State pension system, long a political target, cuts unfunded exposure to $30 billion

by | Oct 19, 2021

Florida’s pension system got a financial boost during the past fiscal year, as it had a 29.46 percent investment return, according to a report posted online Monday by state economists. The report said the system continued to have what is known as an “unfunded actuarial liability” as of July 1, the start of this fiscal year.

But the unfunded actuarial liability — which generally measures current and expected obligations against assets — improved from $36 billion in 2020 to $30 billion as of July 1, according to a preliminary valuation. Also, the system was determined to be 82 percent funded in 2020, but that is expected to increase to 85.3 percent with the new numbers.

An executive summary of the report said the 29.46 percent investment return was “exceptional to the good” but added that “while such performance is very helpful to build a cushion for the pension plan assets, this is an atypical performance.”

As examples, returns were 3.08 percent in the 2019-2020 fiscal year and 6.26 percent in the 2018-2019 fiscal year. Economists set a new assumption of a 6.8 percent return on investment, which is lower than assumptions in past years, according to the report.

Lawmakers put money into the pension system each year based on the actuarial calculations.

“The contribution rates should remain stable as long as contributions are made as recommended and actual experience mirrors projections,” the report said. “However, many factors affect these calculations and can cause the contribution rates to increase or decrease over time. For example, investment returns have been and will continue to be a relatively volatile factor. If actual investment results are lower than assumed, these could significantly impact the UAL (unfunded actuarial liability) and future contribution rates.”

The report also said the preliminary numbers could change, with a final report slated to be released in December.


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