Research Update:Local Government Retirement Obligations

David Matkin, Ph.D.Assistant Professor

Askew School of Public Administration & PolicyFlorida State University

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Agenda

• Legislative Update (6 slides)

• Report on Municipal Pensions (5 slides)

• Other Retirement Related Studies (1 slide)

• Mapping Project (1 slide)

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Recommendations for local governments on retiree benefits:

1. The minimum age before a retiree qualifies for benefits should be gradually raised. A reasonable age to begin receiving benefits could be approximately 60.

2. Localities should not include overtime or additional earnings/bonus pay in the base salary used to calculate pension benefits.

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Legislative Update (1/6)

Legislative Update (2/6)

Legislative Action Change

Employee contribution: 0% to 3% for all employees

Base calculation: High 5 to High 8 (new only)

Vesting Period: 6 yrs to 8 yrs (new only)

Normal Age (regular class): 62 with 6 yrs to 65 with 8 yrs OR

30 years to 33 years (new only)

Normal Age (special-risk class): 55 with 6 yrs to 60 with 8 yrs OR

25 yrs to 30 years (new only)

COLA 3% to none after July 2011 (reinstated 2016)

DROP Interest Rate 6.5% to 1.3% (new DROPs)

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• Florida Retirement System

• Municipal Pension Systems

Legislative Update (3/6)

Legislative Action Change

Employee contribution: Allowed to increase without benefit increase

Base calculation: Cap overtime at 300 hrs (new agreements)No sick leave in baseNo annual leave in base

Vesting Period: N/A

Normal Age: N/A

COLA N/A

DROP Interest Rate N/A

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Recommendations for state and local governments on administration andtransparency:

1. Municipalities should set a minimum contribution rate to ensure minimal contribution levels during good years and reduce the need to significantly increase contributions during periods of fiscal stress.

2. The statutory restrictions on the use of premium tax dollars that link increases in tax premium funds to the provision of additional benefits should be reduced or removed. Municipalities and counties should be able to use premium tax dollars to cover their current pension obligations.

3. Localities should improve the accessibility of funding, actuarial reporting and liabilities information to its taxpayers.

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Legislative Update (4/6)

• Municipal Pension Systems

Legislative Update (5/6)

Legislative Action Change

Transparency: DMS fact sheet & publish on internetActuarial dataMinimal funding levelHistory of funding level

DMS rating system

Actuarial comparison to FRS rate of return

Taskforce to study disability presumption

Investment surplus constraints Surplus must remain in plan

Must pay normal cost at a minimum

Municipal Pension Boards Easier to change municipal representation

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Recommendations for state government on health benefits:

1. Among other options, Florida lawmakers should give much consideration to repealing current Florida law requiring the implicit subsidization of healthcare benefits for Florida local governmental retirees.

2. State oversight by a relevant state agency should be provided in statute to manage local retiree health benefit obligations. This agency should establish standards and provide technical assistance, if desired, to local government staff and local officials.

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Legislative Update (6/6)

Report on Municipal Pensions (1/5)

• Draft report by Garrett and Jed

• FY2009 snapshot

• Largest 100 Cities in Florida

• Approximately 204 DB pension plans

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Report on Municipal Pensions (2/5)

• Defined Benefit Plan Grades

• Funded ratios (assets/liabilities)

• A (90-100+) 30

• B (80-89) 47

• C (70-79) 59

• D (60-69) 33

• F (0-59) 25

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Report on Municipal Pensions (3/5)

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Report on Municipal Pensions (4/5)

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Pension Costs by Type of Official in the Plan

General Police Fire Elected

$ 9,732.43 $ 22,715.34 $ 20,620.16 $ 13,556.24

Report on Municipal Pensions (5/5)

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Other Retirement Related Studies in Process (1/1)

1. What explains the growth of pension liabilities?

2. What explains the size of OPEB liabilities?

3. What explains the decision to fund OPEB liabilities?

4. Which governments reduced their OPEB liabilities prior to the adoption of the accounting standards and why?

5. Overview of primary considerations in the retirement benefit debate.

6. Study of best practices in local retirement systems.

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Mapping Project (1/1)

• Pew Center on the States

• Bill Gates

• The Florida Resources and Environmental Analysis Center (FREAC)

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