First Decision Issued in Florida Recommending a Defined Contribution Plan for Public Workers in Accordance with City’s Proposal

In the first decision of its kind, a report issued by Public Employees Relations Commission (PERC) Special Magistrate William McGuiness recommended a defined contribution retirement plan for Sarasota police officers nearly identical to the plan proposed by the city of Sarasota. This report, issued on August 23, 2011, is the first time a PERC special magistrate has found in favor of a public employer seeking to implement a defined contribution plan for police officers or firefighters. The special magistrate further recommended changes to a defined benefit plan for those vested in that plan.

Like many Florida cities, the city of Sarasota has experienced a significant decline in revenues over the past several years. At the same time, the city’s pension costs have increased dramatically. If changes are not made to the current plan, the city’s police pension costs are projected to increase from $5.5 million next year to more than $14 million in 2033. In light of this financial dilemma, the city conducted workshops in 2010 to find a solution to the burgeoning deficit. Although the city attempted to negotiate a resolution with the union, the union failed to provide a counteroffer in over six months of collective bargaining. The city declared impasse and six issues were submitted to the special magistrate for determination, the most complex being the issues surrounding pension plans.

The city’s pension proposal would produce estimated savings of $135 million over the next 30 years. In negotiations with the PBA, the city proposed a pension benefit freeze for all police officers, followed by a reduction in benefits for future service of currently vested officers, and a defined contribution plan for non-vested officers and those hired in the future. The city’s defined benefit plan proposal contained pension benefit reductions in several areas relating to future service.

The PBA failed to make any pension counterproposal prior to the special magistrate hearing but had argued throughout the process that the city’s proposal is both illegal and denigrating to the dangerous work that the PBA does in the interest of protecting Sarasota residents. At the hearing held on June 7-8, 2011, the PBA proposed retaining the current defined benefit plan, with several minor revisions.

After hearing thorough presentations from both the city of Sarasota and the PBA, the special magistrate determined that the city’s pension proposal should be the basis for his recommendations. The special magistrate also recommended that the city and union negotiate the transition of all employees to social security (the city does not now participate in social security for its police officers) and instructed the parties to negotiate a final pension plan resolution in light of his recommendations.

Many jurisdictions in Florida and nationwide have been trying to get relief from rising costs and potential financial crises because of the expense required to maintain public sector defined benefit pension plans. Before this decision, a defined contribution plan never before has been recommended after impasse in Florida by a special magistrate in his or her recommended order. This decision is critical in that it could set a precedent for other jurisdictions and other special magistrates to seek such a result, thus revamping the entire public sector’s pension structure.

The city was represented at the impasse hearing by Tampa shareholder, Karen Morinelli.