The public sector remains the last stand for the antiquated, lifetime career–focused approach to pensions. Nationwide, state-run pensions have accrued debts exceeding $1 trillion, generating massive new costs for taxpayers. Resolving this issue is not as simple as hitting the off switch on public pensions. Policy makers must grapple with organized union opposition to reform of public retirement plans. Even when plans are restructured to avoid future runaway costs, they are still obliged to fulfill the expensive benefits promised up to that point.
Florida lawmakers found themselves in this very position after the Great Recession, with pension debts exploding to over $38 billion in just one year. Since then, through more than a decade of reforms, the state has made admirable progress in ensuring the retirement plans for public workers don’t become an unbearable burden. Most notably, lawmakers took an important leap in directing most new workers to a 401(k)-like defined contribution plan, which does not impose funding risks on employers.
This shift to a defined contribution focus was a crucial step, but it also revealed that the contributions flowing into the plan were below the standards of a secure retirement. Industry experts call for contributions of at least 12 percent of pay to save for an adequate retirement. Most Florida employees were getting half that. Policy makers soon realized—thanks to warnings by Reason Foundation (the nonprofit that publishes this magazine) and other policy experts—that the current setup wasn’t built to last.
Seeing this threat to the long-term viability of Florida’s retirement system, Gov. Ron DeSantis proposed that state employers raise their contributions to their employees’ defined contribution plans. The Legislature passed bipartisan reforms in both 2022 and 2023 that helped the state go from the lowest defined contribution benefit in the country to near the middle of the pack.
Florida now has a more sustainable and affordable public retirement system—but will policy makers see these reforms to their end? Despite pension debts around $36 billion, Republicans and Democrats face pressure from public safety unions to add costly pension benefits. Several cost-saving reforms were undone for police and firefighters this last legislative session, and calls to bring back supplementary benefits—a move that could cost more than $3 billion annually—are likely to continue for the foreseeable future. Policy makers will need to remain dedicated to fiscal responsibility to avoid the pitfalls that created the billions in taxpayer-backed debt in the first place.
The post Public Pensions Threaten To Bankrupt State Governments. Florida Has an Answer. appeared first on Reason.com.
