Kathryn Webster 1973 - 2006

In Loving Memory Kathryn Lea Webster

“Katie” 9/23/1973- 03/10/2006 Fifteen years without you. Not a day goes by that you are not remembered,loved, and missed. Forever in our hearts and memories. Mom, Chad, Bob, Dad

Family & Friends

Gov. Ron DeSantis’ mismanagement of the COVID-19 pandemic is in full view as vaccines sit unused at vaccination centers. If he can’t manage the procedure equitably and efficiently, then let President Biden’s team do it.

– Don Deresz, Miami

The Florida Senate is considering a bill to eliminate the state’s pension plan for new workers. This is a bad idea.

Working for the state does not provide high salaries or bonuses, but it has traditionally provided a secure retirement. There are three particular arguments used to support changing the system. Each of them is just plain wrong.

1. The 401(k) system is good enough for privatesector employees; it should be good enough for public sector employees.

The premise is incorrect: The 401(k) system is not good enough for privatesector employees. Traditionally, private-sector employees had definedbenefit plans like publicsector employees. In 2006, when Congress passed the Pension Protection Act (PPA), the idea was to make pensions healthier. But it actually made liability measurement and pension contributions more onerous and more volatile. Right after the passage of the PPA, I was the director of the U.S. Pension Benefit Guaranty Corporation, the federal agency that guarantees private-sector pension plans. I saw how many corporate plan sponsors threw up their hands and froze their plans.

Unfortunately, today, the vast majority of U.S. private-sector employees lack defined-benefit plans. Instead, they have 401(k)s — and don’t believe the argument that 401(k)s are good enough. According to Vanguard, the median 401(k) balance for an employee aged 65 is about $65,000. That is hardly “good enough” for privatesector or public-sector employees.

2. Florida cannot afford these huge liabilities.

The gross dollar amount of Florida’s pension liabilities (approximately $200 billion), indeed, is large. But first, let’s remember that the Florida State

Board of Administration (SBA) has $164 billion currently on hand to pay those liabilities. This means that the pension system is 82 percent funded. (By the way, a funded ratio of 82 percent puts Florida a full 10 percentage points above the median for public plans.)

If these liabilities were out of whack with the state economy, that would be an important signal that the state “cannot afford” these liabilities. If Florida’s liabilities — on a per-capita basis, or on a percentageof-state-GDP basis — ranked in the top two or three, or even in the top 1of all U.S. states, that would surely be an indication that the state “cannot afford” these liabilities.

But Moodys Investors Service studies these very issues, and in its most recent survey, Moodys ranked Florida 48th in pension liabilities per capita; 48th in pension liabilities as a percentage of state GDP; and 46th in pension liabilities as a percentage of revenues generated in-state.

By those measures, Florida is a national leader when it comes to whether it can afford its pension liabilities.

3. The pension system’s underfunding is not improving even though assets are growing; the system is broken.

The reason the Florida pension system’s funded status is not improving is not because investment performance is poor (actually, it is excellent). Florida’s pension system is underfunded because it is . . . well . . . underfunded.

Over almost every relevant time period, the investment staff at Florida SBA has beaten the benchmarks against which it is measured. In fact, over the five years leading up to 2020, the SBA team has produced returns 70 percent above their benchmarks. That is equal to $5.7 billion (yes, billion )of additional assets in the pension plan. It also is about 7 percent higher than the median investment performance among public pensions.

So the problem is not with the investment program. The investment program is doing fine. In fact, it is the envy of most other states.

The problem is that the Florida Legislature that has not made the contributions it should be making to the plan. State lawmakers rely on an actuarial assumed rate of return that is too high. This makes liabilities appear smaller, and allows the Legislature to appear to be making its full contribution when it really is not doing so.

The Legislature has underfunded Florida’s pension plan by about $1 billion a year over the past five years.

Florida should be proud of its pension’s relative health and its excellent investment performance. If lawmakers want to legislate about the pension system, they should pass a law that requires the Legislature itself to make the full, correctly calculated contributions that are part of the formula for responsible pension funding.