Dismissal From State Employment

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If a MOSERS covered employee is dismissed from the state does that affect their benefits?
The way an employee leaves state employment does not affect their retirement benefits. Once a state employee is vested, they are guaranteed a lifetime retirement benefit.

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Friday Top Five April 26 2013

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The Friday Top Five: A collection of the top five news articles, blog posts, or other retirement related information from the past week.

From Pension Dialog: Why Now?

In a week of swirling headlines, Pension Dialog questions the timing of a report released by the International Monetary Fund (IMF) "assessing the effect of low interest rates on public pension fund risk.  As a result, The IMF said, 'Pension funds need to address their future funding shortfalls “without delay,” through “restructuring benefits, extending pensioner’s working years and gradually increasing contributions to close funding gaps.'” PD points out that the IMF fails to consider that "every state [in the U.S.] has made changes to fortify their retirement systems over the last decade, and 45 just in the last three years."

From the St. Louis Post-Dispatch: Social Security's Buying Power is Under Attack

Jim Gallagher of the SLPD opines on the "chained CPI" and its impact on the buying power of social security benefits.

From the Squared Away Blog: Women “Reactive,” Not Planning Finances

From the post: "Since April is financial literacy month, Squared Away is again making an appeal to women, who continue to make strides professionally, yet lag men in understanding how to manage their money."

From PBS's Frontline: The Retirement Gamble

Focusing on 401(k)-type retirement accounts, the narrator in this program asks “So, what was wrong with the pension system (before the switch to 401Ks)?” The answer, in a nutshell, is“Nothing!” From the advertisement for this program on PBS's Frontline: "Retirement is big business in America, but is the system costing workers and retirees more than what they’re getting in return, asks FRONTLINE correspondent Martin Smith." Watch the program in its entirety at the above link (about 54 minutes).

From the Encore Blog (at MarketWatch at the WSJ): Claiming Social Security: Should You Wait?

From the post: "When is the best time to claim Social Security? A recent paper from David Blanchett, head of retirement research at Morningstar, attempts to provide answers."

The views expressed by the writers of these pieces are entirely their own and do not necessarily reflect the views of MOSERS. Print Friendly and PDF

HB 129

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Does HR129 include DESE/Missouri State Schools for the Severely Disabled employees?
Yes, as a member of MOSERS, the Department of Elementary and Secondary Education is covered under the provisions of HB129 as introduced. The Missouri State Schools for the Severely Disabled are not specifically excluded by name, therefore would be included in the incentive. On 4/23/13 the bill was referred to the House Rules Committee. However, at this time, there are no hearings scheduled for the bill, and it is not currently on a House calendar. You can use this link to follow the bill’s progress in the legislature.

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Public Pension Funding 201: Implementation

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Past, current, and future practices in public pension funding are described in this article, the second (of two) in a series that began in the April Benefits Magazine with definitions of terms and concepts necessary for an understanding of this topic.

Federal statistics report that more than 85% of employees of state and local government participate in a pension plan. Nearly all of these workers are in plans whose benefits are prefunded, meaning they are financed, entirely or partly, with assets accumulated during the employee’s working years. Although this method for paying for pension benefits seems straightforward and logical, it has not always been standard practice.

A generation ago, there was no industrywide, systematic effort to measure the long-term liabilities and costs of public pensions. Nor was there an industrywide, systematic effort to fund the benefits. A 1979 study by the Government Accountability Office found that “many state and local government pension plans are not funded on a sound actuarial basis because they are not setting aside sufficient funds to provide for future benefits.” This study discovered that some plans operated on a pay-as-you-go basis, meaning that current receipts of the employer were used to pay for current benefits. Several proposals to extend major provisions of the Employee Retirement Income Security Act (ERISA)—the body of federal laws that regulates corporate and multiemployer pensions—to state and local government pensions were introduced in Congress during the late 1970s.

While federal efforts to regulate state and local pension plans were not successful, the creation in 1984 of the Governmental Accounting Standards Board (GASB) began a process that would lead to establishment of a more systematic and orderly means for funding state and local government pension benefits.

In 1986, the new GASB issued Statement 5, which encouraged public pensions and their sponsoring governments to conduct regular actuarial valuations, including measurement of their liabilities. However, GASB does not have the authority to require compliance with its accounting standards, and Statement 5 lacked incentives for public employers to fund their pensions. Several years later, in 1994, GASB issued Statements 25 and 27. These statements created, for the first time, an incentive for governmental employers to make an earnest effort to fund their pension benefits.

