Report shows Florida's pension system facing headwinds

The Florida Retirement System has shrunk over the last year, and some analysts are saying that it will not survive on its current course, with new legislation likely not to have much of an impact.

According to the Department of Management Service’s annual comprehensive financial report, the Florida Retirement System has had a net income loss of $21.7 million in the 2022 fiscal year after beginning the year at $202 billion and ending the year at $180 billion.

The report also says that the long-term financial health of all retirement plans depends upon several key items: Future investment returns, contributions, and benefit payments.

"The division’s funding objective is to accumulate sufficient assets over time to meet its long-term benefit obligations as they become due. Accordingly, collecting employer and employee contributions, as well as earning the assumed long-term rate of return on its investments are essential components of the division’s funding plan to accumulate the assets needed to finance future retirement benefits," the report says.

Membership overall has decreased, shrinking from 635,266 contributing members in 2021 to 629,073 members as of June 30, 2022. The average age of members is 45, with an average of 10 years of service and an average salary of $52,000.

While member numbers dropped, the number of retirees collecting benefits increased from 440,307 in 2021 to 448,846. This equates to an extra $493,967,668 paid to those receiving benefits.

The Reason Foundation released its own analysis of the current system in 2021 and said in its report that "The 2008 financial crisis weakened FRS’s funded status, but since then, markets have recovered while pension funding has not."

The report adds that changes made in 2018, which enrolled new members into a 401K-type investment plan by default instead of a pension plan, were a good idea but did not address all the issues plaguing the system.

"Reducing benefits in 2011 reduced some costs at the expense of inflation protection for retirees, but it did not fundamentally address why pension debt continues to grow. Defaulting new FRS members into the Investment Plan in 2018 was better aligned with workforce mobility trends and reduced future financial risk, but it did not address why pension debt has persisted for a decade," the report stated.