Florida Pension Fund Broke?

Mary Ellen Klas of the Miami Herald reports, Florida pension fund is not broke, AFL-CIO:

The war of words over reforming state and local pension funds heated up Monday as the head of one of the state's largest unions said that the system is not broken and doesn't need fixing.

``Information that continues to circulate is not based on verifiable fact,'' said Rich Templin, political director of the AFL-CIO, which represents 600 local unions and 500,000 workers. He said, evidence shows, Florida'as state and local retirement system ``is actually functioning quite well.''

But Sen. Jeremy Ring, D-Margate, the Senate committee chairman who is preparing legislation to impose new limits on cities and counties pension plans, said he disagrees with Templin that no problem exists.

``They can either come to the table and be part of the solution and offer suggestions or they can simply be obstructionist and say the system is fine and doesn't need reform and they won't be welcome at the table,'' Ring told the Miami Herald/St. Petersburg Times.

Gov. Rick Scott has joined House and Senate leaders in calling for sweeping reform of state and local public pension systems in the face of increasing costs. Ring will continue hearing from stakeholders at a meeting of the Senate Governmental Oversight and Accountability Committee on Wednesday.

While the Florida Retirement System continues to face a drag from the stock market losses of 2008, Ring said he is especially alarmed by the poor health of many municipal pension funds.

``We've got cities paying close to 70 percent of their overall budget on pensions. It's not sustainable,'' he said.

Chad Little, a Merritt Island actuary that works with public pension systems, said at a news conference called by Templin that the average Florida city and county spends only 2.37 percent of its revenue from tax dollars on paying retirees, lower than the national average of 2,89 percent.

``The health of the pension fund has more to do with the willingness and the ability of the plans' sponsors to make the contributions than it does whatever the current level of the funding percentage might by,'' Little said.

Templin also tried to dispel the notion that public sector pensioners get a better deal than those in the private sector, receiving on average $16,000 to $23,000 a year. ``Would anybody think that's a lavish amount to spend on your retirement and look after your grandkids?''

The James Madison Institute also released a report Monday that concluded that while the ``Florida appears to be in better shape that the typical state,'' many local governments have pension accounts that are severely underfunded.

Ring said he urges them help find consensus. Among his ideas: develop a model that bases an employee's contributions based on the performance of the market. If the pension account is fully-funded, then participants pay less but if it is not then their contribution would rise.

In his article, Bill Kaczor of Bloomberg reports, AFL-CIO disputes 'myths' about Fla. pension funds:

The AFL-CIO and two outside experts Monday disputed what they say are "myths" that Florida's public employee retirement plans are underfunded and provide lavish benefits.

Also, during a news conference they disagreed with claims that public pension costs are too high and eating up state and local budgets and that they hurt local economies.

The pension plans have drawn those kinds of criticisms from Gov. Rick Scott, lawmakers and a conservative think tank.

Florida AFL-CIO legislative and political director Rich Templin said the union is troubled by such comments although details of proposed legislation are hazy and nothing has yet been filed.

"We can't find any verifiable information to indicate that those claims are true, that those claims are anything other than political rhetoric and ideological posturing," Templin said.

He said pension benefits averaging $16,000 to $23,000 a year cannot be considered extravagant.

Scott has called the $122 billion Florida Retirement System "a ticking fiscal time bomb" because he doesn't think it can sustain its current high rate of return on investment. He's also worried about its unfunded liability.

As of last June 30, the closing date for the plan's last annual report, it had $109 billion in assets and an unfunded liability of about $15 billion, or 12 percent.

That percentage is one of the lowest of any public pension funds in the nation.

"You are one of the shining stars of pensions systems throughout the United States," said Ray Edmonsdon, CEO of the Florida Public Pension Trustees Association, a nonprofit educational organization for local plans.

The state plan, which isn't a member of Edmonsdon's organization, covers state and some local employees including teachers. Florida also has 488 local government pension funds.

Unfunded liability is the difference between a plan's assets and liabilities assuming it had to pay out benefits all at once.

"To say that a pension fund that has an unfunded liability is underfunded is not true," said Chad Little, a partner in Freiman and Little Actuaries of Merritt Island, which specialized in public pension plans. "Unfunded and underfunded are not the same thing."

In response, the James Madison Institute, a Tallahassee think tank, issued a news release acknowledging underfunded public pensions have not yet reached a crisis in most Florida municipalities but saying that possibility should be addressed now to prevent future problems.

"Underfunded public pension liabilities are economic sinkholes waiting to collapse," said the institute's president, J. Robert McClure III.

Florida is one of very few states that don't require state employees to pay into its pension fund. Scott has proposed compelling them to contribute although they've gone five years without an across-the-board pay raise.

Little acknowledged that would save taxpayers money but said it also would reduce the plan's financial health. That's because employee contributions must be returned if a worker leaves the system before being vested or dies early. The state's contributions stay in the fund under all circumstances.

Scott also wants new hires to be placed in a defined contribution plan similar to a 401K. That would allow employees to take their individual plans with them if they move to a new job not covered by the state system. They'd also be responsible for managing their own investments and would not be guaranteed lifetime payments that they get under the present defined benefits plan.

Edmonsdon, a retired Fort Lauderdale police officer, said switching to defined contributions could cost taxpayers more because retirees who exhaust their pension benefits would qualify for welfare at taxpayer expense.

The investment track record for such plans also has been poor compared to defined benefit systems, which are more diversified and run by professional money managers, he said.

Edmonsdon is right, the switch into defined-contributions could cost taxpayers more if retirees exhaust their pension benefits. And an unfunded liability of $15 billion or 12% is not bad at all, especially when compared to other states that are in far worse shape. But Florida should introduce measures to have state employees contribute to their pension fund and the contribution rate shouldn't be based on rosy investment assumptions. Finally, all these state pension plans should improve on their governance. Without proper governance, the rest is meaningless.