US - Florida's pension system, the fourth- largest in the US, can afford to cover only 87.9% of the benefits it promised because of losses from the recession since 2008, according to the state's actuaries.
The plan's underfunding widened from 89.3% last year, Robert S. Dezube, consulting actuary for Milliman Inc., told the Florida Retirement System Actuarial Assumption Estimating Conference today.
Fund gains of 9.7% after payment of benefits over the year ended in June weren't enough to outweigh the losses recorded due to a "smoothing" technique that spreads large declines or increases over five years.
"We really didn't make any headway over the year," said Amy Baker, chief economist for the Legislature, in a telephone interview. "We would have had to have spectacular market performance or a legislative change that would have increased the contribution rate."
Florida remains well over the minimum 80% funding level recommended by experts, according to the Pew Center on the States. In 2008, the state was one of only four to have a fully funded pension system, the Pew Center said in a February report. Its assets fell 21.5% after benefit payments to $99.6bn in the year ended June 2009, according to the annual report of the State Board of Administration. Before benefits, the decline was 19%, the SBA said. Over the same period, the Standard & Poor's 500 fell 30%.
In fiscal 2010, assets regained 9.7% of their value after benefits, closing the year at $109.3bn, according to a September presentation to the Investment Advisory Council of the Florida State Board of Administration, which runs the pension system. Without benefit payments, the gain was 14%, the SBA said.
In May, Governor Charlie Crist vetoed a bill that would have increased contributions to the pension fund to make up for the unfunded liabilities starting in fiscal 2012. The Legislature will probably take up the issue again in its next session, Baker said.
The projections were based on average annual returns of 7.75% over the long term, the same as last year, Dezube said. That return assumes that about 11% of the pension funds' assets would go into so-called alternative investments, including private equity and hedge funds, said Kevin SigRist, deputy executive director of the State Board of Administration. The board adopted an asset-reallocation plan in June that would expand its alternative investments.
"Inevitably, if you want to make 7.75%, you have to have risk," SigRist told the conference.
The pension system losses have become an issue in Florida's race for governor. Republican Rick Scott, a former health care executive, said Democrat Alex Sink, the state's chief financial officer and one of three pension trustees, was responsible for the decline. Sink responded that Scott was "scaring" retirees into thinking their pensions are at risk.
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