“Unsustainable” Florida Retirement System (Says Gov. Scott) Has Best Gains in 25 Years
FlaglerLive | July 20, 2011
Lifted by gains in the stock market, the Florida Retirement System pension plan gained $19 billion in the fiscal year that ended on June 30. The 22 percent gain is the biggest in 25 years, reports the State Board of Administration, and larger than the 14 percent gain from last year. The total value of the pension plan has soared to $128.4 billion.
The state pension plan performed better than its benchmark, a goal of 21.7 percent, and better than many of its peers that have also reported returns for the fiscal year.
Ash Williams, the executive director and chief investment officer for the State Board of Administration, said “by staying the course and being able to use strong partnerships to take advantage of market opportunities” the pension plan was able to rebound by $54 billion from a recent low of $83.3 billion just 27 months later.
But even with promising returns, thousands of employees are fleeing the traditional pension plan to the state’s 401(k)-style investment plan, which reported an 18.1 percent return and has 136,500 participants.
No doubt sparked, at least in part, by the uncertainty surrounding long-term employment in state government, 8,300 public employees made the switch this year, which is double the number of employees that made the same switch last year.
Nearly 25 percent of new hires chose the 401 (k)-style investment plan, a slight increase from recent years.
The Florida Retirement System pension plan serves nearly 1 million people, making it one of the largest public pension plans in the nation. Participants are drawn from state government and local governments.
Though not all public pension plans have released their returns for the fiscal year, the ones that have show that FRS performed better, according to an SBA spokesman. Only CalSTRS, the public pension plan for California teachers, performed better with a 23.1 percent return.
Florida’s retirement system has drawn scrutiny lately from Gov. Rick Scott, who questioned whether the pension plan was sound and called for reforms that included requiring a 5 percent contribution by employees.
The Legislature instead required a 3 percent contribution from all public employees, which kicked in this month. The 3 percent contribution equates to a 3 percent pay cut, with no equivalent gain at retirement in additional retirement compensation. A lawsuit filed by the Florida Education Association and other union groups is challenging the new requirement.
Doug Martin, a spokesman for the Florida chapter of the American Federation of State, County and Municipal Employees, called the 3 percent contributions “harsh medicine,” but said it could have been worse.
“Thank goodness the Legislature didn’t shut it down,” Martin said. “It really is one of the shining stars of state government.”
Still, Scott’s concerns about the state pension plan have apparently not been entirely eased.
As recently as July 1, the St. Petersburg Times reported that Scott warned in an email to state employees that across the nation, pension systems are “unsustainable” and would require major tax hikes to stay solvent.
“The pension reform we accomplished this year prevents tax hikes, and also protects the retirement of government workers,” Scott wrote in the email.
–Lilly Rockwell, News Service of Florida