2014 Legislative Session Portal

Session Closes

Below you will find information on the bills and issues that Florida TaxWatch was following in the 2014 Session. For more information on any of these issues, please feel free to contact our Research staff by emailing Stephani Meyers, Research Assistant.



1

The FRS and a Cash Balance Plan

The Florida Retirement System (FRS) provides retirement benefits to the public employees of Florida. The current FRS is managed by the State Board of Administration and offers both a Defined Benefit (DB) Pension plan and a Defined Contribution (DC) Investment plan for employees to choose between. The escalation of unfunded liabilities and pension abuses within DB plans has spurred reform efforts and debate in many states, particularly Florida.

The Florida Senate’s pension reform initiative in the 2014 Session (SB 7046) proposes offering a Cash Balance (CB) plan and a DC plan to public employees. This would close the DB plan to new hires as of July 1, 2015, except for special risk class employees. The CB plan is a new proposal in the pension debate in Florida, and only five other states currently utilize this type of plan.

CB plans are hybrid retirement plans that combine aspects of DB and DC plans to provide post-employment benefits to employees. The US Department of Labor defines CB plans as “a defined benefit plan that defines the benefit in terms that are more characteristic of a defined contribution plan.”

There are several characteristics that distinguish CB plans from other traditional retirement options. An analysis of SB 7046 by the Senate Community Affairs Committee explains these characteristics: “Cash Balance plans typically:

  • Provide each member with an individual account;
  • Are funded through both employee and employer contributions into one trust fund;
  • Guarantee members a return on investment;
  • Place investment risks solely on the employer;
  • Provide member accounts with dividends when investment returns exceed the threshold;
  • Offer a retiring member an annuity based on their account balance;
  • Offer a lump sum distribution that can be rolled into an IRA or another employer’s plan; and
  • Protect benefits through federal insurance provided by the Pension Benefit Guaranty Corporation.

 

The funding mechanism for a CB plan is similar to a DC plan, in that specified contributions are made to an individual employee’s account. However, all assets within the plan are housed in an aggregated investment pool and invested collectively by the plan management, so individual employee accounts are simply “notional” or hypothetical accounting organization. This creates predictable plan costs and allows for professional investment management of plan assets.

CB plans also offer a guaranteed minimum investment return, and dividend payments on returns that exceed the minimum. This serves as a floor that employee benefits cannot fall below and provides them with retirement security. SB 7046 proposes a guaranteed two percent minimum annual investment return for all employee benefits, with 75 percent of the remaining investment earnings attributed to individual employee accounts as a dividend and 25 percent saved by the plan for years that fall short of the minimum guarantee.

Another distinction of a CB plan is the asset allocation strategy. Once an employee decides to retire, they have an option to take a lump sum, roll-over benefits into another plan, annuitize the accrued benefits, or combination. This provides options for an employee to receive their retirement benefit in various methods that are similar to the options provided within DB and DC plans. However, the lump-sum payout option will force the plan’s investment management to hold more assets in low-risk, liquid asset, and inhibit the plans ability to earn the highest potential return-on-investment.

The distribution of risk is another important consideration in the pension reform debate, and there are several different types of risk exposure. Since benefits are individualized in notional accounts, employees will have a set amount of funds for retirement. This places longevity risk, or the risk of an employee outliving their benefits, on the employee. The annuity option attempts to mitigate this risk; however, the annuity benefit is on average half of that offered by the traditional DB plan.

The aggregated investment pool, and the minimum earnings guarantee, places investment risk solely on the employer (i.e. taxpayers). The CB plan can thus accumulate unfunded liability if investment returns fall below the two percent threshold and the plan savings cannot cover the deficit. The excessive accumulation of unfunded liability, as seen by several states and many municipalities, leads to increased risk of financial default.

There are many considerations and stakeholder perspectives to keep in mind when determining the best options for pension reforms in Florida. It is important to evaluate all the options available, and Cash Balance is one of several.

 

The Center for Government Efficiency (CGE) is the extension of the Florida TaxWatch Government Cost Saving Task Force, and published its cost saving report in November, Modern Management & Sensible Savings. The TaxWatch cost savers cover many facets of Florida government and have the potential to save over $1 billion for taxpayers. For more information on the specific issue areas and their progress through the 2014 Legislative session, see the links on the left.

FLAIR

The replacement of the Florida Accounting Information Resource (FLAIR) has been a recommendation of Florida TaxWatch for many years and has been recognized by the Legislature.

Last year, the state budget included a $1.75 million appropriation for a feasibility study on the replacement of FLAIR and other components of the Florida Financial Management Information System. The study was submitted to the CFO on February 28, and is scheduled to be released March 21.

IT Governance

IT governance is an issue that the Legislature has addressed for several years unsuccessfully, and the 2014 Session has already shown significant progress. Both the Florida House of Representatives and Senate have proposed bills that would establish a CIO, an Agency for State Technology, and provide standardized procedures and oversight functions for enterprise IT functions in Florida. Florida TaxWatch has made this recommendation for many years, and recently released a report detailing the needs of Florida’s new IT governance structure.

The House and Senate bills differ somewhat, but the general tone and language between the bills are similar, which is an encouraging sign of coordinated efforts between the Chambers and suggests a successful outlook for 2014.

