Public Employee Retirement Plans and the Myth of the Risk Free Rate

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Gary Findlay, Executive Director of MOSERS, wrote a series of articles for PlanSponsor Magazine’s e-newsletter on the public debate over the “risk-free rate” assumptions and effects on the long-term funding of defined benefit retirement plans. The first in the series looks at the real risks associated with changing the discount rate, the second article is on how 401(k) plans are a gamble for the private sector, leaving participants unprepared for retirement, and the third is on choosing future rate of returns that will best benefit plan participants and other stakeholders.

Public Employee Retirement Plans and the Myth of the Risk-Free Rate Print Friendly and PDF

Does MOSERS have the same guidelines as PSRSMO concerning Social Security?

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Does MOSERS have the same guidelines as PSRSMO concerning Social Security? "Members employed by public school and junior college districts covered by the Public School Retirement System of Missouri DO NOT contribute to Social Security on their PSRS-covered earnings." This information would be helpful in my retirment plans. Thank you.
No. MOSERS benefit eligible employees are different than Public School and Education Employee Retirement System (PSRS/PEERS) members. MOSERS benefit eligible employees DO contribute to social security on their MOSERS-covered earnings.
PSRS covers public school employees and retirees who have Missouri teaching certificates; those employees are not covered by social security. Print Friendly and PDF

MOSERS Investment Portfolio and Retiree Pay Stubs

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Now that the Board established a trust fund, when will deferred comp members be able to invest in MOSERS? Also, how will retirees be able to access pay stubs after October 31, 2011?
MOSERS has been structured as a trust fund since its inception. That has not changed. What you may be referring to is that in 2007 MOSERS assumed oversight of the State of Missouri Deferred Compensation Plan. The MOSERS Investment Portfolio (MIP) fund will be a monthly (rather than daily) liquidity investment option available to participants in the State of Missouri Deferred Compensation Plan. This fund will offer participants the opportunity to purchase units of the MOSERS investment portfolio. Staff is currently working with the record-keeper and custodian on the logistics associated with offering this type of monthly unitized option. We expect the fund to be available during the first part of 2012. When an official live date is determined, participants will receive notification and additional information via the plan website at and the plan’s quarterly newsletter - Simply Put.
Regarding paystubs, active employees may now access paystubs through the Office of Administration’s Employee Self-Service website (, however, retirees will continue to be able to access all their benefit information on MOSERS’ secure website just as they have in the past.
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I've heard that employee's payroll history will soon be going away from MOSERS

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I've heard that employee's payroll history will soon be going away from MOSERS and we will no longer be able to view it from your website as we do now. Is this true?
Effective July 1, SAMII employees may access their paystubs via the Office of Administration's Employee Self-Service (ESS) website. MOSERS will continue to provide payroll stub access on our secure website through October 31, 2011. Payroll stubs will no longer be available on MOSERS' secure website beginning November 1, 2011. However, employees will still be able to see their gross pay on our secure site.
The link to the Missouri State Employees' Self-Service site is: Print Friendly and PDF

Questions on backdrop funds:

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Questions on backdrop funds:1) Are backdrop funds part of the State's budget or MOSERS budget?2) From what funding source is the backdrop funds allocated?3) How is the amount of backdrop funds determined for a particular year?4) Is the backdrop fund adequately?

