Hooray for the editorial “Appeal adverse pension ruling,” which called for an appeal of a circuit court judge’s ruling that the state cannot require government employees to contribute 3 percent of their pay toward their retirement plans. This contrasts with the article “Pension ruling was a victory for state worker’s rights” (March 8), which seemed to favor the ruling. The article cited the case of a teacher who “said the forced contribution has taken a $1,300 bite out of her $43,000 salary.”

Simple grade school math indicates the state is contributing $43,333 toward her retirement pension. (Where X = the pension contribution, then the formula is $1,300 = .03X; solving for X yields the formula X = $1,300/.03. Therefore X = $43,333.33 as the total pension contribution). Over 25 years, that amounts to $1,083,325 as the pension pool unadjusted for inflation.

More importantly, I understand that municipal employee pension plans are primarily defined benefit plans that guarantee a certain pension amount, adjusted for inflation, unlike most private plans that depend on the value of the contributions upon retirement.

Legislature cut pay to balance budgets, but will pay workers back from retirement funds

It was the victory that wasn’t for teachers, prison officers and other public employees.

After taking a bruising in the Legislature the past couple of years, their unions won a lawsuit Tuesday that struck down a 2011 law requiring them to contribute 3 percent to their state pension fund.

Which will feel like a 3 percent raise for teachers and social workers who haven’t had a real one in four to five years, assuming the ruling survives appeal. The circuit judge also ordered the Legislature to pay back government workers some $800 million it ordered deducted from paychecks since 2011, plus interest. That will feel like a bonus.

But government workers and taxpayers would get something else, too: A weaker pension fund with nearly $1 billion more per year in unmet liabilities. Attorneys for Gov. Rick Scott have appealed.

“The money will come out of their pension plan,” Scott told me by phone Friday. “It’s their money. If they don’t want to have money in their fund, they can take it out.”

The judge’s ruling Tuesday revealed last year’s pension reforms what they really were, an illegal shell game with no purpose other than an across-the-board reduction in pay for state and local government workers.

“Basically, they got a 3 percent pay cut, I can’t deny that,” said Judy Preston, Brevard Public Schools’ associate superintendent for financial services.

You see, the money taken out of public workers’ paychecks merely supplanted the dollars that state and local governments used to pay in on their behalf. Senate Bill 2100 let the Legislature, school boards and county commissioners use the savings to balance budgets as they saw fit. No additional money went into the pension fund to strengthen it.

Raising the stakes: The Legislature last year cut school boards’ share of contributions to the Florida Retirement System by another 2.8 percent. The move created money for operations without putting new tax dollars into education, Preston said.

And taxpayers would have been none the wiser, as long as the game continued. According to the State Board of Administration, which manages the FRS, the fund was one of the “most well-funded and healthiest public pension funds in the United States.”

But the courts broke up the game. Now, everyone could lose.

As Scott told me the state has no plans to reverse and grow public employers’ previous contributions.

Which means last year’s pension “reforms” actually leave the state retirement fund worse than before. Unfunded liabilities could grow by a billion dollars per year, something new for Florida. When that happens, the state pays retirement benefits from everyday taxes and fees.

“Whoever filed that lawsuit, I don’t think they realized what they were doing,” Scott said.

Five strikes

To the courts, the issue is not whether it’s reasonable to ask firefighters and librarians to contribute a modest 3 percent of their pay to retirement savings.

The problem, according to Circuit Judge Jackie Fulford’s order, is that the Legislature’s shell game violated employees’ contract and broke the law. Her ruling Tuesday in Leon County said:

• The Legislature violated the 1974 law in which it created a “noncontributory” retirement plan for public workers. That law calls the plan a contract. Thus, lawmakers had no right to also cancel cost-of-living adjustments under the pension.

• The reforms, sponsored in the House by Rep. Ritch Workman, R-Melbourne, also violated the Constitution, which says the Legislature can’t pass new laws excusing it from contracts it doesn’t like. It CAN create new terms for new hires.

• Attorneys for Scott and the Legislature failed to make the case that the reforms serve a “compelling state interest” with no reasonable alternative.

• The reforms amount to an illegal “taking” of the employees’ contractually earned property, no different than condemning someone’s land without paying for it.

