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Florida Special District Handbook Online

Table of Contents | Subject Index

Section 2 - 6: Retirement Plans and Requirements

The Florida Protection of Public Employee Retirement Benefits Act governs local government and alternative retirement plans supported in part or completely by public funds. When local governments use public funds to pay for a public employee retirement plan, the plan administrator must manage the plan to ensure the following:

Employees' retirement benefits are protected.
Costs are allocated equitably to current and future taxpayers.

Independent and dependent special districts may participate in existing public employee retirement plans, establish their own plans, or have no plan. An independent special district may participate in the Florida Retirement System or in other existing plans, establish its own plan, or have no plan. A dependent special district must participate in the Florida Retirement System if its governing authority participates in the System. Subject to the directives of its local governing authority that does not participate in the System, a dependent special district may participate in the same retirement plan of its governing authority, in another plan, establish its own plan, or have no plan. The popular types of retirement plans include the following:

Locally established defined benefit retirement plan.
Locally established defined contribution plan.
Other alternative plans (usually a defined contribution plan offered through an organization or private company to multiple employers).
The Florida Retirement System.
No retirement plan.

This section discusses the locally established defined benefit retirement plan, the locally established benefit contribution plan, general information about local government retirement plans, and the Florida Retirement System.

Locally Established Defined Benefit Retirement Plan

Locally established defined benefit retirement plans may be administered in-house, by an insurance company, or through other arrangements, such as a contract administrator, a money manager or a combination of administrators. The plan must be managed, administered, operated and funded in a way that maximizes the protection of the benefits. It is not permitted to use any procedure, methodology, or assumptions that would transfer to future taxpayers any portion of the costs that the current taxpayers should pay. This plan has the following features:

It is not an individual account plan. Generally, it provides a monthly benefit for life.
It uses a predefined formula to calculate the benefit amount.
The special district contributes an actuarially determined amount to support the promised benefits. Therefore, the special district bears the full investment risk. The contribution amount depends upon the plan's actuarial experience. If that experience is favorable, the special district can reduce its contributions. If that experience is unfavorable, the special district must increase its contributions.
The employees may be required to contribute.
The benefit amount is not affected by investment experience.
It guarantees predefined retirement benefits. Therefore, the individual can know at any given time their retirement benefit amount, which is generally specified as income for life. The retirement benefit amount is agreed upon in advance, or, determined by applying the plan's benefit formula to salient facts about the individual (e.g., years of service, average final salary, etc.).

Actuarial Valuation Report

Defined benefit retirement plans must go through an actuarial valuation review at least every three years by an enrolled actuary who collects and analyzes data about the plan's finances, statistics, and employee demographics. This review helps to ensure that the retirement plan can pay benefits to current and future retirees. The actuary prepares this report, revealing the results of the review. Within 60 days of completion and certification by the actuary, special districts must do the following:

Make the results of the report available for public inspection upon request.
File the results with the special district's governing board or plan administrator.
File the results with the Department of Management Services.

If a special district fails to submit the actuarial valuation report, or if it is incomplete, inaccurate, or not based on reasonable assumptions, fails to satisfy the requirements of Chapter 112, Part IV, Florida Statutes, or that additional information is needed, the Department of Management Services will notify the special district and the plan's administrator and request adjustments to the report and/or the additional information. Within 60 days of receiving this request, the special district must satisfy the requests and/or notify the Department of Management Services of the progress of the request or its refusal to comply with the request. The Department of Management Services may extend the response deadline beyond 60 days if the special district is making reasonable progress.

If the Department of Management Services determines that the special district has not or will not satisfy the requests, the Department of Management Services will notify the special district and the plan's administrator that the consequences for failure to comply requires the Department of Revenue, the Department of Community Affairs, and the Department of Financial Services to be notified, in which case the Department of Revenue and the Department of Financial Services shall withhold any funds not pledged for satisfaction of bond debt service that are payable to the special district until the requests are satisfied. Additionally, the Department of Community Affairs must proceed pursuant to Section 189.421, Florida Statutes (see Section 2 - 1 for more information).

