Taxes on Retirement Benefit

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Are retirement payments taxed?
Yes, retirement benefits are considered taxable income and Missouri income tax and federal income tax can be withheld from your MOSERS monthly retirement payments.

However, in a recent RetireeNews article we described the public pension exemption. Depending on a variety of factors (including, but not limited to, income, filing status, and age) you may be able to deduct some or all of your public retirement benefit on your Missouri tax return, to the extent the amounts are included in your federal adjusted gross income. MOSERS recommends you contact the Department of Revenue or a qualified tax advisor for additional information or answers to your specific questions about the public pension exemption.

At retirement, you may specify your federal and state tax withholding preferences by completing a Tax Withholding Authorization (Substitute W4-P) form, which you can do by logging into your Member Homepage on MOSERS’ website. MOSERS has a federal tax calculator on our website to help estimate your withholdings:
https://www.mosers.org/Members/Calculators/Federal-Tax-Calculator.aspx

MOSERS will withhold state taxes only for Missouri residents. If you aren’t a Missouri resident in retirement, we recommend you contact the appropriate state and local tax authorities to determine the taxability of your MOSERS benefit.

BackDROP Benefits & Death of Member

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Is it true that if a vested State Employee passes away before filing for retirement that the backdrop benefit is lost?
We try to make information about your benefits as clear as possible, but all plan provisions are established by law which sometimes makes it a little complicated. So, let’s break it down.

The key fact is not if a member passes away before they file/apply for retirement; it is if they pass away before their actual retirement date. Retirement date is defined by state law. Most people think of (and celebrate) their last day at work as their retirement date but, for us, that is their termination date (defined as their last day of work in a MOSERS benefit-eligible position).

The law defines “Retirement Date” as: The first day of the calendar month when a member begins to receive retirement benefits. The first payment is made the last working day of that month.

If a member passes away before their retirement date, any elections they made about retirement are null and void, including any elections about BackDROP. If they were still working and had not yet reached their retirement date (as defined above), they are considered an “active member” and we must pay their eligible survivor. Here is a similar question and answer on this topic:
http://mosersrc.blogspot.com/2016/12/backdrop-survivor-benefits.html.

Retirement Formula

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I am hearing rumors that the new Administration might be interested in changing the retirement formula. I want to retire probably in mid year 2017. Would this have an impact on me if I retire before this change were to go into effect or would I be covered until I die by what my current retirement estimates are?
 As a vested member of the MSEP or the MSEP 2000, your accrued pension benefits are protected by law and cannot be reduced or modified. Your MOSERS pension is a defined benefit (DB) plan which means it provides a lifetime benefit to you.

Any change to the retirement formula (or any other state employee pension provisions) would require passage of legislation by the Missouri General Assembly and approval by the Governor. Pre-filing of 2017 legislative proposals began on December 1 and the legislative session begins on Wednesday, January 4. To date, we have not seen any proposals to modify any MOSERS pension plan provisions for current members. Typically, as was the case in 2010 with the passage of the MSEP 2011, plan changes made by the legislature affect new hires as of a certain date. We will keep our members informed through our website, newsletters, and social media if there is any news on retirement-related legislation.

Please note that benefit estimates provided to you through the MOSERS website or from staff must be verified, meet all legal requirements, and if necessary, be corrected before any payments can be made. Once you believe you have made your retirement decisions, be sure to verify your assumptions with information that has been provided by MOSERS prior to making your final benefit election(s).

Contacting Terminated-Vested MOSERS Members

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Does MOSERS actively seek to locate and contact former employees who worked only long enough to become vested? For example, someone who resigned after having worked 65 months in the 90s and may not know or remember they may be eligible for a benefit.
 You are probably referring to “terminated-vested” members, those who are no longer employed in a position covered by MOSERS, are vested in the system, and are entitled to a future retirement benefit* when they meet the age requirement.
MOSERS sends letters to terminated-vested members 120 days before they become eligible for early (reduced) retirement benefits. If the member does not apply for early retirement, we notify them again 120 days before eligibility for normal (unreduced) retirement benefits. Once a year, we provide a newsletter for terminated-vested members called VestedInterest, which we can either mail or email. We also send a benefit statement every five years.
Our suggestion for terminated-vested members is:  Be sure to keep your contact information up to date so we can reach you with important benefit information! We  attempt to locate all members but sometimes the post office doesn’t have/provide a forwarding address. Ensure we have your mailing address, email address, phone number, and updated beneficiary information. You don’t have to wait to hear from us. If you are unsure of your eligibility or need to update your information, a MOSERS benefit counselor can help - contact us! Alternatively, as a member, you can create a MOSERS Online ID & password to review & update your own personal information. You must have a valid email address on file with MOSERS in order to do so.

