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Tallahassee Democrat: Raymond Edmondson: Collins Institute gets it right on pensions
Saturday, September 21, 2013
The Florida Public Pension Trustees Association applauds the newest report released by LeRoy Collins Institute, “Doing it Right: Recognizing Best Practices in Florida’s Municipal Pensions” (August 2013).
The FPPTA has been a vocal critic of previous LeRoy Collins Institute reports, particularly the institute’s “Report Card” of municipal pension plans with which we took exception because of research methodology. In “Doing it Right,” the institute correctly focuses on best practices as a means to create strong and sustainable municipal public pension plans in Florida.
The FPPTA has been training and educating public pension trustees in the model of best practices for nearly 30 years. Long experience has taught us that local control and best practices are two of the most determinative factors in building efficient and effective defined-benefit pension plans for public workers.
We believe the institute got it right in identifying the types of problems that require reform to put local plans on the right track to long-term health.
This report identifies “spiking” as a significant contributor to unaffordable pension benefits, and we agree. Spiking is the practice of allowing workers to load up on overtime during the final years of employment to increase pension benefits that are typically calculated by a formula using the total number of years of service and average pay for the last three to five years of employment. In reality, public pension plans must be pre-funded to work as planned. There is no way to pre-fund a benefit that cannot be calculated in advance; and that goes for unused sick time and vacation time as well.
Another best practice identified in this report is having employers and employees make annually required actuarial contributions. Municipalities should make the annually required contribution as determined by the plan’s actuary each year, but there is no reason in good economic times the employer cannot make larger-than-recommended contributions — and that might be true for employees as well. A few years of higher-than-expected returns on investments will surely be met with years of lower-than-expected returns on investments.
The report also addresses the possibility of reforming public pension plans to limit cost-of-living adjustments and to lower anticipated returns on investments. Regarding these reform recommendations, we concur with the institute’s My View (“State Legislature should recognize local authority,” June 30) that expressed the importance of local control in making municipal governance decisions.
In that column, the institute’s authors wrote, “The rationale for giving local governments the authority to make decisions responsive to the needs of their constituents is clear: They reflect local conditions and values. They meet the needs of their citizens for services that may differ from the needs of citizens in other jurisdictions. … Giving local governments the ability to exercise policy functions also increases innovation, experimentation and local competition in the design and delivery of services.”
We couldn’t agree more on these points. The FPPTA supports the institute’s call for Florida lawmakers to consider the strength of best practices and the value of local governance in maintaining healthy public pension plans over the heavy hand of statehouse mandates.
Raymond Edmondson is CEO of the Florida Public Pension Trustees Association (http://www.fppta.org).