Who Really Wants 401(k)s for Public Employees?

On May 1, future public employees of Florida dodged a bullet, and future residents of the state were given some guarantee of receiving the productive labor of motivated employees. Here’s what happened.

Florida senators voted 22-18 to pull a compromise amendment that would have shut future employees out of the state’s defined benefit plan and enrolled them in a 401(k). Eight Republicans joined all the Democrats to pull the bill from the floor.

As we’ve noted here many times before, public sector employees work for the benefits, not the salary, which are usually very low when compared to private sector employees. That is a significant budget consideration for state and local governments. They would not be able to afford comparable salaries that would retain their trained, experienced employees. Here’s what one Republican Senator said:

"One of the reasons they work for government is not for the salary," said Sen. Jack Latvala, R-Clearwater. "They haven't had raises in six or seven years. It's for the pension and if we want to continue to have the quality of employees that we have, we need to continue to offer that pension."

In essence, the Florida Senate took a very conservative position, preserving the status quo and failing to thrust future workers into the great unknown of 401(k)s.

So why are we paying attention to what happens in Florida?

Well, here in Texas there are many policy groups who are advocating a similar radical policy shift, from defined benefit to defined contribution plans. Thankfully our elected leaders aren’t listening to their mutual fund industry-backed proposals.

We noted in a previous blog how our Texas Comptroller Susan Combs told the media that there aren’t really any big problems at state and local pensions, and how decisions about the types of pensions a city uses are best left to local levels. Here’s what she said:

“Plan design is so individual. You may be able to have a great defined benefit plan depending on what’s going on. We’re agnostic on that [assertion that defined contribution plans should be employed instead]. We simply say ‘Know what you’ve got.’”

It’s evident to us that – because there was no bill advocating the dismantlement of defined benefit plans in this legislative session – most Texas lawmakers are taking the conservative approach advocated by Ms. Combs. Leaving things well enough alone is a good policy prescription. Republican and Democrat legislators see the wisdom of that in Florida. We’re glad they see that in Texas as well. – Max Patterson