This docum ent does not reflect the intent or official position of the bill sponsor or House of Representatives.
STORAGE NAME: h5007.APC
DATE: 2/10/2022
HOUSE OF REPRESENTATIVES STAFF ANALYSIS
BILL #: HB 5007 PCB APC 22-04 State-administered Retirement Systems
SPONSOR(S): Appropriations Committee, Trumbull
TIED BILLS: IDEN./SIM. BILLS: SB 7046
REFERENCE ACTION ANALYST STAFF DIRECTOR or
BUDGET/POLICY CHIEF
Orig. Comm.: Appropriations Committee 28 Y, 0 N Helpling Pridgeon
SUMMARY ANALYSIS
The bill conforms the law to the House proposed 2022-23 General Appropriations Act (GAA) as retirement
contributions are included in the GAA.
The Florida Retirement System (FRS) is a multiple-employer, contributory plan that provides retirement income
benefits for employees of the state and county government agencies, district school boards, state colleges and
universities, and it also serves as the retirement plan for participating employees of the cities, special districts,
and independent hospitals that have elected to join the system. Members of the FRS have two plan options
available for participation: the pension plan, which is a defined benefit plan, and the investment plan, which is a
defined contribution plan.
The Deferred Retirement Option Program (DROP) allows eligible members of the Florida Retirement System
to participate in the program and defer receipt of retirement benefits while continuing employment with his or
her Florida Retirement System Employer. Eligible members may elect to participate in DROP for a period not
to exceed a maximum of 60 calendar months.
The Department of Management Services (DMS) must provide an annual actuarial valuation of the FRS and
report the results to the Legislature by December 31 of each year. Thereafter, the Legislature uses the results
of the actuarial valuation to establish uniform employer contribution rates during the next legislative session to
ensure the FRS is funded in a sound actuarial manner.
The bill:
Modifies DROP to allow a member of the Special Risk Class who is a law enforcement officer to
participate for up to 36 calendar months beyond the 60-month period if he or she enters DROP on or
before June 30, 2028.
Increases the allocations to investment plan accounts by 3 percent for each membership class in the
investment plan.
Revises the employer contribution rates for the FRS based on the actuarial valuation and actuarial
studies.
Declares that the act fulfills an important state interest. It provides that a proper and legitimate state
purpose is served by the bill, which includes providing benefits that are managed, administered, and
funded in an actuarially sound manner.
The application of the rates will have a significant fiscal impact to funds appropriated by the Legislature
associated with employee salaries and benefits. Provisions of the bill relating to employer retirement
contribution rates will increase amounts FRS Employers must pay for employee retirement benefits. See Fiscal
Comments.
STORAGE NAME: h5007.APC PAGE: 2
DATE: 2/10/2022
FULL ANALYSIS
I. SUBSTANTIVE ANALYSIS
A. EFFECT OF PROPOSED CHANGES:
Background
Florida Retirement System
The Florida Retirement System (FRS) was established in 1970 when the Legislature consolidated the
Teachers’ Retirement System, the State and County Officers and Employees’ Retirement System, and
the Highway Patrol Pension Fund. In 1972, the Judicial Retirement System was consolidated into the
FRS, and in 2007, the Institute of Food and Agricultural Sciences Supplemental Retirement Program
was consolidated under the Regular Class of the FRS as a closed group. The FRS was amended in
1998 to add the Deferred Retirement Option Program (DROP) under the defined benefit plan and
amended in 2000 to provide a defined contribution plan alternative to the defined benefit plan for FRS
members effective July 1, 2002.
1
The FRS is a multiple-employer, contributory plan
2
governed by the Florida Retirement System Act.
3
As
of June 30, 2020, the FRS provides retirement income benefits to 635,266 active members,
4
447,770
retired members and beneficiaries, and 31,655 members in DROP.
5
It is the primary retirement plan for
employees of state and county government agencies, district school boards, state colleges, and state
universities. The FRS also serves as the retirement plan for participating employees of the 179 cities,
151 special districts, and two independent hospitals that have elected to join the system.
