This document does not reflect the intent or official position of the bill sponsor or House of Representatives.
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HOUSE OF REPRESENTATIVES STAFF FINAL BILL ANALYSIS
BILL #: CS/HB 151 Florida Retirement System
SPONSOR(S): Appropriations Committee; Busatta Cabrera and others
TIED BILLS: IDEN./SIM. BILLS:
FINAL HOUSE FLOOR ACTION: 109 Y’s
0 N’s GOVERNOR’S ACTION: Pending
SUMMARY ANALYSIS
CS/HB 151 passed the House on March 8, 2024, as amended by the conference committee report, and
subsequently passed the Senate on March 8, 2024. The bill includes portions of CS/SB 400.
The Florida Retirement System (FRS) is a multiple-employer, contributory plan that provides retirement income
benefits for employees of state and county government agencies, district school boards, state colleges, and
state universities. It also serves as the retirement plan for 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 Department of Management Services must compile 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:
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 six months immediately following
the date of retirement.
Adjusts the employer contribution rates for the FRS.
Declares that the act fulfills an important state interest.
The bill conforms law to the 2024-2025 General Appropriations Act (GAA) as retirement contributions are
included in the GAA.
Provisions of the bill relating to employer retirement contribution rates will increase the amounts that FRS
employers will pay for employee retirement benefits.
Subject to the Governor’s veto powers, the effective date of this bill is July 1, 2024.
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I. SUBSTANTIVE INFORMATION
A. EFFECT OF 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
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amended again 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 FRS Act.
3
As of June 30, 2023, the
FRS provides retirement income benefits to 646,277 active members,
4
455,601 retired members and
beneficiaries, 14,499 disabled retirees, and 27,767 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 the employees of the 181 cities,
153 special districts, and two independent hospitals that have elected to join the system.
6
The FRS is a low-cost system compared to other retirement systems. The cost to administer the FRS in
2022 was $19 per active member and annuitant compared to the peer average of $115 for other similar
pension systems. Further, the number of staff required to administer the FRS is 1.3 positions per
10,000 members versus an average of 3.4 per 10,000 members of other similar retirement systems.
7
Membership of the FRS is divided into the following membership classes:
8
Regular Class
9
consists of 550,931 members (85.2 percent of the total 2023 FRS membership).
This class is for all members who are not assigned to another class.
Special Risk Class
10
includes 75,495 members (11.7 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
11
has 104 members (0.016 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.
Elected Officers’ Class
12
has 2,105 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.
Senior Management Service Class
13
has 7,875 members (1.2 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 investment plan, which is a defined contribution plan; and
The pension plan, which is a defined benefit plan.
14
Annual Report, supra note 1, at 188.
15
Annual Report, supra note 1, at 189.
Total FRS Membership by Plan
14
2022 2023 Percent Change
Investment Plan 184,923 204,461 10.57%
Pension Plan 444,150 441,816 -0.53%
Total Membership 629,073 646,277 2.73%
Total FRS Membership by Employer Group for
FY 2022-2023
15
Percentage of
Members
School Districts 308,076 47.7%
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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.
16
The SBA is
comprised of the Governor as chair, the Chief Financial Officer, and the Attorney General.
17
A member
vests immediately in all employee contributions paid to the investment plan.
18
With respect to the
employer contributions, a member vests after completing one work year with an FRS employer.
19
Vested benefits are payable upon termination of employment with the FRS employer or death, as a
lump-sum distribution, direct rollover distribution, or periodic distribution.
20
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:
21
3
Ch. 121, F.S.
4
As of June 30, 2023, the FRS Pension Plan, which is a defined benefit plan, had 441,816 members, and the investment
plan, which is a defined contribution plan, had 204,461 members. Annual Report, supra note 1, at p. 188.
5
Id.
6
Id., at 226.
7
Email from Jeff Ivey, Deputy Chief of Staff, Department of Management Services, RE: 2022 CEM Slides (Mar. 13, 2023)
on file with the Constitutional Rights, Rule of Law & Government Operations Subcommittee.