Statements 25 and 27 accomplished this in part by establishing an actuarially determined contribution, known as the annual required contribution (ARC): the sum of the normal cost (the cost of pension benefits accrued each year) and the cost to amortize the plan’s unfunded liability. The new statements also required reporting of the ARC and the employer’s effort toward funding its ARC. This allowed users of financial reports to see clearly whether the employer was making an effort to fund its pension obligations. Although GASB does not have the authority to require states and cities to comply with its statements, employer compliance with GASB assists governmental entities to secure a lower rate of borrowing in municipal bond markets.

In its 2008 paper, The Miracle of Public Pension Funding, the Center for Retirement Research (CRR) at Boston College credits GASB for the remarkable improvement in the funding condition of public pensions. The CRR referred to this improvement as “miraculous,” because it occurred so quickly and without federal legislation or regulation.

As the CRR report stated, multiple studies show that Statements 25 and 27 resulted in substantial improvement in pension funding. Before describing the details of what fostered what CRR called a “miracle,” readers should know that GASB recently has replaced these statements with new ones, rendering Statements 25 and 27 obsolete beginning next year. The new statements are described briefly later in this article; since this article is about pension funding (and not GASB), it will focus on the GASB statements that provoked improvements in pension funding efforts.

In compliance with Statements 25 and 27, the first step in the process of funding a pension benefit is the actuarial valuation, the mathematical process of determining a pension plan’s liabilities, funding condition and required future costs. Calculating future costs requires the use of many assumptions about future events. These assumptions fall into one of two broad categories: economic and demographic. Economic assumptions are those pertaining to financial events, particularly rates of inflation, investment return and salary growth. Demographic assumptions refer to participant experiences, such as at what age workers will retire and how long they’ll live after retiring.

An actuarial valuation also requires the use of a funding period, which is the time frame over which an unfunded pension liability is projected to be paid off. Funding a pension plan has been likened to paying off a home mortgage: The obligation is paid off through regular payments made over many years. An actuarial valuation can be thought of as a periodic assessment of progress toward paying off a long-term obligation. Others have likened a public pension actuarial valuation to a snapshot in a motion picture that unfolds over decades.

In addition to actuarial assumptions and a funding period, another element of the actuarial valuation is the actuarial cost method, which determines how pension costs are allocated over the course of a plan participant’s working life. Some cost methods front-load costs, meaning costs are higher in earlier years. Other methods back-load costs, meaning higher costs occur in later years. The cost method used by most public pension plans is known as entry age; this method emphasizes the determination of a level, or stable, employer cost as a percentage of payroll.

Under Statements 25 and 27, the key outputs of a public pension actuarial valuation are the determination of the plan’s actuarial liabilities, actuarial value of assets, net unfunded liabilities, funding level and required cost. The cost typically is expressed as a percentage of the plan’s total payroll. Because employee contribution rates usually are fixed in statute, the valuation will determine the employer’s cost net of the employee contribution.


In sum, GASB’s ARC has served as the public pension community’s de facto funding standard since the mid-1990s, and is credited with significantly improving the funding level of many public pension plans and of the public pension community as a whole. (See the sidebar, “Pension Funding Policies, Practices Vary.”)

After several years of review, draft proposals, discussion and feedback, GASB in 2012 issued new standards for how public pension plans, and the states and cities that sponsor them, should calculate and report pension liabilities and costs. These new standards mark a fundamental shift in how public pensions are accounted for and reported in public sector financial statements.

Perhaps the most significant change in the new statements is their separation of accounting from funding. Where the old statements, via the ARC, served as a de facto funding standard, the sole focus of the new standards will be on accounting, not funding. As a result, no longer will actuarial valuations produce a single calculation that will be recognized as both a pension plan’s accounting and funding position. Rather, public pensions are likely to produce two sets of actuarial calculations—one to satisfy GASB requirements, the other to inform policy makers of the amount needed to fund the plan. (See the sidebar, “How Investment Return Assumption Influences Funding.”)

The incoming GASB standards, known as Statement 67 and Statement 68, will bring with them some new terms and concepts. Notably, basic financial statements prepared pursuant to the new standards will reflect solely the accounting condition of the pension plan, not its funding position. Thus, the new GASB standards will not require employers to change the way they fund their pension benefits. This is especially true for employers that have a history of funding their plan. For employers that have not consistently funded their plan, the new standards may result in greater scrutiny of the plan’s condition, which may cause the employer to strengthen its effort to fund the benefits.

