Florida's Pension Chief to State: ‘Up Contributions, Lower Expectations’

(September 18, 2012) — Ash Williams and Florida’s State Board of Administration (SBA), which he heads, returned 22.1% on their largest mandate last year—and they know its not nearly enough. 

Williams has been publically urging state legislators to increase contributions to the SBA, which manages 25 funds totaling $149.4 billion. He has written to elected leaders twice in the past four months, and included his recommendations in the board’s most recent annual report: 

“Investment gains alone are not sufficient to maintain the fund’s financial health. Contributions into the system, from employers and, beginning in fiscal year 2011-12 from employees, form the base of SBA’s investment program. Annually determined actuarially sound rates of contribution into the fund are necessary to insure that the investment base is large enough to meet future Pension Plan benefit obligations.” 

Florida’s retirement system has 87.1% of its liabilities funded as of the 2011 fiscal year’s end, which is consistent with many other public mega-funds in the United States. But, unlike SBA’s peers, this number is getting worse, not better. The system reached peak funding in 2000 at 118%. Contributions and funding level and have been falling ever since, and Ash Williams appears set on stopping this back-slide. 

“For the Plan to regain its fiscal footing, actuaries call for contributions to be higher than the normal cost level,” the annual report asserts below a demonstrative graph of the system’s elliptical funded ratio. 

If Williams’ campaign is successful, the funded ratio will drop even further in the short-term. In addition to higher contributions, he is advocating to lower the system’s assumed rate of return from 7.75% to 7.25%. 

It’s a time of flux for the state’s pension system: Florida’s Supreme Court is hearing arguments over a state official-led appeal for the 2011 pension overhaul, which was overturned earlier this year by a lower-court ruling. Lawmakers had passed a bill requiring members to contribute 3% of their pay to the pension fund, eliminated the cost-of-living adjustment for new retirees, and increased the number of required working years to qualify for benefits. In total, the overhaul saved taxpayers an estimated $1 billion for the 2011 fiscal year, then was struck down by a county judge at the behest of major unions. 

The state’s Supreme Court agreed to hear the case on the basis that “this appeal is one presenting issues of great public importance and involves circumstances which require that the Supreme Court of Florida immediately resolve the issues,” according to court documents. 

Should the court reinstate the reform package and legislators back Williams’ position, Florida’s pension system could soon be better funded, not worse, for the first time in over a decade years.