8
Annual Report, supra note 1, at 191.
9
S. 121.021(12), F.S.
10
S. 121.0515, F.S.
11
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.
12
S. 121.052, F.S.
13
S. 121.055, F.S.
14
Annual Report, supra note 1, at 188.
15
Annual Report, supra note 1, at 189.
16
S. 121.4501(8), F.S.
17
Art. IV, s. 4(e), FLA. CONST.
18
S. 121.4501(6)(a), F.S.
19
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.
20
S. 121.591, F.S.
21
S. 121.72(7), F.S.
Counties 154,648 23.9%
State Agencies 94,449 14.6%
State Universities 30,549 4.7%
Others 38,195 5.9%
State Colleges 20,360 3.2%
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Membership Class Percentage of Gross
Compensation
Regular Class 11.30%
Special Risk Class 19.00%
Special Risk Administrative Support Class 12.95%
Elected Officers’ Class
Justices and Judges
County Elected Officers
Others
18.23%
16.34%
14.38%
Senior Management Service Class 12.67%
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).
22
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.
23
For members initially enrolled on or after July
1, 2011, the member vests in the pension plan after eight years of creditable service.
24
A member vests
immediately in all employee contributions paid to the pension plan.
For non-special risk members of the pension plan initially enrolled before July 1, 2011, normal
retirement is the earlier of 30 years of service or age 62.
25
Non-special risk members initially enrolled in
the pension plan on or after July 1, 2011, must complete 33 years of service or attain age 65. For
members in the Special Risk and Special Risk Administrative Support Classes, normal retirement is the
earlier of 25 years of service or age 55.
26
Normal Retirement Pension Benefit
Statute sets the calculation used to determine a member’s benefit. A member earns a set percentage
for years of service, depending on class.
27
Pension plan benefits are calculated as a product of a
statutorily set percent and creditable years of service. The product of the percent and creditable years
of service is applied to the member’s average compensation.
28
Below are the statutorily set
percentages
29
and the calculations based on credible years of service.
Class Percent per Year
Percent Earned
after 25 Years
Percent Earned
after 30 Years
Regular 1.6% 40.0% 48.0%
Senior Management 2.0% 50.0% 60.0%
Special Risk 3.0% 75.0% 90.0%
Elected Class - Others 3.0% 75.0% 90.0%
Elected Class - Judges 3.3% 83.3% 99.9%
22
S. 121.025, F.S.
23
S. 121.021(45)(a), F.S.
24
S. 121.021(45)(b), F.S.
25
S. 121.021(29)(a)1., F.S.
26
S. 121.021(29)(b), F.S.
27
S. 121.091(1), F.S.
28
S. 121.091(1)(a), F.S.
29
Id.
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Preservation of Benefits
IRC 415(b) is a federal provision that limits the benefit amount that a retired employee may receive
from a defined benefit plan. The limit is adjusted by the IRS each year. Effective July 1, 2024, the
limitation on the annual benefit under a defined benefit plan is $275,000.
30
Current law establishes the FRS Preservation of Benefits Plan as a qualified governmental excess
benefit arrangement pursuant to s. 415(m) of the IRC for the purpose of providing benefits to FRS
retirees whose benefits would otherwise be limited by s. 415(b) of the IRC.
31
Participation in the FRS
Preservation of Benefits Plan is mandatory for any FRS Pension Plan retiree whose benefit exceeds
the maximum amount established in s. 415(b) of the IRC and continues for as long as the retiree’s
earned benefit would be reduced by the federal limit.
32
Deferred Retirement Option Program
DROP
33
allows eligible members
34
of the FRS Pension Plan to participate in the program and defer
receipt of retirement benefits while continuing employment with his or her FRS employer. The deferred
monthly benefits accrue, plus interest, on behalf of the employee, 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.
35
For retirements
after July 1, 2010, for termination of employment to occur a member cannot be reemployed by an FRS
employer for six calendar months.
