News Column

Senator Simpson Proposes Defined Benefit Cash Balance Plan

February 13, 2014

TALLAHASSEE, Fla., Feb. 13 -- The Florida Senate Majority Office issued the following news release:

On Wednesday, the Senate Community Affairs Committee unveiled Senate Proposed Bill 7046, a defined benefit Cash Balance Plan. Senator Wilton Simpson (R-Trilby) authored this legislation.

"Right now, the State of Florida has $21.6 billion unfunded liability that requires an additional $500 million dollars from the taxpayers every year to fund the pension plan," said Senator Simpson. "Our goal is to reduce the State's risk so that we can keep the promise we've made to our public workers, while ensuring that future public employees will have access to a defined benefit plan. We will know if this legislation accomplishes that goal once the in-depth study is completed next month."

A cash balance plan is a defined-benefit retirement plan that provides employees with set contributions to a retirement account and a guaranteed rate of return. Employees also have the advantage of participating in market returns above the guaranteed amount. Like the current Florida Retirement System Pension Plan, a cash balance plan provides employees with a benefit that is guaranteed, but provides more portability for employees that leave government service for other career opportunities.

Under SPB 7046, most employees hired for the first time after July 1, 2015 will choose between the existing investment plan or this newly created defined benefit Cash Balance Plan.

Special risk employees hired after July 1, 2015 will be eligible to join the Investment Plan, Pension Plan or the defined benefit Cash Balance Plan.

The defined benefit Cash Balance Plan has a five year vesting period. The current Pension Plan has an eight year vesting period. The 3 percent employee contribution remains unchanged.

Under this defined benefit plan, the State guarantees employees at least a 2 percent rate of return. If the employee's retirement fund portfolio, managed by the State Board of Administration, earns more than 2 percent, 75 percent of that amount will go to the employee's retirement account and the other 25 percent is retained by the FRS to help offset the costs of the plan.

Guaranteeing a specific contribution toward retirement and a guaranteed level of return gives employees the stability they need to plan for retirement. Shifting a portion of the investment risk off the taxpayers will result in a healthy, sustainable Florida Retirement System for years to come.

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Source: Targeted News Service

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