State Board of Administration of Florida
| Headquarters |
The Hermitage Center 1801 Hermitage Blvd. Tallahassee, Florida, U.S. |
|---|---|
Key people |
Richard L. Scott |
| Website |
www |
The statutory and fiduciary mandate of the State Board of Administration of Florida (SBA) is to invest, manage and safeguard assets of the Florida Retirement System (FRS) Trust Fund as well as the assets of a variety of other funds. The SBA managed 25 different investment funds and trust clients.
Trusts are investment responsibilities allowed under law and established pursuant to trust agreements or other forms of consent with individual clients. Three of the SBA’s 25 funds are government investment pools that contain the assets of a variety of clients. Twenty-two clients have at least some of their assets in separately managed funds. The remaining clients are invested solely in one or more of the SBA’s investment pool products. Pooling smaller portfolios into larger investment funds affords economies of scale and other investment management advantages, enhancing returns for participants.[2]
Because the SBA is a constitutional entity, it would take a constitutional amendment to change the way the agency is governed.[3]
The SBA has other responsibilities including:
• Providing personalized retirement planning and financial counseling support to members of the Florida Retirement System through the MyFRS Financial Guidance Program (created under by the Florida Legislature in 2000).[4]
• Administering the Florida Hurricane Catastrophe Fund and its associated programs.[5]
• Serving as an investment consultant to retirement programs administered by other state agencies, including the State of Florida Deferred Compensation Program and the State University System Optional Retirement Program.[6]
• Managing the corporate affairs of the Inland Protection Financing Corp., a public-private entity created to raise funds to pay reimbursement claims for pollution cleanup.[7]
• Managing the corporate affairs of the Florida Water Pollution Control Financing Corporation, which is the state’s revolving fund set up to finance clean water initiatives for local government water and wastewater systems.[8]
• Administering debt service funds for bonds issued according to the State Bond Act, which allows the Division of Bond Finance to issue tax exempt bonds to provide capital financing for state and selected government agencies. The SBA also serves as escrow agent for the bonds.[9]
• Providing administrative support for the Division of Bond Finance and the Florida Prepaid College plans[10]
• Generating annual, monthly and quarterly reports detailing performance and investment activities.[11]
Management and Oversight
Board of Trustees: While financial specialists at the SBA handle day-to-day operations, the agency is governed by a three-member Board of Trustees, which includes Florida’s elected governor, chief financial officer and attorney general. The current trustees are Governor Richard Scott, Chief Financial Officer Jeffrey Atwater, and Attorney General Pamela Bondi. [12]
Each trustee appoints three people knowledgeable about financial markets to the Investment Advisory Council, which provides oversight of the SBA’s funds and major investment responsibilities.[13]
The trustees also appoint a three-member Audit Committee to serve as an independent and objective party to monitor SBA’s processes for financial reporting, internal controls, risk assessment, compliance and review of the agency’s independent auditors and Office of Internal Audit. The SBA also is audited by two legislative entities: the Auditor General[14] and the Office of Program Policy Analysis and Government Accountability.[15]
Each trustee also appoints two members to the Participant Local Government Advisory Council (PLGAC), which reviews the administration of the local government investment pool known as Florida Prime.[16] The PLGAC was statutorily created as an additional measure to ensure that the Pool is operated and managed in the best interest of investors in the fund. The Board of Trustees appoints six members to serve on the PLGAC for four-year terms, subject to confirmation by the Florida Senate.[17]
The PLGAC reviews the administration of the trust fund and makes recommendations regarding such administration to the Trustees. The PLGAC prepares and submits a written biennial report to the Trustees, the Investment Advisory Council, and the Joint Legislative Auditing Committee that describes the activities and recommendations of the council[18]
By statute, the Board of Trustees appoints a nine-member Florida Hurricane Catastrophe Fund Advisory Council to provide the Board with information and advice in connection with its duties related to the Florida Hurricane Catastrophe Fund (FHCF).[19]
Florida Commission on Hurricane Loss Projection Methodology: The Commission was statutorily created as a panel of experts to provide actuarially sophisticated guidelines and standards for the projection of hurricane losses. The Commission is administered by the State Board of Administration. The Commission consists of the following 11 members and the Board of Trustees annually appoints one of the members of the commission to serve as chair.[20]
Florida Retirement System Pension Fund
The Florida Retirement System (FRS) Pension Plan, a defined benefit plan, is one of the largest public retirement plans in the U.S..[21] At year-end it comprised over 80 percent of total assets under SBA management.[22] The FRS Pension Plan serves a working and retired membership base of nearly one million public employees.[23]
In investing the FRS Pension Plan assets, the SBA follows statutory guidelines and a substantial body of internal policies and procedures.