HB 7073 and HB 7024 are both IT governance bills that were filed by the House Appropriations Committee. The two bills establish an Agency for State Technology, manage state data centers, and revise procurement practices and oversight. HB 7073 was filed more recently, on the last day of February, and is likely the revised version of what will be the House proposal.

SB 928 is the Senate’s proposal for the IT governance overhaul, which has passed the Committee on Governmental Oversight and Accountability and is scheduled for the Appropriations Subcommittee on General Government on March 5.

FRS Reforms

Reforming the Florida Retirement System (FRS) remains a priority of House Speaker Will Weatherford this year; however, Senate President Don Gaetz has indicated his chamber is divided on an overhaul of the state pension plan and he expects a close vote on any pension reform measure.

SB 1114 establishes a Cash Balance Plan as part of the Florida Retirement System.  Under the bill, new employees hired after July 1, 2015 would choose either the new Cash Balance Plan or the defined contribution style Investment Plan but would not be given a “defined benefit plan” option; however, Special Risk Class employees (generally public safety workers) would be provided a “defined benefit plan” option in addition to the other two options.  Current employees would not be affected (i.e., could remain in the “defined benefit plan”) but could chose to transfer into the Cash Balance Plan.

The Cash Balance Plan would be funded by employee and employer contributions based on a percentage of the employee’s salary and would guarantee a 2% annual rate of return for the account balance. Any additional returns above the 2% would be shared between the employee (75%) and the state (25%), with the state’s portion of additional returns put into a trust fund that would be used to fund any deficit years. Upon retirement, the employee can either roll the funds into a state run annuity, take the lump sum payout, or a combination of the two.

This bill was originally SPB 7046 and was submitted as SB 1114 in January by Community Affairs after being narrowly approved by a 5-4 vote.

The House has yet to unveil its FRS reform bill this year, after passing a bill last year requiring all new employees to enroll in the defined contribution style Investment Plan.  Speaker Weatherford recently said the House was considering both the “cash balance” system and a “hybrid” plan that would combine elements of a traditional pension and an investment plan.

Learn more about the TaxWatch Take on Pensions here.

Criminal Justice

Expanding Diversion Programs

HB 109 and SB 280 would exempt initial screenings for participation in Drug Court Diversion programs from public record requirements disclosure to to assure confidentiality of the defendant. The Senate bill has passed the Judiciary Committee by a 9-0 vote.

HB 829 authorizes physician assistants and nurses to initiate involuntary mental health exams under the Baker Act.

CS/HB 99 and SB 360 would remove criminal sanctions for those possessing 4-14 grams of hydrocodone and oxycodone, and reduce minimum mandatory sentences for those possessing greater quantities. Both have moved quickly through the committee process. The Senate bill has already cleared all its committees of reference and the House bill will be considered by its last committee the first week of session.

Expanding Educational, Vocational and Faith and Character based programs

Department of Corrections (DOC) Budget—The Governor’s recommended budget provides $132M total additional funds for DOC with increased emphasis on education and vocation training, $7.2M for substance abuse rehab, $8M for electronic monitoring programs, $17.3M for 2 reentry centers and 3 new construction work camps, $800,000 for ID cards for felons.

HB 43, HB 53 and SB 274 are focused on Reentry ID cards as explained below but also have provisions to authorize DOC to operate male and female faith & character based prisons.

Expanding Reentry Programs

HB 43, HB 53, and SB 274 would waive fees for inmate ID cards upon release from prison. HB 43 also includes provisions which direct DOC to establish a Reentry program for nonviolent offenders, and authorizes use of post-adjudicatory drug court. HB 53 and SB 274 are both in their last committee of reference. HB 43 has not been heard.

HB 383 and SB 822 Would provides a $1,000 corporate income tax credits for each convicted felon hired by a businesses Certain violent and habitual offenders and those subject to registration as a sexual predator or offender are excluded from the tax credit program. These bills have yet to be heard in committee.

Revenue Enhancement

Collection of Sales Taxes on Remote Sales: The most significant tax compliance and collection issue facing Florida and other states is the collection of sales and use taxes on sales by remote vendors. Remote vendors are those without a physical presence—or nexus—in a state. These transactions can be performed by telephone, mail and over the Internet. The courts have ruled that a retailer must have a physical presence in a state for that state to require it to collect sales and use taxes from in-state purchasers, although the tax is still legally owed to the state by the purchaser. This ruling not only erodes Florida’s tax base, but also puts “bricks-and-mortar” retailers at a competitive disadvantage, as they are required to charge the sales tax to consumers. Florida TaxWatch has been researching this issue and recommending solutions for more than 10 years.

HB 217, HB 857 and SB 818 would bring Florida fully into the Streamlined Sales and Use Tax Agreement, which provides an opportunity for Florida to begin collecting money from a compact of sellers that voluntarily collect the tax and remit to SSUTA states.

SB 202 would assert nexus over remote retailers that are related to in-state companies, such as an out-of-state retailer that holds a substantial interest in an in-state retailer. Further, “click through” provisions assert nexus exists if an out-of-state internet retailer pays an in-state agent for advertising or referring customers from their website. Similar legislation has been passed by the Senate in the past.

SM 196 is a memorial urging Congress to pass the Marketplace Fairness Act which would allow states in compliance with SSUTA to require remote sellers to collect and remit sales taxes. This is the only remote sales legislation that has been heard in committee.

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