Despite the Florida Retirement System facing a massive underfunding shortfall, the scheme will retain its 7.75% investment return assumption.
(October 2, 2012) -- The Florida Retirement System is battling a $19.2 billion gap between the amount of money it has and the amount needed to pay all current and future benefits, according to a report released by the scheme.
"The part of this report that matters to us is whether the 7.75% return assumptions for the scheme continues to be valid. There will be continued discussions on this," Dennis MacKee, a spokesman for the Florida State Board of Administration, which oversees the pension fund, told aiCIO. "We made it very clear that our research does not reject lowering the assumed rate of return, but we recognize they'll be an increased likelihood of achieving funding objectives if its lowered."
According to the report by the roughly $128 billion scheme, the system is now underfund by an additional $1.2 billion compared to last year. The current underfunding hole? A total of 13.1%. "The scheme's unfunded actuarial liability has not been fully funded for the last three years," MacKee said.
The report released by the Florida Retirement System noted that adjusting assumptions from 7.75% to 7.5% would require the scheme to continue considering several economic assumptions in conjunction with investment return, such as inflation, general wage increase and payroll growth.
While the size of the shortfall is still within a "normal" range for public pensions, it could incite a political debate in the Florida Legislature, Bloomberg reported.
Florida’s Pension Chief to State: ‘Up Contributions, Lower Expectations’