A primer for FL pension changes

On Thursday, Gov. Rick Scott signed into law significant reforms to the Florida Retirement System, the state-run pension fund for 655,000 state and county employees. The governor said the changes were needed to bring state workers’ benefits in line with the private sector but the more immediate impact is a savings of $1.2 billion to the state budget. The changes take effect July 1. Here is a summary of the current law and what will change for current and future employees.

Contributions

Current law:

Employees pay no portion of their salaries into their retirement accounts. The retirement contribution is paid 100 percent by employers.

Changes:

Beginning July 1, 2011, all employees must contribute 3 percent of their pre-tax salaries into their retirement accounts, thereby saving the state the equivalent of that contribution. It is a net reduction in employee salaries and benefits.

The contribution will be made by all members of the FRS, with either defined benefit or defined contribution plans.

Cost-of-living adjustments

Current law:

Employees now accumulate an annual cost-of-living adjustment for their pension benefits based on their years of service, to be collected when they retire. For example, FRS members who retire before July 1, 2011, receive a 3 percent annual cost-of-living adjustment.

Changes:

Between July 1, 2011, and July 1, 2016, Florida Retirement System members will not accumulate years of service credits for their cost-of-living adjustments, thereby reducing their annual benefit.

The change will affect employees differently, based on their years of service. For example, FRS members with 20 years of service or less who retire after July 1, 2011, will receive an additional 2.4 percent in cost of living benefits upon retirement. Members with more than 20 years of service who retire after July 1, 2011, will receive less than 3 percent, depending on how many years of service they have. A member who now has 22 years of service, for example, and retires in three years (2014) would receive a 2.6 percent adjustment.

DROP (Deferred Retirement Option Program)

Current law: Members who enter DROP before July 1, 2011 will earn 6.5 percent interest on the money set aside under the retirement program.

Changes:

Members who enter DROP after July 1 will earn 1.3 percent interest on the retirement money set aside in the program.

New hires — Vesting and Retirement age

Current law:

Employees are eligible to be vested in the pension program after five years.

Regular class, senior management class and elected officials class employees can receive normal retirement benefits if they retire after 62 years of age and 30 years of service. Special-risk class can retire after 55 years of age and 25 years of service.

The average final compensation will be calculated on the best five years of salary.

Change:

Employees hired after July 1, 2011, will vest after eight years.

Employees hired after July 1 who are regular class, senior management class and elected officials class can receive normal retirement benefits if they retire after 65 years of age or 33 years of service. Special-risk class hired after July 1 can retire after 60 years of age or 30 years of service or, if they have served four years in the U.S. military, they can retire after 57 years of age and 30 years of service.

The average final compensation will be calculated on the best eight years of salary.