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MO: Treasurer hopefuls agree: Get real with rate of returns on pensions

By   /   October 4, 2012  /   News  /   No Comments

ZWEIFEL: Eight percent is too high an assumed rate of return.

By Johnny Kampis | Missouri Watchdog

ST. LOUIS — Missouri’s current public pension costs are ballooning at an alarming speed, fueled by increased benefits calculated on too high an assumed rate of return on investments.

That’s one issue the two candidates for Missouri treasurer can agree on.

The governing board of the Missouri State Employment Retirement System agreed on a $55 million increase next year to cover an expected shortfall in the fund. Members said poor investment returns and longer life expectancies are draining the fund.

Taxpayers are expected to cover $330 million to MOSERS in 2013. Employees only contribute 4 percent of their salary toward retirement benefits.

State Treasurer Clint Zweifel was the lone board member to vote against the increase. He said the board needs to overhaul the system, because even the $55 million increase may not be enough to shore up the deficit.

“The MOSERS board and (Missouri) Legislature should ask itself: can we afford the pension plan, and does it serve its purpose of attracting high-quality state employees?” Zweifel said in a statement to Missouri Watchdog. “It is a conversation that we will need to have as a state moving forward.”

The Democrat sees the assumed rate of return of investments on which the benefits are based as one of the pension fund’s biggest problems. The MOSERS Board had set the rate at 8.5 percent and dropped it to 8 percent for 2013.

But as Missouri Watchdog reported last week, MOSERS’ own annual report from 2011 shows a return of only 3.9 percent over three years and 7.1 percent over 10 years.

“The challenge with the pension funds (is) to understand their true cost, and adopt an assumed rate of return that is reasonable,” Zweifel said. “That true cost should serve as the underpinning for our conversations about the fund.”

Cole McNary, the Republican running against Zweifel in November, agrees that predicting investments will make 8 percent is a gamble.

McNARY: MOSERS is only one of many Missouri pensions with inadequate funding.

“By trying to earn an 8 percent return on their money, they’re assuming huge amounts of volatility,” he said. “They’re accepting huge amounts of risk. So it’s really a question of are we being prudent with retirement money?”

McNary said the MOSERS fund is only the tip of the iceberg, with many local pension funds in Missouri also facing funding problems. A report in Kansas City last week indicated that four retirement funds there may be in the hole by $600 million, while a protracted battle is taking place in St. Louis between city officials and firefighters over ballooning pension costs.

McNary said the treasurer needs to have the ability to step in and correct pension issues in Missouri when necessary.

“What we do want is to make changes to any system with full knowledge of what we’re doing,” he said. “Something that is well-thought-out, and where the Legislature has access to all the available data to make a sound decision.”

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Johnny Kampis is National Watchdog Reporter for Watchdog.org. Johnny previously worked in the newspaper industry and as a freelance writer, and has been published in The New York Times, Time.com, FoxNews.com and the Atlanta Journal-Constitution. A former semi-professional poker player, he is writing a book documenting the poker scene at the 2016 World Series of Poker, a decade after the peak of the poker boom. Johnny is also a member of Investigative Reporters and Editors.