Senator Offers Reasonable Approach to State Retirement Changes

Francine Hern, a 22-year veteran teacher from Fairfield Middle School in Tallahassee, told the committee that she makes $42,000 a year and loves her job.
?I would like those of you in the private sector with similar time invested in your career to think about the income you write on your income-tax statement.

Something tells me you write something different,?? she said. ?This is the difference between the public sector and the private sector.??

This exposes the problem of salary distortion caused by pension systems. If teachers and other state workers were paid up front for their services, it would be much simpler to address possible pay inequalities. But since a large percentage of their pay is in the form of a deferred payment calculated using weird formulas, life expectancy, and average pay over short period of time far in the future, it's impossible to assess what these folks actually make for a living. As Mrs. Hern's comments illustrate, even the employees don't have a clue. This is why the defined benefit system needs to be replaced.

When you sign up for retirement in the Florida state system, they actually give you an option of whether you want to select the defined benefit or defined contribution option, complete with nice charts & graphs of different retirement benefits you can select under different scenarios. Employer contribution into either option is the same dollar amount. If you're planning to be in the system for the long haul, even the optimistic projections for the defined contribution option put you at something like 30% less of a monthly pension amount than if you opt for the FRS defined benefit option.

Under the current rules, defined contribution only really makes sense if you're planning on being a short-timer, since it's only one year to vest for the defined contribution option compared to six to vest for defined benefit.

When you sign up for retirement in the Florida state system, they actually give you an option of whether you want to select the defined benefit or defined contribution option, complete with nice charts & graphs of different retirement benefits you can select under different scenarios. Employer contribution into either option is the same dollar amount. If you're planning to be in the system for the long haul, even the optimistic projections for the defined contribution option put you at something like 30% less of a monthly pension amount than if you opt for the FRS defined benefit option.

Under the current rules, defined contribution only really makes sense if you're planning on being a short-timer, since it's only one year to vest for the defined contribution option compared to six to vest for defined benefit.

First, I would LOVE to see those graphs. 😀

Second, if we can get everyone into a system where their annual pay reflects what they really make, it would be much simpler to adjust for discrepancies. Based on my own back of the envelope math, I have no doubt the DCP provides less income. (The DBP represents a very cushy benefit for full timers.) But what the DCP does do is make it possible for us to understand what people actually make. Once we get there, THEN we can figure out if we need to adjust salaries to insure we pay people a compelling wage. You can't do that with a plan like the DBP.

Basically, the DBP makes it impossible to even have a discussion of salary, because nobody really knows what people make! How can you negotiate from a position like that?

Here's my plan:

1) There are only 2 categories - regular employees and high risk. All politicians and judges are regular employees.
2) Everyone contributes 5% to their retirement plan.
That means regular employees get just over 5% contributed by taxpayers, high risk get 10-15% from taxpayers.
3) The cost savings from #1 are used to give merit based raises to improve pay for teachers etc.
4) The cost savings from #2 are what helps balance the budget.

Here's my plan:

1) There are only 2 categories - regular employees and high risk. All politicians and judges are regular employees.
2) Everyone contributes 5% to their retirement plan.
That means regular employees get just over 5% contributed by taxpayers, high risk get 10-15% from taxpayers.
3) The cost savings from #1 are used to give merit based raises to improve pay for teachers etc.
4) The cost savings from #2 are what helps balance the budget.

This sounds like a good compromise, everyone keeps something they want and everybody loses something. Can we send you to Tally to help fix things?

this entire attack on state pensions is going to end up in the courts

IIRC, the DBP isn't that obtuse. From what I remember a few years ago, it is 1.6% times the average of your six highest grossing years times the number of years you worked in the FRS system. Someone please correct me if I am wrong. Like BM said, you also have to be vested by serving at least 6 years.

There are some collective bargaining agreements for state/local employees floating around out there that have a few years left on them, and the retirement contribution issue is probably covered as part of the CBA in many cases.

IIRC, the DBP isn't that obtuse. From what I remember a few years ago, it is 1.6% times the average of your six highest grossing years times the number of years you worked in the FRS system. Someone please correct me if I am wrong. Like BM said, you also have to be vested by serving at least 6 years.

FF2 helped me to understand this, and I did a rough calculation in the protest thread:

Have a little bit more understanding about Floridas system, so let me give you a little insight as I understand it. First Teacher recieve a 1.6 percent per year of work and is based on the annual final compensation of the highest 5 of last ten years. As for insurance workers in the Florida Retirement System are given a $5 per year of work to go towards insurance. If you don't have health insurance you do not recieve this supplement. So a Teacher who is able to retire at 55 at the average salary of $55000 per year, based of 27 years that this Teacher got their job directly out of college, will recieved if my math is correct $23760 and because they are able to afford insurance they will recieve $135 per month that offsets their cost. I would venture to guess many teachers do not retire at 55 and many will work much longer. This is closer to what they are paying the average starting teacher.

Lets assume they work for thirty three years (22 -> 55) and live to 82. Their top base salary when they leave (in 2010 dollars) would be 61K. So...


1.6% * 33 = 53% * 61K = 33K + (($5 * 33 = $165) * 12) = 35K


Retirement years would be about 28, so 28 * 35K = $980,000.00.


Take that and devide it by the number of years worked: $980,000.00 / 33 = 30K.


So their actul salary is whatever they make annually plus $30,000.00 in future benefits.


So a Walton County teacher with a BA really makes 65K to start, and at retirement, they'll be making about 100K.

This didn't take into account things like survivor benefits, or DROP participation, or overtime pay in those last five years.. the number is probably higher, my numbers were a base assuming no funny business.

The problem (obviously) is that unions and their participants like to concentrate on the base salary. But really that's just one chunk of what these folks make. Which is why I'd like to see more transparency on the issue, so taxpayers know what they (and future generations) are actually paying these folks for the work they do.

That to me seems like a reasonable request.