The Division of Retirement and the Florida Legislature is responsible for the administration of retirement benefits, setting of benefit levels or setting contribution rates for participating employers.[24]
The Investment Advisory Council provides independent oversight of the FRS Pension Plan’s general objectives, policies, and strategies.[25]
Currently, the asset classes for the Florida Retirement System are Global Equities (both developed and emerging markets), Fixed Income, Private Equity, Strategic Investments, Real Estate and Cash.[26]
The Florida Retirement System (FRS) Pension Fund, the largest mandate for the SBA, historical investment returns are:[27]
| Fiscal Year Ending | Managed Return |
|---|---|
| June 1987 | 10.13% |
| June 1988 | -0.31% |
| June 1989 | 14.92% |
| June 1990 | 10.49% |
| June 1991 | 9.10% |
| June 1992 | 14.38% |
| June 1993 | 14.99% |
| June 1994 | 0.60% |
| June 1995 | 18.36% |
| June 1996 | 17.13% |
| June 1997 | 21.13% |
| June 1998 | 21.97% |
| June 1999 | 13.99% |
| June 2000 | 10.54% |
| June 2001 | -7.58% |
| June 2002 | -8.07% |
| June 2003 | 2.83% |
| June 2004 | 16.65% |
| June 2005 | 10.18% |
| June 2006 | 10.56% |
| June 2007 | 18.07% |
| June 2008 | -4.42% |
| June 2009 | -19.03% |
| June 2010 | 14.03% |
| June 2011 | 22.09% |
| June 2012 | 0.29% |
| June 2013 | 13.24% |
| June 2014 | 17.40% |
| June 2015 | 3.67% |
In February 2010, the Pew Center on the States identified four states that demonstrate different approaches to designing and managing retirement systems: Florida, Nebraska, Iowa and Georgia.[28] Florida's method for calculating annual contribution rates incorporates a portion of any unfunded liability into upcoming actuarially required contributions so that the bill is paid off over time. The state has legally mandated that pension surpluses of less than 5 percent of total liabilities will be reserved to pay for unexpected losses in the system -- and even if the surplus is greater than 5 percent of total liabilities, only a fraction can be used to reduce participating employer contributions.[29] This process allows for a rebate in required employer contributions to the FRS when the fund is more than 100% funded, and mandates employers contributions in excess of normal required contributions to make up any unfunded liability when the fund is less than 100% funded.
Florida Retirement System Investment Plan
The Florida Retirement System (FRS) Investment Plan was established by the Legislature to provide Florida’s public employees with a portable, flexible alternative to the FRS traditional defined benefit plan. Since opening its first employee account roughly nine years ago, the FRS Investment Plan has become one of the largest optional public-sector defined contribution retirement plans in the U.S.[30]
Florida PRIME
The objective of Florida PRIME is to provide eligible participants a cost-effective investment vehicle for their surplus funds. Its investment strategy emphasizes, in order of importance, preservation of capital (safety), liquidity and competitive yield.
In response to the economic turmoil in the markets, the SBA changed its guidelines to ensure that Florida PRIME offers daily liquidity, making it possible for investors to convert 100% of any balance into cash. Legislative and policy changes require Florida PRIME to make conservative investments, purchasing short-term assets that have received independent high ratings.[31]
Florida Hurricane Catastrophe Fund
The Florida Hurricane Catastrophe Fund (FHCF) was created in 1993 in response to Florida’s property insurance crisis resulting from Hurricane Andrew. The purpose for this state tax-exempt trust fund was to encourage additional insurance capacity in the state by providing a stable and ongoing source of reimbursement to insurers for a portion of their catastrophic hurricane losses. The FHCF is financed by reimbursement premiums charged to participating insurers, investment earnings, and emergency assessments on property and casualty insurers.[32]
The Florida Hurricane Catastrophe Fund finished the year in its healthiest financial position since its creation in 1993. Investing the collective assets of the Florida Hurricane Catastrophe Fund is the second largest mandate of the SBA. Changes made by the Florida Legislature continue to improve the program’s ability to meet its potential needs by reducing optional program coverage and gradually increasing its pricing to better reflect future claims.[33]
Lawton Chiles Endowment Fund
Created by the Florida Legislature in 1999, the purpose of the Lawton Chiles Endowment Fund (LCEF) is to invest a portion of the state’s tobacco settlement monies to provide a perpetual source of enhanced funding for health maintenance and research programs related to tobacco use.[34]
The SBA has the statutory authority and responsibility for the investment of LCEF assets, subject to certain investment limitations and consistent with an Investment Policy Statement approved by the SBA Trustees.[35]
Florida law specifies that the LCEF shall be managed as an annuity, with an investment objective of long-term preservation of the real value of the principal. The law requires a specified annual disbursement of funds for biomedical research activities, until such time as cures are found for tobacco-related cancer and heart and lung disease. Five percent of the annual disbursement is dedicated to the biomedical research portion of the endowment shall be reinvested and applied to that portion of the endowment’s principal, with the remainder to be spent on biomedical research activities consistent with this section..[36]