• The 2011 law also violated the workers’ constitutional rights to collective bargaining.

“The costs of the changes to the individual plaintiffs ranges from $12,445 to $329,683 over the span of their working years and retirement,” the judge’s order says.

Meaning of ‘contract’

Scott’s appeal in the case could take months, so the 3 percent deductions will continue for now, and local paychecks won’t inch up anytime soon.

The Brevard School Board has not yet formulated a response to the ruling, Preston said. But she warned that if the state refunds the pay as 2011 income, about 10,000 Brevard County teachers, counselors, custodians and lunch ladies may have to refile their income-tax returns.

Beautiful.

(Full disclosure, I’m married to a teacher who does our taxes.)

But the pension changes had to be overturned “as a matter of law,” Judge Fulford wrote.

“To find otherwise would mean that a contract with our state government has no meaning, and that the citizens of our state can place no trust in the work of our Legislature.”

Sun Sentinel Editorial Board

March 11, 2012

Not being attorneys, we’re not going to argue the points of law in a potentially damaging and costly ruling by the circuit court this week. We, instead, will support Gov. Rick Scott’s vow to appeal a ruling that would strike a necessary requirement that public employees contribute to their pension funds.

On Tuesday, a Leon County circuit judge ruled the requirement, approved by the state last year, violated both a collective bargaining agreement and employees’ contracts. If the decision stands, the very necessary savings from the change — $1 billion a year — would be lost.

There’s a lot at stake, and we believe the requirement is critical enough to Florida’s fiscal health to spend time, energy and dollars appealing the ruling.

We understand the opposition from public employee unions, such as the Florida Education Association, which brought the lawsuit that resulted in the ruling. The 3 percent requirement constitutes a pay cut, and it does alter the terms of employment.

The truth of the matter, however, is the state needs to make this change. It’s a fiscal necessity.

Because of the 2011 pension reform in Tallahassee, school districts and municipalities across Florida got access to hundreds of millions of dollars to spend on necessities or to fill budget gaps.

Across the country, the terms of all kinds of collective bargaining agreements, and pensions, have been altered. Florida taxpayers will, understandably, have a tough time accepting that public contracts are cast in iron while theirs are subject to change.

Certainly, the broader public understands the need for pension changes. A case in point is Hollywood, where last September, residents overwhelmingly voted to scale back benefits for public workers despite a hard sell by the unions.

Now, of course, the healthiest way to have done this would have been for the state and the different unions to have negotiated the change. But, of course, the atmosphere for such negotiations was clouded by unnecessary public policy proposals, such as the insulting call for drug testing of state employees. We get that.

It would also have helped matters if the state had followed up on last year’s 3 percent requirement with additional reform proposals. Especially considering that 401(k) plans, the staple of private insurance reforms, may be phased out because they are much less effective in generating retirement savings for lower income workers. That’s no small consideration if the state government ever expects to move new employees to pensions that depend more on private plan-like features.

So, instead, we’re left with a legal battle that could take a year — and the state Supreme Court — to iron out. Given what’s at stake, the state has no other choice but to appeal and defend it’s position as aggressively as necessary.

Not the smartest, or least costly way to achieve an end, but the only visible recourse right now.

Copyright © 2012, South Florida Sun-Sentinel

State Pension Watchdog: Legislature Missed Opportunity for Reform

Seems I’m not alone in my concern for the direction and sustainability of Florida’s retirement system. Robert McClure, a Ph.D. member of Floridians for Sustainable Pensions (FSP) has just released a statement on the opportunities lawmakers missed to deal with the crisis during the 2012 legislative session.

“Opportunities for immediate and significant fiscal relief again fell to the wayside this legislative session as pension reform measures were passed over,” McClure said in a statement. “As private-sector retirement benefits continue to wane indicating a still distant economic revival, it is only fiscally responsible to Florida taxpayers that public pension reform take place.”

McClure certainly gets it. Florida needs to get its system in line with those in the private sector.

He offers FSP’s main recommendations for reform:

• “Make the defined contribution/investment plan the default option for new hires who don’t express a preference
• “Limit employees switching between plans to the first year of employment
• “Lengthen the defined benefit/pension plan vesting period from 8 years to 10
• “Apply the above reforms to municipalities”

McClure also references Circuit Judge Jackie Fulford’s recent court ruling on public employee pension contributions.

