Around the net: Defined-benefit pensions

As politicians looking for budget savings and government employees concerned about future benefits prepared to battle over potential changes to the state pension system, lawmakers were told last week that Florida has typically done a better job than most states in funding its retirement system.

In an interview in The Wall Street Journal this weekend, former Gov. Jeb Bush said that by keeping the system well-funded during his tenure, the state managed to improve its credit rating.

Mr. Bush says that during his tenure Florida was “the only state to go from a double-A to a triple-A rating,” in part because state pensions were among the best funded in the country. “So when states come, hat-in-hand to Washington”, looking for money, Bush says, “I would hate to see the really bad drunks getting more bourbon while the states that have done the right thing are penalized.”

So new Republican governors should adopt rules for countercyclical budgeting and fully funded pensions? Too timid, Mr. Bush says.

“I would argue for the elimination of the defined-benefit pension system. Might as well just get right to the end of the conversation, that’s where this is all going.” Then, “figure out a creative way to deal with the unfunded liabilities.” That “means you have to take on the unions.”

Bush notes that New Jersey Gov. Chris Christie has so far “shown that you can take on these entrenched interests and be popular and sustain the efforts to change the state.”

According to a staff presentation given to the House Appropriations committee, the defined-benefits plan was more than fully funded between 1999 and 2008, but since then, market declines have taken a toll.

It has been underfunded in recent years, though it remains healthier than similar funds in many other states.

The strained state budget, combined with the struggles of local governments that participate in the system, has lawmakers looking to transform state employees’ benefits packages.

With defined-benefit plans, employees are guaranteed a set amount of retirement income, and if the state’s investments don’t perform well enough to pay retirees that amount, the government has to make up the difference.

With defined-contibution plans, employees bear the risk of retirement investments.

Moving from the former to the latter (as Bush proposes) and requiring employees to contribute to their retirement plans are among the ideas under consideration for reducing the state’s pension costs, which is part of Gov. Rick Scott’s plan for addressing the state’s budget shortfall.

Travis Pillow
Florida Independent

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