On paper, Florida’s $128 billion state employee pension fund looks relatively healthy: It has enough money on hand to pay 86 percent of its long-term obligations. Still, officials need to mind the gap, as the Brits like to say.
This year the gap — the amount the pension fund is underfunded — is $19.2 billion. Not in itself worrisome.
Still, that’s an increase of $1.2 billion over last year, so the gap is widening.
More worrisome still is the assumption on which the continued health of the pension fund rests.
Managers assume that they need to make at least a 7.75 percent return on investments in order to pay off pension obligations. That might have been a safe assumption back in the days when the markets were booming, but not anymore.
“We haven’t gotten 7.75 percent return overall, annually, in what … 10 years,” Gov. Rick Scott mused recently, “so I’m extremely concerned about whether individuals are going to get the retirement that they think they do, that they are entitled to.”
It’s a valid concern. Collectively, state governments already have a $757 billion shortfall in their pension obligation funds. While Florida’s fund still looks relatively healthy, its funding gap is headed in the wrong direction, slowly but surely.
The state’s efforts to stabilize the pension fund by requiring employees to make a 3 percent contribution has been challenged by public-employee unions.
Should the Florida Supreme Court rule against the state, the need for pension reform isn’t going to go away. Will taxpayers then be expected to fill the pension gap?
Scott and lawmakers need to mind the gap. Some 900,000 current and retired state, county and school board employees are banking on the Florida State Retirement Fund to be there when they need it.
They can’t live on assumptions.