Pension system questioned

Florida’s projected investment return may be too optimistic, consultants say.

TALLAHASSEE — While Florida has a financially healthy state pension fund, a new report from the Department of Management Services warns the $144 billion system is relying on a projected investment return that independent financial consultants say is too optimistic.

In October, state analysts lowered the projected rate of return to 7.6 percent from 7.65 percent.

But the Department of Management Services’ annual report notes that the state’s actuarial consultant, recommended a 7 percent rate of return, saying that is more in line with the uncertain financial climate.

The 7.6 percent assumed rate is “materially above” the estimates developed by Milliman and Aon Hewitt, a financial consultant to the state Board of Administration, which oversees the pension fund, the report noted.

The consultants developed financial models that estimated the fund had a 50 percent chance of achieving its long-range rate of return if the projection was 6.3 percent to 7 percent.

The chance of meeting the long-range 7.6 percent projection is much lower.

The report said a lower projected rate of return would result in higher shortterm contributions to the pension fund by the state, school boards, county governments and other entities that rely on the fund to pay benefits to retirees.

“But (it) would also serve to lessen the magnitude of actuarially calculated contribution rate increases in the event that actual future investment performance fails to meet or exceed the assumption,” the report said.

But the analysts agreed that Florida could not abruptly lower the rate without causing financial disruption for the governmental entities that contribute to the fund on behalf of their employees.