To gain an understanding of the funding of the BackDROP, it is important to remember that it is simply one of the forms of payment available to qualifying members when they retire. It is not unlike the optional forms of payment members may elect to potentially provide continuing benefits to a survivor beneficiary. Overall, the system is being funded to provide a benefit for the life of each retiring member. That benefit will be based on the member’s length of total service and salary history near the time of retirement. A retiring member may elect to provide potential survivor benefits but, in doing so, will receive a smaller benefit for his or her life to compensate for the benefit potentially payable beyond the member’s death. Statistically, based on the large population of retirees, the cost to the system will be the same regardless of whether members elect benefits for their life only or for their life plus the life of a survivor beneficiary. The BackDROP is similar in that regard. Qualifying members who elect the BackDROP have their monthly benefit computed on the basis of less service and probably a lower salary than would have been the case had they not elected the BackDROP. The resulting lower monthly benefit is designed to compensate the system for the lump-sum the members receives at time of retirement. The point of all this is to say that the form of payment members elect when they retire does not, in the aggregate, impact the determination of the amount that needs to be accumulated to provide secure funding of those benefits. As a starting point, each retiring member is eligible for a benefit for the balance of his or her life and nothing beyond that. However, to facilitate financial planning for retirees, options are available. It could be a lower monthly benefit for life but with a potential continuing benefit to a survivor. It could be a lower monthly benefit for life in exchange for a lump sum payment at time of retirement. It could be a combination of the two. From the perspective of the retirement system, the benefit adjustments made in connection with the election of any of the options available are designed to result in the same payments, in total value, as would have been made if the system only paid benefits based on the statutory benefit formula for the life of the retiree only. With all of this in mind, we’ll now address your specific questions.
1) Are backdrop funds part of the State's budget or MOSERS budget?
BackDROP payments are made from the MOSERS’ trust fund. Qualifying members who elect the BackDROP receive lower monthly benefits for life in exchange for a lump-sum payment at the time of retirement.
2) From what funding source is the backdrop funds allocated?
The retirement system’s independent actuary determines the contributions required to adequately support the system’s benefits and annually reports to the board of trustees on the amount of the contributions needed. The board of trustees, in turn, certifies the amount of the required contributions to the Office of Administration and that is then incorporated into the budget presented to the legislature. Without exception, the amount recommended by the actuary has been contributed to the retirement system by the state. It is the combination of contributions from the state to the trust fund and the investment earnings on the assets held by the trust fund that is the source for all benefit payments, including BackDROP payments.
3) How is the amount of backdrop funds determined for a particular year?
The funds are not set aside on a year by year basis. It’s a matter of paying a lump-sum up front and less in the future or nothing up front with the full amount of the benefit being paid in the future – either way, the outcome will be very close to being the same when looked at in total for all retirees.
4) Is the backdrop fund adequately?
As noted throughout this response, BackDROP payments are simply one of the forms of benefit payment available to qualifying retirees. The retirement system’s benefits are adequately funded. This is attributable to the state’s long track record of responsibly contributing actuarially determined amounts to the trust fund and the system’s track record of long-term stellar investment performance.
More information on the BackDROP is also available on our website. Print Friendly and PDF

What impact does HB 282 have on a person considering retirement?

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What impact does HB 282 have on a person considering retirement?
HB 282, passed during the 2011 session of the Missouri General Assembly, will have no impact on the members of MOSERS considering retirement. The legislation did make several administrative changes to MOSERS, to the MoDOT and Patrol Employees Retirement System (MPERS), and to several local government retirement systems. If you are interested, you can read the bill summary at the Missouri House and Senate Joint Bill Tracking website. Print Friendly and PDF

What happens to the 4% contribution if I leave state employment?

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I recently was hired by the State of Missouri! I was told that I would be required to pay 4% of my income into a retirement account of my very own (sarcasm)! I have no problem paying in the percentage, however, I was told that if I left the State to work for a private company I would lose every dollar I paid in; is this True?
No, the information you received is not true. Your 4% contribution is used to help pay the cost of your future retirement benefit. If you leave state employment prior to becoming vested (10 years in a MOSERS benefit eligible position for MSEP 2011 members, which are those who were first hired on or after 1/1/11), you may request a refund of your contributions plus credited interest. (There is a 90 day waiting period for refunds.) Or, you may leave your contributions with the system if you think you might return to work for the state at some point in the future and would like for those years of service to count toward an eventual retirement benefit. Contributions left with MOSERS for a non-vested terminated member do not accrue further interest.
If you are vested and leave state employment, your contributions will continue to accrue interest (4%) until you are eligible for normal retirement. You would then complete the retirement process with MOSERS and begin receiving your lifetime monthly retirement benefit. Please see the Refund of Contributions brochure for more information.
While employee contributions are something new for the current generation of general state employees in Missouri, it is standard practice in most defined benefit plans across the country. You may be interested to know that, in addition to the 4% contribution you make, your employer contributes 13.97% of your pay to the retirement system. More than half of the money needed to pay future retirement benefits comes from earnings on investments. Print Friendly and PDF

Will the matching contribution ever return?

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Will the matching contribution ever return and if so when and for whom. For those who was getting their match contribution and no longer recieve them, due to state budget do our funds that was matched still have acess to the money that was matched at our retirement time.
The decision to provide an incentive (match) to participants in the State of Missouri Deferred Compensation Plan is determined by the Missouri General Assembly and the Governor as part of the annual budget process. Funding for the incentive has been suspended due to the state's budget constraints. We have no way to determine when funding for the incentive may resume. If the state budget were to include the incentive in the future, Plan participants will be notified.
Incentive dollars are held in trust for the exclusive benefit of participants and will be available for withdrawal at retirement or termination from the State. A 10% penalty may apply if withdrawals from that source are made prior to age 59 ½. You can find more information on a previous posting to Rumor Central, and get details about the suspension of the incentive and important reasons to stay in the program (even without the state match) on the deferred comp website.
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MOSERS' Funded Status

