State agencies, local governments and school boards could see significant increases in their retirement-plan contributions for employees if Gov. Ron DeSantis signs into law a bill seeking to chip away at the Florida Retirement System’s $22 billion unfunded liability.
The bill proposes to increase employer contributions to the Florida Retirement System (FRS), the nation’s fourth-largest public-pension plan, by $404.6 million next fiscal year – $232.7 million for school boards – to keep the fund from slipping further underwater.
House Bill 5007, sponsored by the House Appropriations Committee, was approved Feb. 13 by the House in an 111-5 vote. It substituted Senate Bill 7044, sponsored by Sen. Ed Hooper, R-Clearwater, and was adopted by the Senate, 38-0, that same day.
According to the state’s Department of Management Services (DMS), as of June 30, 2019, the FRS provides retirement income benefits to 647,942 active members, 4.425 million retirees and 32,670 people enrolled in its Deferred Retirement Option Program (DROP) plan.
The 50-year-old FRS serves employees of state agencies, counties, district school boards, state colleges and universities. It also serves employees of 176 cities and 138 independent hospitals and special districts that have elected to sign on.
The bill revises employer contribution rates for the FRS based on DMS' 2019 Actuarial Valuation report.
State law requires an annual “actuarial valuation” of the FRS by the DMS be presented to the Legislature by Dec. 31 each year. Lawmakers then use the DMS data to set employer contribution rates for the next fiscal year, beginning July 1.
Although the FRS is rated as "well-funded" and "quite stable,” of the $65.1 billion in benefits promised to 4.425 million former public workers and beneficiaries, there is a $22 billion unfunded liability gap – $11 billion in pension and $11 billion in health-care benefits – between what it has on hand and what is owed, according to Truth In Accounting’s 2019 Financial State of the States report.
A 100 percent-funded plan has the money on hand to support all members if they retired right now. The FRS was last fully funded in 2008, but, in the wake of the 2008 real estate market crash and ensuing Great Recession, the fund is about 84 percent-funded, DMS estimated.
Hooper, in committee discussions, acknowledged the proposed $404.6 million contribution increase will keep the FRS from dipping further “underwater.”
“Once you get underwater, it's hard to get back to the surface," he told the Tallahassee Democrat, noting the entire gap cannot be filled in "one swoop."
The bill breaks down the $404.6 million contribution increase by each contributor group:
• School Boards: $232.7 million
• Counties: $61 million
• State agencies: $47 million
• State universities: $21.6 million
• Colleges: $18.6 million
• Cities/districts/others: $23.6 Million
Public school districts will absorb more than half the increase, although there is a possibility lawmakers could increase the per-pupil funding amount – the main source of funding for school districts – to offset the hike.
According to Truth in Accounting, if the state’s unfunded pension liability was included in its “true” financial statement, Florida would have $60.9 billion available to pay $73 billion in bills – a $12.1 billion shortfall that has increased by about $500 million in 2019.
In the Chicago-based government transparency watchdog’s analysis, Florida was one of 13 states to receive a “C” grade for its financial condition, the same score it received in TIA’s 2018 report.
“Florida’s financial problems stem mostly from unfunded retirement obligations that have accumulated over the years,” the report stated.
– The Center Square