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Market woes hit Florida's government pension plans

Senior man protecting his piggy bank savings from being stolen

Government pension plans in Florida and other states took a hit in 2022, as a downturn in financial markets caused investment losses, new reports show.

The reports, released by the Florida Department of Management Services and the non-profit Equable Institute, show that the Florida pension system had investment losses of about 6.2 percent during the fiscal year that ended June 30 — similar to pension-system losses across the country.

The New York-based Equable, which focuses on public retirement-system issues, said in a report issued Tuesday that the state of pensions at the end of 2022 was “fragile.” The 2022 losses, however, came after major investment gains in 2021, including a more than 29 percent gain in Florida.

The Department of Management Services report, issued Dec. 22, pointed to a long-term approach by the State Board of Administration, which manages investments in the Florida Retirement System and other state programs.

“Since the benefit payments are not all immediately payable, the SBA (State Board of Administration) can maintain a long-term investment strategy,” the report said. “This approach, along with a well-diversified investment portfolio, helps weather periods of volatility in the investment markets.”

Data in the reports differ somewhat, in part because of differences in timing. But both said Florida’s pension system had enough money to meet about 83 percent of its projected liabilities — an actuarial ratio that is closely watched.

The Equable report said the District of Columbia and 14 other states had better ratios than Florida, while the remaining states had ratios as low as Kentucky’s 47.3 percent. The report estimated that state and local retirement systems across the country were funded at 77.3 percent last year, down from 83.9 percent the previous year.

“The calendar year 2022 was not a great time to be managing pension fund assets,” the Equable report said. “While a few hedge funds and money managers successfully navigated the choppy and volatile investment waters of 2022, most lost money. Some lost a lot.”

The Florida Retirement System includes hundreds of thousands of workers and retirees in state government, counties, school boards and some cities and other types of government agencies. It is funded through contributions from employees, government agencies and investment returns.

The Department of Management Services report was largely made up of audit findings by the state Office of the Auditor General. That audit said employees and government agencies contributed $5.04 billion during the fiscal year that ended June 30, a 10.3 percent increase from the previous year.

The audit also said the pension system had a “fiduciary net position,” a calculation of total assets, of $180.2 billion as of June 30. That was a 10.8 percent decrease from the previous year, at least in part a reflection of the investment losses.

In planning, Florida had assumed an investment return of more than 6 percent for the fiscal year that ended June 30, but the overall investment loss was 6.27 percent, the state report said.

“States and cities have made full contributions to their pension funds and in many cases even provided supplemental contributions,” the Equable report said. “But poor investment returns in 2022 have driven down the average funded ratio for state and local plans.”