The Florida Retirement System (FRS) offers employees the option of two retirement plans. The Investment Plan is an individual retirement account with defined contributions from employees and employers. The Pension Plan provides guaranteed income based on years of service, final average salary, and a 1.6% multiplier for “Regular Class” members (differentiated from “Special Risk” members).

In 2011, the Florida legislature told employees enrolled in the Pension Plan that they would no longer be earning cost-of-living adjustments (COLAs) on pension benefits earned.

  • Employees already retired as of June 30, 2011 would continue to receive COLAs.
  • Employees who were still working will be eligible to receive a COLA on any benefits earned before of June 30, 2011.
  • Any employees hired since July 2011 will not have any COLA on their pension benefits.

Teachers who retired in 2009 were eligible for a COLA. If a retired teacher was receiving $50,000 a year in pension benefits and if their benefits were adjusted each year using the exact inflation amount, then by 2019 the benefits paid should be around $60,065. Inflation averaged 1.85% during the 10-year period from 2010 to 2019.

However, if a teacher hired in the past few years winds up earning a $50,000 pension they will not have that kind of inflation protection.

In the chart shown here the light blue line is a stable $50,000 pension. The orange area shows how that amount would increase each year the inflation pattern matched the exact pattern of the past ten-years. The orange line peaks at just over $60,000.

 

The Florida Retirement System (FRS) reports that it has $30 billion in unfunded pension liabilities as of June 30, 2019 (the most recent data available). This is the shortfall in the dollars that should be in the pension fund today, earning investment returns, that are necessary to pay out promised benefits.

FRS provides retirement benefits to K–12 teachers, secondary educators, state agency employees, and municipal employees across the state of Florida that do not otherwise have access to a locally provided public retirement plan. However, K–12 employers are roughly 49.2% of the public employers participating in FRS. Therefore, we estimate that $14.7 billion of the FRS shortfall is applicable to Florida teachers.

 

Back in 2008, Florida Retirement System (FRS) reported that it was a fully funded pension system. Since then, FRS has accumulated $30 billion in unfunded pension liabilities.

According to FRS data, the largest reason for that shortfall is that investment returns have been less than anticipated. Specifically, Florida has not been able to consistently earn the 7.75% investment return it assumed from 2004 to 2014, nor have average returns since then been strong enough to consistently outperform the 7.4% assumed until last year. In total, roughly $17 billion of the shortfall is because of underperforming investments.

FRS provides retirement benefits to K–12 teachers, secondary educators, state agency employees, and municipal employees across the state of Florida that do not otherwise have access to a locally provided public retirement plan. However, K–12 employers are roughly 49.2% of the public employers participating in FRS. Therefore, we estimate that around $8 billion of the underperforming FRS shortfall is applicable to Florida teachers.

The rest of the FRS shortfall has come from missing other assumptions, such as how long people are going to live, insufficient contributions, and related to prudent changes in actuarial methods.

 

In 2011, the Florida legislature adopted a series of changes to the Florida Retirement System (FRS) designed to improve its funded status. These changes included increasing employee contributions and stopping employees from earning cost-of-living adjustments (COLAs). However, these changes have not led to an improvement in the funded status of FRS.

The year after these changes were implemented, 2012, the unfunded pension liabilities of FRS were around $16 billion. However, by the end of the 2019 fiscal year the unfunded liability had increased to $30 billion.

FRS provides retirement benefits to K–12 teachers, secondary educators, state agency employees, and municipal employees across the state of Florida that do not otherwise have access to a locally provided public retirement plan. However, K–12 employers are roughly 49.2% of the public employers participating in FRS. Therefore, we estimate that the Florida teacher share of the FRS shortfall has grown from around $8 billion to $15 billion.

 

The Florida Retirement System (FRS) offers employees the option of two retirement plans. The Investment Plan is an individual retirement account with defined contributions from employees and employers. The Pension Plan provides guaranteed income based on years of service, final average salary, and a 1.6% multiplier for “Regular Class” members (differentiated from “Special Risk” members).

For individuals participating in the Investment Plan, they contribute 3% of salary into their account, and their employer contributes 3.3%. The total 6.3% of salary is not sufficient savings for building a secure retirement, according to all financial expert recommendations.

There are debates among financial experts about the minimum contributions necessary to assure a secure retirement, but they all tend to range from between 10% to 15% of salary. The FRS Investment Plan has the potential to provide sufficient retirement savings, but only if the total contributions — no matter whether from employees or employers — is at least between 10% to 15%.