Preview of 2015 Retirement Legislation and Other Pension Developments

February 11, 2015

2015 Retirement Legislation

The 2015 legislative session begins on March 3 this year, and legislative committees began meeting this month. Based on comments of legislative leaders, it appears that both the Florida Retirement System and local government pension plans will once again be a focus of legislative activity. Several retirement related bills have already been filed, and one bill – SB 172 concerning police and firefighter pension plans, has already passed one Senate committee.

A summary of the legislation filed thus far follows. Copies of any bill can be obtained via the Internet, by accessing the Legislature’s website at www.leg.state.fl.us. Please feel free to contact us if you have any questions.

FRS Death Benefits – HB 39 (by Rep. Hill) / SB 136 (by Senator Hays)

These bills revise the FRS death benefits payable to law enforcement officers and firefighters who are killed in the line of duty or otherwise killed by reason of their employment. The bills provide a monthly benefit to the qualifying survivor in an amount equal to the member’s monthly salary at the date of death, payable for the lifetime of the surviving spouse.

Firefighter Pension Plans – HB 105 (by Rep. Eagle) / SB 216 (by Senator Bradley)

These bills would allow municipal service taxing units in unincorporated areas where a city provides fire services to participate in the premium tax funding program under Chapter 175, Florida Statutes.

Police and Firefighter Pension Plans – SB 172 (By Senators Ring and Bradley) / HB 341 (by Rep. Cummings)

These bills are basically the same as 2014 SB 246, which passed both the Senate and House in different forms, but ultimately did not pass the legislature. Cities and police and fire unions reached agreement on the legislation last year, but cities are opposing the bill this year.

The bills amend Chapters 175 and 185, Florida Statutes – the laws governing most local police and firefighter pension plans. The bills contain new rules for allocating premium tax revenues that provide some of the funding for these plans, as well as an option for deviation from the rules by mutual consent of the city/special district and the union representing the affected employees (or a majority of plan members if there is no union). In addition, the bills contain a grandfather clause for those cities and districts that have implemented pension changes in reliance on the “Naples Letter” interpretation of Chapters 175 and 185.

General Rules – Under SB 172/HB 341, the general rules for the use of premium tax revenues would be as follows:

  • Base premium tax revenues (the amount received for calendar year 1997) must be used to fund minimum benefits (same as current minimums except the minimum multiplier is increased from 2.0% to 2.75%) or benefits in excess of the minimums;
  • Premium tax revenues above the 1997 amount up to the amount received for calendar year 2013 must be used to fund benefits in excess of the minimum benefits.
  • Premium tax revenues above the 2014 amount: 50% must be used to fund minimum benefits or benefits in excess of the minimums as determined by the city or special district; and 50% must be placed in a defined contribution plan to fund “special benefits” (defined as benefits provided through a defined contribution plan).
  • Any accumulations of premium tax revenues that have not been applied to fund benefits in excess of the minimum benefits may be allocated by mutual consent of the city/special district and the union representing the affected employees (or a majority of plan members if there is no union). If mutual consent is not reached, 50% of the accumulated premium tax revenues must be used to fund special benefits, and 50% must be applied to reduce the unfunded actuarial liabilities of the plan.
  • For pension plans created after March 1, 2015, 50% of the premium tax revenues must be used to fund defined benefits, and 50% must be used to fund defined contribution plan benefits.

Benefit Reduction – The legislation also provides that benefits in excess of the minimum benefits (excluding any supplemental plan benefits in effect on September 30, 2014) may be reduced as long as the plan continues to meet the minimum benefits and standards in Chapters 175 and 185. However, if benefits were reduced the amount of premium tax revenues that were previously used to fund the benefits in excess of the minimums before the reduction must be used as follows: 50% to fund minimum benefits or benefits in excess of the minimums as determined by the city or special district; and 50% must be placed in a defined contribution plan. However, no benefits could be reduced if the plan did not meet the new 2.75% minimum multiplier.

Deviation from General Rules – the legislation provides that the general rules for the use of premium tax revenues could be modified by mutual consent of the city/special district and the union representing the affected employees (or a majority of plan members if there is no union), as long as the plan continued to meet the minimum benefits and standards of Chapters 175 and 185. If a plan did not meet the minimum benefits as of October 1, 2013, the plan could maintain the same benefit level and continue to receive premium tax revenues.

