Read the full report: Florida Retirement System Reform: Why Now?Executive Summary:
The Florida Retirement System should move toward a defined contribution system now to avoid the unfunded liabilities that continue to build because of its cur- rent structure as a defined benefit system.
Opponents of reform argue the current system is 85 percent funded and financially sound, but last year the legislature appropriated $500 million to partially finance the current underfunding. While Florida’s pension system is in better shape than many others, a system that requires this kind of financial support in a year when the S&P 500 stock index rose 30 percent is not financially sound.
Some argue that the current system is stable enough that it is not in urgent need of reform. It is better to be proactive to ensure the financial security of the retirement program now, rather than wait until a crisis occurs, as has happened in other places.
A defined contribution system has benefits for employees that the debate often does not recognize, including having the financial security of an individual account rather than being dependent on the financial security of the state’s fund.
Reform proposals envision the defined contribution plans remaining within the Florida Retirement System, but in the long run a better reform would completely privatize state pensions and have them managed by private investment firms, as is often done in the private sector.
Introduction:Proposals to reform the Florida Retirement System (FRS) for government employees have created a lively debate regarding what types of reforms would be desirable and whether the system needs reform at all. FRS is currently funded at about 85 percent. This does not put it in immediate danger, and the current system provides guaranteed benefits to retirees, offering them some degree of financial security once they retire. The argu- ment against reform: not only is the current system not “broken,” but it is working well. Other government pension plans across the nation – and even many local government plans here in Florida1 – are not in such good shape. The time to look at reform is not after the system is broken, but rather before it runs into problems. The Florida Legislature should consider the problems that have plagued other pension plans and be proactive to design a system today that will not run into those same problems in the future.