It “could further debilitate already weakened state and local governments,” he says, “forcing more layoffs and cuts to critical community services. We are pleased the state swiftly appealed this ruling as the Florida Legislature was in the right in taking initial steps to fix a system that is outdated and in danger of being insolvent.” For a legal analysis of Judge Fulford’s ruling, read “Should Judge Fulford Be Unheld …”

McClure concludes, “It is our hope for the sake of all Floridians, young and old, that the court decision will be overturned and that the Florida Legislature will take up these further pension reform measures in the 2013 Legislative Session.”

At the same time she delivered a jolt of oxygen to a deflated state Democratic Party.

Now look at them. The Dems and the unions — symbiotic black holes in the eyes of fiscal conservatives — are downright giddy. Judge Fulford has them on a roll.

First, in late 2011 she sides with the Florida Police Benevolent Association, declaring privatizing state prisons unconstitutional. Then she makes the same “unconstitutional” declaration over the state’s claim that all its employees should pay 3 percent of their salary toward their pension.

I am not a legal scholar. I have no intention here of casting aspersions on Judge Fulford’s work. But I will say this: I am hugely relieved — make that overwhelmed with gratitude on behalf of my children and grandchildren — that the state is appealing both cases.

Florida has to fight back; the nation has to fight back. Public-employee pensions are killing us.

It once was that unions were “trade unions.” They represented a largely powerless, voiceless army of blue-collar workers. That just isn’t true anymore. They truly are redefined. The majority of union members in America today are white-collared, college-educated and work for the government, where they receive an average of $123,049 annually in pay and benefits — twice the average of workers in the private sector.

These unions “contribute mightily” to help get liberal politicians elected, and those politicians vote to increase pay for public workers. The result is that some states are approaching default because of decades of fiscal malpractice. Florida isn’t there yet, but it’s on its way.

The Florida Association of Counties, for instance, noted that in 2010 the state’s collective unfunded pension liability rose to $17 billion (including $2 billion in the Deferred Retirement Option Program). Counties, cities and school districts, meanwhile, paid $2.6 billion in employee pension costs that year.

Try to get your head around the pension debt we’re looking at with this country’s 87,000 state, county and municipal governments and school districts:

“By 2013, the amount of retirement money promised to employees of these public entities will exceed cash on hand by more than a trillion dollars.”

That’s no fabrication. It comes from the Center for Retirement Research at Boston College, which recently released a disturbing analysis of 126 state and local pension plans. What did the center’s researchers find? In the wake of the stock market collapse pension program solvency hit a 15-year low, with no signs of improvement on the horizon. This means taxpayers will be left picking up the tab.

Simon Elliot, a pension fund manager for the state of Rhode Island now retired and living in Fort Myers, said the reason pension plans are headed toward financial disaster is simple. “Ever-expanding public-sector unions have flexed their political muscle and larded up with lavish benefits to be be paid out decades from now,” he explained.

“In a properly run, private-sector business, future retirement benefits are paid for using present-day contributions. This is not the case when lawmakers have the power to boost public-employee benefit packages while using accounting gimmicks to conceal and pass on the debt to future generations.

“I’m grateful we now have leaders in Florida who recognize what is happening,” Elliot told Sunshine State News on Friday. “Leaders who want to put the brakes on public-employee perks and cut the number of government employees.

“Whether Governor Scott and the state of Florida win or lose their appeal, it’s a good chance to make Floridians aware of the fact that they are directly paying the salaries of more than 650,000 people, and if we can’t ask employees to pay a little toward their pension contributions, our payroll in unsustainable.”

More than a year ago, a Florida TaxWatch study estimated that requiring new public employees to pitch in 5 percent of their salaries toward their own pensions — a policy in many other states — would save state government about $250 million a year and trim local expenses by $950 million. That’s what the governor had wanted originally.

Other TaxWatch recommendations included eliminating health subsidies and trimming retirees’ cost-of-living adjustment. TaxWatch calculated that limiting COLAs to inflation could save state and local governments $135 million in benefit payouts the first year.

