Florida is the retirement capital for most of the United States. So at the very least the state’s own teachers and public workers should feel comfortable that they can retire comfortably there too some day. But that may not be the case.
Today’s Florida Retirement System has promised more than $30 billion in pensions than it has money to pay — and $15 billion of those are promised to K-12 educators. These “unfunded liabilities” have emerged only in the past 12 years and have been growing fast. If the current trends persist, it might be that the only people who can’t afford to retire in the Sunshine state are the people who served the state by teaching its children.
That’s why our team at Equable has launched FundMyFRS.org — and we are encouraging people to share with others about this troubling problem.
So what’s going on? In short, Florida is gambling away a secure retirement for teachers.
For years, market expectations for Florida pensions have been overly optimistic — leading to a massive miscalculation. Over the past two decades, FRS predicted even higher returns than what the record-breaking market brought in. It’s been so bad that over the past few years, even the advisors Florida has hired to help them manage pension finances have said FRS market expectations are unrealistic.
The result is that more than half of the $15 billion hole in pension funding for teachers is due to overly optimistic assumed rates of return.
To make things worse, the actual benefits that FRS is providing are increasingly not sufficient to ensure teachers get a secure retirement. Members of the Investment Plan do not have large enough contributions going into their accounts. Members of the Pension Plan are no longer earning benefits that will be inflation protected.
What can be done? There are a few things, but they will all require a stakeholders from across the state to join together and take on a big political challenge.
FRS needs a realistic assumed rate of return that Florida expects can be earned from financial markets. As it stands Florida is paying less today because it assumes it will earn more tomorrow. It would be better to have realistic expectations and put the money in today.
The Florida legislature needs to ensure it pays the full required contributions into the Pension Plan each year, and work to get the pension shortfall closed as quickly as possible.
Contributions into the FRS Investment Plan need to be increased so that there is more than the current 6.3% of salary being saved. Financial experts recommend that defined contribution plans get 10% to 15% of salary saved each year, in addition to Social Security.
Finally, the Florida legislature needs to ensure all retirement benefits are inflation protected, and find a way to re-introduce cost-of-living-adjustments to the benefits being earned by today’s public workers.
Anthony Randazzo is executive director at Equable Institute, a bipartisan non-profit working to create a safe, more secure retirement for public workers everywhere.