florida municipal pensions: not yet stockton but for s ome, moving t hat way

Florida Municipal Pensions:Not Yet Stockton but For Some,

Moving That Way

University of North Florida - Foundations of Local GovernmentAugust 17, 2012

Carol S. Weissert, PhDDirector and Professor of Political Science, Florida State University

David S. T. Matkin, PhDResearch Fellow and

Assistant Professor of Public Administration, Florida State University

LeRoy Collins Institute

• State-Local Relationships• Pensions and Health Benefits First Issue• Early work (Feb. 2011) retirement benefits as

percent of local spending

LeRoy Collins Institute and Florida Municipal Pensions

• In 2009 average annual retirement obligations for cities accounted for 8.3 percent of spending—and growing

• Includes both pensions and OPEBs (mostly health benefits)

Total Pension Contributions as a Proportion of Total Governmental Expenditures Cities and Counties 2003-2009

But in Florida There are some cities in Trouble

• Nearly one-third of Florida’s 100 largest municipalities have funding ratios of less than 70 percent.

• Variation whether plans are general employee or public safety ones

Grades & Participant Type

Costs Per Participant

• “A” Plans $5,786• “F” Plans $26,305

• General Employees $9,297• Police $15,245• Firefighters $17,819• Police&Fire $21,738

• Jacksonville general employees “C”• Jacksonville police and fire “F”• Jacksonville Beach police, fire “C”• Jacksonville Beach general employees “B”

• Jacksonville General Employees $5,725• Jacksonville Police&Fire

$26,323• Jacksonville Beach General $2,572

• Jacksonville Beach Fire $6,272

• Jacksonville Beach Police $6,076

Why the Variation?

• Mismanagement of pension plans– Pension holidays – Poor investment decisions– Miscalculation of expected returns

• Spiking • Difficulties with renegotiating contracts

Pension Holidays

• Miami Beach --no funding 2001-2003• Jacksonville

Poor Investment Decisions

• Auburndale—solely in currency• Winter Springs—overestimated expected

returns

Spiking

• Miami Beach• Coral Gables

Actions Will Be Taken

• Hollywood special election• New Smyrna Beach special election• Pembroke Pines, Miami, Hollywood filed for

financial urgency

Reforms to Reduce Costs

• Increasing employee contributions• Cutting pension benefits• Eliminating Cost of Living adjustment• Changing calculation of final benefits• Increasing retirement age• Switching from DB to DC

Increasing Contributions

• New and old employees (Bradenton, Cape Coral and Winter Springs)

• Along with a pay increase (Delray Beach and Lakeland and Coral Springs)

• For new hires only (Palm Beach Gardens)

Altering COLs

• Elimination (Hollywood, New Smyrna Beach)• Frozen COL (Temple Terrace)• Lowered (Coral Springs; Palm Beach Gardens)

Calculation of AFC

• Limit overtime (Winter Springs)• Decrease multiplier (Winter Springs, Coral

Springs)• Base salary only (Coral Springs)• Reduce maximum benefit (Palm Beach

Gardens)

Age Requirements

• Raise retirement age (Hollywood and New Smyrna Beach)

• Increase number of years to be eligible (Palm Beach Gardens)

Switch to Defined Contribution

• Lakeland (optional for current employees)

Indirect Activities

• Reducing payroll expenses• Reducing staff• Cut salaries of new hires• Reducing holiday pay

Collins Institute Recommendations

• Eliminate spiking• Age can receive retirement benefits should be

60• Municipalities need to contribute in good

economic times and bad.• State premium tax allocation should be

revised• Public informed early and easily

Details on Pension Trends

• How much of problem due to stock market fall?

• What trends are evident that political leaders should be aware of?

30

40

50

60

70

80

90

100

110

120

130

Per

cent

Fun

ded

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010excludes outside values

Entry Age Normal Cost MethodFunding Ratio

2,000,0004,000,0006,000,0008,000,000

10,000,00012,000,00014,000,00016,000,00018,000,000

2004 2005 2006 2007 2008 2009 2010

2012 Dollars

Median Dollars by Asset Type for General Employee PlansMarket Value of Assets

EquitiesCash & EquivalentsFixed Income

2,000,0004,000,0006,000,0008,000,000

10,000,00012,000,00014,000,00016,000,00018,000,000

2004 2005 2006 2007 2008 2009 2010

2012 Dollars

Median Dollars by Asset Type for Public Safety PlansMarket Value of Assets

EquitiesCash & EquivalentsFixed Income

0

.2

.4

.6

2004 2005 2006 2007 2008 2009 2010excludes outside values

Median Share of Payroll for General Employee PlansAnnual Pension Contribution

0

.2

.4

.6

.8

2004 2005 2006 2007 2008 2009 2010excludes outside values

Median Share of Payroll for Public Safety PlansAnnual Pension Contribution

.05

.1

.15

.2

.25

.3

2004 2005 2006 2007 2008 2009 2010

Median Share of Payroll by Contribution Source for General Employee PlansAnnual Pension Contribution

City Portion Employee Portion

.05

.1

.15

.2

.25

.3

2004 2005 2006 2007 2008 2009 2010

Median Share of Payroll by Contribution Source for Police PlansAnnual Pension Contribution

City Portion Employee Portion Other Portion

.05

.1

.15

.2

.25

.3

2004 2005 2006 2007 2008 2009 2010

Median Share of Payroll by Contribution Source for Firefighter PlansAnnual Pension Contribution

City Portion Employee Portion Other Portion

0

200,000

400,000

600,000

800,000

2004 2005 2006 2007 2008 2009 2010

2012 Dollars

Median Dollars by Contribution SourceNormal and UAAL Contributions

Normal ContributionUAAL Contribution

Trends?

• Underfunding not new in Florida municipalities

• Pension contributions increased substantially• Local governments are picking up more of the

pension costs, especially public safety• Growth in proportion of pension plan retirees

Contact LeRoy Collins Institute

• Office, 850-644-1441

• Carol Weissert, cweissert@fsu.edu

• David Matkin, dmatkin@fsu.edu

• http://collinsinstitute.fsu.edu/