For plans covering most public employees, in cases where the employer contribution rate is contractually required or actuarially determined, the new standards will require employers to disclose this information along with the actual contribution made. GASB will require that ten years of this historical information be presented.

The new GASB standards take effect in fiscal years beginning after June 15, 2014. Meanwhile, a group of public pension actuaries and a group representing public sector organizations are working to establish new funding guidelines to take the place of the outgoing GASB funding standards.

Keith Brainard is research director of the National Association of State Retirement Administrators (NASRA) in Georgetown, Texas. He collects, prepares and distributes to NASRA members news, studies and reports pertinent to public retirement system administration and policy. Brainard is co-author of The Governmental Plans Answer Book, Second Edition. He created and maintains the Public Fund Survey, an online compendium of public pension data sponsored jointly by NASRA and the National Council on Teacher Retirement. He previously served as manager of budget and planning for the Arizona State Retirement System and provided fiscal research and analysis for the Texas and Arizona legislatures. Brainard has a master’s degree from the University of Texas–Austin, LBJ School of Public Affairs.

Reproduced with permission from Benefits Magazine, Volume 50 Number 5, pages 42-46 May, 2013, published by the International Foundation of Employee Benefit Plans (www.ifebp.org), Brookfield, Wisconsin. All rights reserved. Statements or opinions expressed in this article are those of the author and do not necessarily represent the views or positions of the International Foundation, its officers, directors or staff. No further transmission or electronic distribution of this material is permitted. Subscriptions are available (www.ifebp.org/subscriptions). Print Friendly and PDF

Public Pension Funding 101: Key Terms and Concepts

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To understand how public pensions are funded, it is helpful to understand the key terms and concepts described in this article, the first in a two-part series.

New terms and concepts are entering the public pension lexicon, and a growing number of institutions are making changes in the way they measure public pensions. This article introduces some terms and institutions relevant to the funding of public pension plans. A second article, in the May Benefits Magazine, [from the International Foundation of Employee Benefit Plans (IFEBP)], will explain the processes used to calculate and implement the funding of public pensions.

Public pension funds hold and manage large sums of money—around $3 trillion in total. These assets are held in trust for more than eight million retired public employees and their surviving family members, and for some 15 million working employees of state and local government. As with other large pools of money, public pension assets tend to draw attention—from the media, policymakers, employee groups and others.

Although their assets are the side of the public pension business that seems to get the most attention, the starting point for understanding pension plans is not the money—it’s the liabilities. The reason the money is there, after all, is to finance the liabilities. Understanding how pension liabilities are financed is fundamental to understanding how public pensions work.

Key Terms and Concepts for Understanding Public Pension Funding Issues

Key terms and concepts are:
  • The basic retirement funding equation
  • Pension funding
  • Actuarial valuation
  • Normal cost
  • Amortization payment
  • Unfunded pension liability
  • Actuarial value of assets
  • Actuarial accrued liability
  • Funding period
  • Actuarial cost method
  • Actuarial assumptions
  • Pension funding policy

Many readers are familiar with the following basic retirement funding equation:

C + I = B + E

That is, contributions plus investment earnings equals benefits plus expenses. Stated differently, over the long run, the money that is paid out of a retirement plan must equal the money taken in. This equation applies to any type of retirement plan.

Pension funding is how a pension benefit is paid for. Most pensions are funded when liabilities are being accrued, meaning that assets are accumulated during an employee’s working life, typically through a combination of employer and employee contributions and investment earnings. Pensions also are normally funded on an actuarial basis, meaning that budgeting for the cost of the pension plan is determined through an actuarial valuation.

An actuarial valuation is the mathematical process of determining a pension plan’s condition, required contributions and liabilities. Most public pension plans have an actuarial valuation conducted annually, by an actuary or firm of actuaries employed by the plan.

Under current accounting standards, the funding condition of a public pension plan is expressed by its actuarial funding level, determined by dividing the actuarial value of the plan’s assets by its liabilities. For example, a pension plan with assets of $90 million and liabilities of $100 million would have a funding level of 90%. Beginning next year, revised public sector accounting standards will change the way public pension funding levels are calculated. (Public sector accounting standards are discussed further below and will be discussed in greater detail in the second part of this series.)

The annual contribution required to finance a public pension plan usually is expressed as a percentage of payroll. This contribution contains two components: the normal cost (the cost of benefits accrued in the current year) and the amortization payment, also known as the cost to amortize any unfunded pension liability (the amount needed to pay off any unfunded liability over the funding period).

