From the Orlando Sentinel By Stephen Hersenberg
A pension bill before the Florida Senate asks taxpayers to do something that will leave many of them scratching their heads: pay more for less. That’s the conclusion of a study I conducted for the Florida Retirement Security Coalition on the impacts of Senate Bill 1392.
The bill requires taxpayers to pay more to enroll a larger number of teachers, first responders and other public servants into a 401(k)-like retirement plan, in which those workers would receive less in retirement benefits years down the road.
Most public employees still take home a pension based on a percentage of their salary and years of service. Good pensions make up for public-sector salaries that are typically far below private ones, especially for college-educated teachers, professionals and managers.
In 2002, Florida moved cautiously toward shifting more public employees to 401(k)-type plans. The state allows employees either a guaranteed pension or their own individual accounts.
Since 2002, Florida’s split retirement-system plan has fared well despite rocky financial markets. The plan remains well above the 80 percent funded level considered healthy and is one of only 11 states to receive Pew Center on the States’ top rating of “solid performer.”
But now, the Senate is joining a national push aimed at undermining the retirement security of public-sector workers — by shifting toward 401(k)-type plans that provide no guaranteed pension and cost more.
The Senate plan would raise taxpayer contributions to Florida’s defined-contribution plan by 1 percent of salary — a $43 million annual taxpayer cost. It also makes the defined-contribution option the default for employees who do not choose a plan.
Paying to get more employees into the defined-contribution plan also raises the costs of the traditional pension by removing young employees who are less costly to taxpayers. With more members in the plan aging, fund managers will invest in less risky, more “liquid” assets, lowering investment returns and raising taxpayer costs.
Taxpayers would shell out more for the defined-contribution plan to push more young workers out of the traditional pension so that it, too, becomes more expensive. Wall Street gets more money to manage individual accounts and Main Street gets a lower retirement income.
Why is this a good idea?
Stephen Herzenberg is executive director of the Keystone Research Center in Harrisburg, Pa.