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Florida Retirement System Pension Solvency Analysis

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Florida Retirement System (FRS) Pension Solvency Analysis 

The nation’s fifth-largest pension system, the Florida Retirement System (FRS), has $36 billion in public pension debt. The Pension Integrity Project’s latest analysis shows that this debt has grown rapidly in the last decade and FRS has accumulated an additional $6 billion in unfunded liabilities since 2018.

The Florida Retirement System manages retirement benefits for almost 648,000 active members and over 584,000 retirees in the state and is comprised of a traditional pension plan and a defined contribution retirement plan option called the FRS Investment Plan.

Two decades ago the retirement system held a surplus of over $13 billion in assets and stood at 118 percent funded. Today, FRS finds itself $36 billion in debt with only 82 percent of the assets on hand needed to pay out benefits over the long-term, which represents a net change in position of almost $50 billion in just 20 years.

Investment returns falling short of the system’s expectations have been the largest contributor to the Florida Retirement System’s growing debt, adding $16.4 billion in unfunded liabilities since 2008.

The chart below, from Reason Foundation’s full solvency analysis, shows the increase in the Florida Retirement System’s debt since the year 2000:

Despite pension reform efforts in 2011 and 2017, structural deficiencies within FRS continue to risk the retirement security of employees and retirees. The 2011 legislative effort reduced retirement benefits for employees and while such a change did lower some costs, it did not fundamentally address why pension debt continues to grow. Similarly, defaulting new FRS members into the Investment Plan in 2018 was a move that better aligned with workforce mobility trends and reduced future financial risks, but it did not address why the system’s pension debt has persisted for a decade.

Furthermore, the FRS Investment Plan is no closer to providing retirement security for Florida’s public retirees than the debt-riddled FRS Pension Plan, as it relies on contribution rates that fall far below industry standards for adequate retirement benefits. Industry experts estimate that 10 to 15 percent of annual income should be required as a contribution to a defined contribution retirement to provide adequate retirement income for public workers. FRS’s aggregate 6.3 percent contribution falls well short of this standard.

Full Florida Retirement System (FRS) Pension Solvency Analysis

Bringing stakeholders together around a central, non-partisan understanding of the challenges the Florida Retirement System faces —complete with independent third-party actuarial analysis and expert technical assistance— is crucial to ensuring the state’s financial solvency in the long-term. The Pension Integrity Project at Reason Foundation stands ready to help guide Florida policymakers and stakeholders in addressing the shifting fiscal landscape.



Source: https://reason.org/policy-study/florida-retirement-system-pension-solvency-analysis/


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