Sarasota County avoids pension quagmire

Thanks to a state-mandated retirement program, Sarasota County has sidestepped the unfunded pension liability headaches plaguing the city of Sarasota and municipalities across the country.

Unlike city employees, whose pensions City Hall sets and funds, county workers receive retirement benefits through a statewide program called the Florida Retirement System (FRS).

FRS is managed in Tallahassee and is mandatory for county governments, said Steve Marcinko, manager of employee health and benefits for Sarasota County.

Employees have two options, Marcinko said. They can choose a traditional pension, which determines the ultimate benefit payout based on years of service, or an investment plan that allows employees to manage an employer-funded investment account, similar to a traditional 401(k). State actuaries set the percentage requirement for employees’ contributions to the 401(k)-style plan in April, Marcinko said.

“Actuaries are transparent about the assumptions they use and their calculations,” Marcinko said.

“It’s a more stable system for pensions,” Marcinko added, comparing FRS to municipal pension programs like those in Sarasota and Detroit. “And it allows employees to have more flexibility with their retirement.”

FRS was ranked as a “top performer” in a 2012 Pew report on state pension programs.

According to a joint project between the Fiscal Times and the Center for Retirement Research at Boston College, FRS ranked among the top- 10, state-run pension programs in the country.

Marcinko said most county employees are happy with FRS benefits, and “there is a decent amount of transparency with where the money is going.”

FRS covers more than 600,000 state and local employees, with about 500,000 using the traditional pension plan.

The state-run program is 87% funded and is based on much more conservative assumptions than many municipal pension programs, said Sarasota County Commissioner Nora Patterson.

“FRS has been more responsibly managed than most municipal systems,” Patterson said. “When the economy crashed and assumptions about earnings weren’t taking care of the deficits, FRS was aggressive about raising the funding level.”

According to both Marcinko and Patterson, FRS is also less of a burden on county employee salaries compared with city employees’ salaries. County employees contribute 3% of their pay to the system; city workers pay 8%.

“The city’s pension plan is not sustainable,” Patterson said.

Another benefit to FRS, Patterson said, is that, if county employees want an increase in benefits, they have to argue their case in Tallahassee.

“There is always pressure to raise benefits that state leaders are more removed from, and they feel less pressure,” Patterson said. “I’m well aware of the issues of giving additional benefits when the economy is booming. I think the city got itself in a pickle with benefits that are too rich for the system to sustain.”

Sarasota City Mayor Shannon Snyder said a state-run program like FRS has the advantage of avoiding “petty local politics.”

“City Hall is all emotion and no reason,” Snyder said. “We don’t have the political will to address the unfunded pension problem.”

Snyder said he would support consolidating city pensions into the FRS system, but added there was no way to currently make that work. According to Snyder, municipal pension liabilities must be solvent before they can be consolidated into FRS. And City Hall is a long way from solvency, Snyder said.

Snyder advocates contracting out Sarasota Police services to the Sarasota County Sheriff’s Office so that new hires can be picked up by the FRS system, allowing the city to fully fund pension funds already promised to current Sarasota police officers.

“Half of the Sarasota Police Department will retire in five years,” Snyder said. “The best thing we can do is contract with the Sheriff’s Office. That’s where savings could come from.”

The city of Sarasota’s unfunded pension liability is estimated to be between $295 million and $376 million. City commissioners recently voted 3-2 to raise property taxes by 8.5% to fill a budget deficit.

The Sarasota City Commission will hold its annual State of the City’s Pension Plans workshop Aug. 23, to discuss the city’s pension programs. The meeting is open to the public.

Florida House Republicans proposed a controversial plan to close the FRS’ traditional pension plan to new members next year and move all future employees into the 401(k)-style plan. Republicans claim the proposal will save taxpayers $10 billion over 10 years, citing a study that Democrats dispute.

Democrats fear the change would disrupt the funding for employees already committed to the traditional pension program.

The proposed change would go into effect Jan. 1, 2014.

By the Numbers
Florida Retirement System
• Fifth-largest state pension program in the country
• About 1 million current members
• 20% of those covered are state government workers
• 48% are school board employees
• 22% are county employees
• $19.3 billion funding shortfall last year
• 87% funded

Contact Nolan Peterson at [email protected].