36
Employment After Retirement
The FRS is a 401(a) qualified plan under the Internal Revenue Code (IRC). Accordingly, FRS
contributions qualify for tax deductions and investment earnings are tax deferred until distributed to
retirees. Federal regulations require 401(a) qualified plans to be established by an employer primarily to
provide regular and clearly defined benefits to its employees over an extended period, typically for life,
following retirement or upon reaching the normal retirement age.
37
Retirement involves more than just a
decrease in the hours worked by an employee. Therefore, retirement benefits cannot be distributed
solely because an employee’s hours have been reduced before reaching normal retirement age.
38
Florida law prohibits a pension benefit from being made prior to participation in DROP or termination of
employment.
39
The law applies the same definition of termination of employment for retirements
occurring either before and after normal retirement age. Thus, determining whether a bona fide
termination of employment has occurred is crucial for both the tax-exempt qualification of the FRS and
state statutory compliance purposes.
40
The Internal Revenue Service (IRS), the federal agency responsible for administering the IRC, has not
provided an objective test for determining whether a bona fide termination of employment has occurred.
Instead the IRS has applied Treasury Regulation 1.409A-1(h)(l)(ii), which states whether a termination
of employment has occurred is determined based on whether the facts and circumstances indicate that
the employer and employee reasonably anticipated that no further services would be performed after a
30
IRS, 2024 Limitations Adjusted as Provided in Section 415(d), etc., available at https://www.irs.gov/pub/irs-drop/n-23-
75.pdf (last visited March 11, 2024).
31
S. 121.1001, F.S.
32
S. 121.1001(1), F.S.
33
S. 121.091(13), F.S.
34
S. 121.091(13)(a), F.S.
35
Id.
36
S. 121.021(39)(a)2., F.S.
37
26 CFR § 1.401(a)-1(b)(1)(i).
38
26 CFR § 1.401(a)-1(b)(3).
39
S. 121.091, F.S.
40
Memorandum to David DiSalvo, Director, Division of Retirement, Re: Bona Fide Terminations from Employment and
Bona Vide Volunteer Services (dated January 8, 2021) on file with the Constitutional Rights, Rule of Law & Government
Operations Subcommittee.
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certain date
41
or that the level of bona fide services the employee would perform after such date would
permanently decrease to no more than 20 percent of the average level of bona fide services performed
over the immediately preceding 36-month period.
42
However, when applying the regulation in the
context of a 401(a) plan, the IRS has opined that “if both the employer and employee know at the time
of ‘retirement’ that the employee will, with reasonably [sic] certainty, continue to perform services for the
employer, a termination of employment has not occurred upon ‘retirement’ and the employee has not
legitimately retired.”
43
In order to apply the requirement of a bona fide termination, Florida law has incorporated the federal
regulation and further has implemented a reemployment limitation period in which an FRS retiree may
not be reemployed
44
by an FRS employer within 6 months of termination.
45
In addition, if the retiree is
reemployed by an FRS employer during months 7 through 12, the retiree’s retirement benefit for those
months is suspended and forfeited.
46
After the 12-month reemployment limitation period, there are no
restrictions on receiving both a salary and retirement benefits when reemployed by an FRS employer.
47
A retiree employed in violation of the reemployment limitation period and the FRS employer employing
such retiree are jointly and severally liable for reimbursement to the retirement trust fund from which the
benefits were paid. Pension benefits remain suspended until repayment has been made. Benefits
suspended beyond the reemployment limitation period are applied towards repaying the benefits
received in violation of the reemployment limitation period.
