Rick Scott targets government pension plans as a way to cut costs, suggests employees should contribute

Gov.-elect Rick Scott is taking office next month with big plans to cut state spending.

One idea Scott has suggested is to cut $1.4 billion in state pension costs by making government employees contribute to their own retirement. Scott brought up the issue during the campaign and again on Dec. 14, 2010, in a meeting with state legislators.

"What do you all think about employees contributing to the pension plan?'' Scott asked legislators about ways to shrink state spending. "We are the only state in the country that state employees don't contribute'' to their pensions.

Last year, according to the Sarasota Herald-Tribune, the state and local governments contributed nearly $3.4 billion to the retirement fund, the Florida Retirement System. Governments typically contribute between 9 and 10 percent of an employee's annual income toward retirement. Employees are required to contribute nothing.

Is Florida the only state with a system like that?

Not quite, according to a PolitiFact Florida review of the state retirement systems of all 50 states. But Scott isn't far off either.

PolitiFact Florida individually researched the state retirement systems across the country, as well as consulted with Ron Snell, the director of state services for the National Conference of State Legislatures. Snell studies state pension and retirement systems.

Most state retirement systems are based on a defined benefit plan -- a system where the state multiplies an employee's years of service by salary and by some percentage to arrive at a pension amount. To qualify, employees have to be vested into the system -- meaning they work for the state for a certain number of years, often five. They also must contribute some percentage of their pay to the overall pension fund. (In most states, individual contributions don't fund the retirement, but go into the overall pension fund.)

A few states, however, have begun to adopt more private-sector-like 401(k) plans where the employee voluntarily contributes to a retirement fund and the employer either matches a portion of the contributions, or contributes on their own.  

And some states offer voluntary, optional 401(k) plans on top of a government pension.

With state revenue sources drying up, states have been moving away from 100 percent employer-funded pensions to plans where employees are required to contribute.

Missouri, for instance, will start making employees hired after Jan. 1, 2011, contribute 4 percent of their pay to their retirement plan, said Christine Rackers at the Missouri State Employees' Retirement System. Virginia lawmakers this year passed legislation requiring new employees to contribute 5 percent of their pay to their retirement. Current employees are operating under old rules where they do not have to contribute, though Virginia has discussed making them pay, too.

Wisconsin also passed legislation making workers pay toward the pension fund -- though their contribution is as little as .2 percent.

Where are governments still footing the entire bill?

The largest chunk of state employees in Utah are not required to contribute to their retirement. But a small percentage do.

In Tennessee, state employees and higher education employees are not asked to pay toward their retirement, said spokesman Blake Fontenay. But some local government employees and all K-12 teachers are required to contribute, Fontenay said. The state, back in 1981, discussed either having employees contribute toward their retirement or forgo a pay raise that year, Fontenay said. The government chose no raise.

And in Michigan, employees aren't necessarily required to contribute to their retirement because they have a traditional 401(k) plan, said Kurt Weiss with the state's Department of Technology, Management and Budget. The state contributes the equivalent of 4 percent of an employee's salary into a 401(k) regardless of whether the employee contributes. The state will then match up to an additional 3 percent employee contribution.

A few other states exempt certain, small classes of employees -- like public safety employees -- from having to contribute to their retirement. But in every case, the bulk of state employees are required to participate in the state retirement system through payroll deductions.

Wisconsin government analysts crafted a good synopsis of the state retirement plans in 2009 as that state was pondering changes. Contribution requirements are listed on Page 22.

A note: Our analysis isn't meant to say Florida's retirement plan is a better deal for state employees than employees in other state governments. It's entirely possible that other state employees receive better pensions than Florida workers, even after accounting for employee contributions. Our focus solely was on where employees are asked to contribute to their retirement. And as we previously pointed out, Florida has the lowest payroll expenditures per resident -- $38 -- in the country, according to the state Department of Management Services. The national average was $72 per resident.

Which brings us back to Scott's statement. In a meeting with state legislators, Scott suggested the state might save money by requiring state employees to contribute to their own retirement. Specifically, he said, that Florida is "the only state in the country" where government workers are not required to help fund their retirement.

Scott is largely on the mark.

Florida will be the only state, starting Jan. 1, 2011, where no one in the state retirement system is asked to contribute toward their pension. Two states -- Virginia and Missouri -- recently switched their retirement system meaning new hires will have to pay toward their retirement, but not existing employees. Michigan doesn't force its employees to participate either, but that state has a more private-sector-like 401(k) program. And Tennessee and Utah still do not require many of their state employees to contribute toward retirement, although other employees in those states do.

We rate this claim Mostly True.

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