MOSERS' Relationship With Blackstone

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What is your response to the "Blackstone" issues?
We have recently been contacted by active MOSERS members who received an email from the Hotel Employees and Restaurant Employees International Union (UNITE-HERE). At issue is an escalating labor dispute presently taking place between Hilton Hotels Worldwide, a company in which Blackstone owns a controlling interest, and UNITE-HERE union members. Negotiations between the union and Hilton have been going on for more than a year in various locations. 
The email from UNITE-HERE that was sent to Missouri state employees included a link for generating an e-mail form letter to MOSERS’ questioning the system’s relationship with Blackstone. Blackstone is a large investment company that has both publicly traded stock and private investment relationships. MOSERS does not own any of Blackstone’s publicly traded stock; we are, however, one of many investors in some of Blackstone’s private real estate funds. 
MOSERS has invested in Blackstone Real Estate Funds because of their track record of generating strong investment returns for their limited partners. Hilton is one of many real estate investments Blackstone has made on behalf of their limited partners over the years. Blackstone’s real estate funds have consistently outperformed the stock markets and are an important diversifier in the MOSERS portfolio. 
What is of paramount importance to MOSERS is the security of your retirement benefits. Strong investment results and sound business practices are critical elements in achieving this security. It has been our experience, since first partnering with Blackstone in 2002, that they possess both of the critical elements for a successful long-term relationship. Contract negotiations are never easy, yet ultimately it is our expectation that a compromise will be reached and all parties involved will be well served. 
Some of our members have asked us how UNITE-HERE acquired their email addresses and how UNITE-HERE is even aware they are members of MOSERS. At this point, we do not know. MOSERS did not provide member names or email addresses or any other contact information to UNITE-HERE.
We requested Blackstone’s perspective on the issues that were raised as concerns in the e-mail message MOSERS’ members received from UNITE-HERE. Those concerns and Blackstone’s response can be found here.
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Cost-of-Living- Adjustments (COLA)

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Considering MOSERS has done so well with investments this last fiscal year, can we look forward to a COLA greater than "0" or will we be "tied to the SSA COLA of 0?"
Cost-of-living adjustments (COLAs) are not tied to MOSERS' investment performance or to the Social Security COLA rate.  Instead, the COLA is tied to the statutory provisions in Missouri state law. State law provides a COLA based on 80% of the percentage increase in the average Consumer Price Index for all Urban Consumers (CPI-U) from one year to the next At this point, we don't know if there will be a cost-of-living-adjustment (COLA) in 2011. We will not be able to make a determination until mid-January at which time we will have the complete picture of the CPI-U for all of 2010. The COLA rate is determined each January and we will inform members of the COLA rate at that time.  You can find additional details on COLAs on our website.
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Retirement Incentives

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When the state offers incentives for employees to retire early, such as paying more of the health care premium, etc., does it remove long-term costs from the state budget only to put more of a burden on the retirement system's ability to meet its obligations?  Also, what is the current assumption by the system for its annual rate of return on investment, and has it been adjusted due to economic conditions over the last two years?
The short answer to the first question is, it depends. We make every attempt to give definitive answers to questions that we get, but in this case, it really does depend on the kind of incentive being offered. Incentives, by their very nature, are designed to encourage people to leave employment earlier than they planned. For incentives to be successful, they have to be generous enough to make it worthwhile for people. On the other hand, if it is too generous an offer it will cost far more than it saves. That is a difficult balance to strike.
MOSERS looks at all incentive proposals for their long-term impact and provides information to decision makers. Much of the long-term impact on the cost to the retirement system depends on whether or not the positions that are vacated due to whatever incentive is offered are refilled. It also depends on what type of incentive that is being offered. For example, an incentive that addresses only health care costs in retirement but does not change retirement benefits would only indirectly impact MOSERS by resulting in members retiring earlier than might have otherwise been the case.
Regarding the second question, the current assumed rate of return on investments is 8.5%. After careful consideration at the September meeting of the MOSERS Board of Trustees, it was decided not to adjust the assumed rate of return. It remains at 8.5%. One of the criticisms of public employee retirement systems is the claim that they have used unrealistic investment return assumptions in determining funded status and establishing contribution rates. In MOSERS case, the nominal compound annual assumed rate of 8.5% was first used in connection with the June 30, 1992, annual actuarial valuation and has not been changed since that date. 
Actual returns over the period beginning July 1, 1991 and ending June 30, 2010 (net of all investment expenses), have been right on the mark at 8.52% relative to the assumed rate of 8.50%.  The complete package of long-term assumptions, including the rate of return, will again be evaluated by the Board of Trustees in connection with the next regularly scheduled five year actuarial experience study to be conducted in 2012.  (It’s probably worth noting that the Board of Trustees did not increase the assumed rate of return when the system earned 17.2%, 12.6%. 11.5% and 18.6% for the fiscal years ended June 30 2004, 2005, 2006 and 2007 respectively.)  For fiscal 2010 the return was 14.3% and the return for the first quarter of this fiscal year was 7.6% (not annualized).

