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Florida Pension Fund Broke?

Leo Kolivakis's picture




 

Via Pension Pulse.

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.

 

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Tue, 01/11/2011 - 06:18 | 866642 mrdenis
mrdenis's picture

Angelo Mozilo was spotted in Fla ......http://www.app.com/apps/pbcs.dll/article?AID=2011110110203

Tue, 01/11/2011 - 04:54 | 866603 The Navigator
The Navigator's picture

I don't understand the "?" at the end of the title - shouldn't it be a "!"

If anyone asking 'is xxx broke', I automatically assume it's rhetorical, that is, yes they are broke, especially when it comes to municipalities or states.

Tue, 01/11/2011 - 04:13 | 866566 onlooker
onlooker's picture

Looks like these funds are in trouble in several states and a couple of Nations. Will the Fed save? If not, how do they continue to pay out. Is there enough money to save the funds, states, banks, SS, the new medical and food stamps. Is there enough money??

Tue, 01/11/2011 - 03:14 | 866502 mynhair
mynhair's picture

Nancy at her finest:

http://www.youtube.com/watch?v=whXeb7Ohfkk

'Course Ann has to copy the Stevie dip, but that's another rant.

Both from the same state at the same time.

It should be grabbed as it is the only vid of Nancy strutting her stuff.

Nancy kick!  The only vid on the web.

Tue, 01/11/2011 - 02:41 | 866501 mynhair
mynhair's picture

This dipstick county (Charlotte), budgeted a 3% increase for the leeches!

But my babe, Nancy, knows what to do:

http://www.youtube.com/watch?v=4gpNqB4dnT4&NR=1

(Ann was just starting to pork)

Tue, 01/11/2011 - 02:38 | 866499 Seasmoke
Seasmoke's picture

Yes, just one of 50

Tue, 01/11/2011 - 02:26 | 866483 mynhair
mynhair's picture

Yes, it is, after Crist vetoed the fix.  Though I hear Crist moved on to a GS position, or some such.  F the state pensions!  Those slimes I pay for can go work for Burger King, though they are unqualified.

http://www.youtube.com/watch?v=WANNqr-vcx0

Tue, 01/11/2011 - 01:37 | 866423 Coldfire
Coldfire's picture

So the state pension blood money is running out. Fularious. Trust the glorious state to fuck up something as idiot-proof as a tax-funded pension monopoly.

Tue, 01/11/2011 - 01:31 | 866409 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Florida always looked limp.

Tue, 01/11/2011 - 01:28 | 866401 JW n FL
JW n FL's picture

Say it aint so Leo? Great work, buy solar! physical! solar!

Tue, 01/11/2011 - 01:20 | 866382 Lionhead
Lionhead's picture

Instead of all this haggling, Florida should consider an alternative to FRN's with a gold / silver based system for business & governmental transactions. The funds need to increase their holdings in PM's.

Tue, 01/11/2011 - 01:46 | 866434 Strongbad
Strongbad's picture

Orange-backed currrency with "scatch and sniff" orange-scented banknotes.

Do NOT follow this link or you will be banned from the site!