The Challenges Facing the Florida Retirement System Explained
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Backgrounder

The Challenges Facing the Florida Retirement System Explained

Why Florida's pension debt is rapidly growing, how public pensions are really funded, the ways Florida is failing to provide retirement security to workers, and more.

Despite past reforms to the Florida Retirement System (FRS), the pension plan serving over one million of the state’s workers and retirees has accumulated $36 billion of public pension debt in the last 12 years.

As stakeholders consider future changes to the Florida Retirement System, it is important to understand the structural problems within the pension plan that are impacting costs for taxpayers and retirement security for employees.

This series of one-pagers aims to explain why the Florida Retirement System’s debt is rapidly growing, the ways Florida is failing to provide retirement security to workers, and more. The series includes:


Why Florida’s 2016 Pension Reforms Did Not Solve the State’s Pension Problems

Despite changes made in 2016, the Florida Retirement System (FRS) reported a record-high unfunded pension liability of $36 billion in 2020. An analysis of FRS  going back to 2009 makes it possible to identify the key factors that are driving growth in FRS’s pension debt. These key factors include the pension plan’s unrealistic investment return expectations, out-of-control interest owed on debt, and exposure to market volatility. Read more about the historic performance and future outlook of FRS in this one-pager.

Download the one-pager here.

 

Two Major Problems Facing the Florida Retirement System

Florida policymakers, public employees and taxpayers should be alarmed that the state’s public pension system has added an additional $6 billion in debt since 2018. Not only is the public pension plan’s growing debt threatening the retirement security of employees, but the Florida Retirement Systems defined contribution plan is also failing to set aside an adequate amount of funds for employees’ retirement. This one-pager describes these two problems in more detail.

Download the one-pager here.

 

Does the Florida Retirement System Investment Plan Meet Gold Standards for Defined Contribution Plans?

Industry experts say that government-sponsored defined contribution plans should set aside 10 to 15 percent of an employee’s annual income to provide adequate retirement income for the future. The Florida Retirement System’s defined contribution plan, titled the FRS Investment Plan, has a 6.3 percent aggregate contribution rate for employees that falls well short of industry best practices. Furthermore, the Investment Plan does not provide adequate asset distributions and disability coverage options. Read more about how the FRS plan matches up to industry gold standards in this one-pager.

Download the one-pager here.

 

Examining FRS Investment Returns

When a pension plan falls short of its assumed rate of investment return, debt is created. The Florida Retirement System has historically used an assumed rate of return on investments as high as 8 percent and gradually lowered the plan’s expected rate of return to 7 percent over the last 17 years. But because FRS has only averaged a 6.81 percent rate of return on investments in the last 20 years policymakers should be considering further changes. This one-pager also explains how lowering a pension plan’s assumed rate of return does not cut pension benefits.

Download the one-pager here.

 

Why Being 80 Percent Funded Is Not Enough

At the end of 2020, the Florida Retirement System (FRS) reported having 82 cents for every dollar of pension benefits promised to public employees. This is a sharp decline from the year 2000 when the plan was 118 percent funded. This one-pager explores why pension plans simply must be 100 percent funded to prevent expensive debt growth and intergenerational inequality. Anything less than 100 percent won’t do for Florida public employees or taxpayers.

Download the one-pager here.

 

Important Terms and Definitions, How Public Pension Plans Work, Plus a Summary of How Pensions Are Funded

Public pension reform discussions can be filled with unfamiliar terminology and complicated financial projections. This one-pager seeks to define the most important pension terms, like assumed rate of return, unfunded actuarial accrued liability, normal cost, and more. The one-pager also looks at how defined benefit pension plans are funded and explains how pension funding differs from Social Security benefit funding.

Download the one-pager here.