Florida Retirement System Audit Forecasts Diminishing Future Returns

Managers, auditors split on 2019 rate of returns, which are less than the previous two years.

The Florida Retirement System performed well in 2018, but despite that, the reported figures suggest there are some choppy waters ahead.

The pension fund, which covers state, county, schools, and other government workers, saw an 8.9% return on investments in fiscal 2018. It now has $161 billion in assets under management, and is 84.3% funded, according to a Thursday report from the state Auditor General’s office.

The fund is inching closer to its pre-crisis days, when it was fully funded. The 2008 cataclysm heavily impacted its assets, as well as those of many other pension plans in the nation. However, there are a few signs in the current report that there could be some tough times on the horizon.

For one, managers and auditors are not on the same page when it comes to 2019’s return expectations, which are forecasted to be much lower than the returns seen over the previous two years (8.9% last year and 13.7% in 2017). The managers say the fund will return 7.4%, but the auditors think 7% is more likely.

Additionally, the fund now has had more retirees than contributing members since 2015, and that number is only increasing. This will keep increasing its unfunded liability, now at $29 billion.

“The long-term financial health of all retirement plans is dependent upon several key items: future investment returns, contributions, and future benefit payments,” said the report. “Accordingly, collecting employer and employee contributions as well as earning the assumed long-term rate of return on its investments are essential components of the division’s funding plan to accumulate the assets needed to finance future retirement benefits.”

According to the report, the fund’s target allocations were 54% global equity, 18%  fixed income, 11% real estate, 10% private equity, 6% strategic investments, and 1% cash.

The Auditor General’s office could not be reached for comment.

Ash Williams, the Florida State Investment Board’s executive director and chief investment officer, was also unable to be reached for comment. The Florida Retirement System is one of the four pension funds overseen by the board.

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