6
The membership of the FRS is divided into five membership classes:
7
Regular Class
8
consists of 541,698 members (85.27 percent of the membership). This class is
for all members who are not assigned to another class;
Special Risk Class
9
includes 74,355 members (11.70 percent). This class is for members
employed as: law enforcement officers, firefighters, correctional officers, probation officers,
paramedics and emergency medical technicians, among others;
Special Risk Administrative Support Class
10
has 98 members (0.015 percent). This class is for
former Special Risk Class members who provide administrative support within an FRS special
risk employing agency. Members of this class must maintain the certification required for their
former Special Risk Class position and be subject to recall into those positions if needed;
1
Florida Retirement System Pension Plan And Other State Administered Systems Comprehensive Annual Financial
Report Fiscal Year Ended June 30, 2021, at 35. A copy of the report can be found online at:
http://www.dms.myflorida.com/workforce_operations/retirement/publications/annual_reports [hereinafter Annual Report].
2
Prior to 1975, members of the FRS were required to make employee contributions of either 4 percent for Regular Class
members or 6 percent for Special Risk Class members. Members were again required to contribute to the system after
June 30, 2011.
3
Chapter 121, F.S.
4
As of June 30, 2021, the FRS Pension Plan, which is a defined benefit plan, had 458,689 members, and the investment
plan, which is a defined contribution plan, had 176,577 members. Annual Report, supra note 1, at 164.
5
Id.
6
Id., at 200.
7
Annual Report, supra note 1, at 167.
8
The Regular Class is for all members who are not assigned to another class. Section 121.021(12), F.S.
9
The Special Risk Class is for members employed as law enforcement officers, firefighters, correctional officers,
probation officers, paramedics, and emergency technicians, among others. Section 121.0515, F.S.
10
The Special Risk Administrative Support Class is for a special risk member who moved or was reassigned to a
nonspecial risk law enforcement, firefighting, correctional, or emergency medical care administrative support position with
the same agency, or who is subsequently employed in such a position under the FRS. Section 121.0515(8), F.S. STORAGE NAME: h5007.APC PAGE: 3
DATE: 2/10/2022
Elected Officers’ Class
11
has 2,095 members (0.33 percent). This class is for elected state and
county officers, and for those elected municipal or special district officers whose governing body
has chosen Elected Officers’ Class participation for its elected officers; and
Senior Management Service Class
12
has 7,875 members (1.24 percent). This class is for
members who fill senior management level positions assigned by law to the Senior
Management Service Class or authorized by law as eligible for Senior Management Service
Class designation.
Each class is funded separately based upon the costs attributable to the members of that class.
Members of the FRS have two primary plan options available for participation:
The pension plan, which is a defined benefit plan; and
The investment plan, which is a defined contribution plan.
Certain members, as specified by law and position title, may, in lieu of FRS participation, participate in
optional retirement plans.
FRS Investment Plan
In 2000, the Legislature created the Public Employee Optional Retirement Program (investment plan),
a defined contribution plan offered to eligible employees as an alternative to the pension plan. The
earliest that any member could participate in the investment plan was July 1, 2002. The State Board of
Administration (SBA) is primarily responsible for administering the investment plan.
13
The SBA is
comprised of the Governor as chair, the Chief Financial Officer, and the Attorney General.
14
A member vests immediately in all employee contributions paid to the investment plan.
15
With respect
to the employer contributions, a member vests after completing one work year with an FRS employer.
16
Vested benefits are payable upon termination or death as a lump-sum distribution, direct rollover
distribution, or periodic distribution.
17
Benefits under the investment plan accrue in individual member accounts funded by both employee
and employer contributions and investment earnings. Benefits are provided through employee-directed
investments offered by approved investment providers. The amount of money contributed to each
member’s account varies by class as follows:
18
11
The Elected Officers’ Class is for elected state and county officers, and for those elected municipal or special district
officers whose governing body has chosen Elected Officers’ Class participation for its elected officers. Section 121.052,
F.S.
