The Florida State Board of Administration has proudly announced that in the last 12 months the assets of the Florida Retirement System rose 22 percent — the highest return against its benchmark in a quarter-century. On its face, that should be good news for 900,000 current and retired government workers counting on the pension and for the taxpayers who fund it. But as today's package of stories by St. Petersburg Times reporter Sydney Freedberg illuminates, the numbers aren't that simple, and the fund's active investment strategy apparently has hampered it from posting even greater returns.
That is why it remains important that Gov. Rick Scott, Attorney General Pam Bondi and Chief Financial Officer Jeff Atwater honor their campaign promises to require the SBA to be more transparent. A year after Scott's misleading campaign ads tried to pin pension fund losses in the down market on Democratic opponent and then-Chief Financial Officer Alex Sink, the governor has done absolutely nothing to change how the agency operates.
The only major change to the pension fund — requiring state and local workers to pay 3 percent of their income toward the pension — will not do anything to ensure the fund's long-term fiscal health or the public's ability to hold the SBA to account. The change merely shifts some costs from taxpayers to government workers and frees tax money to pay for other state needs.
Scott, Bondi and Atwater appear to have wholly embraced the agency's penchant for obfuscation. After taking office in January, the three trustees did nothing to stop the Legislature from extending a 5-year-old public records exemption that allows Wall Street firms to block the terms of their SBA contracts from the public — the people actually underwriting their work. And Scott, Bondi and Atwater wholeheartedly embraced the agency's plan to invest even more money in hedge funds and private partnerships that can largely be cloaked from public view.
The trustees also have accepted one of the pension industry's most dubious practices. The SBA and other funds choose their own benchmarks for determining success, and then frequently change them. Officials claim it's to ensure a fair comparison of individual asset classes, but it can be a surefire strategy for always appearing above average in performance. In the past 26 years, the SBA has changed its benchmarks 26 times.
Perhaps the SBA's performance has been exceptional. For years, the standard line has been that the state's public pension fund is far more solvent than most large pension funds in the country due to superior stewardship. But Freedberg's reporting also calls into question whether that's the right standard.
Experts told Freedberg that the high cost of active managers has gobbled up so much of the pension fund's returns on those investments that the fund is worse off than if it had put more money into less expensive, passive investments.
But the SBA trustees have never even questioned whether longtime practices should be changed. The new state leaders have picked up right where their predecessors left off by acquiescing to the SBA's executive leadership. In the coming year, with more private investments, it will be even harder to ascertain if the investments are being managed wisely. All three Republicans — Scott, Bondi and Atwater — claimed on the campaign trail they would require the agency to be more transparent to the public when they took office. Seven months after they took office, Floridians are still waiting.