*Benefit payment options and eligibility for benefits are based on the laws in effect on the date you left state employment.

Retirement & Tax Forms

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I left state employment on 12-31-15. Will MOSERS send my W2 form or does department of correction send out W2?
A W-2 Form will come from a current or former employer, not from MOSERS. A W-2 Form is used to report wages paid to employees and the taxes withheld from them.

MOSERS will send 1099-R forms to anyone who received any pension/retirement benefits from MOSERS during calendar year 2016. For tax reporting purposes, wages and retirement benefits are different. MOSERS will send 1099-R forms for 2016 by January 31, 2017. Read the article in the Fall/Winter issue of RetireeNews for more information about 1099-R Forms.

Investment Returns

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Your annual report shows that FY16 was an absolute disaster in terms of fund returns versus benchmarks(page 5), but doesn't say why. So . . . what happened?
Thank you for your interest in MOSERS’ investment returns. The newsletter contains our summary annual financial report which is just a snapshot; our comprehensive annual financial report (CAFR) is available in full on our website and upon request in hard copy. As you can see in both reports, we are facing some headwinds in the near term, but our long term plan is solid and the objective data supports that conclusion. To address your question, we have copied below an excerpt from the Fiscal Year 2016 letter from our Chief Investment Officer, Seth Kelly. For additional detail and context, you can read the full CIO letter on page 67- 68 of the Investments section of our CAFR. Please let us know if you have any further questions.

The causes of this year’s underperformance are easily diagnosed and understood. However, performance deserves a critical review. This year’s result notwithstanding, being different from the benchmark can be positive. The best success with active management comes when the effort is focused on risk management. To this end, traditionally, we have used active management to avoid over-priced risks in favor of risks with higher future returns – and have been successful. The best long-term returns come from those investors willing to take a contrary approach – buying unloved assets while selling adored assets. While this approach has an ability to make one look foolish in the short-term, in the long-term, it has resulted in higher returns and proves patience will financially accrue to the investor willing to focus on large margins of safety. 

Our internal strategies, which are heavily biased toward undervalued assets, told us to buy the most cyclically sensitive sectors too early. Internal strategies, like emerging markets and higher actual inflation, caused a portion of this year’s underperformance. Being contrary in the financial markets, unfortunately, means you are constantly at odds with the momentum crowd. This friction is created because the momentum crowd determines an asset is worth owning due to its appreciated price. That same crowd ignores the fact that, all else equal, a lower price makes the asset more attractive and represents lower risk in the future (since a majority of the risk was observed in the price decline). 

External manager selection stands out as being particularly problematic this year. The last several years, we made changes to benchmarks without corresponding changes to the manager roster. Our external active management was used to deemphasize U.S. corporate growth. The return environment for the assets that diversify US corporate growth has been difficult, which caused our external managers to underperform. We will continue to transform the active manager roster, but are patient enough to ensure the transformation is positive for the fund. 

So what does this mean for the future? It means we will focus on the things we can control; namely, management fees, the portfolio’s diversification and the portfolio’s active management. While the return environment might remain difficult, staff will focus on putting the fund in the best position for success over the long term.


BackDROP & Survivor Benefits

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I am a retired state employee and my wife will be retiring from the state later this year. Someone told us that should she pass away before she retires her backdrop would be forfeited and I would not receive it? Is that true?
For purposes of clarity, let’s assume your wife’s retirement date is March 1 and benefit payments would be issued on March 31.

If your wife met all the requirements, applied for retirement and elected BackDROP but passed away before her retirement date/before March 1, as her eligible spouse, you would not receive the BackDROP lump-sum payment but you would receive a monthly survivor benefit for life. Your survivor benefit would be based on the Joint & 100% option and calculated using her final average pay and credited service as of her date of death.

Based on the same assumptions as above, if your wife passed away on or after her retirement date/March 1, but before payments were issued for the month, you would receive the BackDROP lump-sum payment and survivor benefits would be paid according to the benefit payment option she elected when she completed the MOSERS retirement process. The calculation for the monthly benefit would be based on her final average pay and credited service as if she retired on her BackDROP date/the beginning of her BackDROP period. By electing BackDROP, there is less creditable service and potentially a lower final average pay in the benefit calculation which, in almost all cases, reduces the monthly benefit for the member and subsequently, the surviving spouse.

For more information regarding survivor benefits, please review the “Survivor” section of our website: https://www.mosers.org/Members/Survivors.aspx.