48
Florida law currently provides two exceptions to the reemployment limitation period. The first authorizes
retirees to provide civic, charitable, and humanitarian services to an FRS employer during the first 12
months following retirement provided the following criteria are met:
Before the date of retirement, there is no agreement or understanding between the employer
and the retiree that the retiree will return to provide services for the employer;
The employer or a third party does not provide any form of compensation, including any cash
equivalents, to the volunteer for the volunteer service;
Except as otherwise provided in law, a volunteer cannot be provided any employee benefits,
including health or life insurance benefits. However, a volunteer may be provided certain
perquisites necessary for, and for the limited purpose of, completing tasks associated with the
volunteer program, such as an assigned uniform or the provision of equipment;
The number of volunteer hours per week, including training hours, that the volunteer provides is
no more than 20 percent of the number of hours that the volunteer was expected to work per
week before the date of retirement;
There is a clear distinction between the duties of a volunteer and the duties of an employee;
41
The regulation provides that the employment relationship is treated as continuing intact while the individual is on a bona
fide leave of absence if the leave does not exceed 6 months, or if longer, as long as the individual retains a right to
reemployment pursuant to statute or contract. The IRS explains in the preamble to the regulation that “a bona fide leave of
absence refers to a leave of absence where there is a reasonable expectation the service provider will return to service
with the service recipient.” Department of the Treasury, Internal Revenue Service, Application of Section 409A to
Nonqualified Deferred Compensation Plans, 26 CFR Part I [TD 9321], RIN 1545-BE79 (Dated April 17, 2007).
42
See IRS PLR 201147038; see also Memorandum to David DiSalvo, Director, Division of Retirement, Re: Bona Fide
Terminations from Employment and Bona Vide Volunteer Services (dated January 8, 2021) on file with the Constitutional
Rights, Rule of Law & Government Operations Subcommittee.
43
IRS PLR 201147038.
44
For purposes of the reemployment limitation period, the term “employment” includes the provision of services. S.
121.021(39), F.S.
45
S. 121.021(39), F.S.
46
S. 121.021(9)(c), F.S.
47
However, for reemployed members, the FRS employer must pay retirement contributions in an amount equal to the
unfunded actuarial liability portion of the employer contribution that would be required for active members of the FRS in
addition to the contributions for social security and for the retiree health insurance subsidy. S. 121.091(9)(c)2., F.S. In
addition, a reemployed retiree may not renew membership in the FRS except as provided in law. S. 121.091(9)(c)1., F.S.
48
S. 121.091(9)(b)1. and (9)(c)3., F.S.
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The schedule of a volunteer, including the number of hours volunteered and the number and
type of assignments for which he or she agrees to volunteer, is controlled by the volunteer; and
The employer and retiree maintain adequate records to document adherence to the above
criteria, which must be made available to DMS or the SBA upon request.
49
The second exception to the reemployment limitation period applies to law enforcement officers that are
reemployed as school resource officers and authorizes such retirees to be reemployed during months 7
through 12 after retirement and receive both a salary and retirement benefits. The reemployed retired
law enforcement officer may not renew membership in the FRS except as provided in law.
50
Contribution Rates
Section 121.031, F.S., requires DMS to compile an annual actuarial study of the FRS, the results of
which must be reported to the Legislature by December 31 of each year.
51
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 the same percentage regardless of whether the member
participates in the pension plan or the investment plan.
52
The employer contribution rates are set based
on a percentage of the member’s monthly compensation and must be paid to the division to be
distributed into the FRS Contributions Clearing Trust Fund.
Effects of Proposed Changes
Employment After Retirement
The bill provides that, beginning July 1, 2024, a retiree who has met the definition of termination may be
reemployed by an FRS employer and receive retirement benefits and compensation from such
employer. Effectively the bill allows FRS retirees to receive both compensation from an employer that
participates in the FRS and retirement benefits, provided the retiree is not reemployed by an FRS
employer within six months, instead of 12 months, immediately following the date of retirement.
In accordance with current law:
The reemployed retiree may not renew membership in the FRS except as provided in s.
121.122, F.S., and the employer must pay retirement contributions in an amount equal to the
unfunded actuarial liability (UAL) portion of the employer contribution that would be required for
active members of the FRS in addition to the contributions required by s. 121.76, F.S.
