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Sorting out the truth in state politics

PolitiFact: Gov. Rick Scott reaches too far to compare state pension problems with Social Security's

TALLAHASSEE — Give him credit: Though Florida Gov. Rick Scott wants to eliminate 10 percent of the state work force over two years, and make those who remain pay more toward their retirement and health care, the new governor is at least taking the time in his first few months in office to meet with state employees and answer their questions.

One of the more remarkable exchanges came during a recent visit with employees at the Department of Business and Professional Regulation, when a worker said Scott's plan to make workers contribute 5 percent of their salary to their retirement was punitive.

"Do you fully realize the gross unfairness of that proposal?" the worker asked Scott.

Scott said a change was needed and that, "You never know exactly what's fair."

Then he compared the defined pension system with the federal Social Security program to illustrate the need for reform.

"Everybody here wants a plan they can rely on. Right now, your plan is underfunded, whether anyone wants to acknowledge it or not," Scott said. "Pension plans all across this country, including Florida, are underfunded. So whoever the youngest is, everyone else should thank them because there might not be a pension plan, just like we're worried about Social Security."

Scott's statement got us wondering: Is the state pension plan facing the same challenges as Social Security?

Pension proposals

Scott has proposed massive reforms to the state's retirement plan. He wants to close the state defined pension to employees hired after July 1 and force them into a 401(k)-style plan where participants make their own investments.

He also wants employees to contribute 5 percent of their salary to help fund their retirement benefits, and reduce the benefit calculation for members of the state's special risk group (police and fire), elected officers and senior management classes of employees.

The state retirement system now has more than 655,000 active working members. Nearly half of the participants work in K-12 schools, and another 28 percent work in city and county government. Only about 18 percent of the system is made up of state workers. Of current members, 85 percent participate in a defined pension program, and 15 percent participate in a 401(k)-style plan. (Scott's proposals would affect all members of the retirement system in both plans.)

The pension system generally has been well-funded, through required state and local employer contributions, according to state Department of Management Services annual actuarial studies. The study measures the value of the pension's assets against liabilities it is required to pay as people retire and new workers are hired. The work is complex but tries to answer a basic question: Is there enough money coming in currently to pay the benefits going out?

The answer in Florida, until 2009, was yes. But when the investment markets collapsed as part of the recession, Florida's pension assets went with them. The state pension system reported nearly a $17.5 billion unfunded liability in 2009 and nearly an $18.8 billion unfunded liability in 2010. As a percentage, that means the state currently can meet about 87 percent of all obligations.

It's not just a Florida problem, though Florida is better off than most states. Northwestern University economist Joshua Rauh predicts that most states will run out of money in their pension plans. Florida is one of five states, however, to not make the list.

Industry experts say that a government pension plan is considered well-funded if it can meet 80 percent of its obligations, and the Pew Center on States called Florida's system a "model for success."

Social Security woes

That's not how people generally describe the federal Social Security program.

The entitlement program is now paying out more money than it is taking in through payroll taxes. By 2037, Social Security will only have enough money to pay out 78 percent of benefits without change.

A 2010 report from the Social Security trustees shows that over the next 75 years, Social Security has an unfunded liability of $7.9 trillion, meaning the program will have to pay out $7.9 trillion more in benefits than it will receive in tax revenues. The $7.9 trillion includes $2.5 trillion to repay special issue bonds in the Social Security Trust Fund and $5.4 trillion to pay benefits after the trust funds are emptied in 2037.

"The longer you wait, the harder it is to fix," said David John, with the conservative Heritage Foundation.

Our ruling

In comments to state workers, Scott tried to compare the long-term financial outlook of the state pension system with Social Security.

But we're not sure it's an entirely appropriate comparison.

When it comes to Social Security, the consensus among government and private-sector experts is that, without changes, the federal program won't be able to meet its obligations starting in 2037. That won't change no matter what happens to the investment market.

That's not the story when it comes to the state retirement system. While Florida's plan cannot currently meet it's obligations, it's actually one of the better performing government systems in the country.

That said, Florida's plan — as it is constructed now — does need either reform or better investment returns over the long run to remain stable.

We rate this statement Half True.

The statement

Says Florida's pension plan faces the same long-term funding problems as Social Security.

Gov. Rick Scott, addressing state workers.

The ruling

The state pension system may be underfunded, but it's not nearing a crisis. We rate this claim Half True.

The statement

Says Florida's pension plan faces the same long-term funding problems as Social Security.

Gov. Rick Scott, addressing state workers

The ruling

The state pension system may be underfunded, but it's not nearing a crisis. We rate this claim Half True.

PolitiFact: Gov. Rick Scott reaches too far to compare state pension problems with Social Security's 02/28/11 [Last modified: Monday, February 28, 2011 10:50pm]

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