The State of Florida’s Retirement System (FRS) is at risk of failing slowly for many more years and then failing suddenly and completely at some point, wrecking retirements for public servants, damaging state finances, and upending many lives along the way.
Senator Ray Rodriguez is fighting to secure Florida’s long term fiscal health and deserves our thanks for tackling this issue in a way that protects taxpayers and puts the long term ahead of the short term even in the face of the objections of organized opposition.
The FRS is the 16th largest pension system in the world and manages over $160,000,000,000 in assets but, as of the last annual report, is funded at only 82% of its obligations. Today, the FRS system has a significant and growing unfunded liability. In fact, it is short $36 billion. This is the highest unfunded percentage since 1996, the highest real dollar shortfall amount in our state’s history and means that we have tens of billions of dollars in future pension liabilities that the state government needs to wrestle with today in order to avoid even more daunting challenges in the future.
Some who are resisting any sensible changes have suggested that 82% funding is fine because it is better than other states. No professional actuarial organization believes this, and neither should policymakers or the public. The flaw is in the way we have structured our system. Bluntly, investment gains are not enough to maintain the current system. Last year, the FRS paid roughly $7.3 billion to retired state workers against a $4.9 billion gain, so our system is heading in the wrong direction. Other states, like New Jersey, Illinois, and Kentucky, are facing dire choices as their pension systems dry up as Baby Boomers retire, creating shortfalls in the hundreds of billions of dollars.
Currently, a new state employee in Florida is eligible for a full, state funded pension after 33 years of service to the state. In retirement, they are guaranteed most of their final salary, adjusted for the cost of living each year, for as long as they live. To receive this benefit, they pay a small fraction of their salary into their system. But since the system is underfunded and is paying out more money that it is taking in, active state workers are in effect paying for the retirements of the already retired state workers.
One of the best ways to begin to right this ship is for Florida to move towards a 401(k)-style defined contribution plan instead of a defined benefit plan for all new employees going forward. Most companies in the private sector have already made this switch. This concept is at the heart of legislation by SenatorRodrigues, which would move all new state hires, excluding public safety professions like fire fighters and law enforcement officers, into such a system.
The Florida Chamber of Commerce supports this common-sense effort to keep the promises that we’ve made to our current public servants, invest in new talent, and find a way to make sure taxpayer dollars are used not as interest payments on the last generation’s public service but on investments in our future.
David Hart is the Executive Vice President of Government & Political Relations for the Florida Chamber of Commerce.