Florida House Speaker Steve Crisafulli announced a change of heart shifting the overhaul of the Florida Retirement System, after new actuarial studies has shown his plan to be defective. Back in 2013, he proposed a bill where all new hires would go into a 401k-type investment plan rather than the state’s traditional retirement pension plan, believing this would save the state billions of dollars.
Crisafulli in hopes to pursue the new changes in FRS this session, ordered a new actuarial study in January. Contrary to the 2013 studies conducted, the latest numbers have showed that rather than the state saving billions, this plan would cost millions.
“The results from the most recent study of the very same bill changed from several billions of dollars in savings to millions of dollars in cost,” said Crisafulli in a written statement to the Tallahassee Democrat. “Given the unexpected and puzzling report, we believe it is important to pause and understand what factors caused such a dramatic shift.”
Dr. Nathaniel Johnson is a Florida A&M University economics professor that specializes in Labor Economics and Economic Forecasting. He believed this proposed bill was a flawed idea from the start.
“Within our current system, our retirement plans are funded and managed by the state. Pension managers are very knowledgeable about what’s happening in the stock market, bonds market and all other financial instrument markets,” said Johnson. “During times of financial crisis when markets are down, the state of Florida didn’t lose money because they know how to place funds in the most secure assets to get the highest returns.”
If this bill had passed, 401 k-type plans would deem all new hires be their own financial manager. They would have the discretion to borrow from, and shift their money around into more risky stocks and bonds if they pleased.
“You would have to have a very good sense of how investments work, and not many people are market savvy. If you have a state experts managed plan, they can make better decisions, not taking much risks with funds,” added Johnson.
Actuarial funding level measures the ability of a state to pay its obligations to pension participants. If everyone were to retire at once, Florida could payout roughly 87% of its members.
Although many states including Wisconsin, Texas and Louisiana have looked into this new change, Florida has an 86.6% level of actuarial funding, making it the healthiest pension plan in the country. By the end of the year Florida will reach 100% funding.
Being home to the strongest pension plan in the country, Democratic members of Leon County delegation have opposed FRS alterations in the past and will continue to do so.
Representative Michelle Rehwinkle Vasilinda feels that just because the rest of the nation is having trouble with their pension systems, doesn’t mean Florida has to do anything to start dismantling theirs.
“The FRS is doing well, its good he (Crisafulli) decided not to add or subtract anything from it this year,” said Vasilinda. “I’m very pleased and very happy, I think it showed his wisdom and good common sense.”
After Crisafulli announced that the House wouldn’t consider an FRS bill this session, Representative Dwayne Taylor gave the speaker recognition for seeking out another assessment on the proposal.
“Its to Speaker Crisafulli’s credit that he sought out expert opinion on the proposal to change our healthy Florida Retirement System. I thank Speaker Crisafulli for his decision, given the results of those studies, to focus this year on other pressing matters,” said Taylor.