The unfunded pension liability (or unfunded actuarial accrued liability) is the liability for benefits earned for which assets have not yet been accrued, the amount by which the actuarial value of assets is less than the actuarial accrued liability.

The actuarial value of assets is the market value as of the actuarial valuation date, usually adjusted for differences between the annual assumed rate of return and actual rate of return smoothed over a period of time (typically three to five years). This “smoothing” is intended to mitigate volatility in the contribution rate that would stem from short-term market value fluctuations. The actuarial accrued liability is generally the present value of benefits payable in the future to current retirees, beneficiaries and terminated vested members plus the liability for future benefits to active employees based on their service to the date of the valuation.

A pension plan’s funding period, also known as its amortization period, is the time frame over which an unfunded pension liability is retired, or paid off.

A pension plan’s liabilities commonly are financed based on an actuarial cost method, which determines how pension costs are allocated over the course of a plan participant’s working life. Current (outgoing) Governmental Accounting Standards Board (GASB) standards permit the use of six different methods. Most public pension plans use the entry age method, which is designed to produce an annual pension contribution that is a level percent of pay throughout the working life of a plan participant. New (incoming) GASB standards will require the use of only the entry age actuarial cost method.

An actuarial valuation relies on many actuarial assumptions, which are expectations about the plan’s future experience. Actuarial assumptions fall into one of two broad categories: economic and demographic. Economic assumptions are those pertaining to financial events, particularly rates of inflation, investment return and salary growth. Demographic assumptions refer to participant experiences, such as the age at which workers will retire and how long they’ll live after retiring.

The actuarial assumption with the greatest effect on the contributions required to responsibly finance the plan is the investment return assumption, which projects the return the retirement fund’s assets will generate over the next 20 to 50 years. The investment return assumption also plays a significant role in determining the present value of the plan’s actuarial accrued liability.

A pension funding policy is the collection of laws, rules and practices that govern the financing of pension benefits. Many employers (such as states, cities, school districts, etc., in the public sector) that sponsor a pension benefit have a pension funding policy. Among states and local governments that do, these policies are commonly structured to try to achieve at least three core objectives:

  • Accumulation of assets sufficient to pay promised benefits

  • Stability and predictability of cost

  • Intergenerational equity.

Public pension funding policies usually exist at least partly in statute and often are supplemented by policies maintained by the retirement system governing body that administers the pension plan. Many state funding policies require that pension benefits be funded by paying the normal cost plus the amount required to amortize any unfunded liability over a period of future years. The changes discussed below regarding accounting standards will increase the importance of funding policies for all public pension plans.

Key Organizations Relevant to Understanding Public Pension Funding Issues

To understand public pension funding issues, it is important to understand the roles of these organizations:

  • GASB

  • Bond rating agencies

  • Public retirement system

  • Public pension plan

  • Retirement fund.

GASB

GASB is responsible for establishing and maintaining standards for accounting and financial reporting by state and local governments in the United States. Although GASB does not have authority to enforce its guidelines, its standards largely define Generally Accepted Accounting Principles (GAAP), which establish the framework for accounting and financial reporting by state and local government in the U.S. Importantly, compliance with GASB standards is required in order for an independent auditor to provide a favorable opinion on the propriety of the information included in state and local government financial statements.

GASB standards cover a wide range of accounting activity, and these standards are reviewed and updated periodically. With regard to pension benefits, GASB maintains two sets of standards: one for public pension plans and one for public employers that sponsor pension plans.

Outgoing GASB Standards for Pension Accounting and Reporting

Until recently, the statements  in effect for public pensions were GASB Statements No. 25 and 27, which define what most observers of public pension plans know about public pension accounting.

One notable feature of these statements was that they conjoined public pension accounting and funding. That is, these statements permitted public pensions and the employer(s) that sponsor them to base accounting expense and disclosures on the results of actuarial valuations provided those valuations met certain parameters, with which funded plans had no trouble complying. Per the GASB statements, the selection of the actuarial assumptions and methods should comply with standards required to be observed by professional actuaries, known as actuarial standards of practice.

GASB maintained that the contribution to the plan was to be expressed as the annual required contribution (ARC). The ARC is defined as the sum of the normal cost, which is the cost of benefits accrued each year, and the cost to amortize the plan’s unfunded liability, which is the cost of obligations not funded. If the ARC is paid each year, and if other actuarial assumptions are reasonably correct, the plan would become fully funded at the end of the unfunded liability amortization period.

