COLUMN: Pension problems loom large

Published: Thursday, February 21, 2013 at 06:24 PM.


Our son’s fiancée, Stephanie, influences him positively. On Valentine’s Day, he called his mom. After floating down from the clouds, Susan said he liked living in California but expressed concern about the Golden State’s pension system.

Jim, trust me, you can run but you can’t hide from pension woes.

Florida appears poised to put the kibosh on the state retirement system’s (FRS) defined benefit pension plan — after all, it’s supposedly a ticking time bomb with looming benefit cuts and/or higher costs for taxpayers. Status quo supporters point out the FRS pension ranks among the country’s best funded. Unfortunately, both sides cherry pick statistics and the optimal solution lies somewhere amongst the 50 shades of grey between each position. 

Florida’s Department of Management Services commissioned Milliman, an actuarial firm, to study the financial impact of closing the pension plan to new members effective Jan. 1, 2014. Their report released Friday night (and completely off the Internet Sunday) belies the main premise shuttering the plan will save billions and not affect current or future beneficiaries. Milliman reported, according to the Miami Herald, restricting the plan would mean higher contribution levels from taxpayers or participants to maintain benefits.

The math is simple because when future employees can’t join a pension plan, the payroll base shrinks and that’s where benefits are generated.  Milliman also warned despite closing the plan, FRS’s unfunded liability would not decrease for two decades. 

Labor groups, unions and other opponents of FRS changes claim the FRS pension system remains actuarially sound.  New laws requiring employee contributions, changes in cost of living adjustment formulas and vesting requirements would only solidify FRS’s preeminence. Being a well-funded pension system is akin to being the smartest kid in summer school. Our 87 percent funded level (80 percent being adequate) looks good but our rosy projections assume a 7.75 percent growth rate. Comparatively, California uses 7.5 percent, Wisconsin 7.2 percent.   

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