Public pensions in Missouri

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Missouri public pensions
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Pension System
Number of pension systems 6
State pension systems: Missouri State Employees' Retirement System
Missouri Department of Transportation and Highway Patrol Employees' Retirement System
University of Missouri's Retirement Plan
Public School Retirement System
Missouri Local Government Employees Retirement System
Public Education Employee Retirement System
System type: Defined benefit
Pension Health (2012)[1]
Fund Value: $48,699,412,252
Estimated liabilities: $62,276,880,991
Unfunded liabilities : $13,577,468,739
Percent funded: 78.20%
Percent funded change: Decrease.svg3.41%[2]
Percent funded rank: 17[3]
Pension Fund Members (2012)
Total Members: 426,945
Active Members: 236,432
Other Members: 190,513
Other State Pension Information
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Policypedia
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Pension Policy
Public pensions
State public pension plans
Public pension health by state
Missouri public pensions are the state mechanism by which state and many local government employees in Missouri receive retirement benefits. The two primary state-sponsored retirement systems are the Missouri State Employees' Retirement System (MOSERS) and the Missouri Department of Transportation and Highway Patrol Employees' Retirement System (MPERS). The state also contributes to the University of Missouri's Retirement Plan (UMRP) and the Public School Retirement System of Missouri (PSRS).[4] Additional statewide systems, for which the state assumes no financial responsibility, include the Missouri Local Government Employees Retirement System (LAGERS) and Public Education Employee Retirement System (PEERS).

According to the United States Census Bureau, the state also has 56 locally-administered pension systems.[5]

A 2012 report from the Pew Center on the States noted that Missouri's pension system was funded at 77 percent at the close of fiscal year 2010, below the 80 precent funding level experts recommend. Consequently, Pew designated the state's pension system as cause for "serious concern."[6]

Taken together, the funding ratio for the state's pension systems decreased from 84.08 percent in fiscal year 2007 to 78.20 percent in fiscal year 2012, a decrease of 5.88 percentage points, or seven percent. Likewise, unfunded liabilities increased from approximately $8.5 billion in fiscal year 2007 to more than $13.5 billion in fiscal year 2012.[7][8][9][10][11]

Features

Pension plans

In fiscal year 2012, according to the systems' Comprehensive Annual Financial Reports and Actuarial Valuation Reports, Missouri had a total of 236,432 active members in its retirement plans. Our membership figures divide plan participants into two broad categories: active and other. Active members are current employees contributing to the pension system. Other members include retirees, beneficiaries and other inactive plan participants (usually terminated employees entitled to benefits but not yet receiving them).[12]

The following data was collected from the systems' Comprehensive Annual Financial Reports and Actuarial Valuation Reports. The "percentage funded" is calculated by taking the current value of the fund and dividing by the estimated amount of total liabilities. The assumed rates of return used to calculate fund value varied by system in fiscal year 2012 (see "Rate of return" below for more information). The Government Accountability Office (GAO) and Pew Research Centers cite a percent funded ratio of 80 percent as the minimum threshold for a healthy fund, though the American Academy of Actuaries suggests that all pension systems "have a strategy in place to attain or maintain a funded status of 100 percent or greater."[13][14] The column labeled "SBS figure" refers to a market liability calculation of the fund by the nonprofit organization State Budget Solutions. This analysis uses a rate of return of 3.225 percent, which is based upon the 15-year Treasury bond yield. The organization calls this a "risk-free" rate of return that would make it easier for states to achieve their pension funding requirements in the future. Since 2006, all private sector corporate pension plans have incorporated market costs into their funding schemes.[15]

Basic Pension Plan Information -- Missouri
Plans Current value Percentage funded Unfunded liabilities Current members
State figure SBS figure[16] State figure SBS figure[16]
Missouri State Employees Plan*[7] $7,897,167,203 73.2% N/A[17] $2,896,484,374 N/A[17] 51,332 active members
Judicial Plan*[7] $102,266,706 24.7% $311,065,832 398 active members
Missouri Department of Transportation and Highway Patrol Employees' Retirement System[8] $1,531,033,613 46.31% $1,775,245,058 7,444 active members
Missouri Local Government Employees Retirement System[9] $4,274,440,345 83.5% $845,833,853 32,925 active members
University of Missouri Retirement Plan[10] $2,790,622,385 84.34% $518,344,622 18,199 active members
Public School Retirement System of Missouri[11] $29,013,002,000 81.5% $6,575,028,000 77,529 active members
Public Education Employee Retirement System of Missouri[11] $3,090,880,000 82.5% $655,467,000 48,605 active members
TOTALS $48,699,412,252 78.20% 40% $13,577,468,739 $72,717,145,000 236,432 active members
*These are the component plans of the Missouri State Employees' Retirement System.

