FLORIDADIVISION OF RETIREMENT BACKS OFF
PERCENTAGE-OF-PAYROLL FUNDING REQUIREMENT
By Memorandum dated May 29, 2012 addressed to Florida Local Government Retirement Systems or Plans, the Division of Retirement, Bureau of Local Retirement Systems, has receded from its 2009-imposed requirement that local retirement plan contributions must equal the amount of contributions determined using the percentage-of-payroll method. Because of its importance, said Memorandum is reproduced below.
May 29, 2012
M E M O R A N D U M
TO: Florida Local Government Retirement Systems or Plans
FROM: Division of Retirement,
Bureau of Local Retirement Systems
SUBJECT: Local Retirement Plans Minimum Funding Basis: Percentage of Payroll Versus Fixed-Dollar Contributions
The Division of Retirement performs actuarial reviews of Florida’s local government retirement plans to ensure that they are being funded in an actuarially sound manner in accordance with Part VII of Chapter 112, Florida Statutes. The provisions of section 112.61, Florida Statutes, require in part that, “such retirement systems or plans be managed, administered, operated, and funded in such a manner as to maximize the protection of public employee retirement benefits” and “it is the intent of this act to prohibit the use of any procedure, methodology, or assumptions the effect of which is to transfer to future taxpayers any portion of the costs which may reasonably have been expected to be paid by the current taxpayers.”
In 2009, in an effort to ensure compliance with these provisions, the division began requiring that local retirement plan contributions must minimally equal the amount of contributions determined using the percentage-of-payroll method. This was intended to eliminate recurring actuarial losses due to payroll growth underestimation. However, economic conditions since then have led to substantial changes in the allocation of local government resources and the causes of the prior actuarial losses attributable to this issue have largely abated. With several years of experience accumulated to evaluate the effectiveness of the percentage-of-payroll contribution requirement, the division has determined that use of this method is not required for compliance with Part VII of Chapter 112, Florida Statutes.
Accordingly, effective immediately, local governments should confer with the retirement board actuary to select and maintain a contribution method (percentage of payroll or fixed dollar contributions) that best fits the funding requirements of the plan and satisfies the legislative intent found in section 112.61, Florida Statutes. The division will continue to monitor all plans for compliance with these provisions.
If you have any questions or wish to discuss further, please contact our office and speak to Doug Beckendorf, Joe Edmonds, or Keith Brinkman at (877) 738-5622 or (850) 488-2784.