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Benefit Calculation After Reaching 80 and Out

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I've heard that once you reach 80 and out, your salary is no longer used to calculate your benefit. Is that true?
The formula for calculating a normal retirement benefit is always based on a formula that is made up of 1) Final Average Pay (FAP): the average of an employee's highest 36 consecutive months of compensation, 2) a multiplier established by the state legislature, and 3) an employee's years and months of credited service.
FAP x Multiplier x Credited Service = Monthly Benefit
If a person reaches "80 and out," for example, a person who began working at age 20 and is now age 50, and who has 30 years of service (age+service=80), her salary (based on 30 years) would be used in the calculation of her benefit.  If she continued to work, for example, three years past the point at which she reached 80 and out, her salary (based on 33 years of service) would be used to calculate her benefit (if she did not elect BackDROP).
If that person chose to work three years past her normal retirement eligibility date and elected to receive a BackDROP (for example, based on three years), her monthly benefit would still be calculated using her FAP and creditable service as of the BackDROP date.  Therefore her FAP would be based on 30 years of service, excluding any salary received during the BackDROP period for the FAP calculation.         
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BackDROP and Changing Jobs

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As I understand the BackDROP you need to work a full 24 months past your official retirement date in order to qualify for your BackDROP. What happens if you leave your current position a few months shy of the 2 year requirement? Can you go to work for another state agency and pick up where you left off?
It is correct that in order to be eligible for the BackDROP, you must work in a MOSERS covered position at least two years beyond your normal retirement eligibility date. And yes, you can leave your current position before you reach that requirement and pick it up in another position, as long as it is a benefit eligible position covered by MOSERS. 
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Did Any Retirement Incentives Pass During the 2010 Legislative Session?

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Several of my rumor central people in my office in St. Francois County advised me the initiative for retirement did pass. If it did, please let me know. If it did not but there is another incentive, I would like to have that information as well. Thanks for all your help.
No retirement incentives passed during the special session of the legislature this past June, or the regular session that ended in May, 2010. Representative Jones did file HB 1583, which would have offered a medical insurance and retirement incentive for certain employees, but that legislation did not pass. HB1, which makes changes to retirement benefits for new employees hired for the first time on or after 1/1/2011, was passed during the special session of the legislature in June, but that final legislation also did not include any proposed retirement incentive. You can read more about the legislation that was passed here. As always, we will monitor the progress of all retirement related proposals during the upcoming legislative session that begins in January and keep our members informed.
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MOSERS Benefit Cap and Social Security

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Has it ever been considered to put a "top" amount that could be paid to retirees; say, $100,000 as I note there are several that are paid more than this?  $100,000 plus Social Security should be plenty to live on as a retiree, along with any other income they may receive.  It seems folks on the lower end of the retirement scale need every penny they receive and should not be penalized by not receiving a small percentage increase from time to time.
The short answer to this question is no, MOSERS has not seen any legislative proposals to cap retirement benefits at $100,000 annually. To more fully address the question, though, please keep reading.
We presently have 16 retirees, out of more than 30,000, making over $100,000 annually in retirement benefits from MOSERS. This may be one reason why we've not seen a proposal to cap retirement benefits. Nine of the 16 receiving over $100,000 were judges when they were employed with the State of Missouri. There are several others who get very close to that amount, many of whom were also judges, university presidents, department heads, etc. Keep in mind a couple of things: these benefit amounts are based on relatively high final average salaries for these employees who function much like high level officials in private companies, and have similar levels of responsibility. And this is by no means the norm.
As you correctly point out, the retirement package for State of Missouri employees consists of the MOSERS benefit plus Social Security. A key difference between the two programs is that Social Security benefits are weighted so that lower paid employees get a higher percentage of their income replaced by Social Security than do higher paid employees.  For example, an employee retiring at age 62 earning $150,000 per year in pay could expect to have about 19% of their pay replaced by Social Security while an employee earning $36,000 would have about 47% of their pay replaced.
You can see the Social Security Administration's website for more detailed information on computing benefits. The point here is to clarify that Social Security benefits actually favor lower income workers. Consequently, through their combined benefits from MOSERS and Social Security, the higher the working pay of state employees the lower will be the percentage of their income replaced by retirement benefits.
Finally, there is a cap on the compensation considered in computing Social Security benefits - in 2010 the Social Security wage base is $106,000, meaning that any income over that amount will not be considered in calculating Social Security benefit.

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