Potential Changes to FRS

PCS HB 151 - An Act Related to the Florida Retirement System

The Proposed Committee Substitute for House Bill 151 makes several major changes in the law related to the Florida Retirement System. There is a similar bill in the Senate, SB 242, which is titled Cost of Living Adjustment of Florida Retirement System Benefits. The Senate bill has been assigned to three committees of reference and has not been heard or scheduled for a hearing as of this time.

PCS HB 151 has been heard and is moving in the House. The most current House Staff Analysis provides this helpful summary of the key elements of the bill. The Staff Analysis states that the bill:

“Restores a 3 percent cost-of-living adjustment (COLA) for eligible FRS pension plan members initially enrolled in the FRS before July 1, 2011. The bill limits the 3 percent COLA to the first $150,000 of annual benefit. For any benefit above $150,000, the COLA adjustment is limited to service credit earned for service prior to July 1, 2011.

Increases member contribution rates to better align with the benefits earned by each employee class.

Increases the allocations to the investment plan accounts for each membership class.

Closes the FRS Preservation of Benefits Plan to new members effective July 1, 2026.

Allows FRS retirees to receive both compensation from an employer that participates in the FRS and retirement benefits, provided the retiree is not reemployed within the 6 months following the date of retirement.

Authorizes certain elected officers that have completed a DROP participation period as of June 30, 2023, to remain in elective office and receive his or her accumulated DROP proceeds.

Adjusts the employer contribution rates for the FRS based on the annual actuarial valuation and additional actuarial studies.

Declares that the act fulfills an important state interest.”

The elements of the bill are technical, complicated and include some provisions that apply to a small number of FRS members in very specialized situations. At this stage of the process, we would like to focus on the elements of the bill that have the greatest impact on school district employees. We will start with the least complicated provisions of the bill.

First the statement that the bill “Increases member contribution rates to better align with the benefits earned by each employee class” means that the over 308,000 school district employees who are members of the FRS will pay higher FRS deductions from their paychecks to help pay for the increased benefits. Regular and senior management class employees, who make up almost all of the school district FRS members, will see their FRS costs increase from 3% to 4% of their gross compensation. A teacher earning a gross annual salary of $50,000 a year will see their FRS charges increase from $1,500 a year to $2,000 a year, an increase of $500, or 33.3%. The employee rate increase will generate about $334 million a year. $211 million of that cost would be paid by members of the Regular Class. Special Risk Class employees (for example police officers) would generate $111 million in new FRS revenues. Special Risk Class members receive much higher pension benefit multipliers and their employers pay much higher assessments.

The value of the FRS pension plan benefits will increase significantly with the very limited restoration of the Cost of Living Adjustment (COLA). Until 2011 all FRS employees and retirees received a 3% COLA at the beginning of each fiscal year. As the Legislature struggled to respond to the continuing impact of the 2007 recession, the COLA was ended of all new Pension Plan members joining after July 1, 2011. There was a prorated reduction of the COLA for FRS members hired before 2011, who were not yet retired.

The bill re-calculates the COLA for employees initially enrolled before July 1, 2011 to provide a full 3% COLA for the employees’ FRS benefits up to a benefit of $150,000 a year. For FRS pension benefits over $150,000 a year there is a formula to prorate and reduce the COLA applied to the benefits above $150,000. This change does not impact members whose effective retirement date was before July 1, 2011.

The bill has a provision on line 198 and 199 as follows: “2. For a member initially enrolled on or after July 1, 2011, equal the product of 3 percent multiplied by the quotient of the sum of the member's service credit earned for service before July 1, 2011, divided by the sum of the member's total service credit earned.” This apparently contemplates employees hired before July 1, 2011 and participating in the FRS Investment Plan choosing to switch the Pension Plan.

The bill does not provide for a COLA for an FRS Pension Plan member who was initially enrolled in the FRS on or after July 1, 2011. What the bill does for those employees is found in lines 203 to 207 of the bills. That language is provided below:

“(5) Beginning July 1, 2033, and annually thereafter, the division shall submit an actuarial analysis to the Legislature on the feasibility and cost of providing a cost-of-living adjustment for employees that initially enrolled in the Florida Retirement System after July 1, 2011."

However, all district employees hired after July 1, 2011 will be paying the 33.3% increase in the FRS assessment on their gross compensation.

There are two other provisions in the bill of general interest to school district employees.

First, employees enrolled in the FRS Investment Plan will see the amount of money placed into their personal investment plan increased. As of July 1, 2023 the Regular Class employees had 11.30% of their FRS gross compensation deposited into their retirement account. Of that amount 3% was the employee’s assessment, and the balance was from the employer’s assessment. The bill increases the deposit to 13.30% of the employee’s FRS compensation. Of that change, 1% is from the increase in the employee’s increased assessment, and the other 1% is from the employers’ contribution.

The other change will allow FRS retirees to both draw FRS retirement benefits and work for and be paid by an FRS employer six months after retirement. Previously the required time to establish termination was one year.

The staff analysis projects that for regular class employers school districts and other FRS employers will have their employer assessed combined total rates increase from 11.51% to 15.46%. Of course, employees will also have their rate increased from 3% to 4%.

The staff analysis estimates that the total cost of the employer FRS rate increase for school districts will be $701.5 million.

The House Staff Analysis begins with this statement: “The bill conforms law to the House proposed 2024-2025 General Appropriations Act (GAA) as retirement contributions are included in the GAA.” No separate reference to the FRS was found in that bill.

A review of the House proposed Florida Education Finance Program (FEFP) shows the following. The House proposed to increase FEFP Total Potential Funds by $1,822,692,781. Of that amount, $855,088,129 to pay for the increase in the Family Empowerment Scholarship program, leaving an increase of $967,604,632 in total potential funds for school districts. Based on the required expenditures in the proposed House GAA, school districts must spend the following:

• About $146,000,000 to pay for district student enrollment growth of about 16,400 UFTE.
• About $202,034,836 for the required increase in the teacher salary increase allocation.
• About $51,100,000 for the districts’ share of increases in required categorical funds.

Those provisions of the House GAA would reduce the total potential funds available to school districts by about $400,000,000.

That would leave about $567,604,632 to pay for the increase in FRS rates of $701.5 million and any other cost increases embedded in the required categorical expenses that were moved are to be paid for from the Base FEFP, other expenses generated by other requirements of law, and inflation related increases in district operating expenses.

It is also interesting to note that the House increased total state funds $1,277,576,218. Because FES scholarship payments can be made only from state funds, the increased costs of the FES consumed $855,088,129 of that amount leaving only $422,658,089 of state funds for districts to pay for state required increases in costs. The House did allow an increase in local funds of $544,946,543.

This bill and its Senate companion will be tracked carefully. The 2024 Legislative Session continues next week and we will keep you informed of all developments with this bill as well as FASA’s other priorities as we continue our advocacy efforts. Please look for calls to action from FASA as we continue our work on behalf of Florida’s school administrators.