In the city of Miami, 154 police and firefighters retired on a single day, Sept. 26, 2010. Of those, 55 had initial annual pensions above $100,000 and 10 had initial pensions of more than $150,000. Many of the retirees were in their 40s.
The situation is less critical at the state level. Florida state retirement plans tend to be less generous than municipal plans, and the state has benefited from Florida’s sustained population and economic growth. Nevertheless, the Florida Retirement System reports being underfunded by more than $20 billion, a figure that grew by $1.3 billion in the most recently reported fiscal year. This number is low — Florida assumes an unrealistic 7.75 percent investment return — and is certain to grow.
There are two potential solutions to the problem of unfunded liabilities. One would be to adopt conservative funding rules similar to those imposed on private employers by ERISA. Introduction of conservative pension accounting would have a devastating impact on state budgets, and, predictably, has no support among state legislators.
Another would be to mandate defined contribution plans. Such proposals have been bitterly and effectively resisted by public worker unions. In the last legislative session, a proposal to mandate a defined contribution plan for new Florida government employees died in the Florida Senate, unanimously opposed by Democrats joined by one-third of Republicans.
In coming months, pension crises will surface in many more states and localities across the nation. Without significant change, Florida communities will follow.
Stephen K. Halpert is a professor of law at the University of Miami and a former senior staff economist on the President’s Council of Economic Advisers.