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Slade O'Brien: Florida needs to focus its attention on pension reform

July 09, 2012

The following guest column appeared in Saturday’s Orlando Sentinel:

In Boca Raton, citizen activists are shining a light on pension and pay plans for members of the city’s firefighter union. With payments to firefighters on an unsustainable path, these citizens are pressuring city leaders to take action. Officials are getting the message: Boca Raton Mayor Susan Whelchel calls over-generous pensions “the elephant in the room” and has promised to make reform a priority.

Welcome to post-Wisconsin America. Following the June 5 election results in the Badger State, where Gov. Scott Walker survived a recall attempt led by labor unions who objected to his collective bargaining reforms, open and honest discussions of public sector pensions, pay and benefits are gaining steam.

Here in Florida, our elected officials should seize this momentum to bring sensible reform to public pensions.

The stand-off in Wisconsin between a Republican governor and Democratic-affiliated public sector unions might lead you to believe this debate is between conservatives and liberals.

But on the same day as the Wisconsin recall, voters in San Jose and San Diego, two cities in the heart of liberal California, voted to curtail pension benefits for city employees. In Illinois and New York, Democratic Governors Pat Quinn and Andrew Cuomo, respectively, are pushing their own reforms to public sector compensation.

The debate over public sector unions and pension reform is not a partisan dispute. The debate is between the unrealistic expectations of public employees and simple math; we simply can’t afford to pay so much for pensions and other benefits.

The reality is clear: rapid and unchecked growth in compensation for government workers and retirees is on a course to devour our economy.

In Florida, we should use this opportunity to put our public pension system on a sustainable course. The good news, such as it is, is that the Florida Retirement System (FRS) is doing better than pension funds in states like Illinois and New York. But the bitter fact is that “better than Illinois” isn’t much of a commendation. In fact, it’s estimated that the FRS has an unfunded liability of $16.7 billion.

Right now, the state contributes $5.5 billion per year to the FRS. But according to one recent study, the state needs to contribute $11 billion per year to keep the system on solid financial footing.

Worse yet, the state’s growth estimates for the fund rest on bafflingly optimistic assumptions. Currently, FRS assumes a 7.5 percent rate of return each year. If only that were so: for the last 12 years the average annual return has been only 3.3 percent. These anemic returns simply can’t keep pace with the demand for benefits by a growing pool of retired public workers. It’s a ticking time bomb.

But it doesn’t have to be that way. It’s time for Florida to lead on the path of reform. As part of a policy reform program that my organization, Americans for Prosperity, is advancing, we propose the state shift newly hired employees toward a defined-contribution plan, comparable to the 401(k) plans used in the private sector.

While the state currently offers a defined-contribution plan for public workers, only 16 percent of FRS members are enrolled in the plan. Under our proposal, all current FRS enrollees would maintain their current plan. But for new hires, we would phase out the expensive defined-benefit option in favor of a defined-contribution plan that gives workers more control over their retirement.

This shift would be a win for both taxpayers and public workers: taxpayers would realize savings as a smaller percentage of public dollars would be required to fund pensions, and public sector employees would enjoy the benefit of a retirement plan that they could take with them should they switch jobs.

Additionally, other states’ experiences show this reform works for taxpayers. In 1997, Michigan transitioned all of its newly hired employees to a defined contributions system. Since then, taxpayers in Michigan have saved between $2.3 and $4.3 billion, according to a study from the Mackinac Center for Public Policy.

Smart, sensible reform now will set the stage for a solid financial future for our state, while restoring taxpayers’ confidence in the pension system. Let’s act now.

View the article online HERE.

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