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Preserve kids’ future – Reform pensions
Tuesday, April 26, 2011 | Orlando Sentinel | By: J. Robert McClure III
Recently, the Florida Legislature celebrated Children’s Day at the Capitol. Legislators spent the day kissing babies, posing for photos with kids and giving speeches about how much they care about children.
Then, many lawmakers spilled their milk.
Bowing to pressure from powerful government-employee unions, the Florida House and Senate largely abandoned the simplest and most critical aspect of pension reform — ceasing the practice of pushing the costs of government pensions today onto the taxpayers of tomorrow, today’s children.
Gov. Rick Scott recently spoke at a press conference announcing the new coalition Floridians for Sustainable Pensions. The goal of FSP is to leave a legacy of sustainable pension plans to all future public- and private-sector Floridians, and its members realize after looking at a significant amount of data on pension issues, switching to a 401(k)-style plan is the best way to accomplish this.
Most people think of pensions as an elderly issue, not a children’s issue. Yet, few problems are apt to affect Florida’s youngest generations more profoundly than runaway government pensions.
Here’s why: For many years, politicians at the state and especially local levels have been making generous pension promises to government employees, figuring that future taxpayers — today’s kids — can be counted on to pay for them. As a result, many government pension funds in Florida are now woefully underfinanced, particularly at the municipal level.
Thankfully, a bipartisan group of reform-minded legislators introduced legislation which stipulated that, from now on, government employees would have to be paid in full today — not given an IOU they can cash in down the road at children’s expense. These and other reform-minded legislators sought to do in the public sector what almost all of the private sector has already done — replace defined-benefit pension plans with 401(k)-style, defined-contribution plans, at least for new employees.
Unfortunately, a series of amendments watering down these bipartisan proposals now means future Florida taxpayers — today’s kids — will have to bail out state and municipal pension plans that can’t deliver on their promises.
Hopefully, Scott can convince the Florida Legislature to go back to the drawing board and restore this key provision to pension-reform legislation. In addition to insisting that Florida’s state employees start contributing to their pension plans as government employees do in every other state, Scott has been supportive of a switch to 401(k)-style retirement plans for government workers in Florida.
Some have questioned whether switching from defined-benefit to defined-contribution plans for new employees would cost the state more money in the short run. The answer is no.
A 2011 Milliman actuarial study for the state Division of Management Services concluded that switching to defined-contribution plans for new employees would have no cost impact. Whether the state puts money into a defined-benefit plan or into a defined-contribution system, the size of the state’s outlay for retirement is the same.
Interestingly, Florida’s children are not the only ones who would benefit from such a switch.
Personal retirement accounts give public employees greater control over their old-age savings — which is especially helpful if and when they change jobs.
Moreover, ceasing all government IOUs protects Florida’s current pensioners from the fate that some former government employees elsewhere have faced. In two jurisdictions in Alabama and California, some retired government workers were left with nothing at all when their public pension plans went bankrupt.
Before the Florida Legislature finalizes its efforts to reform government pensions this year, it should go back to the drawing board and restore the switch from taxpayer-guaranteed pension promises to personal 401(k)-style retirement accounts. This would be good for Floridians of every age — especially the children that Florida politicians posed with recently at the Capitol.
Supporting a transition to defined-benefit pension plans ensures a stronger economic future for our children. Florida’s Legislature needs to clean up its spilled milk and get to work on this critical issue.
J. Robert McClure III is the president of The James Madison Institute, a public policy think tank in Tallahassee, and a member of Floridians for Sustainable Pensions.
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