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The funded ratio % is declining yearly and now shows an unhealthy 78.3% for all plans (and even worse 60.1% for the MSEP plan).We depend more than other states on investment income. Will you publicly discuss in the next issue, the Board plans to improve these parameters?
A retirement system’s funded status refers to the value of its assets as compared to its liabilities. As of June 30, 2010 the combined funded status of all the retirement plans administered by MOSERS was 78.3%. This includes MSEP/MSEP 2000 (general employee plans) and the Judicial Plan. The funded status of MSEP/MSEP 2000, the plan for all general state employees, was 80.4% which is like having your house 80.4% paid off and having another 30 years to earn and pay the balance. (The 60.1% number you referenced is from the actuarial short-term solvency test. That is an indicator of the assets available to cover the accrued liabilities for active employees after fully covering the liabilities for member contributions and the total liabilities for all present benefit recipients.) 
You are absolutely correct that the majority of MOSERS funding is not from state taxpayers. Rather approximately 60% comes from its better than average long-term investment returns. While MOSERS’ investments did better than most in protecting against losses during the unprecedented stock mark decline of 2008-2009, the reality is that both investment returns and continued employer contributions are needed to fund the plan benefits.
The MOSERS board took prudent action in September 2010 to certify employer contributions at 13.97% of payroll (an increase over the prior year, which had been 13.81%) as recommended by the system’s actuaries. It is important to note that the state of Missouri has historically made 100% of its annually required contributions to MOSERS. While the fiscal year end investment returns are not yet audited and final, estimates indicate MOSERS generated a return of approximately 21% on investments for the year ended June 30, 2011.
The keys to the financial viability of any retirement system are (i) the annual collection of contributions at amounts recommended by the system’s independent actuary and (ii) solid investment performance over long periods of time – MOSERS track record in both regards is exemplary. The 2008-2009 fiscal year was very difficult for individual and institutional investors – a year during which the S&P 500 declined by 47% over the course of eight months. Despite the losses that year, our relative performance was very good because of the defensive posture of our investment program. The combination of ongoing collection of actuarially determined contributions and our prudent and professionally managed investment program will move the system from its current soundly funded status back to the preferred pre-2008 higher levels of funding over the course of the next several years.
You can read more about issues related to MOSERS funded status in other Rumor Central posts from May 3, 2011 and January 4, 2011. Print Friendly and PDF

2012 Retirement Incentive?

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Do you know how I can find out if there is going to be any kind of retirement incentive for state employees this year?
The 2011 legislative session ended in May without any retirement incentive legislation passing.  The 2012 session will begin in January.  At this time we are not aware of any proposed incentive for the next session.  If an incentive is introduced and passes, MOSERS will certainly be sure affected members are informed.
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Current U.S. Debt Ceiling Debate and BackDROP Dsitributions

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Should U.S. Congress be unable to come to an agreement before the August 2011 deadline regarding the U.S. debt ceiling crisis, is there any possibility that deadlock could have an impact on eligible MO State Employee backdrop distributions within the foreseeable future?
There is no correlation between the current U.S. debt ceiling debate and MOSERS’ obligation to pay BackDROP distributions to eligible retirees. MOSERS is bound by Missouri law to pay these benefits to those who are due them.
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Rumored Legislative Changes to Pension/Health Care Benefits for Future Retirees

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I've heard that as of 2013 the legislature will be cutting the pension and health care benefits of future retirees? Is this true?

We are not aware of any proposals that might be made in the 2012 or any future legislative session that would cut the pension and health care benefits of future retirees. Keep in mind that the Missouri State Employees' Retirement System (MOSERS) administers retirement, long-term disability and life insurance benefits for our members. Health care is managed by the Missouri Consolidated Health Care Plan (MCHCP)
You can read a couple of other posts about this topic on our Rumor Central blog. As always we will monitor all legislation that impacts MOSERS members and notify you of anything that might pass. Legislators can begin filing bills in December for the upcoming 2012 legislative session.
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Proposed New Board Rule 8-3: Master Trust Declaration for MOSERS

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Please explain this new group trust. Is this an additional layer of oversight? Who are these board members and are they state employees? Or are they a private group?
There is no new board and there has been no change in the authority the MOSERS board has under state law. At an earlier board meeting, action was taken to pursue allowing participants in the state’s deferred compensation plan to invest their individual deferred compensation accounts in the MOSERS retirement fund portfolio if they so desire. (The board took this action as the result of a number of members indicating they would like to have that option available to them in the deferred compensation plan.)  In researching this matter, it was determined that, under federal tax law, retirement fund money and deferred compensation account money can only be commingled for investment purposes through a “group trust.” Establishment of that “group trust” or “master trust” is the sole purpose of the board rule.
In the simplest terms, this board rule is being adopted for compliance with the federal Internal Revenue Code. 
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