Many municipal pension funds were in trouble long before the Great Recession, according to a study released Wednesday by a Tallahassee think tank that’s been tracking pension health for years.
Following up on a series of annual reports, the LeRoy Collins Institute, an independent, non-profit research organization housed at Florida State University, concluded that years of overly optimistic projections and higher than expected costs have left many local pension funds in serious financial straits.
Though exacerbated by the economic meltdown that hit in 2008, the seeds of the problem had germinated much earlier, according the study that looked at pension fund growth for nearly 500 cities between 2004 and 2010, the latest statewide data readily available.
The results show that the problems facing pension systems across the state may be more than just blips on the screen, but instead point to potential systemic challenges that will be difficult to address.
“There are a lot of people wanting to sit on the sideline and saying; ‘Well, let’s just wait this little market winter out and when the spring hits everything will be fine again,’ ” said David Matkin, assistant professor at FSU’s Reubin Askew School of Public Administration.
“We’re saying that this is not an issue associated with that big market drop and that this current problem is a worsening of an ongoing problem,” Matkin said.
Most local pension plans are funded at less than 80 percent, which is considered the threshold for properly funded plans. A November 2011 study found that a third of the state’s largest 100 municipalities had pensions funded at less than 70 percent.
The Florida Retirement System, with a balance approaching $130 billion, is nearly 90 percent funded and considered one of the most stable pension systems in the country.
The center found numerous contributing factors to the local problems. Since 2004, for example, most pension plans have anticipated that money invested in them would grow by 8 percent a year. In fact, the growth rate has been almost half that, about 4.6 percent.
In addition, salaries have increased faster than anticipated.
The result is that a gap between pension payouts and the contributions needed to fully fund them is widening, with payouts exceeding contributions for the first time in 2009.
Also noted was the fact that pensions for police, firefighters and other special category employees grew at a much steeper rate than that of other government workers. In seven years, contributions for public safety employees grew from 28 to 41 percent.
A representative of city governments cautioned Wednesday that even seven years of data is considered a short term view of pension funds, which are generally invested for the long haul.
Still, the trends are disturbing, especially on the dramatic increase in the cost of funding the pensions of public safety workers.
“Unfortunately, this significant increase in cost to cities is in large part based on state laws adopted by the Florida Legislature in 1999,” said Scott Dudley, director of legislative affairs for the Florida League of Cities. “These state laws require cities to maintain and increase pension benefits for police officers and firefighters or risk losing monies to help pay for the plans.”
by Michael Peltier
