FL state pension fund will need more cash to stay healthy

american dollars
American dollars. Credit: WIkimedia Commons

What public employees and retirees may want to know: It will cost counties, school boards and state agencies an additional $123 million in the next budget year to keep the state pension fund financially healthy.

That means state and local governments will have to increase their contributions in the coming year. In addition to those payments, workers who participate in the pension fund will continue to contribute 3 percent of their salaries.

Under a bill (SB 7016) advancing in the Florida Senate, the additional contributions include: county governments ($48 million); school boards ($35 million); state agencies ($23.7 million); universities and state colleges ($9 million); and other agencies ($7.3 million).

The extra payments are necessary because the state is continuing a five-year trend of lowering its expected rate of return for the $156 billion pension fund, which pays retirement benefits for teachers, county workers, state employees and university workers.

As of June 30, there were about 643,000 active workers participating in the pension program, with some 416,000 retired workers relying on the benefits.

Teachers and school district employees represent nearly half of the active workers, followed by county workers at 23 percent and state workers at 20 percent.

What’s happening is that state officials have reduced the “assumed” rate of return to 7.4 percent in the next budget year, which begins July 1. The current year’s assumed rate of return is 7.5 percent.

According to an actuarial report, the pension fund is projected to be able to pay $156 billion or 83.9 percent of its future retirement obligations, but still leave a $29.9 billion “unfunded” liability. The extra payments from state and local government will help offset the projected unfunded liability.

The state has continued to lower its assumed rate of return for the pension fund, with the strategy that a lower rate is more financially realistic than the higher rates.

But independent financial analysts hired by the state have continued to warn that a 7.4 percent rate of return “conflicts with our judgment regarding what would constitute a reasonable assumption.”

A Dec. 3 report from Milliman, a financial consulting firm, noted that it along with Aon Hewitt, another consultant, believe there is a 50 percent likelihood of achieving a rate of return in the range of only 6.4 percent to 6.7 percent.

The consultants said their forecast “indicated a likelihood of less than 35 percent of actual long-term future returns meeting or exceeding 7.4 percent.”

 

 

 

 

 

 

1 COMMENT

  1. So, when the teachers said the 3% the state demanded from us isn’t going into the pension fund, they were right? When the state told school districts they had to pay less into the system, they were wrong? When the state automatically enrolls a vested teacher into the 403(b), it’s actuarially unsound? WHO KNEW?? (eyeroll)

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