Public Pension McCarthyism

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In the early 1950s the junior senator from Wisconsin made quite a name for himself by labeling anyone who opposed him a communist or a communist sympathizer.  He was the master of fear mongering and successfully silenced the masses who knew him to be wrong but who were afraid of ending up on the wrong side of the infamous Joe McCarthy. Finally, at a publicly televised hearing in 1954, a very soft-spoken attorney by the name of Joseph Welch said, “Senator. You've done enough. Have you no sense of decency, sir? At long last, have you left no sense of decency?”  That was the beginning of the end of McCarthyism in that era.

Now fast forward fifty plus years and we find ourselves facing another version of McCarthyism.  This time the targets are public employee retirement systems, public employee unions and anyone who speaks up in defense of either.  Outrageous examples are cited as if they are typical.  The fact is that they are not typical but they have been repeated with such regularity that it is understandable that the masses would think them to be commonplace. Are there problems?  Absolutely!  Are the problems exceptions to the rule?  Absolutely!  Are the problems that exist being addressed?  Absolutely!  Is it likely that you will hear or read about either of the last two points?  Absolutely not!  (Grade school geography students who get their information from media reports will soon be drawing maps of the United States consisting only of California, Illinois, and New Jersey.)

So what is the motivation behind public pension McCarthyism?  Actually there are a number of factors at play, some of which are interconnected and some of which are independent of each other. Regardless, by creating false impressions, it has been a very effective blame deflector.  In the movie “Charlie Wilson’s War,” the fact that the congressman was accused of scandalous behavior was not seen as a problem but rather as an effective diversion – a CIA operative observed that, “As long as the press sees sex and drugs behind the left hand, you can park a battle carrier behind the right hand and no one's gonna notice.”  Public pensions and unions have become the media sex and drugs du jour and the battle carrier is the fact that we have no national retirement income security policy. (At least not having a national energy policy gets lip service but the silence on a realistic long-term retirement income security policy is deafening.)

Short-termism and greed seem to be key drivers behind the reluctance to address the important long-term policy considerations. If you can cut personnel costs today, you can increase the next quarterly earnings report – getting rid of public sector defined benefit plans will take pressure off of corporations to think longer term. In the public sector, policy maker term-limits are also taking a toll on long-term planning.  On both the private and public sides, interests are aligned with short-term achievements. The greed factor should not be discounted either – the simple hint that a defined contribution approach may be considered will result in an onslaught of service providers who are more than willing to help pave the way.  Could that be because there are fortunes to be made in transitions from defined benefit plans to defined contribution plans? In the extreme short-term, it seems that parties who are interested in decimating public sector defined benefit plans are more than willing to pay for so-called independent academic studies that, for the most part, reach the same shortsighted and flawed conclusion regarding public sector defined benefit plans.

Surveys across a broad range of generations of participants in individual account defined contribution plans are, for the most part, reaching similar conclusions.  Participants in those plans do not believe they will have adequate financial resources to sustain them during their post-retirement lives. If history is any indicator, they are probably also underestimating their needs.  If the trends are not reversed, the predictable outcome from the course we are on will be a welfare state of unprecedented proportions. Of course, those responsible for leading us in that direction will probably not be around to help clean up the mess.

It has been suggested that one way to downsize government is to make it sufficiently unattractive to workers that they will not be inclined to pursue a public service occupation.  The irony in this is that the best way to downsize while sustaining or improving productivity is to attract and RETAIN a highly skilled and motivated workforce. Why are we not pursuing personnel and compensation policies that will facilitate that rather than move us in the other direction?

If Mr. Welch were alive today, I suspect he might again question the decency of what is happening. Print Friendly and PDF

Maximum Amount of Sick Leave Allowed at Retirement

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Is there a limit to the number of months sick time you can use or convert to time when you go to retire. I have heard that the maximum number of months is 12 or one full year, but everything I find in writing is it has to be in even monthly hours. 
For every 168 hours of Sick Leave you have accrued but not used, you will receive one more month of service to increase your benefit amount. Sick Leave does not affect your eligibility to retire.
For retirement purposes, MOSERS cannot use any unused sick leave that is in excess of 10 hours per month of your accrued service.  For example, if you have 25 years of service (300 months), the maximum sick leave balance that could be used in your retirement calculation is 3000 hours.
There are many Rumor Central posts about sick leave and retirement that you may find helpful. Simply search for “sick leave,” or click on one of the sick leave labels.
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Missouri Public Pension Exemption