Joe Kane, a retired senior analyst for the National Council on Aging, offered Sunshine State News these three principles for reforming what he calls “overreaching unions”:

• Get public-employee compensation back in line with the private sector and reduce the overall size of the federal civilian work force.
• Make sure the government uses the same established accounting standards that private businesses are required to use, so unfunded liabilities can be accurately assessed.
• End defined-benefit retirement plans for government employees. Defined-benefit systems have created a financial albatross for taxpayers.”

In the Fall 2011 issue of National Affairs, City College of New York political science professor Daniel DiSalvo writes scathingly about public employees’ pensions and the horror story that perhaps faces Florida.

“… Because many states’ pension commitments are constitutionally guaranteed,” says DiSalvo, “there is no easy way out of this financial sinkhole. Recent court decisions indicate that pension obligations will have to be fulfilled even if governments declare bankruptcy — because while federal law allows bankruptcy judges to change pension and health-care packages in the private sector, it forbids such changes in public employees’ agreements.”

Confront unions, policymakers must.

As Gov. Chris Christie recently said of his own bitter struggle with the public employees’ union, “If New Jersey doesn’t win this fight, there’s no other fight left.”

We won’t second-guess the legal merits of the circuit judge’s ruling that overturned the 2011 law requiring public employees to start contributing to their pensions. But we won’t hesitate to call the ruling, if it stands, a financial calamity for Florida.

The state has appealed; the case almost certainly will be settled by the state Supreme Court. If the ruling is upheld, it will cost state and local governments at least $1.4billion for this year, and billions more in the future. With cash-strapped governments still slashing basic services, the timing couldn’t be much worse.

The 2011 law, which we supported, required the 560,000 working members of the Florida Retirement System to start putting 3 percent of their salaries into their pensions. The law brought those state and local employees closer in line with their counterparts in most other states, where the average employee contribution is about 5 percent.

The law also treated public employees more like private-sector workers, who typically ante up for their retirement benefits and who also subsidize public pensions through their taxes. We found the law fair and fiscally responsible.

Tuesday’s ruling argues the law broke public employees’ “contractual rights” to receive a pension without contributing to it — a gift lawmakers bestowed during better times. If that argument prevails, it could mean any benefit for public employees, once provided, is irrevocable. If only private-sector workers were as fortunate.

If a Leon County circuit judge’s ruling is correct, then state employees enjoy far greater privileges than private employees, and state lawmakers’ historic powers are meaningless.

But we think the judge’s interpretation is too broad and urge that the ruling be overturned on appeal, which Gov. Rick Scott is pursuing.

Circuit Judge Jackie Fulford on Tuesday ruled that legislation adopted last year requiring state workers to contribute 3 percent of their salaries to their pension plans is unconstitutional. If upheld, the state would have to find $1 billion to repay workers’ contributions, plus interest, which would require layoffs and harsh cuts to public services.

The contribution requirement had been challenged by public employee unions that argued the move violated their contract, and Fulford agreed. “To find otherwise would mean that a contract with our state government has no meaning, and that the citizens of our state can place no trust in the work of our Legislature,” she wrote.

That is a stretch. When state workers are hired they do not sign a contract guaranteeing the terms of their employment will never change. They are informed of what they are entitled to under the Florida Retirement System.

Benefits in the private sector are always subject to revision. Why should government workers be different?

The legislation did not affect the pension benefits employees had already earned. It mandated that in the future, public workers contribute to their retirement — just as private-sector workers do.

State agencies are required by law to negotiate in good faith with unions, and Fulford made the point that lawmakers imposed the change without such discussions.

But though state agencies develop pay and benefit recommendations after meeting with union representatives, lawmakers are under no obligation to honor those agreements. The Legislature generally ignores them.

It is illegal for state workers to strike. Moreover, it’s estimated that fewer than half of state workers are active union members.

So it seems to us the judge is creating a binding contract on the Legislature where none existed.

Without question, the 3 percent contribution represented a hardship on state workers, who have not received a raise in almost six years. And public employees can question the fairness of being forced to pay into their retirement fund when current retirees did not.

But private workers can show them life is not fair. The sour economy is forcing businesses and their workers to make unprecedented sacrifices. Jobs have been eliminated, and salaries have been reduced. Public employees should not be exempt from such economic realities.

It is not in taxpayers’ or government workers’ best interests to allow the state’s pension obligation to balloon unchecked.