The amortization period is the time frame over which an unfunded pension liability—or surplus—is retired, or paid off. GASB 25 and 27 established a maximum amortization period of 30 years.

GASB required employers that sponsor a pension plan to report their net pension obligation (NPO) in their basic financial statements. The NPO is the cumulative difference between the employer’s ARC and actual contributions (plus interest on the previous year’s NPO). Thus, under outgoing GASB standards, an employer’s pension liability on the face of the financial statements is limited to any cumulative shortfall in its ARC payments (plus interest), and does not reflect the total unfunded liability accrued from other sources, such as shortfalls in the investment return or other unfavorable actuarial experiences such as participants living longer than expected.

Employers that had always paid their ARC had no pension obligation entry in their basic financial statements. Employers were required to disclose certain information pertaining to their pension plan in the Notes to their financial statements and Required Supplementary Information, such as a description of the plan, funding policy and schedule of funding progress.

GASB also permitted the use of one of six different actuarial cost methods. An actuarial cost method determines how pension costs are allocated during the portion of a plan participant’s working life. The six methods permitted by GASB under 25 and 27 were entry age, frozen entry age, attained age, frozen attained age, projected unit credit and aggregate cost. Most public pension plans use the entry age method, one that is designed to produce a pension contribution that is a level percent of pay throughout the working life of a plan participant.

New GASB Standards for Pension Accounting and Reporting

After several years of review, discussion, deliberation, preliminary views and exposure drafts, GASB in June 2012 finally issued its new statements for pension plans and the employers that sponsor them. The new standards take effect for fiscal years beginning after June 15, 2013 for pension plans and after June 15, 2014 for employers that sponsor pension plans.

Perhaps the most notable change in the new standards is the separation of pension accounting from pension funding. After years of serving as the de facto standard for how public pension plans are funded, namely via the ARC, why did GASB absolve itself from this role? The answer lies in the following language, contained in both Statements 67 and 68 (for pension plans themselves and the employers that sponsor them):

“The Board concluded that it is not within the scope of its activities to set standards that establish a specific method of financing pensions (that being a policy decision for government officials or other responsible authorities to make).”

This means that state and local governments will need to look elsewhere for guidance regarding how to fund their pension plans. Fortunately, groups of actuaries and public sector pension authorities are working to establish new guidelines for how public pensions should be funded.

GASB’s decision to remove itself from the process of how pension plans are funded means the organization will no longer serve as the basis for how employers determine their pension contributions.

Bond Rating Agencies

Bond rating agencies are organizations, usually in the private sector, that assess the credit quality of issuers of debt. In the public sector, these issuers are states, cities, school districts, etc. Bond-rating agencies typically assign debt issuers a grade that affects the entities’ cost of borrowing.

Most public sector entities sponsor one or more pension plans, and pension liabilities usually account for a material portion of these entities’ financial obligations. As a result, the condition of the pension plans and the ability of the plan sponsor to fulfill its projected pension obligations is an important consideration in evaluating the credit quality of issuers.

The largest bond rating agencies are Standard & Poor’s, Moody’s Investor Services and Fitch Ratings. These agencies publish the pension-related criteria they consider in establishing their ratings related to their effects on the credit quality of their sponsoring entities. The agencies consider certain factors to assess the credit quality of issuing governments.

For example, Standard & Poor’s measures four indicators of a pension plan’s health:

  1. Funded ratio

  2. Funding levels (pertaining to the plan sponsor’s ARC effort)

  3. Unfunded pension liabilities per capita

  4. Unfunded pension liabilities relative to personal income.

In July 2012, Moody’s solicited comments on four proposed adjustments to the way the agency measures pension obligations of public sector entities. These adjustments were:
  1. Allocating liabilities of multiple employer cost-sharing plans to specific government employers based on proportionate shares of total plan contributions. (This is consistent with a change approved in the new GASB standards.)
  2. Measuring liabilities using a discount rate (investment return assumption) based on a high-grade corporate bond discount rate (5.5% for 2010 and 2011)
  3. Use of the market value of assets rather than a smoothed, or actuarial, value
  4. Calculation of required pension contributions based on these changes and a common, 17-year amortization period.
Moody’s subsequently announced that it had received more than 100 responses to this request for comments, from a wide range of perspectives, and that it would consider the responses and communicate further in the ensuing months.

