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Mar 29, 2021 · Over the last 20 years, the Florida Retirement System’s compound annual growth rate was only 5.62 percent, which is well short of the 7 percent it hopes to earn in the future.
- About the Pension Integrity Project
- FRS Liabilities are Growing Faster than Assets
- FRS Unfunded Liabilities are Growing Faster than the Florida Economy
- Type:
- 2000 – House Bill 2393
- Challenge #1:
- Challenge #2:
- CHALLENGE #1
- Actuarial Experience of FRS, 2009-2020
- FRS Funded Ratio Did Not Recover Despite a Historic Decade for the Stock Market
- Private Equity & Alternative Investments
- Probability Analysis: Measuring the Likelihood of FRS Achieving Various Rates of Return
- Employer Contribution Rates
- All-in Employer Cost
- Quick Note:
- Stress on the Economy:
- Amounts to be Paid in 2020-21 Contribution Fiscal Year, % of projected payroll
- OUTDATED ACTUARIAL AND AGGRESSIVE ASSUMPTIONS AND METHODS
- Actuarial Assumptions vs. Actual Experience
- What’s the difference between “accruing” UAL and “exposing” UAL?
- Investment Return Assumption
- Actual v. Required Contributions
- Net Interest on the Debt as a Portion of UAAL
- DISCOUNT RATE AND UNDERVALUING DEBT
- The “discount rate” for a public pension plan should reflect the risk inherent in the pension plan’s liabilities:
- Sensitivity Analysis: Pension Debt Comparison Under Alternative Discount Rates
- FRS Membership Allocation: DB+DC Plans
- Change in FRS Payroll Share: DB+DC Plans
- FRS Investment Plan - Gold Standard Score
- Defined Contribution Reform Best Practices
- Why?
- Why?
- Why?
- Limits of Recent Pension Reforms
- Comparing Average Salary: FRS Pension vs. DC
- Back-Loaded Pension Debt Payments
- FRS Historic Change in Covered Payroll
- FRS Assumed Rate of Return History Relative to National Average
- Long-Term Average Returns of 7.0%
- (-) Overestimated Payroll Growth
- Actual Change in Payroll v. Assumption
- Actual Inflation vs. Assumption
We offer pro-bono technical assistance to public officials to help them design and implement pension reforms that improve plan solvency and promote retirement security, including: Customized analysis of pension system design, trends Independent actuarial modeling of reform scenarios Consultation and modeling around custom policy designs Latest pens...
Source: Pension Integrity Project analysis of FRS actuarial valuation reports and CAFRs.
Source: Pension Integrity Project Analysis of FRS valuation reports and CAFRs, Federal Reserve of St. Louis Data for the Florida gross domestic product.
• Final Average Salary Defined Benefit Pension Plan
Provided a defined, participant-directed contribution (DC) plan option to FRS members. One-year vesting for the portability of employer contributions. Based retirement benefits on market returns rather than a fixed benefit guarantee. Existing members given the option to switch future FRS participation into the DC plan without losing their already e...
FRS Defined Benefit Pension Plan Still Not on a Path to Solvency Overly optimistic assumed rate of return creates unnecessary risk. Unmet actuarial assumptions and slow-paced changes to those assumptions increases unfunded liabilities over time. Insufficient employer contributions inhibits plan assets from compounding growth over decades. Discount ...
FRS Defined Contribution Retirement Plan Not Built for Retirement Security. • An inadequate contribution rate is shortchanging worker retirement security.
• FRS Pension Plan is still not on a path to long-term solvency.
Source: Pension Integrity Project analysis of FRS actuarial valuations. Data represents cumulative unfunded liability by gain/loss category.
Source: Pension Integrity Project analysis of FRS actuarial valuation reports and Yahoo Finance data.
Source: Pension Integrity Project analysis of FRS actuarial valuation reports and CAFRs.
Source: Pension Integrity Project Monte Carlo model based on FRS asset allocation and reported expected returns by asset class. Forecasts of returns by asset class generally by BNYM, JPMC, BlackRock, Research Affiliates, and Horizon Actuarial Services were matched to the specific asset class of FRS. Probability estimates are approximate as they are...
Statutory Contributions: Annual payments usually based on a rates set in state statute, meaning contributions remain static until changed by legislation. Actuarially Determined Employer Contribution (ADEC): Unlike statutory contributions, ADEC is the annual required amount FRS’s consulting actuary has determined is needed to be contributed each yea...
Statutory rates are more susceptible to the political risk inherent to the legislative process and often result in systemic underfunding, especially when legislatively established rates fall short of what plan actuaries calculate as necessary to ensure funding progress. • The true cost of a pension is not only in the annual contributions, but also ...
With actuarial experiences of public pension plans varying from one year to the next, and potential rounding and methodological differences between actuaries, projected values shown onwards are not meant for budget planning purposes. For trend and policy discussions only.