A retiree initially reemployed in violation of the above requirements and an employer that
employs or appoints such a person are jointly and severally liable for reimbursement of any
retirement benefits paid to the retirement trust fund from which the benefits were paid. The
employer must have a written statement from the employee that he or she is not retired from a
state-administered retirement system. The employee’s benefits remain suspended until
repayment is made and benefits that are suspended beyond the end of the retiree’s six-month
reemployment limitation period apply toward the repayment of benefits received in violation of
these requirements.
Preservation of Benefits
The bill closes the FRS Preservation of Benefits Plan to new members effective
July 1, 2026.
Actuarial Study - Contribution Rates
The bill revises the employer contribution rates for the normal costs and the UAL of the FRS based on
the annual actuarial study and the actuarial studies relating to the modifications to the FRS included in
the bill.
49
S. 121.091(15), F.S.
50
S. 121.091(9)(f), F.S.
51
S. 121.031(3), F.S.
52
S. 121.70(1), F.S.
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Declaration of Important State Interest
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.
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 to fund the FRS for modifications included in the bill.
However, reductions to rates provided in the 2023 Actuarial Valuation were not included as part of the
contribution rates to ensure additional funding is provided to the FRS. The employer contributions for
Fiscal Year (FY) 2024-2025 compared to the rates currently in effect are contained in the table below.
7/1/20237/1/20247/1/20237/1/20247/1/20237/1/2024
Regular Class 6.73% 6.73% 4.78% 4.84% 11.51% 11.57%
Special Risk Class 18.66% 18.66% 11.95% 12.07% 30.61% 30.73%
Special Risk
Administrative Class
11.54% 11.54% 26.22% 26.22% 37.76% 37.76%
Elected Officer Class
Leg/Gov/SAs/PDs 10.45% 10.70% 50.21% 50.21% 60.66% 60.91%
Judges 14.90% 14.90% 27.93% 28.49% 42.83% 43.39%
County Officers 12.39% 12.39% 44.23% 44.23% 56.62% 56.62%
Senior Management 8.56% 8.56% 23.90% 23.90% 32.46% 32.46%
DROP 8.49% 8.49% 10.64% 10.64% 19.13% 19.13%
Membership Class
"Blended"
Normal Costs
Unfunded Actuarial
Liability
Combined
Contribution Rates
The revised employer contribution rates will have a positive fiscal impact on funds paid into the FRS
Trust Fund.
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The total combined employer contributions estimated to be paid into the FRS Trust Fund in FY 2024-
2025 will increase by approximately $30.6 million above the contributions paid in FY 2023-2024. The
estimated increase in contributions by employer contribution group to fund the reemployment
modifications for FY 2024-2025 are provided on the following table:
Employer Contribution Group Estimated Increase in Contributions
State Agencies $4.6 Million
School Boards $9.4 Million
State Universities $2.5 Million
Colleges $0.7 Million
Counties $11.6 Million
Other $1.9 Million
Total: $30.6 Million
Closure of the FRS Preservation of Benefits Plan to Future Retirees
Preservation of benefits payments for 2023 were made to 75 retirees and the cumulative single-year
payments were approximately $2.2 million.
53
Closing the plan would result in a savings to the overall
FRS in the near future. As of June 2023, there are 835 members whose salaries exceed the $275,000
IRS limitation.
54
This increases the potential pool of recipients of the plan by a factor over ten. If each
employee earned a benefit in excess of the limit, the potential cost avoidance would be $25.5 million.
As public employee salaries continue to rise, more employees may qualify for payment under the plan.
Closing the plan may have a significant savings to the FRS in future years.
53
The state actuary, Milliman, determined that closing the FRS Preservation of Benefits Plan did not require a full study to
determine the overall impacts to the retirement system. However, Milliman provided an analysis of the financial impact of
closing the plan.
54
Email from Jake Holmgreen, Deputy Legislative Affairs Director, Department of Management Services, RE: Section
121.30, F.S. (Nov. 3, 2023) on file with the Appropriations Committee.