BUZ LIVINGSTON: Advice not heard from your advisor or pension woes still around

Buz Livingston

Friends, Sowalers, Countrymen, lend me your ears. I come to praise pensions not to bury them. Despite the barbs cast upon them, nonetheless they are noble.  Most people will find a lifetime income stream insulated a bit from equity market fluctuations beneficial, lest ye forget 2002 and 2008. 

Politicians metaphorically describe the Florida Retirement System as a ticking time bomb. Regardless if their depiction is valid, local municipal pensions pose a greater danger.

Local pensions fall directly on local property owners while millions of Floridians and the visiting hordes mitigate potential FRS pension shortfalls.

In the case of local pension woes, one can argue the tourist industry contributes directly to looming pension deficits. The South Walton Fire District’s pension, currently chalking up a 68 percent funded rate, covers first responders as lifeguards, EMTs and firefighters. A vacation destination requires sufficient first responders in order to manage the seasonal tourist surge.  

We want/need a highly trained professional cadre to answer 911 calls; providing them a pension is not a bridge too far as long as it is actuarially sound. While high-risk employees deserve a pension, ignoring fiscal realities leaves the cupboard bare for their replacements. Have a little union solidarity, guys. 

Given the deteriorating fiscal status of Florida’s municipal pensions either pay me now or pay me later. Neither taxpayers nor future employees will be able to fund promised benefits. When asked to explain the Public Employee Retirement System of Idaho’s remarkable success (87 percent funding level), CIO Robert Maynard responded they shun over-promising benefits and under-funding contributions. 

I’m not calling for the end of pensions, but changes are inevitable. 

Municipal pensions are contributory like the SWFD where participants contribute 8 percent of their salary to the plan. Until plans are adequately funded (80 percent), contribution levels shouldn’t drop. Florida’s municipal pensions not only deal with the variable equity returns and the drag of fixed income rates but legal, actuarial and investment advisor fees.

These well-compensated interests downplay the obvious deficits. Further complicating matters is local governance. By law, a board of trustees oversees/monitors the pension but plan participants often dominate boards. Nothing is harder to change than someone’s mind when it affects their pocketbook.

Florida’s Chapter 175 and 185 provide incentives to establish local pensions plans. A 1999 amendment limited excess insurance premiums to enhance local pension plans but not to offset unfunded liabilities. In 1999, we closed two decades of a roaring stock market so only policy wonks worried about an unfunded liability looming.

The relatively modest market fluctuations of the 1990s also blinded the intelligentsia. The 1999 amendment was a bad idea and the oversight understandable but ignoring it today is fiscal madness. All local pensions have a tool they can use immediately, so let’s fix it. Insanity is repeating the same thing and expecting a different result.

A secure retirement depends on an income stream not linked exclusively to equities. Of course, stocks and bonds make asset management fees easier to bill.  

Social Security, pensions and annuity streams smooth out inevitable stock market swings and variable interest rates.   Rental real estate provides the same option as long as you understand the four Ts of rental property: Time, Trash, Toilets and Tenants.

Buz Livingston, CFP offers hourly financial planning and fee-only investment management to clients along Florida’s Emerald Coast.  Contact him at 267-1068, Buz@LivingstonFinancial.netor www.LivingstonFinancial.net.