Florida’s pension plan is in relatively good shape — covering about 85 percent of its liabilities. But only a few years ago it had a surplus, and without action its financial condition will continue to deteriorate as more workers retire.

The 3 percent contribution provides a means to ensure the Florida Retirement System’s financial security.

Florida needed to address the growing pension obligation. The Legislature has the authority to determine employment standards for the state. Scott and lawmakers are right to contest the judge’s faulty findings.

Manatee County’s 1,600 employees are among about 600,000 state and local employees who are members of the Florida Retirement System.

In a dramatic defeat for the governor and the Florida Legislature, Fulford ruled Tuesday that the decision last year to cut public employee salaries was an unconstitutional breach of the state’s contract; she ordered the money returned with interest.

The judge concluded the Florida Legislature’s decision to cut salaries 3 percent without renegotiating employee contracts violated the rights of FRS participants.

During the 2011 legislative session, the change had saved the state $1 billion, and saved local governments $600 million.

Gov. Rick Scott immediately vowed a swift appeal, accusing Fulford of ignoring 30 years of Supreme Court precedent.

“The trial court’s decision has been appealed to the appropriate Florida appellate court, which results in an immediate stay of the order,” said Kristopher Purcell, director of communications for the Florida Department of Management Services.

“Accordingly, while the stay remains in effect, no changes to benefits or deductions are being made,” he added.

Meanwhile, local officials are scrambling.

“I know that the county administrator will present to the board a balanced budget with a contingency for this,” Azzara said, noting that the county’s $451.3 million budget for this fiscal year continues through September.

During the past five years, the county has already cut $140 million, or about 24 percent of its annual budget, due to diminishing revenues, he said.

Read more here: http://www.bradenton.com/2012/03/08/3925092/manatee-county-may-have-to-refund.html#storylink=cpy

Florida’s pension reform law that requires state and local government employees to pay into their retirement plan was ruled unconstitutional on Tuesday by a Leon County judge who raised the question of whether the work of the Legislature can be trusted.

Lawmakers have chuckled for years over the standing joke that nothing is safe when the Legislature is in town. But a judicial ruling that questions the Legislature’s right to make decisions is not a joking manner.

In her ruling as reported Wednesday in The St. Augustine Record by the News Service of Florida, Circuit Court Judge Jackie Fulford of the Second Circuit in Leon County, wrote “The Court cannot set aside its constitutional obligations because a budget crisis exists in the State of Florida.” Further, she said, the legislative action “constitutes an unconstitutional impairment of plaintiffs’ contract with the state of Florida, an unconstitutional taking of private property without full compensation, and an abridgment of the rights of public employees to collectively bargain over conditions of employment.”

She could have stopped right there. But Fulford’s ruling also stated that it “would mean that a contract with our state government has no meaning, and that the citizens of our state can place no trust in the work of our Legislature.”

No trust in the work of our Legislature? By whose standards?

The Florida Legislature created the collective bargaining process in 1974 but as state revenues began to fall and huge shortfalls emerged, the 2011 Legislature swept through all corners of the state government for relief. The state pension program had suffered from bad investments already and needed a major fix.

Gov. Rick Scott, who advocated state and other government employees pay into the Florida Retirement System, pushed the Legislature last year to adopt a plan by July 1. It was the right thing to do. The state was facing a $3.6 billion deficit in its budget and the Florida Retirement System was in danger of being insolvent because it was down by $1 billion. No one wants an insolvent retirement system.

Florida Education Association, the state’s largest teacher union, cheered the ruling after participating in the lawsuit. “They gambled taxpayers’ money that they could balance the budget on the backs of the hard-working public employees of this state,” said attorney Ron Meyer, who represented the plaintiffs in the case. “They lost that bet today.”

Scott promised a “swift appeal” but not without chastising the court. “This is another example of a court substituting its own policy preferences for those of the Legislature,” he said.

We agree. Either the Legislature is going to make the laws or the court is. We prefer the Legislature which deals more directly with the issues and holds public hearings.

In other states, and we have heard numbers from our officials ranging from 40 to 46, employees pay into their retirement plans. We are not sure why Florida public employees cannot.

The appellate court should reverse Judge Fulford’s ruling. The state needs its retirement system to be solvent.