12
The Senior Management Service Class is for members who fill senior management level positions assigned by law to
the Senior Management Service Class or authorized by law as eligible for Senior Management Service designation.
Section 121.055, F.S.
13
Section 121.4501(8), F.S.
14
Section 4(e), Art. IV, Fla. Const.
15
Section 121.4501(6)(a), F.S.
16
If a member terminates employment before vesting in the investment plan, the nonvested money is transferred from the
member’s account to the SBA for deposit and investment by the SBA in its suspense account for up to five years. If the
member is not reemployed as an eligible employee within five years, any nonvested accumulations transferred from a
member’s account to the SBA’s suspense account are forfeited. Section 121.4501(6)(b) – (d), F.S.
17
Section 121.591, F.S.
18
Section 121.72(5), F.S. STORAGE NAME: h5007.APC PAGE: 4
DATE: 2/10/2022
Membership Class Percentage of Gross
Compensation
1
Regular Class 6.30%
Special Risk Class 14.00%
Special Risk Administrative Support Class 7.95%
Elected Officers’ Class
Justices and Judges
County Elected Officers
Others
13.23%
11.34%
9.38%
Senior Management Service Class 7.67%
1
Includes the three percent employee contribution.
FRS Pension Plan
The pension plan is a defined benefit plan that is administered by the secretary of the Department of
Management Services (DMS) through the Division of Retirement (division).
19
Investment management
is handled by the SBA.
Any member initially enrolled in the pension plan before July 1, 2011, vests in the pension plan after
completing six years of service with an FRS employer.
20
For members initially enrolled on or after July
1, 2011, the member vests in the pension plan after eight years of creditable service.
21
A member vests
immediately in all employee contributions paid to the pension plan.
For members of the pension plan initially enrolled before July 1, 2011, normal retirement occurs at the
earliest attainment of 30 years of service or age 62.
22
For members in the Special Risk and Special
Risk Administrative Support Classes, normal retirement is the earliest of 25 years of service or age
55.
23
Members initially enrolled in the pension plan on or after July 1, 2011, must complete 33 years of
service or attain age 65, and members in the Special Risk and Special Risk Administrative Support
Classes must complete 30 years of service or attain age 60.
24
Deferred Retirement Option Program
The Deferred Retirement Option Program (DROP)
25
allows eligible members
26
of the Florida
Retirement System to participate in the program and defer receipt of retirement benefits while
continuing employment with his or her Florida Retirement System Employer. The deferred monthly
benefits accrue, plus interest, in the Florida Retirement System on behalf of the employer, including
interest, for the period of time the member participates in DROP. Upon termination of the employment,
the member receives the total DROP benefits and begins to receive the previously determined normal
retirement amounts.
27
Eligible members may elect to participate in DROP for a period not to exceed a maximum of 60
calendar months.
28
However, instructional personnel employed by the Florida School for the Deaf and
the Blind, instructional personnel in grades K-12, and personnel employed by a developmental
research school may participate in DROP for up to 36 calendar months beyond the 60-month period.
29
19
Section 121.025, F.S.
20
Section 121.021(45)(a), F.S.
21
Section 121.021(45)(b), F.S.
22
Section 121.021(29)(a)1., F.S.
23
Section 121.021(29)(b)1., F.S.
24
Section 121.021(29)(a)2. and (b)2., F.S.
25
Section 121.091(13), F.S.
26
Section 121.091(13)(a), F.S.
27
Id.
28
Section 121.091(13)(b)1.a.
29
Id. STORAGE NAME: h5007.APC PAGE: 5
DATE: 2/10/2022
Actuarial Study - Contribution Rates
Section 121.031, F.S., requires that an annual actuarial study of the FRS be provided by DMS and for
the results to be reported to the Legislature by December 31 of each year.
30
Thereafter, the Legislature
uses the report to establish the uniform contribution rates in law during the next regular legislative
session. The employer contribution rate is a blended contribution rate, which is the same percentage
regardless of whether the member participates in the pension plan or the investment plan.