Annual Required Contribution

Annual Required Contributions (ARC) are calculated annually and are a sum of two different costs. The first component is the "normal cost," or what the employer owes to the system in order to support the liabilities gained in the previous year of service. The second component is an additional payment in order to make up for previous liabilities that have not yet been paid for. According to a report by the Pew Center on the States, in 2010 Missouri paid 89 percent of its annual required contribution.[6][18]

On June 25, 2012, the Government Accounting Standards Board (GASB) approved a plan to reform the accounting rules for state and local pension funds. These revised standards were set to take effect in fiscal years 2013 and 2014.[19] As a result, ARCs were removed as a reporting requirement. Instead, plan administrators and accountants will use an actuarially determined contribution or a statutory contribution for reporting purposes.[20]

ARC historical data[11][7]
Fiscal year PSRS PEERS MSEP Judicial
Annual Required Contribution (ARC) Percentage contributed Annual Required Contribution (ARC) Percentage contributed Annual Required Contribution (ARC) Percentage contributed Annual Required Contribution (ARC) Percentage contributed
2012 $670,259,103 92.5% $95,094,785 100.0% $263,373,924 100% $26,324,526 100%
2011 $684,366,766 86.9% $90,816,155 100.0% $263,418,048 100% $27,702,682 100%
2010 $737,381,187 80.6% $95,821,957 95.5% $251,226,187 100% $27,029,198 100%
2009 $669,643,988 84.1% $96,775,289 88.8% $252,105,008 100% $27,725,882 100%
2008 $656,347,298 79.4% $90,727,016 86.0% $249,770,156 100% $26,215,309 100%
ARC historical data[11][7]
Fiscal year MPERS LAGERS
Annual Required Contribution (ARC) Percentage contributed Annual Required Contribution (ARC) Percentage contributed
2012 $164,884,467 100% $166,947,336 100%
2011 $149,952,750 100% $154,244,689 100%
2010 $124,476,706 100% $137,849,763 100%
2009 $123,057,975 100% $132,715,295 100%
2008 $124,515,792 100% $130,007,191 100%

Historical funding levels

Historical pension plan data - all systems
Year Value of assets Accrued liability Unfunded liability Funded ratio
2007 $44,864,489,669 $53,360,304,227 $8,495,814,558 84.08%
2008 $47,915,789,950 $57,063,692,485 $9,147,902,535 83.97%
2009 $47,221,256,269 $59,476,772,341 $12,255,516,072 79.39%
2010 $47,656,123,570 $61,779,513,929 $14,123,390,359 77.14%
2011 $48,738,196,327 $59,723,009,704 $10,984,813,377 81.61%
Change from 2007-2011 $3,873,706,658 $6,362,705,477 $2,488,998,819 -2.47%

Rate of return

PSRS, PEERS, MOSERS and UMRP presume 8 percent return rates on their pension investments.[11][7][10] MPERS presumes an 8.25 percent return rate on its investments, while LAGERS presumes a 7.25 percent return rate.[8][9]

Analysis

Percent Funded Status of Pension Plans
in the 50 States as of November 2013
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Note: The data in this map was compiled from state CAFR reports and Actuarial Valuation documents. Figures reflect a combination of all of the state pension plans.
Funded Ratio of State Public Pension Plans as compiled by State Budget Solutions

According to a 2012 analysis by the Pew Center for the States, most state pension plans assume an 8 percent rate of return on investments.[21] Critics assert that this assumption is unrealistic, citing changing market conditions and significantly lower investment returns across the board over the past several years.[22] When states lower the rate of return in an effort to accurately predict investment earnings, it increases the current plan liabilities, thereby lowering the percent funded ratio and causing the ARC to increase. This is because future plan liabilities are discounted based on the rate of return, so smaller expected investment returns result in larger actuarially accrued liabilities.[23] For example, on September 21, 2012, the Illinois Teachers Retirement System voted to lower its rate of return from 8.5 percent to 8.0 percent. This change increased the state's fiscal year 2014 ARC from $3.07 billion to $3.36 billion.[24] Similarly, when California's CalPERS reduced its projected annual rate of return from 7.75 percent to 7.5 percent in March 2012, it cost the state an additional $303 million for fiscal year 2013.[25]

The 2008 financial crisis had a devastating effect on pension plans nationwide and has resulted in slower economic growth and increased market volatility. In light of this, some market strategists find the 8 percent assumption to be overly ambitious. Stanford University Finance Professor Joshua Rauh stated that using past investment performance in this economic climate was "dangerously optimistic."[26] Advocates for a lower assumed rate of return argue that the standard assumptions could cause pension fund managers to engage in more risky investments and imprudent stewardship of public funds. Further, if pension plans were using more conservative assumptions, such as the 3 or 4 percent assumed rate of return used in the private sector, and the plans grew more quickly than expected, the fund would have a surplus and smaller future ARCs, which would be preferable to using optimistic assumptions and potentially being caught with larger-than-expected deficits.[27][28][29][30][31]

