College of Social Sciences


Florida’s Public Pension Funding #1!

Categories:
Kate Franzese

Despite all of the controversy surrounding the soundness of Florida’s public pension programs, a report by Jagadeesh Gokhale at the Cato Institute recognizes Florida as the number one state in terms of public pension plan health. This may be surprising due to all of the scrutiny Florida’s municipalities have endured over pension funding lately, but comparatively speaking they’re still better off than their counterparts in other states. What has Florida been doing to attain the highest rating? The answer lies in the funding ratio of assets to liabilities. Although retiree benefits (pension liabilities) have increased in recent years, smart investors have secured and managed a stable asset portfolio.

Throughout the recent economic downturn, Florida has managed to maintain adequate funding for its public pension program, according to the Cato Institute. This is in part due to the soundness of the plan before the downturn. (Readers should note not everyone agrees with the Cato Institute, and we have previously commented on the controversy here.) Prior to 2001, Florida had an actuarial surplus of assets to liabilities. The Cato Institute named Florida number one after taking into consideration “initial funding conditions with the change in its funding status during the first decade of the twenty-first century.” Although Florida’s public pension plans were hit by the market crash and subsequent economic recession, they were in good health to begin with and the relative decrease in value was not as significant or deleterious as that experienced by other states.

This is positive news for Floridians, but the concerns of the Leroy Collins Institute discussed earlier on this blog are not invalid. According to actuarial calculations, Florida’s public pension plan is viable. However, market valuation of pension assets reveals that no state, including Florida, has a fully funded pension program.

Even so, Florida’s financial woes have not yet severely affected the level and quality of public services provides to its citizens. Due to wise investment decisions and an adequate source of funding to cover benefit promises, Florida remains a strong state financially and is coming out of this recession with its head held high. Maintaining this standing will require current pension plan managers to exercise the same prudence as past administrators, while coping with the current state of the market.