31
The rate is
determined annually based on the actuarial study by DMS that calculates the necessary level of funding
to support all of the benefit obligations under the plan. FRS employers are responsible for contributing a
set percentage of the member’s monthly compensation to the division to be distributed into the FRS
Contributions Clearing Trust Fund.
Effect of the Bill
The bill increases the employer-funded allocations to investment plan accounts by 3 percent for each
membership class in the investment plan. The revised contribution percentage, by class, is as follows:
Membership Class Percentage of Gross
Compensation
1
Regular Class 9.30%
Special Risk Class 17.00%
Special Risk Administrative Support Class 10.95%
Elected Officers’ Class
Justices and Judges
County Elected Officers
Others
16.23%
14.34%
12.38%
Senior Management Service Class 10.67%
1
Includes the three percent employee contribution.
The bill modifies DROP to allow a member of the Special Risk Class who is a law enforcement officer
32
to participate for up to 36 calendar months beyond the 60-month period if he or she enters DROP on or
before June 30, 2028.
The bill revises the employer contribution rates for the normal costs and the unfunded actuarial liability
(UAL) of the FRS.
The bill declares that it fulfills an important state interest. It provides that a proper and legitimate state
purpose is served by the bill, which includes providing benefits that are managed, administered, and
funded in an actuarially sound manner.
SECTION DIRECTORY:
Section 1: Amends s. 121.091, F.S., relating to DROP for law enforcement officers.
Section 2: Amends s. 121.71, F.S., to set the employer-paid contribution rates to the FRS.
Section 3: Amends s. 121.72, F.S., providing increased employer-funded contributions to investment
plan member accounts.
Section 4: Provides that the act fulfills an important state interest.
Section 5: Provides an effective date of July 1, 2022.
30
Section 121.031(3), F.S.
31
Section 121.70(1), F.S.
32
The bill specifies that law enforcement offices must meet the criteria in s. 121.0515(3)(a), F.S. STORAGE NAME: h5007.APC PAGE: 6
DATE: 2/10/2022
II. FISCAL ANALYSIS & ECONOMIC IMPACT STATEMENT
A. FISCAL IMPACT ON STATE GOVERNMENT:
1. Revenues:
See Fiscal Comments.
2. Expenditures:
See Fiscal Comments.
B. FISCAL IMPACT ON LOCAL GOVERNMENTS:
1. Revenues:
See Fiscal Comments.
2. Expenditures:
See Fiscal Comments.
C. DIRECT ECONOMIC IMPACT ON PRIVATE SECTOR:
None.
D. FISCAL COMMENTS:
The bill revises the employer contribution rates for the FRS as determined by the July 1, 2021, Annual
Valuation necessary to adequately fund the program. The employer contribution rate adjustments
include the increase required to fund the modifications to DROP and the increased allocation to the
investment plan member accounts.
33
The proposed employer contributions for fiscal year 2022-2023
compared to the rates currently in effect, are contained in the table below.
7/1/20207/1/20217/1/20207/1/20217/1/20207/1/2021
Regular Class 4.91% 5.96% 4.19% 4.23% 9.10% 10.19%
Special Risk Class 15.27% 16.44% 8.90% 9.67% 24.17% 26.11%
Special Risk
Administrative Class
9.73% 10.77% 26.31% 26.16% 36.04% 36.93%
Elected Officer Class
Leg/Gov/SAs/PDs 8.49% 9.31% 53.52% 56.76% 62.01% 66.07%
Judges 13.38% 14.41% 25.81% 27.64% 39.19% 42.05%
County Officers 10.28% 11.30% 39.42% 43.98% 49.70% 55.28%
Senior Management 6.49% 7.70% 20.80% 22.15% 27.29% 29.85%
DROP 7.23% 7.79% 9.45% 9.15% 16.68% 16.94%
Membership Class
"Blended" Normal Costs
Unfunded Actuarial
Liability
Combined Contribution
Rates
The revised employer contribution rates based on the 2021 Actuarial Valuation and actuarial studies
will have a significant fiscal impact on funds paid into the Florida Retirement System Trust Fund.