Market watchers expect dwindling consumption and incomes to severely impact near-term tax collections – applying more pressure on state and local budgets. Revenue declines are likely to undermine employers’ ability to make full pension contributions, especially for those relying on more volatile tax sources (e.g., sales taxes) and those with low ra...
Source: Pension Integrity Project forecasting analysis based on FRS actuarial valuation reports.
• The act of aligning assumptions with realistic expectations spotlights systemic risk in the form of unfunded liabilities. Florida Pension Analysis: FRS Challenges from Outdated and Aggressive Actuarial Assumptions
Deviations between actuarial experience and assumptions, and delays updating those assumptions, has led to an underestimation of the total FRS Pension Plan liability. Adjusting actuarial assumptions to reflect the changing demographics and new normal in investment markets exposes hidden pension cost by uncovering existing but unreported unfunded li...
Generally, each assumption used by plan actuaries to calculate the cost of benefits over time come with the inherent risk of being wrong any given year resulting in unfunded liabilities. When an assumption is off, and assets actuaries were expecting from a given source are not contributed to make up the difference, the plan passively accrues unfund...
Overestimating investment returns short the FRS Pension Plan of expected contributions and increased unfunded liabilities slowly over time. Lowering investment returns to reflect market conditions instantaneously exposes accrued but unfunded pension benefits. INSUFFICIENT
Source: Pension Integrity Project analysis of FRS actuarial valuation reports and CAFRs.
Source: Pension Integrity Project actuarial analysis of FRS plan valuation reports and CAFRs
• The discount rate undervalues the measured value of existing pension obligations.
Most public sector pension plans — including FRS — use the assumed rate of return and discount rate interchangeably, even though each serve a different purpose. The Assumed Rate of Return (ARR) adopted by FRS estimates what the plan will return on average in the long run and is used to calculate contributions needed each year to fund the plans. The...
Source: Pension Integrity Project analysis of FRS Valuation Statements. Figures are rounded.
Source: Pension Integrity Project analysis FRS actuarial valuation reports and CPI-U data from the Bureau of Labor Statistics.
Source: Pension Integrity Project analysis FRS actuarial valuation reports and CPI-U data from the Bureau of Labor Statistics.
Source: Pension Integrity Project analysis FRS actuarial valuation reports and CPI-U data from the Bureau of Labor Statistics.
Source: Pension Integrity Project analysis FRS actuarial valuation reports and CPI-U data from the Bureau of Labor Statistics.
Source: Pension Integrity Project analysis FRS actuarial valuation reports and CPI-U data from the Bureau of Labor Statistics.
Source: Pension Integrity Project analysis FRS actuarial valuation reports and CPI-U data from the Bureau of Labor Statistics.
Source: Pension Integrity Project analysis FRS actuarial valuation reports and CPI-U data from the Bureau of Labor Statistics.
Source: Pension Integrity Project analysis FRS actuarial valuation reports and CPI-U data from the Bureau of Labor Statistics.
Source: Pension Integrity Project analysis FRS actuarial valuation reports and CPI-U data from the Bureau of Labor Statistics.
Source: Pension Integrity Project analysis FRS actuarial valuation reports and CPI-U data from the Bureau of Labor Statistics.
Source: Pension Integrity Project analysis FRS actuarial valuation reports and CPI-U data from the Bureau of Labor Statistics.
Source: Pension Integrity Project analysis FRS actuarial valuation reports and CPI-U data from the Bureau of Labor Statistics.
Source: Pension Integrity Project analysis FRS actuarial valuation reports and CPI-U data from the Bureau of Labor Statistics.
Source: Pension Integrity Project analysis FRS actuarial valuation reports and CPI-U data from the Bureau of Labor Statistics.
Source: Pension Integrity Project analysis FRS actuarial valuation reports and CPI-U data from the Bureau of Labor Statistics.
Source: Pension Integrity Project analysis FRS actuarial valuation reports and CPI-U data from the Bureau of Labor Statistics.
Ohio’s Retirement Systems: 1998-2022 At its November 9th, 2023, Ohio Retirement Study Council (ORSC) meeting, the ORSC directed its staff to create a comprehensive historical report on the state retirement systems. The ORSC directed its staff to provide a review of incoming contribution rates (employee and
Mar 17, 2021 · Opening Florida’s 2021 Legislative Session, Senate President Wilton Simpson gave a dire warning to participants of the Florida Retirement System (FRS) — the plan that provides retirement...
Mar 11, 2021 · 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.
Jun 15, 2022 · Recognizing a significant shortcoming in the Florida Retirement System’s Investment Plan, the state legislature recently took substantial action to address the problem by passing House Bill...
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Sep 27, 2023 · At its September meeting, the Board unanimously voted to approve a 2.5% cost-of-living adjustment (COLA) increase for eligible retirees and beneficiaries in 2023. By statute, SERS’ COLA is based on the year-to-year change in the Consumer Price Index (June 2021 to June 2022) for Urban Wage Earners (CPI-W), with a floor of 0% and a cap of 2.5%.
