Pension Flexibility: Florida

Analysis of Florida's policies

Florida offers the option of a defined contribution plan or defined benefit plan for all teachers. Florida provides new teachers with very informative literature describing the advantages, disadvantages and estimated benefit payouts for each type of plan. New teachers choose one plan at the time of employment and are allowed to change their plan once during their active employment. Teachers who do not actively choose a plan default into the defined benefit plan. Florida teachers also participate in Social Security, so choice of retirement plans is particularly appropriate because teachers already participate in one mandatory defined benefit-style plan.

Florida's defined contribution plan is fully portable, flexible and fair to all workers.

Vesting in a defined contribution plan entitles teachers to permanent rights to their own contributions and any available employer contributions. Florida's defined contribution plan vests immediately for their own contributions and after year one for employer contributions. Teachers with at least one year of service in the defined contribution plan who choose to leave employment are fully entitled to the employers' 9 percent contribution and the applicable earnings at the time of withdraw. This is more generous than most other states and helpful to recruit teachers.

Florida's defined benefit plan is not fully portable, does not vest until year eight, and does not provide any employer contribution for teachers who withdraw their accounts. It also limits flexibility by restricting the ability to purchase years of service.

Vesting in a defined benefit plan guarantees a teacher's eligibility to receive lifetime monthly benefit payments at retirement age. Non-vested teachers do not have a right to later retirement benefits; they may only withdraw the portion of their funds allowed by the plan. Teachers in Florida hired since July 1, 2011 vest at eight years. Teachers who leave the system before vesting have limited options. According to a recent report, about 29 percent of employees in Florida's teacher-covered pension plan vest, meaning that 71 percent do not become eligible for a pension and, therefore, can only collect their refundable contributions.

Teachers in Florida's defined benefit plan leaving the system may not withdraw any employer contributions. Teachers contribute 3 percent of their salary to the pension system and withdraw their own contributions with no interest. This means that teachers who withdraw their funds accrue fewer benefits than what they might have earned had they simply put their contributions in basic savings accounts that earned interest. Further, teachers who remain in the field of education but enter another pension plan (such as in another state) will find it difficult to purchase the time equivalent to their prior employment in the new system because they are not entitled to any employer contribution. Teachers leaving the state, however, could use their one-time opportunity to switch to the defined contribution plan that provides greater portability, in which case teachers can claim both their own contributions and the employer contributions, plus investment gains/losses.

Florida limits teachers' flexibility to purchase years of service within its defined benefit plan. The ability to purchase time is important because defined benefit plans' retirement eligibility and benefit payments are often tied to the number of years a teacher has worked. Florida's plan allows teachers to purchase time for previous teaching experience, up to five years. While better than not allowing any purchase at all, this provision disadvantages teachers who move to Florida with more teaching experience. The state's plan also allows teachers to purchase time up to two years total for all approved leaves of absence, including maternity and paternity leave.

Citation

Florida Retirement System Pension Plan, Actuarial Valuation Report as of July 1, 2015. Aldeman, C. and Rotherham, A. (2014). Friends without Benefits: How States Systematically Shortchange Teachers’ Retirement and Threaten Their Retirement Security, Bellwether Education Partners.

Recommendations for Florida

Increase the portability of its defined benefit plan.
If Florida maintains its defined benefit plan, it should allow teachers that leave the system to withdraw employer contributions. The state should also allow teachers to purchase their full amount of previous teaching experience and decrease the vesting requirement to year three. A lack of portability is a disincentive to an increasingly mobile teaching force.

Offer a fully portable supplemental retirement savings plan.
If Florida maintains its defined benefit plan, the state should at least offer teachers the option of a fully portable supplemental defined contribution savings plan, with employers matching a percentage of teachers' contributions.

State response to our analysis

Florida did not respond to repeated request to review this analysis.

Updated: December 2017