Within 21 days of receipt of the notice, the special district may petition for an administrative hearing under Sections120.569 and 120.57, Florida Statutes.

If the hearing officer finds in favor of the Department of Management Services, the Department of Management Services will prepare the actuarial valuation and/or collect the requested information and charge the cost to the special district. If the Department of Management Services does not receive payment of the costs within 60 days of invoice, the Department of Management Services will certify to the Department of Revenue and the Department of Financial Services the amount due and the Department of Revenue and Department of Financial Services will pay the Department of Management Services the amount due from any funds not pledged for satisfaction of bond debt service payable to the special district. If the hearing officer finds in favor of the special district, the Department of Management Services will decide whether to prepare an actuarial valuation report and/or collect the requested information, and pay the costs of doing so.

Actuarial Impact Statement for Proposed Plan Amendments

Each special district can propose benefit changes to its defined benefit retirement plan. For example, a special district may propose adding a new benefit, or increasing the benefit accrual rate (e.g., from 2% per year of service to 2.5%), or reducing the age/service eligibility requirement.

Before the benefit improvement can be adopted, the plan administrator or an enrolled actuary must analyze the effect the changes will have on the actuarial soundness of the plan. This includes the plan's ability to support the increased benefit cost in the short and long term. The result of this analysis is called an actuarial impact statement. The actuarial impact statement must meet the following requirements:

It must be issued before the final public hearing about the proposed change.
It must contain the following information:
- A description of the proposed amendment.
- A statement that the actuary was provided with a copy of the proposed amendment.
- A statement, signed by an enrolled actuary, of the estimated cost of implementing the amendment. It must include sufficient data about the amendment so that an actuary unfamiliar with the situation could accurately assess the statement's conclusion. It may be based on the actuarial valuation prepared within 12 months of the effective date of the proposed amendments.
- A statement saying that the proposed amendment complies with Chapter 112, Part VII, Florida Statutes, and Section 14, Article X of the Florida Constitution.

File the actuarial impact statement and the amendment with the Department of Management Services, along with a written declaration that the prepared information reflects the estimated costs of the proposed amendment. The plan administrator must certify, sign, and date the statement.

If the Department of Management Services finds the statement unacceptable, it will do the following:

Give specific reasons for the unacceptable determination.
Make a formal request to the special district to amend the proposed change.
Notify the special district of the consequences of failing to respond to the requests.

The special district may do the following:

Provide additional information to support the special district's proposal.
Amend the actuarial impact statement.
Petition for a hearing under Sections120.569 and 120.57, Florida Statutes.

Locally Established Defined Contribution Retirement Plans

In a defined contribution retirement plan, the contributions of the special district, and if applicable, the employee, are invested. The employee often has some choice about how contributions are invested. When it is time to collect benefits, the employee receives the principal and the accumulated interest. If investments are successful, the employee may be pleased with the benefits. If investments are poor, the employee may be disappointed with the benefits. This plan may be administered in-house, by an insurance company, or through other arrangements, such as a contract administrator, money managers or a combination of administrators. This plan has the following features:

It provides an individual account for each participant.
The amount of each participant's benefit is based solely upon the amount contributed to the participant's account, and any income, expenses, gains and losses and, if applicable, any forfeiture of accounts of other participants that may be allocated to their account.
The value of each account can be determined anytime. The plan defines the amount of the plan sponsor's annual contribution to each account.
The participant bears the full investment risk.

Special districts with defined contribution plans must submit the following report to the Department of Management Services within 60 days of the reporting period's ending date.

Defined Contribution Report

Prepare this report, according to either the plan's anniversary date or the special district's fiscal year, and send it to the Department of Management Services. It must contain the following:

Plan description
Contribution formula
Vesting schedule
Normal retirement date
Member eligibility
Anniversary date
Plan sponsor
Plan administrator
Sources of funds
Any changes and/or amendments to the plan since the last report
A statement by the plan administrator's that verifies the completeness and accuracy of the report.