On the other hand, traditional public pension plan advocates argue that the dip observed in recent years is not sufficient proof of a long-term, downward trend in investment returns. According to Chris Hoene, executive director at the California Budget Project, "The problem with [the market rate] argument is there isn’t significant evidence other than the short term blip during the economic crisis that there’s been that shift. It’s a speculative argument coming out of a very deep recession."[26]

The National Association of State Retirement Administrators compiled data on the median annualized rate of return for public pensions for the 1-, 3-, 5-, 10-, 20-, and 25-year periods ending in 2013. While the median annualized rate of return failed to meet the 8 percent assumption that most public pensions assume over the 5- and 10-year periods, it was just shy (7.9 percent) over the 20-year period, and it exceeded 8 percent for the 1-, 3-, and 25-year periods. It is important to note that the NASRA data is reporting the median returns, indicating that even though median annualized returns exceeded 8 percent in the 25-year period, the investment portfolios for half of the examined public pension funds failed to meet an 8 percent assumed rate of return.[32]

In September 2013, the nonprofit organization State Budget Solutions published an analysis of state pension funding levels. In its calculations, State Budget Solutions used a 3.2 percent rate of return, the 15-year Treasury bond yield as of August 21, 2013, to discount plan liabilities.

The research found that, all states combined, state public employee pension plans have only 39 percent of the assets they need to cover their promised payments—a $4.1 trillion gap. According to the report, Missouri's public pension plans were 40% funded, making it the 19th most funded state.[33]

Moody's report on adjusted pension liabilities

On June 27, 2013, Moody's Investor Service released its report on adjusted pension liabilities in the states. The Moody's report ranked states "based on ratios measuring the size of their adjusted net pension liabilities (ANPL) relative to several measures of economic capacity." In its calculations of net pension liabilities, Moody's employed market-determined discount rates (5.67 percent for Missouri) instead of the state-reported assumed rates of return (8.50 percent for Missouri's largest plan as of July 1, 2011).[34]

The report's authors found that adjusted net pension liabilities varied dramatically from state to state, from 6.8 percent (Nebraska) to 241 percent (Illinois) of governmental revenues in fiscal year 2011.[34]

The adjusted net pension liability for Missouri in fiscal year 2011 was ranked the 30th highest in the nation.[34] The following table presents key state-specific findings from the Moody's report, as well as the state's national rank with respect to each indicator.

Adjusted net pension liabilities (ANPL) relative to key economic indicators - Missouri
Governmental revenue* Personal income State GDP Per capita
State findings 27.7% 2.9% 2.6% $1,083
National ranking 36th 39th 36th 40th
*Moody's uses governmental revenues as reported in each state's consolidated annual financial reports; this includes not only state-generated revenue, but federal funds, as well.[34]

Reforms

Enacted reforms

2013

H.B. 233

Sponsored by Representative Mike Leara, H.B. 233 proposed a number of largely administrative and technical amendments to MOSERS and MPERS designed to ensure consistency between the two systems. The governor signed the bill into law on July 2, 2013.[35]

Proposed reforms

2013

S.B. 86

Sponsored by Senator Joseph Keaveny, S.B. proposed to authorize public retirement systems to implement benefit increases even if the system's funded ratio is below the level required by law. Although it cleared the Senate on February 14, 2013, the bill ultimately stalled in committee in the House.[36]

Local public pensions

See also: Local government public pensions

According to the United States Census Bureau, the state has 56 locally-administered pension systems.[5]

Transparency

See also: Public pension disclosure and Governmental Accounting Standards Board
  • Missouri publishes annual reports and fund performance information online.[37]
  • Under Missouri law, names of pension recipients and amounts disbursed are public record.[38]
  • Investment performance data is published the CAFR.[7]
  • Missouri law requires that annual financial reports be publicly available and independently audited.[39] However, a State Integrity Investigation gave the state an "F" for pension fund management.[40]

Recent news

This section displays the most recent stories in a Google news search for the term "Missouri + public + pensions"

All stories may not be relevant to this page due to the nature of the search engine.