34
The total combined employer contributions estimated to be paid into the Florida Retirement System
Trust Fund in Fiscal Year 2022-2023 will increase by approximately $437.7 million above the
contributions paid in Fiscal Year 2021-2022. The estimated increase in contributions by employer
contribution group for Fiscal Year 2021-2022 are as follows:
33
Actuarial studies were performed by the Milliman actuarial and consulting firm through DMS. Projected Blended 2022-
2023 Statutory Rates Reflecting 3.00% of Pay Increase in FRS Investment Plan Employer Contribution Rates, requested
by the Governor, and Extend Maximum DROP Participation by 36 Months for Law Enforcement Officer Members,
requested by the Speaker of the House of Representatives.
34
Id. STORAGE NAME: h5007.APC PAGE: 7
DATE: 2/10/2022
2021 Actuarial Valuation
Blended 2022-2023 Statutory Rates Reflecting 3.00% of Pay Increase in FRS Investment Plan
Extend Maximum DROP Participation by 36 Months for Law Enforcement Officers
The total combined employer contributions estimated to be paid into the Florida Retirement System
Trust Fund in Fiscal Year 2022-2023:
III. COMMENTS
A. CONSTITUTIONAL ISSUES:
1. Applicability of Municipality/County Mandates Provision:
The mandates provision of Art. VII, s. 18 of the State Constitution may apply because this bill
requires cities and counties to spend money or take an action that requires the expenditure of
money; however, an exception may apply as the Legislature has determined that this bill satisfies an
important state interest and similarly situated persons are all required to comply.
Employer Contribution Group Estimated Increase In Contributions
State Agencies $32.3 Million
School Boards $47.0 Million
State Universities $6.9 Million
Colleges $3.9 Million
Counties $74.6 Million
Other $11.3 Million
Total: $176.0 Million
Employer Contribution Group Estimated Increase In Contributions
State Agencies $31.2 million
School Boards $108.9 million
State Universities $24.3 million
Colleges $8.7 Million
Counties $61.0 Million
Other $14.5 Million
Total: $248.6 Million
Employer Contribution Group Estimated Increase In Contributions
State Agencies $2.4 million
School Boards $0.37 million
State Universities $0.09 million
Colleges $0.02 Million
Counties $9.4 Million
Other $0.8 Million
Total: $13.1 Million
Employer Contribution Group Estimated Increase In Contributions
State Agencies $65.9 million
School Boards $156.3 million
State Universities $31.3 million
Colleges $12.6 Million
Counties $145.0 Million
Other $26.6 Million
Total: $437.7 Million STORAGE NAME: h5007.APC PAGE: 8
DATE: 2/10/2022
2. Other:
Actuarial Requirements Article X, s. 14 of the State Constitution requires that benefit improvements
under public pension plans in the State of Florida be concurrently funded on a sound actuarial basis,
as set forth below:
SECTION 14. State retirement systems benefit changes.--A governmental unit responsible for
any retirement or pension system supported in whole or in part by public funds shall not after
January 1, 1977, provide any increase in the benefits to the members or beneficiaries of such
system unless such unit has made or concurrently makes provision for the funding of the
increase in benefits on a sound actuarial basis.
Article X, s. 14 of the State Constitution is implemented by statute under part VII of ch. 112, F.S.,
the “Florida Protection of Public Employee Retirement Benefits Act” (Act). The Act establishes
minimum standards for the operation and funding of public employee retirement systems and plans
in the State of Florida. It prohibits the use of any procedure, methodology, or assumptions the effect
of which is to transfer to future taxpayers any portion of the costs which may reasonably have been
expected to be paid by the current taxpayers.
B. RULE-MAKING AUTHORITY:
None.
C. DRAFTING ISSUES OR OTHER COMMENTS:
None.
IV. AMENDMENTS/COMMITTEE SUBSTITUTE CHANGES
Not applicable.