By Johnny Kampis | Missouri Watchdog
ST. LOUIS — Missouri taxpayers will foot $55 million more next year for state worker pensions.
The governing board of the Missouri State Employment Retirement System, known as MOSERS, has approved a 20 percent increase for the pension program, which funds the retirement benefits for more than 51,000 state workers and 37,000 retirees.
The increase, which takes effect in July, means state residents will pay most of the $330 million for those pensions next year.
The board said the increase was needed because of poor investment returns and longer life expectancies for state workers. Many workers are also delaying retirement, and thus get bigger pensions after working a few extra years.
State Budget Director Linda Luebbering said this increase has been “on our radar screen.”
“That board has been discussing this for a while, and we were aware that the rate would be increasing,” she said.
In the budget year that ended in June, the pension fund’s investments only made 2.24 percent. In crafting the plan for next year, board members predict an 8 percent return over the next 12 months. This is a reduction from the previous assumed rate of return of 8.5 percent
State Treasurer Clint Zweifel, a Democrat running for re-election, was the only one of 11 board members who opposed the funding increase. He said the extra contribution may not be enough to make up the shortfall because the 8 percent return is overly
He could be right. While the MOSERS annual report from fiscal 2011 shows a stratospheric 21 percent return for that year, this followed several years of financial mediocrity.
The three-year return was 3.9 percent, according to the report, while the five-year gain was 6.2 percent, and the 10-year return was 7.1 percent. The measly 2.24 percent gain during fiscal year 2012 will further reduce those long-term calculations.
Michael Podgursky, a University of Missouri economics professor who has studied state pensions, said the flat stock market has caused much of the underfunding faced by the retirement systems in recent years.
He noted that an 8 percent to 8.5-percent rate of return is a government pension standard across the country, but it’s not very realistic.
“There’s a real question of whether they’re going to earn this,” Podgursky told Missouri Watchdog. “They haven’t over the last 10 years, and every year you don’t make your 8 percent you dig yourself into a hole.”
He said politicians faced pressure to increase benefits during the bull market of the 1990s. Missouri’s Public School Retirement System, for example, folded health insurance benefits into the calculation benefits. It also averaged an employee’s final salary the past
three years, rather than the last five years, to calculate pension benefits.
Both measures increased annual payouts and long-term costs to taxpayers.
“In theory you’re supposed to squirrel those funds away because some years are going to be above average and some below average,” Podgursky said.
Prior to 2010, state workers did not have to contribute to their own pensions, but the Missouri General Assembly passed a law that year requiring them to contribute 4 percent of their salaries into the retirement system.
State workers in the MOSERS program must now be employed for a decade to qualify for a pension, instead of the five that was previously required. The minimum retirement age for most employees was also increased, from age 62 to age 67.