Download Sustainable Public Pension System for Florida Local Governments

UNIVERSITY GRADUATE SCHOOL BULLETIN
ANNOUNCEMENT
Florida International University
University Graduate School
Doctoral Dissertation Defense
Abstract
Sustainable Public Pension System for Florida Local Governments: Financial Solvency, Paradigm Switch
and Interperiod Equity
by
Yongqing Cong
The issue of increasing unfunded pension liabilities of state and local governments has drawn
increasing attentions since the 2008 economic downturn. Many public agencies have conducted reforms
to ensure the sustainability of public pension systems. Previous research and practices provide two reform
strategies: Incremental changes to amend the existing defined benefit (DB) plans, and the pension model
switch from the DB model to defined contribution (DC) plans.
This study first examines the effectiveness of the incremental reform strategies by identifying the
determinants of the financial solvency of the DB model, utilizing the existing data of 151 Florida local
DB plans. Second, it gathers the primary data through surveys and interviews with the finance and human
resources directors in Florida local governments to analyze their perceptions of public pension reform and
reveal their readiness to conduct the public pension paradigm switch. It also examines the critical
interperiod equity issue and the impacts of the two-tier benefit structure during the recent pension reform.
The results suggest that incremental reform strategies that reduce benefits or increase
contributions are not effective in improving the financial solvency of public DB plans. The alternative
approach—the DB-to-DC transition—is attractive to local governments because it will relieve the pension
costs burden and transfer the investment risk from employers to employees. The transition is also
politically palatable because the taxpayer sentiment is not supportive of perceived generous retirement
benefits of public employees. Meanwhile, local governments are hesitant to implement the paradigm
switch due to prohibitive transition costs, political pressure, and the potential negative impacts to public
recruitment and retention. Local officials do not perceive a reduction of morale with the two-tier benefit
structure at the present time; they believe this issue will solve itself along the retirement of senior
employees.
Date: May 12, 2014
Time: 10:00 a.m.
Place: University Park, PCA 254
Department: Public Administration
Major Professor: Dr. Howard A. Frank