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I understand that our retirement pension under MOSERS will no longer be taxable income after 2012. Is this correct? Also, that only a percentage will considered taxable for 2012. Is this also correct and if so what is that percentage? Thank you.
We think you are referring to the Missouri public pension exemption, but as an active employee this doesn’t impact you. However, if you are retiring soon, and depending on a variety of factors (including, but not limited to, income, filing status, and age) you may be able to deduct a portion of your public retirement benefit, to the extent the amounts are included in your federal adjusted gross income. The total public pension exemption is limited to the maximum social security benefit of each spouse.
In order to be eligible for the full deduction, your Missouri adjusted gross income must fall within certain income limitations. If your income exceeds the limitation, you may qualify for a partial exemption. The amount of your exemption must be reduced by the amount that your income exceeds the limitation. The limitation is based on your filing status and income (less taxable social security benefits) as listed below:
·         Up to $85,000 – Single, Head of Household, or Qualifying Widow(er)
·         Up to $100,000 – Married, filing jointly
·         Up to $85,000 – Married, filing separately
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.

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Pay Raises

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Will all state employees be receiving a 2% raise in July?
MOSERS has no way of knowing if state employees will receive a pay increase, since our responsibilities only include retirement and other fringe benefits, not pay. Those decisions are made by the legislature and the Governor and will be considered during the appropriations process which begins in January 2012.
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Raising Taxes without Raising Taxes

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(A Pension Tale by Gary Findlay)

Tax Related Axioms:

  • Tax revenue needs to increase to retire federal debt.

  • People who must run for office don’t want to be identified with increasing taxes.

  • Tax policy wonks are capable of multi-step logic and are very bright. (Just look at how creative they are in titling federal legislation.)

The wonk challenge is how to change the reality of increased tax revenue without changing the perception that there has been no tax increase. What to do what to do? (This is where a light bulb comes on over the head of a character who is housed deep in the bowels of some federal office.)  Eureka! If you can’t change tax rates then you need to find a way to increase the portion of total compensation that is subject to taxes. The thought process might go something like this:

Well, there is the matter of those state and local government employees who have a significant portion of their compensation deferred through those pesky defined benefit plans. What we need to do is get their employers to terminate those plans and replace them with defined contribution plans with relatively low contribution rates.  This will force the employers to increase cash pay in order to remain competitive with the private sector for personnel and thus increase the taxable portion of their total compensation.  Besides that, if we can get that done a lot of people will not roll over their individual accounts when they change jobs. Premature distributions mean we won’t have to wait until people retire to collect taxes on their deferrals plus we get an extra 10% penalty off the top in most cases.

So how do we go about persuading state and local governmental employers to abandon defined benefit retirement plans that have served them well for decades?  If we act fast enough we might be able to get some traction from the economic downturn a couple of years ago and deflect attention from the real causes.  Of course, we need to get this done before those retirement plans have a chance to recover from the credit crisis related financial market meltdown that we facilitated and time appears to be running out. Maybe we should start with a checklist of the interested parties and interest groups we can count on for support.

  • We have had a fair amount of success in regulating private sector defined benefit plans out of business which has resulted in many of those employers adopting woefully inadequate defined contribution plans. They now look even worse because of the way the participants reacted to market challenges so maybe we can make the private sector employees jealous of those who still have defined benefit plans and count on pension envy to result in them being vocal about it.

  • The market meltdown we caused did hurt governmental defined benefit plans but they are recovering far faster than we thought would happen. Maybe we can get the accounting standard setters to do something that will make them appear to be financially deficient even if it’s not the case.  If we don’t have success with that, we’ll just have congress take care of it.  (In approaching this, be sure to make liberal use of the buzzwords du jour, “sustainability” and “transparency.”)

  • It seems clear that those defined benefit plans generate a lot less fee income for our friends on Wall Street than would be the case with individual account plans so they should be supportive but they probably can’t be overt about it. Bingo!  All they have to do is make substantial contributions to the right think tanks and business schools to generate some “objective” appearing research that will encourage transitions.

  • By shifting from defined benefit plans to defined contribution plans, the administrative costs can be shifted from the employers to the employees without the employees noticing which should make the idea popular with term limited management representatives who don’t stand to make much from the defined benefit plans anyway. In fact, we might be able to sell it just on the basis that defined contribution plans work to the advantage of shorter service participants which fits right in with term limits.

  • Then there is the matter of those public defined benefit plan fiduciaries thinking they should vote their proxies and hold corporations responsible for substandard performance. If we can break up those large pools of defined benefit plan assets we can put an end to that nonsense.  The organizations representing corporate America should be all over this.

