Paying More for Less: Florida Senate Bill Increases Pension Costs and Puts More Employees in Underperforming Retirement Plans

Authors: 
Stephen Herzenberg
Publication Date: 
April 25, 2013

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Read our policy brief on the Florida House legislation to restructure the state's pension system at a greater cost to taxpayers

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Executive Summary

The Florida pension debate has refocused on a Senate proposal that would reduce the share of new Florida public employees who receive a defined benefit pension based on the employee’s salary and years of service. The Senate proposal would increase the share of new hires that participate in Florida’s 401(k)-type defined contribution retirement plan, which defines only the amount contributed by employer and employee each year. 

The Senate proposal is a less dramatic restructuring of pensions than a House proposal that would eliminate entirely the defined benefit option for new employees. Nonetheless, the Senate proposal still flies in the face of the results of Florida’s real-world experiment with a defined benefit pension and a defined contribution retirement plan, which showed the superior performance of the defined benefit pension over the past decade. The Senate plan also contradicts a larger body of research documenting the cost-effectiveness of defined benefit pensions and would harm taxpayers, employees, and schools and other public employers seeking to retain talented workers.

The Senate proposal would:

  • Shift more public employees into individual accounts that experienced lower investment returns than the state’s defined pension plan from 2004 to 2012;
  • Increase the cost to taxpayers of both Florida’s defined contribution and defined benefit retirement plans;
  • Result in more teachers, police officers, and other public servants having defined contribution retirement plans that are less likely to provide them with an adequate retirement income; and  
  • Make it more difficult for Florida schools and other public employers to hold onto high-quality employees.

Because shifting employees from defined benefit to defined contribution plans increases taxpayer costs and results in lower-quality pensions, a dozen states that considered this option chose instead to maintain their defined benefit plan as the primary (and usually the only) option.

The Senate proposal is also unnecessary because Florida has one of the healthiest public pension funds in the nation, one of only 11 states to receive the highest rating (“solid performer”) from the Pew Center on the States.

Read the Full Policy Brief

Read the Press Release