What a Ride! Legislative Changes to Governmental Pensions in Florida Bonni S. Jensen The Law Offices Of Perry & Jensen, LLC 400 Executive Center Drive, Suite 207 West Palm Beach, Florida

Laws Affecting Pensions HB 303 SB 1128 SB 1130 HB 1405 SB 2100 HB

And then there were 2 SB 1128 – addresses municipal, police and firefighter pension plans HB 2100 – addresses the Florida Retirement System (“FRS”) 3

SB 1128 – Section 1 – Actuarial reports and statements of actuarial impact review. ◦ Requires Plans to disclose the present value of the accrued benefits using the FRS rate of return. ◦ Currently, the FRS rate is 7.75%. ◦ Accrued benefits include vested and non- vested as well as the total benefits. ◦ Designed to promote comparability of plans. 4

IMPACT Will require a new page to the actuarial impact statement. State will provide the FRS rate of return on the state website. Calculation is performed using FASB 35. 5

SB 1128 – Section 2 – New subsection (11) which provides that: ◦ For service earned after July 1, 2011 OR ◦ Service earned under a collective bargaining agreement entered into on or after July 1, 2011 ◦ Benefits may be calculated using  Up to 300 hours of overtime (as provided for by the CBA or the Plan)  But not payments for accrued unused sick or annual leave 6

IMPACT Applies only to defined benefit plans. Does not apply to FRS. Bargaining parties need to be advised that for the next collective bargaining agreement, exclusion of sick and vacation hours needs to be bargained. Overtime over 300 hours may not be included ◦ If more than 300 hours can be worked, then system to exclude those hours needs to be designed. 7

SB 1128 – Section 2 – New subsection (12) which provides that: ◦ Actuarial or cash surplus may not be used to pay expenses outside of the Plan. 8

SB 1128 – Section 2 – New subsection (13) which provides that: ◦ An employer must annually pay at least the normal cost. ◦ Sections (1)(d) and (1)(d) requires the municipality to pay the normal cost and the amount required to fund any actuarial deficiency shown by an actuarial valuation. ◦ This section does not apply to FRS. 9

SB 1128 – Section 3 – Duties of Management Services ◦ Management services will provide a fact sheet for each governmental defined benefit plan. ◦ Fact sheet will summarize the plan’s actuarial status. ◦ Fact sheet will be posted on the Management services website. 10

SB 1128 – Secs. 4 & 8 – & Definition of Compensation For service earned and collective bargaining agreements in place before July 1, 2011, definition of compensation remains the same as it was before July 1, For service earned after July 1, 2011 OR Service earned under a collective bargaining agreement entered into on or after July 1, 2011 ◦ Benefits may be calculated using  Up to 300 hours of overtime (as provided for by the CBA or the Plan)  But not payments for accrued unused sick or annual leave 11

IMPACT No change to minimums - Overtime is still a minimum for Police Officers but not for Firefighters. If no union representation, law is effective July 1, If there is a union contract and it addresses pensions, law takes effect when the new agreement is entered into. There is still discussion about effective date if the contract does not expressly include pensions. 12

SB 1128 – Secs. 5 & 9 – and Board of Trustees Applies to Boards in place on June 30, 1986 that have higher employee percentage than 40%. Allows only the municipal seat designations to be changed (For example replace the Mayor on the Board with another City representative). Firefighter, Police Officer and municipal representation percentages cannot be changed. Municipal representative must still be a resident. 13

SB 1128 – Secs. 6 & 10 – and Allows employee contributions to be increased without corresponding increase in benefits if: ◦ The collective bargaining representative consents OR, if not represented by a Union ◦ A majority of the members of the Fund approve. 14

Financial Rating of Pensions Department of Management Services is to create a plan to rate local government defined benefits pension plans. Local Governmental Plans shall cooperate in providing necessary information. Plan shall be submitted by January 1, 2012 to the Governor, the Speaker of the House and the President of the Senate. 15

Financial Rating of Pensions Considerations: ◦ Current and future unfunded liabilities ◦ Net asset value, managed returns and funded ratio ◦ Metrics related to sustainability, including employer contributions percentage of payroll ◦ Municipal Bond ratings ◦ Whether there is a reduced contribution rate when the plan has an actuarial surplus ◦ Whether the actuarial surplus is used for obligations outside of the pension plan 16

Task Force on Public Employee Disability Presumptions Task Force to look at the presumptions contained in Florida Statutes , , and Task force will be appointed on or before July 15, 2011 and will meet for the first time before August 15, Department of Financial Services shall provide administrative support. Report shall be submitted by January

Task Force on Public Employee Disability Presumptions - Members 3 appointed by the Senate President: ◦ One Attorney who represents Plaintiffs ◦ One representative of organized labor who is in a 175 plan ◦ A representative from the Florida Association of Counties 3 appointed by the Speaker of the House: ◦ One Attorney who represents Defendants ◦ One representative of organized labor who is in a 185 plan ◦ A representative from the Florida League of Cities A member employed by the Division of Retirement with experience in local government, appointed by the Governor A member employed by Department of Financial Services with expertise in state risk management appointed by the Chief Financial Officer 18

Task Force on Public Employee Disability Presumptions Considerations: ◦ Data related to operation of presumptions and fiscal impact to employers in pensions and workers compensation; ◦ Presumptions in other states; ◦ Proposals for change; and ◦ Evidentiary standards and burden of proof including consideration of blood cholesterol level, body mass index, history of tobacco and alcohol use and other medical conditions. 19

HB % employee contribution, beginning July 1, DROP participants will not contribute because they are retired for benefit accrual purposes. DROP interest rate is reduced to 1.3% (from 6.5%) for any member entering DROP on and after July 1, Cost-of-Living increase for service earned on and after July 1, 2011 is eliminated. The COLA crediting will return effective July 1, 2016, if funding is provided. 20

HB 2100 – New Hires after 7/1/11 Vesting 8 years – increased from 6 years Average Final Compensation period 8 years – increased from 5 years Normal Retirement increased to: ◦ Special Risk – Age 60 with 8 years of service or 30 years of service at any age ◦ All Other Classes – Age 65 with 8 years of service or 33 years of service at any age 21

2011 FRS Contribution Rates - Employer Regular Class 3.28% Special Risk 10.21% Special Risk Administrative 4.07% Elected Officers – State 7.02% Elected Officers – Judges 9.78% Elected Officers – County 9.27% Senior Mgt4.81% DROP 3.31% 22

2011 FRS Contribution Rates – Unfunded Actuarial Accrued Liability Regular Class 0.49% Special Risk 2.75% Special Risk Administrative 0.83% Elected Officers – State 0.88% Elected Officers – Judges 0.77% Elected Officers – County 0.73% Senior Mgt0.32% DROP 0.00% 23

2012 FRS Contribution Rates - Employer Regular Class 3.28% Special Risk 10.21% Special Risk Administrative 4.07% Elected Officers – State 7.02% Elected Officers – Judges 9.78% Elected Officers – County 9.27% Senior Mgt4.81% DROP 3.31% 24

2012 FRS Contribution Rates – Unfunded Actuarial Accrued Liability Regular Class 2.16% Special Risk 8.21% Special Risk Administrative 21.40% Elected Officers – State 21.76% Elected Officers – Judges 12.86% Elected Officers – County 22.05% Senior Mgt 10.51% DROP 6.36% 25

Questions ? 26