  • To put the icing on this cake all we need is a publicity campaign to make the universe of public plans appear to be in dire financial straits. We’ll take a few isolated cases and characterize them as being the common condition.  The think tanks and business schools mentioned earlier can be a big help here. Nothing sells quite as well as bad news, even when it’s not true.

You know, this may be easier than we thought.  Someone will probably raise the issue of potential deficiencies in prefunded retirement income for our aging population but we don’t need to worry about that – worst case, it’s not going to happen between now and the next election and that’s where our focus needs to be now. (Here all we have to do is rely on the corporate model of persuading interested parties to concentrate on the next dividend rather than on long-term viability.)

Does this tale seem like a stretch?  Maybe! Maybe not! As the result of some of my recent writings on public defined benefit plan issues, a number of people have suggested that I’m just being paranoid. To them I can only say that just because you’re paranoid it doesn’t mean they aren’t really out to get you.


At the outset, reference was made to those who cleverly title federal legislation. A current good example is the Public Employee Pension Transparency Act. There is a fairly persuasive case to be made that it could just as appropriately have been called the Public Employee Pension Distortion, Obfuscation, and Extortion Act.  Nah! This is all about marketing which is obviously much more important in developing a well-crafted title than is accurately summarizing the substance of the issue at hand. Print Friendly and PDF

MOSERS’ FX Execution Risk is Being Sufficiently Mitigated

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Please comment on the recent charge made by Harry Markopolis, (the Bernie Madoff whistle blower), on the fact that State Street Financial Corp and BNY Mellon ripped off billions of dollars from state pension funds by using a market timing scheme on foreign currency trades. Is this the same State Street that Missouri deferred compensation plan uses for our self managed brokerage accounts ? Did MOSERS pension fund lose any money ? Forgive me if I have some of the facts wrong, this is a very complicated fraud case. 
The trades being brought into question by Mr. Markopolos as part of his whistle blower lawsuit are trades defined as “standing instruction” FX trades.   In a standing instruction trade, the custody client allows the custodian (State Street Financial Corp and BNY Mellon are two such custodians) to automatically execute the FX trade on behalf of the client at any time during the day usually within rate ranges that have been pre-established at the beginning of the day. 
The alternative method of transacting in FX is to do so through a “competitive bid” process.  In a competitive bid FX trade the custody client negotiates pricing directly with FX brokers at a specific point in time in order to help ensure a fair foreign exchange. These trades are not in the subject of the lawsuit.
With respect to the Deferred Compensation (DC) plan, State Street Global Markets, a subsidiary of State Street Financial Corporation, does offer brokerage window services to MOSERS, however, plan participants are not allowed to purchase securities denominated in a foreign currency.  Therefore, no FX trades have been conducted on behalf of plan participants through State Street Financial Corp or any of its subsidiaries. No losses have been alleged and no potential exposure exists.
With respect to the MOSERS defined benefit (DB) or pension plan, BNY Mellon operates as the plan’s custodian and BNY Mellon does offer FX services to the plan.  With that said, MOSERS investment staff has performed a risk assessment and review of our FX procedures for both internally managed and externally managed accounts.  The conclusions reached from that review were that MOSERS’ FX execution risk is being sufficiently mitigated through our trading procedures.
About 97% of all MOSERS DB plan FX trades in the last five years have been executed utilizing the competitive bid process which is not the subject of the lawsuit. 
The remaining 3% of our trades were initiated through the standing instruction process and as a result it is possible that MOSERS could be a member of the class action lawsuit that has been filed against BNY Mellon.  If MOSERS is deemed a class member, and a settlement is reached in favor of the plaintiffs, MOSERS, as a member of the class will participate pro-ratably in any monetary awards.  It is expected that any such award would be extremely immaterial to the DB plan given the small percentage of trades potentially impacted.
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E-Stubs and OA's Employee Self-Service Portal (ESS)

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Why are our payroll histories being deleted? Are you notifying retirees in writing to print off their history or are you mailing them a copy of their history?
No. We won’t be mailing people a payroll history.  
I believe you are referring to retiree paystubs, which has nothing to do with the Office of Administration’s implementation of the Employee Self Service Portal (see below).  MOSERS is not deleting the retiree paystubs. 
MOSERS will continue to have paystubs on our site through October 31, 2011 for active SAMII employees. Effective November 1, 2011, we will continue to show the Gross Pay for Retirement Purposes column, but existing columns #1 Check Stub Detail, #4 Net Pay, and #5 Gross Pay will not be available. 
Nothing will change for retirees. Members can now come to the MOSERS secure website from the ESS portal without signing on. We are notifying both active employees and retirees in the upcoming Fall newsletters about this change.
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