Send the following documents to the Department of Management Services when initially implementing a defined contribution plan:

Plan documents
Ordinances
Contracts
Enactment or other statement on funding and administration.
A copy of the Internal Revenue Service Plan qualification letter, approving the plan as tax qualified, if applicable.
Internal Revenue Code section under which the plan operates.

General Information about Local Government Retirement Plans

If a special district fails to meet its pension obligation, the Department of Management Services must notify the Governor as provided in Section 218, Part V, Florida Statutes. A special district financial emergency (see Section 2 - 2) exists if the special district fails to transfer its own contributions or employee contributions for any pension, retirement, or benefit plan of an employee, or fails to pay retirement benefits owed to former employees.

Special districts with a local government retirement plan must maintain accurate and accessible records of the following:

For All Active or Inactive Members:
- ID number
- Birth date
- Employment dates
- Occupational classification
- Period of credited service (divided between prior and current service)
For All Active Members:
- Current pay rate
- Current rate of contributions
- Cumulative contributions (with accumulated interest)
For All Inactive Members:
- Age when deferred benefit begins
- Average final compensation or equivalent
For All Retired Members and Other Beneficiaries:
- ID number
- Birth date
- Gender
- Date benefit begins
- Retirement type
- Amount of monthly benefit
- Type of survivor benefit

The Florida Retirement System

The Florida Retirement System (FRS) provides retirement, disability or death benefits to retirees or their designated beneficiaries, and offers a wide range of informational services to its members. The FRS offers members a choice between a defined benefit plan and a defined contribution plan. Membership is compulsory for all state, county, district school board, community college and university employees in regularly established positions. Cities, special districts, charter schools, and metropolitan planning organizations may join the FRS at their option. After a city, special district, charter school, or metropolitan planning organization joins the FRS, all current and future regular employees filling regularly established positions become compulsory members. A dependent special district must enroll in the FRS if its governing authority participates in the FRS. If the independent or dependent status of the special district changes, the special district must contact the Division of Retirement to confirm its continued eligibility. The following is a summary of the FRS:

Special districts participating in the FRS make monthly contributions, as a percentage of salary paid, to the FRS based on the membership class of each employee. The employer pays all required contributions for FRS members and the Legislature establishes employer contribution rates annually.
The special district must ensure the contributions are received by the Division of Retirement by the fifth working day of the month following the month in which the salary was paid. If the special district is delinquent in making this payment, the Division of Retirement may assess a fee of one-percent of the contributions due. If the contributions are delinquent after 120 days, the state may withhold the amount owed from any state funds allocated to the special district and/or have the local tax collector collect the funds. In addition, the employer of delinquent contributions for a participant of the FRS defined contribution plan will also be liable to reimburse the participant's individual account for market losses resulting from the late contributions, plus the cost of the third-party administrator for determining the loss.
The State Board of Administration (SBA), has a governing board consisting of the Governor, the Attorney General, and the Chief Financial Officer. The SBA is responsible for investing the assets of the FRS Trust Fund for the defined benefit plan. The SBA is also responsible for the administration of the defined contribution plan, which has been subcontracted to a third party, CitiStreet, and the financial education program for all FRS members, which has been subcontracted to Ernst & Young and Financial Engines.
The FRS is carefully monitored as follows:
- Annually, the Division of Retirement presents a comprehensive written report to the Florida Legislature concerning the FRS.
- Annually, the Division of Retirement has an independent actuary study the FRS to determine its fiscal soundness and to recommend employer contributions to the Legislature that are sufficient to meet the actuarially sound funding requirements to pay current and future benefits.
- Ongoing, the Auditor General contracts with an independent consulting actuary to review the actuarial valuations, financial statements, and operations of the FRS. This helps the Auditor General determine if the FRS is complying with the Florida Protection of Public Employee Retirement Benefits Act. The Auditor General also audits the SBA.

Contact For Additional Information

Locally Established Retirement Plans - Department of Management Services, Division of Retirement, Bureau of Local Retirement Systems
Florida Retirement System - Department of Management Services, Division of Retirement, Research and Education Section

Section 3 - 1: Ethics
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