Grandfather Clause – the legislation provided that a city or special district that implemented or proposed changes to a local law pension plan based on the Division of Retirement’s interpretation (i.e., the Naples Letter) of Chapters 175 and 185 on or after August 14, 2012 and before March 3, 2015, could continue such changes in effect until the earlier of October 1, 2018 or the effective date of a collective bargaining agreement that modified the changes. The city or special district’s reliance on the Division of Retirement’s interpretation would have had to be evidenced by a letter from the Division, or a collective bargaining agreement or proposal dated before March 3, 2015.

Local Pension Plan Mortality Tables – SB 242 (by Sen. Brandes)

This bill would require all local pension plans to use mortality tables consistent with those in the most recent FRS valuation report.

FRS Reemployment After Retirement – HB 333 (by Rep. Lee)

This bill would delete current provisions of the FRS statute that require retired members to have at least a six month break in service following retirement before being employed by another FRS employer.

Florida Court Upholds City Pension Reform

Last month the Florida Third District Court of Appeal upheld a lower court ruling that a city did not violate the law by implementing collectively bargained pension changes despite a provision in the plan that required approval by two-thirds of active plan members. General Employees Retirement Committee v. City of North Miami Beach, 151 So. 3d 1271 (Fla. 3d DCA 2014).

Many years ago the city adopted a provision as part of its pension ordinance that required all pension plan amendments to be approved by two-thirds of active plan members. In 2013 the city reached agreement with the union representing its general employees on a number of pension changes, which reduced the unfunded liability of the plan and city’s required contributions. However, the two-thirds member approval provision was not included in the changes agreed to by the union. The agreed pension changes were approved by an overwhelming majority of bargaining unit members in the contract ratification process, in accordance with the collective bargaining law. The city then adopted an ordinance containing the agreed pension changes, as well as a provision repealing the two-thirds member approval process. Notwithstanding the repeal of the member approval process, the pension board submitted the pension changes to a vote of the plan members, who voted against the changes by a wide margin. The pension board then took the position that the pension changes were invalid, and refused to implement the changes.

The city filed a declaratory judgment action seeking a judicial determination that the pension changes were valid, and the pension board was required to implement them. The trial court entered summary judgment in favor of the city, and the pension board appealed. On appeal, the district court reiterated the holding of other Florida courts that the city was permitted to prospectively amend the pension plan, and to collectively bargain such changes consistent with the city’s budget. The court noted its 2012 decision in City of Miami Beach v. Board of Trustees of the Miami Beach Police and Firefighters Pension Fund, 91 So. 2d 237 (Fla. 3d DCA 2012), which held that a city charter provision requiring a referendum of city electors to approve pension changes violated the collective bargaining rights of city employees and the city. The court found the effect of the two-thirds member approval requirement in the pension plan to result in the same violation of collective bargaining rights as the referendum requirement in the Miami Beach case. The district court also concluded that, just as the city had the authority to adopt the member approval process, it had the same undivided authority to eliminate that process by ordinance.

State Sends Warning Letter to Underfunded Pension Plans

On January 27, 2015, the Florida Department of Management Services sent letters to 19 local pension plans, focusing on the fact that the plans have a “funded ratio” (assets divided by liabilities) of less than 50%. The letters, signed by recently appointed DMS Secretary Chad Poppell, point out that the plan’s underfunded status could negatively affect the plan’s ability to meet its future obligations to retirees. The letters refer to section 112.61, Florida Statutes, which requires government retirement plans to be funded in a fair, orderly, and equitable manner by current, as well as future, taxpayers. The letters note that the statute also prohibits the use “of any procedure, methodology, or assumptions the effect of which is to transfer to future taxpayers any portion of the costs which may reasonably have been expected to be paid by the current taxpayers.” The letters request that the plan “consider taking action to prevent future taxpayers from incurring costs.” The letters further ask that the plan “immediately notify all active and retired members regarding the plan’s condition, and what actions will be taken to improve it.”