Gov. DeSantis pushes for more pension spending in new budget

Ron DeSantis. Image via Colin Hackley.

Members of the Florida Retirement System will get a little extra help in the new budget despite an unfunded actuarial liability of more than $38 billion that went up $3.5 billion in the last fiscal year.

State pensioners will see boosts in payouts and the state contribution. Gov. Ron DeSantis told reporters in Tallahassee the state would chip in an “additional 3% for employer contribution in the state retirement system.”

That would augment a 3% hike in the current budget, which the administration contends would “provide members with more financial security upon retirement.”

This move boosts annual contributions to employee retirement accounts by $269 million, a 40% increase over the current contribution level, per the Governor’s Office

“We’re also going to do an additional 4% increase in pension benefits because you have inflation that has depleted the value of those benefits,” DeSantis said.

DeSantis contended Wednesday he had improved funding levels of the plan from 82.4% to 83.9%, though a document accompanying the budget rollout said the number was 82.4% funded. Historically, 80% has been a target for public pension funding.

DeSantis defended the administration’s actuarial methods as being a truer look at the state of pensions than in the past, saying that “each year I’ve been in office, we have reduced the assumed rate of return.” The October FRS Actuarial Assumptions Estimating Conference notched that down to 6.7% per annum from the previous 6.8% expectation.

“If we had the more rosy assumptions, we’d probably be 86, 87% funded,” DeSantis claimed. “So the fact that we’ve had all this turmoil, had some market turmoil, and we’re basically where we were and probably much better if you had that, I think that’s a good sign. I think we’re going to be able to build from here.”

“At the end of the day, we really want honest accounting. And we can fudge the numbers a little bit, but you know, so we’ve been reducing that assumed rate of return. I think that’s the conservative approach. I think that’s something that makes the most sense.”

The Governor’s Office asserted the unfunded actuarial liability stood at $38.3 billion on June 30, 2022. That number is based on an actuarial liability of $217.4 billion and an actuarial value of assets of $179.2 billion.

The 2022 Actuarial Valuation Report from FRS, the most recent such document, noted that investments struggled prior to the report’s finalization, after an over 30% rise during the bull market of the previous year. Pension funds are subject, of course, to larger economic trends including macroeconomic volatility.

“On a Market Value of Assets (MVA) basis, Pension Plan funded status calculated on the assumptions and methods in this report for system funding purposes decreased from 96.4% to 82.9% due to actual plan year investment return of approximately -7.18%, which is 13.98% below the assumed prior year return of 6.80%. The Pension Plan funded status decrease was also due in part to the 0.10% decrease in the investment return assumption,” the report said.

“The actual market value investment experience during the 2021-2022 period failed to meet the 6.80% assumption, however, the prior year’s gains served as a buffer, somewhat mitigating increases in actuarially calculated employer contribution rates.”

The 6.7% assumption is a middle ground between two divergent paths, the report continues. If returns average 7.2% over the next 15 years, the unfunded liability could be eliminated. If returns average 6.2%, the unfunded liability would stay at roughly the same level.

The 6.7% rate would reduce that liability to roughly $25 billion by 2037, meanwhile.