Adrian Moore: Don’t buy the myths, Florida state retirement system is in deep trouble

Saving for retirement and pension fund concept : Senior retired couple, vintage clock, US dollar money bag, deposit saving jar on steps of rising coins, depicts long-term investment for aging society
Don’t buy the myths that FRS is just fine. It is not.

Opening Florida’s 2021 Legislative Session, Senate President Wilton Simpson gave a dire warning to participants of the Florida Retirement System (FRS) — the plan that provides retirement benefits for state workers, many local workers and teachers in Florida.

“Our current retirees and every state employee should be very concerned. You will hear that Florida’s pension plan is better than most. And it is. That’s what every state always says right up until the time that they cannot pay the unfunded liability.”

Financial models and annual reports published by FRS are clear — despite popular myth the pension plan in serious trouble. Unfortunately, some legislators and stakeholders mistakenly believe that FRS is in good shape.

When Sen. Ray Rodriguez, a Ft. Myers Republican, introduced Senate Bill 84, the first step in the Senate’s 2021 effort to reform FRS, press reports were filled with quotes from some legislators and stakeholders assuring us that FRS is a gold standard plan compared to others states and is over 80% funded, which everyone knows means it is in fine health, and legislation in 2016 fixed FRS so no further changes are needed.

No one should believe these myths — they don’t stand up to the facts.

The FRS pension plan has an “unfunded liability” of $36 billion as of last year. That means the state is short $36 billion of what it needs to have invested in the market right now in order to meet the retirement benefits promised to generations of workers and retirees. The bulk of this pension debt — over $32 billion — is caused by a long history of underperforming investments and changes to actuarial assumptions to prepare for lower investment returns in the future too.

Similarly, as of 2020 FRS has on hand 82 cents for every dollar of pension benefit promised to public employees and many legislators take it as an article of faith that some financial experts consider pension funds at least 80% funded to be in good shape.

But in fact, no professional actuarial organization considers less than 100% funding to be appropriate for a pension plan.

As the Society of Actuaries put it: “[A pension] plan’s funding goal should always be 100% of the plan liability calculated assuming median expected future investment returns.”

No retired teacher living off an FRS pension should spend the rest of their life worrying if their pension is secure because the state followed convenience rather than sound pension management principles.

As an example of how fragile the FRS pension plan is, lowering its assumed rate of investment return just slightly — from 7.4% to 7.0% — the last two years has resulted in roughly $779 million in new, recurring annual spending from the budget just to keep up.

$368 million of that is being paid by Florida’s K-12 school districts, and those are dollars that are going to cover unfunded benefits for past work instead of educating kids in the classroom today and tomorrow. A roughly $180 million per year bill to school districts today could balloon with just one bad year on Wall Street when the state doesn’t make its 7% investment goal.

No retired state worker should have to hope — or worry — that future legislators and taxpayers will pay for their pension every time the stock market has a bad year or there is a recession.

The state budget is also vulnerable to FRS’s ongoing challenges. Current annual payments to FRS by the state are about $3.25 billion, but pension debt payments keep pushing that number up. And all it takes is the next recession and the legislature is staring down the double barrel of falling revenue and ballooning retirement plan payments that, according to new stress testing recently published by Reason Foundation, could easily double.

That will punch a hole in the budget considerably larger than the pandemic recession did this year and would likely require billions in cuts to other parts of the budget or commensurate tax hikes.

Legislative changes made to FRS in 2000, 2011 and 2017 helped but, given that pension debt has only kept growing, obviously did not solve the problem. FRS funding still depends too much on averaging at least 7% returns on its investments, something it has fallen far short of over the last 20 years, averaging just 5.6%.

When returns fall short, the pension debt gets larger and pension contributions must rise to keep pace. Independent advisers and FRS’s own actuaries all suggest the return assumption on investments should be 6.5% at most.

Don’t buy the myths that FRS is just fine. It is not: and protecting teacher and other government worker retirement as well as state budgets and taxpayers means FRS needs significant reforms and it needs them now.

Sen. Simpson should be commended for highlighting this as a priority for this Legislative Session.


Dr. Adrian Moore is vice president of the Reason Foundation and lives in Sarasota.

Guest Author


  • Sonja Fitch

    March 17, 2021 at 6:32 am

    As a really tired political junkie, this legislature reminds me of a toxic circle jerk. Half-assed proposals for half-assed changes from a bunch who really don’t give a shit! Don’t pay these political hacks! Pay school boards that respond and serve and protect our education system in Florida! We need to SINE Di!

  • Jim

    March 17, 2021 at 8:05 am

    This article would be true if every person in the FRS would quit and retire tomorrow. That simply is not going to happen, and its amazing they left out that other states look at the FRS as ways to improve their own state pension.

