Social media alters how we get our news, and we often end up with misconceptions. A recent Drunkenbrawlers.com (a local political gossip site) thread began “SWFD Pension Plan Is a (sic) Underfunded Defined Benefit Plan.” While true, the facts got twisted rather quickly. I decided to rank the disinformation booby prize candidates as I did livestock when competing for the University of Georgia Livestock Judging Team. In livestock judging you rank four animals from bottom to top and justify your reasons. If you and the judge disagree then you make a case for your choices.
The No. 4 comment was short, snarky and wrong. The poster erroneously wrote we should schlep off our liability on the Federal Pension Guaranty Board. Alas, those bailouts are for private, not public plans. It reminded me of Alfred E. Neuman’s “What me, Worry?” Unless you like higher property taxes, you should worry.
My No. 3 comment said the plan was sound being 80 percent funded. Cue John Sebastian’s “Do You Believe in Magic?” because realistic numbers mean a funded ratio much lower than 80 percent. The SWFD’s pension plan uses much higher expected rates of return than any prudent retirement planner would. Unless changed, his head in the sand approach will cost taxpayers.
Differentiating between numbers two and one was tough. I gave No. 2 to the multiple posts arguing an 80 percent funded plan was equivalent to paying 80 percent of your mortgage — simple, elegant and foolishly wrong. Actuaries realize not everyone dies at the same time and they factor life expectancy into their projections. Yes, people are entitled to their own opinion, but they are not entitled to their own facts. Actuaries are among the world’s smartest people, and if they feel confident 80 percent is sufficient then case closed.
The winner goes to the idea that a pension with a 100 percent salary replacement tops all others … sigh, another math denier. A 25-year SWFD vet can retire and, with some exceptions, replace 100 percent of their salary but with no cost of living adjustment (COLA). However a 50 percent pension with a 3 percent COLA will surpass a 100 percent pension in 24 years. Many pensions (federal, both military and civilian, State of Florida, Social Security, for instance) use COLAs. Given our increased longevity, pensions with COLAs can provide greater benefits than SWFD’s. Granted you could put my No. 2 choice in first place but my first place choice combines math ignorance with a tad bit of arrogance unless they oppose all cost of living adjustments.
Seemingly insignificant adjustments snowball and over time make dramatic changes.
Like all other Americans, fire district employees should plan to contribute more for their retirement since, if you use appropriate numbers, the plan is underfunded. The Legislature should change the law and allow excess insurance premium taxes to shore up pension plans rather than provide additional benefits.
Ironically, the Florida municipal pension train wreck began under Governor Jeb Bush. As a reward for union support against Buddy MacKay, Gov. Bush signed legislation designating excess insurance premiums for union members’ retirement benefits. Do not confuse the relatively well-funded Florida Retirement System’s pension with the scads of individual municipal pension plans from Pensacola to Key West.
Buz Livingston, CFP has the only investment management firm in the entire world headquartered in Blue Mountain Beach, Florida. He helps clients along Florida’s Emerald Coast and around the country with financial decisions. For more information, call 850-267-1068 or visit www.livingstonfinancial.net. Follow him on Twitter @BuzLivingston.