIMPACTApplies only to defined benefit plans.Does not apply to FRS.Bargaining parties need to be advised

that for the next collective bargaining agreement, exclusion of sick and vacation hours needs to be bargained.

Overtime over 300 hours may not be included◦If more than 300 hours can be worked,

then system to exclude those hours needs to be designed.

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SB 1128 – Section 2 – SB 1128 – Section 2 – 112.66112.66New subsection (12) which

provides that:◦Actuarial or cash surplus may not be

used to pay expenses outside of the Plan.

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SB 1128 – Section 2 – SB 1128 – Section 2 – 112.66112.66New subsection (13) which

provides that:◦An employer must annually pay at

least the normal cost. ◦Sections 175.091(1)(d) and 185.07(1)

(d) requires the municipality to pay the normal cost and the amount required to fund any actuarial deficiency shown by an actuarial valuation.

◦This section does not apply to FRS.9

SB 1128 – Section 3 – SB 1128 – Section 3 – 112.665112.665Duties of Management Services

◦Management services will provide a fact sheet for each governmental defined benefit plan.

◦Fact sheet will summarize the plan’s actuarial status.

◦Fact sheet will be posted on the Management services website.

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SB 1128 – Secs. 4 & 8 – SB 1128 – Secs. 4 & 8 – 175.032 & 185.02 Definition 175.032 & 185.02 Definition of Compensationof CompensationFor service earned and collective

bargaining agreements in place before July 1, 2011, definition of compensation remains the same as it was before July 1, 2011.

For service earned after July 1, 2011 OR Service earned under a collective bargaining agreement entered into on or after July 1, 2011

◦ Benefits may be calculated using Up to 300 hours of overtime (as provided for

by the CBA or the Plan) But not payments for accrued unused sick or

annual leave11

IMPACTIMPACTNo change to minimums - Overtime

is still a minimum for Police Officers but not for Firefighters.

If no union representation, law is effective July 1, 2011.

If there is a union contract and it addresses pensions, law takes effect when the new agreement is entered into.

There is still discussion about effective date if the contract does not expressly include pensions.

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SB 1128 – Secs. 5 & 9 – SB 1128 – Secs. 5 & 9 – 175.061 and 185.05 Board 175.061 and 185.05 Board of Trusteesof TrusteesApplies to Boards in place on June

30, 1986 that have higher employee percentage than 40%.

Allows only the municipal seat designations to be changed (For example replace the Mayor on the Board with another City representative).

Firefighter, Police Officer and municipal representation percentages cannot be changed.

Municipal representative must still be a resident.

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SB 1128 – Secs. 6 & 10 – SB 1128 – Secs. 6 & 10 – 175.091 and 185.07 175.091 and 185.07 Allows employee contributions to

be increased without corresponding increase in benefits if:◦The collective bargaining

representative consents OR, if not represented by a Union

◦A majority of the members of the Fund approve.

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Financial Rating of Financial Rating of PensionsPensionsDepartment of Management Services

is to create a plan to rate local government defined benefits pension plans.

Local Governmental Plans shall cooperate in providing necessary information.

Plan shall be submitted by January 1, 2012 to the Governor, the Speaker of the House and the President of the Senate.

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Financial Rating of Financial Rating of PensionsPensionsConsiderations:

◦Current and future unfunded liabilities◦Net asset value, managed returns and

funded ratio◦Metrics related to sustainability, including

employer contributions percentage of payroll

◦Municipal Bond ratings◦Whether there is a reduced contribution

rate when the plan has an actuarial surplus

◦Whether the actuarial surplus is used for obligations outside of the pension plan

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Task Force on Public Task Force on Public Employee Disability Employee Disability PresumptionsPresumptionsTask Force to look at the

presumptions contained in Florida Statutes 112.18, 175.231, and 185.34.

Task force will be appointed on or before July 15, 2011 and will meet for the first time before August 15, 2011.

Department of Financial Services shall provide administrative support.

Report shall be submitted by January 2012.

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Task Force on Public Task Force on Public Employee Disability Employee Disability Presumptions - MembersPresumptions - Members 3 appointed by the Senate President:

◦ One Attorney who represents Plaintiffs◦ One representative of organized labor who is in a 175

plan◦ A representative from the Florida Association of

Counties 3 appointed by the Speaker of the House:

◦ One Attorney who represents Defendants◦ One representative of organized labor who is in a 185

plan◦ A representative from the Florida League of Cities

A member employed by the Division of Retirement with experience in local government, appointed by the Governor

A member employed by Department of Financial Services with expertise in state risk management appointed by the Chief Financial Officer

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Task Force on Public Task Force on Public Employee Disability Employee Disability Presumptions Presumptions Considerations:

◦Data related to operation of presumptions and fiscal impact to employers in pensions and workers compensation;

◦Presumptions in other states;◦Proposals for change; and◦Evidentiary standards and burden of

proof including consideration of blood cholesterol level, body mass index, history of tobacco and alcohol use and other medical conditions.

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HB 2100HB 21003% employee contribution, beginning

July 1, 2011. DROP participants will not contribute because they are retired for benefit accrual purposes.

DROP interest rate is reduced to 1.3% (from 6.5%) for any member entering DROP on and after July 1, 2011.

Cost-of-Living increase for service earned on and after July 1, 2011 is eliminated. The COLA crediting will return effective July 1, 2016, if funding is provided.

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HB 2100 – New Hires after HB 2100 – New Hires after 7/1/117/1/11Vesting 8 years – increased from 6

yearsAverage Final Compensation period 8

years – increased from 5 yearsNormal Retirement increased to:

◦Special Risk – Age 60 with 8 years of service or 30 years of service at any age

◦All Other Classes – Age 65 with 8 years of service or 33 years of service at any age

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2011 FRS Contribution Rates 2011 FRS Contribution Rates - Employer- Employer

Regular Class 3.28%Special Risk 10.21%Special Risk Administrative 4.07%Elected Officers – State 7.02%Elected Officers – Judges 9.78%Elected Officers – County 9.27%Senior Mgt 4.81%DROP 3.31%

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2011 FRS Contribution Rates 2011 FRS Contribution Rates – Unfunded Actuarial – Unfunded Actuarial Accrued LiabilityAccrued LiabilityRegular Class 0.49%Special Risk 2.75%Special Risk Administrative 0.83%Elected Officers – State 0.88%Elected Officers – Judges 0.77%Elected Officers – County 0.73%Senior Mgt 0.32%DROP 0.00%

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2012 FRS Contribution Rates 2012 FRS Contribution Rates - Employer- Employer

Regular Class 3.28%Special Risk 10.21%Special Risk Administrative 4.07%Elected Officers – State 7.02%Elected Officers – Judges 9.78%Elected Officers – County 9.27%Senior Mgt 4.81%DROP 3.31%

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2012 FRS Contribution Rates 2012 FRS Contribution Rates – Unfunded Actuarial – Unfunded Actuarial Accrued LiabilityAccrued LiabilityRegular Class 2.16%Special Risk 8.21%Special Risk Administrative 21.40%Elected Officers – State 21.76%Elected Officers – Judges 12.86%Elected Officers – County 22.05%Senior Mgt 10.51%DROP 6.36%

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QuestionsQuestions

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