Historic City News editor Michael Gold has published several articles over the past three years warning against “defined-benefit” pension systems like FRS for local and state employees.
In general, a model where the financial performance of an investment fund is “guaranteed” for life sounds an awful lot like the so called “ponzi” schemes of Lydia I. Cladek — who purchased high interest motor vehicle retail installment contracts; guaranteeing a return rate of 15% to 20%.
Florida Retirement System guaranteed a return rate of 7.75% on funds invested for local and state employees – despite a broken economy where even jumbo ($100,000) certificates of deposit are earning no more than 1.25% to 1.75 with commitments for up to two or three years.
In a report released yesterday by the nonprofit, nonpartisan LeRoy Collins Institute at Florida State University, they conclude that cities and counties throughout Florida have promised more than they can afford in retirement benefits to their employees. “This is money that is being obligated — promises that are being made to local employees,” Carol Weissert, director of the institute, said in an interview.
Al of the elected county officials and their agencies, 1,233 full-time equivalent positions funded in the FY2011 budget for the Board of County Commissioners, along with 66 more in the office of the Tax Collector, 21 more in the Clerk of Court, 12 more who work for the Supervisor of Elections, 52 more from the office of the Property Appraiser and 577 more employed by the Sheriff, are expecting a fixed monthly pension.
The real problem is the hidden fact that Florida’s pension plan is not actuarially sound or self funding — the gap in value is now about $40 billion. The Governor has promised to cut more than $2 billion from the Florida Retirement System
With defined-benefit plans, employees are guaranteed a set amount of retirement income, and if the state’s investments don’t perform well enough to pay retirees that amount, the government has to make up the difference.
With defined-contribution plans, employees bear the risk of retirement investments.
Moving from the former to the latter and requiring employees to contribute to their retirement plans are among the ideas under consideration for reducing the state’s pension costs.
Photo credits: © 2011 Historic City News staff photographer