Proposed Changes to FRS

During the 2010 election, you heard candidates promising not to tax hard working citizens. Well, when they talk about hard working citizens it must not include public employees, because they are going to be taxed to do to fill budget holes.

When discussions began last fall about reforming FRS, we exposed the motivation behind the bill: balancing the state budget.

Now, legislators are no longer pretending. Public education employees are being taxed to run our schools.

The overall cut to education funding is over $1 billion from last year. Let’s break that down into how to zero that billion out:

$500 million through 3% employee contribution to FRS + $450 million through changes to COLA = $950 million

If they close DROP to new members they’ll have another $124 million. If they raise the retirement age that’s another $168 million. Add it all up and you have a balanced budget… without sharing the sacrifice across the voting population… and without enraging the Tea Party.

The Senate position on overall numbers for education reveals a better policy. This is true in both the K-12 sector and the higher education sector. In broad terms, the Senate places more funding in education and criminal justice. The Senate is more aggressive in cutting health care spending. The House spends more in health and human services and general government (roads, environment, etc). While the education spending proposals are fairly close, the overall budgets of the two chambers are farther apart with the Senate spending $3.3 billion more than the House.

House Position

Per Student funding $ 467.13
FRS employee contribution 3%
Total Education Funding $19.8 billion
Total overall funding $66.5 billion

Senate Position

Per Student funding $423.27
FRS employee contribution 3%
Total Education Funding Almost $21 billion
Total overall funding $69.8 billion

FRS pension changes within the budget bills: SB 7094

Here’s Pat Dix’s “down and dirty” summary of the Senate Budget Bill 7094 which will ultimately impact retirement:

1. Requires a 3% employee contribution by all employees, effective July 1, 2011.

2. Provides for the mandatory participation of new hires on or after July 1, 2011 in a defined contribution plan.

3. Vesting for current employees remains at 6 years (no change). For employees hired on or after July 1, 2011 (and will be forced into defined contribution plan), vesting will be phased in at a rate of 20% per year for 5 years (i.e., vesting in the employer share of contributions to the defined contribution plan).

4. Health Insurance Subsidy (HIS):

a. No changes for current employees (vested or not) who are hired before July.

b. No changes for current retirees

c. Continues HIS for new employees hired on or after July 1, 2011 (who will be forced to enroll in the defined contribution plan).

5. Phases out COLA for employees hired on or before June 30, 2011. Changes the COLA formula for FRS pension plan retirements so that service credit for COLA earned on or after July 1, 2011 is excluded. No change for current retirees.

6. Eliminates DROP effective July 1, 2011. No changes for current participants who will be allowed to continue to agreed upon DROP completion (usually 5 years).

7. Changes average final compensation (AFC) for all employees hired on or after July 1, 2011 (and who will be forced into the defined contribution plan) to

a. Eliminate annual leave and sick leave from computation of AFC,

b. Eliminate overtime payments in excess of 300 hours from computation of AFC,

8. Retirement eligibility remains unchanged for current employees. For new employees hired on or after July 1, 2011, retirement eligibility becomes age 62, or 6 or more years of service.