Missouri Public Pensions News Feed

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See also

External links

References

  1. Figures below are compiled by adding up all state pension plans
  2. This figure is derived by calculating the percent difference between the current year's funding level and the system's percent funded from the prior year.
  3. Rank is relative to the 50 state pension programs. "1" refers to the healthiest pension plan while "50" would be the least well-funded plan.
  4. State of Missouri, "Comprehensive Annual Financial Report for the Fiscal Year Ended June 30, 2012," accessed November 15, 2013
  5. 5.0 5.1 "Public Employee Retirement Systems State- and Locally-Administered Pensions Summary Report: 2010," United States Census Bureau, April 30, 2012
  6. 6.0 6.1 Pew Center on the States, "Widening Gap Update: Missouri," June 18, 2012
  7. 7.0 7.1 7.2 7.3 7.4 7.5 7.6 7.7 7.8 Missouri State Employees' Retirement System, "Comprehensive Annual Financial Report for Fiscal Year Ended June 30, 2012," accessed November 15, 2013
  8. 8.0 8.1 8.2 8.3 Missouri Department of Transportation and Highway Patrol Employees' Retirement System, "Comprehensive Annual Financial Report for the Fiscal Year Ended June 30, 2012," accessed November 15, 2013
  9. 9.0 9.1 9.2 9.3 Missouri Local Government Employees Retirement System, "2012 Comprehensive Annual Financial Report," accessed November 15, 2013
  10. 10.0 10.1 10.2 10.3 University of Missouri Retirement, Disability and Death Benefit Plan, "Actuarial Valuation as of October 1, 2012," accessed November 15, 2013
  11. 11.0 11.1 11.2 11.3 11.4 11.5 11.6 11.7 Public School and Education Employee Retirement Systems of Missouri, "PSRS/PEERS 2012 Comprehensive Annual Financial Report, Financial Section," accessed November 15, 2013
  12. Organisation for Economic Co-operation and Development, "Pensions Glossary," accessed November 27, 2013
  13. United States Government Accountability Office Report to the Committee on Finance, U.S. Senate, "State and Local Government Retiree Benefits: Current Status of Benefit Structures, Protections, and Fiscal Outlook for Funding Future Costs," September 2007. Accessed October 23, 2013
  14. American Academy of Actuaries, "Issue Brief: The 80% Pension Funding Standard Myth," July 2012. Accessed October 23, 2013
  15. Governing Magazine, " Is There a Plot Against Pensions?" October 14, 2013
  16. 16.0 16.1 State Budget Solutions, "Promises Made, Promises Broken - The Betrayal of Pensioners and Taxpayers," accessed September 20, 2013
  17. 17.0 17.1 Analysis only available for system totals and not individual funds.
  18. Government Accounting Standards Board, "Annual Required Contribution (ARC)," accessed October 17, 2013
  19. Reuters, "Little-known U.S. board stokes hot pension debate," July 10, 2012
  20. State Budget Solutions, "GASB's ineffective public pension reporting standards set to take effect," June 5, 2013
  21. "The Widening Gap Update,” Pew Center on the States, accessed October 17, 2013
  22. The New York Times "Public Pensions Faulted for Bets on Rosy Returns," May 27, 2012
  23. Benefits Magazine "Public Pension Funding 101: Key Terms and Concepts," April 2013. accessed October 23, 2013
  24. Crain's Chicago Business "State teachers pension board lowers expected rate of return," September 21, 2013. accessed October 23, 2013
  25. Huffington Post "California Pension Funds Expect Lower Investment Return," March 14, 2012. accessed October 23, 2013
  26. 26.0 26.1 Governing "Expert: Governments Are Masking Their Pension Liabilities ," October 25, 2013. accessed October 25, 2013
  27. The Washington Post "Kansas’s pension funding gap just grew by $1 billion," September 6, 2013. accessed October 25, 2013
  28. Topeka Capital-Journal "KPERS' unfunded liability rises to $10.2B," September 4, 2013. accessed October 25, 2013
  29. Wall Street Journal "Pensions Wrestle With Return Rates," October 10, 2011. accessed October 23, 2013
  30. The Courant "Promising Too Much On Public Pensions," August 10, 2012. accessed October 23, 2013
  31. Business Wire "NCPERS 2013 Survey: Public Pension Plans Report Increasing Confidence, Lower Costs, Growing Returns," October 22, 2013. accessed October 25, 2013
  32. National Association of State Retirement Administrators "Issue Brief: Public Pension Plan Investment Return Assumptions," October 2013. accessed October 23, 2013
  33. State Budget Solutions, "Promises Made, Promises Broken - The Betrayal of Pensioners and Taxpayers," accessed September 20, 2013
  34. 34.0 34.1 34.2 34.3 Moody's Investor Service, "Adjusted Pension Liability Medians for US States," June 27, 2013
  35. Missouri House of Representatives, "H.B. 233," accessed November 15, 2013
  36. Missouri Senate, "S.B. 86," accessed November 15, 2013
  37. Missouri State Employees' Retirement System, "Annual Reports," accessed November 15, 2013
  38. Missouri Revised Statutes, "Chapter 70, Powers of Political Subdivisions to Cooperate or Contract with Section 70.605," accessed November 15, 2013
  39. Missouri Revised Statutes, "Section 105-661," accessed November 15, 2013
  40. State Integrity Investigation, "Missouri report," accessed November 15, 2013