Guest Op-Ed by Juan Londoño
Last week, Rep. Blanco (R) of the Florida House of Representatives introduced the HB 945. This is a bill that will reintroduce the cost of living (COLA) mechanism to return to pensions under the Florida Retirement System (FRS). After being eliminated in 2011, the reintroduction of Coke means pensions will receive adjustments to annual benefit distributions, so benefits are constantly adjusted to any kind of increase in cost of living. Although it is a well-meaning effort, the reintroduction of Coke would significantly retreat efforts to bring the FRS back to fiscal sustainability.
For years, FRS has been staring at the harsh reality. There is a lack of funds needed to fulfill our commitment to future retirees. From retirees to beneficial taxpayers, this is news that everyone involved hates to hear. This is usually because it leads to various financial sacrifices to get the fund back on track. Correcting intergenerational funding gaps usually involves all deck-on efforts, typically mixing benefits reductions, tax increases or discretionary spending reductions. It is not left unharmed.
Florida policymakers decided in 2011 to remove the FRS COLA. Instead of choosing to cut benefits more aggressively, policymakers have decided to freeze the distribution to slow the growth of fund costs. It was a useful measure, but the FRS still looks at a $42 billion shortfall in funds for the promised profits.
Returning Coke to a financially strained system means beneficiaries can see an increase in distribution, but it means they are likely to fall victim to taxpayers, government services, or more public debt. That means policymakers are kicking cans down the road, shifting the financial burden of undesigned pension plans to certain groups. In situations where all groups should lack and sacrifice to stabilize the ship, such measures would result in a slap in the face of the group who made the effort.
But aside from moving the financial burden to taxpayers, Coke’s compensation could create a debt spiral in state official duties, making the national budget more vulnerable to economic downturns. By reintroducing coke, countries will be forced to update their distribution whenever there are inflation spikes that the nation faced after the pandemic. Therefore, a sudden increase in cost of living costs leads to an increase in state spending and debt. This logic violates the general economic wisdom regarding public spending during the inflationary spiral. Typically, governments need to strengthen and avoid more debt spending to prevent more dollars from being injected into the economy and combat inflation. However, Colas does the exact opposite, further accelerating inflationary pressures. Furthermore, if the economy slows and tax revenues drop, the states will also need to gather with more debt to fund the increase caused by Coke. The state’s finances will face a double hit, both due to declining revenues and increasing debt.
The theoretical premise behind Colas is intentional. It provides protection against inflationary spikes for retirees who face more difficulties finding additional revenue streams. However, in reality, Colas is extremely cumbersome and can quickly increase the financial viability of pension plans. And when these systems face fundraising challenges, it is taxpayers and non-beneficial people who left the bill behind. In many cases, individuals who remain on the hook due to these adjustments will not have access to these benefits in their retirement plans. 401Kand other types of retirement plans usually don’t offer what cola. Rather than leveling out the arena, taxpayers will be burdened with paying for privileges that don’t enjoy themselves. Passing through HB 945 would ultimately be a false effort to take risks to disproportionately benefit the small number of beneficiaries in Florida.
Juan Londoño is the leading regulatory analyst for the Taxpayer Protection Union
