There are rumblings that the 2020 Florida Legislature may revise funding for the Florida Pension Plan. There is no question that the retirement system revenue has declined; it has not been 100% funded since the 2008 recession. The current rate is about 84% of the cost if all people retired at one time. Of course that is an unlikely scenario, but there are now more people vested in the system than are contributing to it. One million public employees participate in the system, about half are teachers and the others are local and state government employees. As retirees increase and new participants decrease, covering costs becomes more problematic.
While there is no immediate crisis, the problems cannot be ignored in the longer run. There are four basic reasons why the funding has declined:
- Expectations that the stock market will do well are not always met. Average earnings across years are about 1% below expectations.
- The state is not making sufficient employer contributions to the retirement system.
- How the state calculates the value of promised retirement benefits increases risk and makes real debt larger.
- The switch to 401(k) accounts in 2017 did not require sufficient contributions from employees and employers to cover costs. It may benefit new teachers who leave the profession but not the profession as a whole.
Pensions are not the problem..The real question as always is whether funding pensions is mostly a political, not a financial issue. The National Association of State Retirement Administrators cited a report stating that an 80% funding level is the federal benchmark for financial stability of state pension systems. Florida’s level exceeds that benchmark. Nevertheless, there is a political divide over providing pensions, and it is closely tied to those supporting school privatization. Florida charters and private schools typically do not contribute to retirement systems, and the resulting high teacher turnover keeps salaries lower. Thus, there is more money available for management companies in the private sector. This is not a recipe for a high quality educational system.
This issue may have a strong impact on the growing teacher shortage. Pensions help retain teachers. Kentucky’s teachers’ complaints about pension revision strategies were partially responsible for the recent defeat of their governor. Yet, there are those who advocate replacing teachers with technology. The motivations of those who attack the teaching profession whether they are political or financial in origin, need to be considered.