Audit of the Reasonableness of Florida Pension Charges to the Federal Government for State Agency Employees

EXECUTIVE SUMMARY:

Our audit was designed to assess whether Florida appropriately charged the Federal Government for the pension expenses of State agency employees.  We found that Florida appropriately used funds designated as retirement contributions during the 3 years ended June 30, 2002, solely to pay pension-related expenses.  However, we found that these contributions were in excess of the amounts reasonable and necessary to fully fund benefits.  Florida has maintained a surplus relating to State-agency contributions totaling about $3 billion ($267 million Federal share).

 Florida attributes the surplus primarily to exceptional investment performance and has taken steps to reduce the surplus.  However, the rate stabilization mechanism established by Florida's State legislature prevents the entire surplus from being available for contribution rate reductions or benefit enhancements.  We believe the long-term continuation of this surplus continues to violate the Federal cost principle contained in Section C.1.a. of Office of Management and Budget Circular A-87, Attachment A that requires costs:  'Be necessary and reasonable for proper and efficient performance and administration of Federal awards.'  We recommended that Florida reduce contribution rates to a level necessary to fully fund pension expenses over the long term, including amending as necessary its 'rate stabilization mechanism' contained in the Florida Statutes.  As an alternative, Florida may repay $267,138,120 to the Federal Government.  Florida officials generally disagreed with our findings and recommendations.