    • Adrian Moore

      March 17, 2021 at 2:13 pm

      Jim, the unfunded liability would still have to be paid even if every single worker left the plan tomorrow. The pension plan is fine and provides a good retirement benefit. The problem is the debt and how to effectively deal with it. If that is NOT done, then either beneficiaries take a cut, or the budget takes a big, big hit, or taxpayers have to pony up a massive balloon payment. Or some painful combination of those. Fixes the debt is fundamental to protecting retiree benefits. This is why Florida is NOT looked at any other state as a model.

  • Yep

    March 17, 2021 at 9:06 am

    While 100% funding would be great, no state in the US has it. The fact remains Florida has one of the highest funding rates in the country.
    The reform now proposed would make the system less funded not more. Not allowing new employees into the system to help fund it will only hasten the demise of the FRS. The FRS is in better shape than Social Security. No one is proposing that we no longer collect Social Security taxes and close the program to new participants.

    • Adrian Moore

      March 17, 2021 at 2:24 pm

      Yep, in 2001 most states were 100% funded, and up until 2009 a number of states were, including Florida. See this animated map that shows this data
      All this debt is a new phenomena that didn’t happen in earlier recessions. The change is that state governments stopped responsibly funding the retirement benefits they promised. It is not true that you need new members to keep the plan funded, it is not a Ponzi scheme. If Sen. Simpson follows up on his session opening speech to do reforms that pay down the debt and protect retirement benefits, it will be good for all.

  • James Thomas

    March 17, 2021 at 11:15 am

    The author uses a false comparison when referring to actuarial expectations. Of course, if running the pension of a private company, one would want 100% funding in light of the possibility that the company go bankrupt, or simply dissolve. In that case all members in the pension would be owed at the same time, leaving any unfunded liabilities unpaid.

    The same is simply not the case for public pensions. What is the likeliness of the sate of Florida ceasing to exist or folding? Zero. Not to mention, what is the probability of all members of the state pension requiring payment at the exact same time? Again, zero. It is because of this reality that any funding of a public pension above 80% is considered very good. If we fall below this thresh hold, the sate coud simply increase its contribution, or even pass it off the the employee (as they recently did with the 3% increase). The Florida pension is as likely to run out as the state is of being consumed by the ocean.

    This false comparison is meant to strike fear in the hearts of the public and provide cover for the politicians who simply want to privatize the pension, passing 100% of the responsibility to fund retirement to the public employee.

    • Adrian Moore

      March 17, 2021 at 2:29 pm

      James, I did not compare to private pensions. I referred to what the actuarial profession says should be the standard for government pension plans. See this 2-page
      Of course the state of Florida is not going away. But continuing to exist does not pay the FRS debt. Either taxpayers or state workers or retirees are going to have to pay it, and the sooner we pay it the less it will cost. Most of the problems has been inadequate payments by the state, as employer, and that is where the fix mostly needs to be.

      • James Thomas

        March 17, 2021 at 3:12 pm

        Not to overstate the point, but you are drawing from the Government Accounting Standards Board (GASB) who uses the private industry pension model and applies it to the public sector as the standard in determining the 100% goal. You know that there is a level of stability that governments enjoy which is not true in the private sector, which makes the scare tactic moot and misleading. The Florida pension is not even close to being insolvent any time in the distant future (unless this crazy SB 84 is passed).

        Eliminating the pension option altogether is a gross OVEREACH where the so-called cure is worse than the “disease”.

        For an EXCELLENT summary of why this article is misleading see: ed/article249816508.html

  • Pete Prior

    March 17, 2021 at 2:20 pm

    this is a very misleading article and full of faults. Even if the plan was 100% funded and hired 1 person the plan is not fully funded at that point. FRS is not in trouble at all and in fact they are going to try and make all new employees enter into a DC plan. Now the state will have to pay into a DC plan as well as the DB plan they currently have, with no future contributions from employees. Now the plan will have to depend directly on the income of the investments and the state will then have to make up the shortfall. Let’s follow the money and see who really benefits from change.

    • Adrian Moore

      March 18, 2021 at 12:50 pm

      Pete, a couple of things. First, when the state hires 1 person with FRS, that first year the state makes and employer contribution and the employee makes and employee contribution, both actuarially calculated to be one year’s contribution to a fully funded benefit fort that employee. The plan is only not fully funded IF the state does not make the full employee contribution, no matter how many new employees it hires.

      Second, FRS already has a DC plan that is fully funded (though inadequate, which is a separate problem)–each year the employer and the employee make contributions into that plan which are invested per the investment choices made. So there is no pension debt associated with the DC plan.

  • Tom Joad

    March 29, 2021 at 4:54 pm

    “Dr. Adrian Moore is vice president of the Reason Foundation.”

    And is opposed to public service workers earning a decent, predictable, defined, dignified retirement.

    Color me shocked. Not.

Comments are closed.


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