In 2011, Fitch announced that it would apply a uniform 7% investment return assumption to calculate the required pension contribution of plan sponsors. Fitch also announced that, like Moody’s, it would allocate costs to individual employers participating in cost-sharing multiple employer pension plans, and that it would reconsider its criteria after the new GASB statements have been issued.

Other Important Entities and Institutions

A public retirement system is the entity established by a state or local government to administer retirement benefits. Retirement systems typically are created by statute or legal code and governed by a board of trustees. This board is responsible for overseeing the collection of contributions and the payment of benefits; most retirement boards also are responsible for providing oversight of the investment of assets. Public retirement systems typically administer one or more pension plans.

A public pension plan is the legal structure of retirement benefits provided to employees, and administered by the retirement systems. A pension plan design refers to the framework of a pension plan, such as participation requirements, contributions, vesting requirements, benefit levels and methods of benefit distribution. Participation in pension plans often varies depending on an employee’s job classification (teachers and firefighters, for example, usually participate in different plans).

The retirement fund holds the assets accumulated in trust to pay pension benefits.

Keith Brainard is research director of the National Association of State Retirement Administrators (NASRA) in Georgetown, Texas. He collects, prepares and distributes to NASRA members news, studies and reports pertinent to public retirement system administration and policy. Brainard is co-author of The Governmental Plans Answer Book, Second Edition. He created and maintains the Public Fund Survey, an online compendium of public pension data sponsored jointly by NASRA and the National Council on Teacher Retirement. He previously served as manager of budget and planning for the Arizona State Retirement System and provided fiscal research and analysis for the Texas and Arizona legislatures. Brainard has a master’s degree from the University of Texas–Austin, LBJ School of Public Affairs.

Reproduced with permission from Benefits Magazine, Volume 50 Number 4, pages 28-33 April, 2013, published by the International Foundation of Employee Benefit Plans (www.ifebp.org), Brookfield, Wisconsin. All rights reserved. Statements or opinions expressed in this article are those of the author and do not necessarily represent the views or positions of the International Foundation, its officers, directors or staff. No further transmission or electronic distribution of this material is permitted. Subscriptions are available (www.ifebp.org/subscriptions). Print Friendly and PDF

Friday Top Five April 19 2013

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The Friday Top Five: A collection of the top five news articles, blog posts, or other retirement related information from the past week.

From Pension Dialog: Public Sector’s Pension Debate

From the PD post: "Last week, Public Sector Inc. hosted a fair, honest debate between Keith Brainard, research director at NASRA, and Jason Richwine, senior policy analyst at the Heritage Foundation. Their topic was, 'Are public pension systems on the road to recovery?'” They agree that pensions are recovering, but their argument, as PD points out, highlights some fundamental differences between pension plan administrators and economists of the day. You can read the full debate here.

From the National Institute on Retirement Security (NIRS): Will Public Pension Reforms Reduce Costs?

From NIRS: "The new study, “State and Local Pension Costs: Pre-Crisis, Post-Crisis, and Post-Reform,” examines a large sample of state and local plans.  It concludes that 'for most plans, the reforms fully offset or more than offset the impact of the financial crisis on the sponsors’ costs. … (For) the sample as a whole, pension costs as a share of state-local budgets are projected to eventually fall below pre-crisis levels.'”

From MarketWatch (WSJ): Assembling a Social Security Repair Kit.

This includes a 4+ minute video on the topics of "Implementing a “chained” CPI to slow the growth of retiree benefits (a proposal included in President Obama’s recent budget); investing some of the money raised from Social Security payroll taxes in the stock market; and making a wave of other changes in the eligibility age and the tax code."

Also From MarketWatch (WSJ): Is There Really a Retirement Security Crisis?

In this article Alicia Munnell of the Center for Retirement Research at Boston College writes about competing messages when it comes to retirement security. She says: "I personally believe, and more importantly all the work done at the Center for Retirement Research at Boston College suggests, that households are going to face real challenges in retirement.  Our National Retirement Risk Index projects that 53% of today’s working households are not going to be able to maintain their standard of living once they stop working.  Yet really smart economists who compare optimal savings with that reported in the Health and Retirement Study – a nationally representative longitudinal survey of older Americans – conclude that only a small fraction of households are behind in their retirement saving."

From Forbes: Why You Should Care About Your Employees' Retirement Plans

The author's advice to business owners: "Take a step back and look at your business’s retirement plan – is it doing everything you want it to do? If you feel employees are seeing it just as an “entitlement” maybe it’s because you’re treating it that way.  Could you be doing more?  Are you measuring it by the yardstick of how well the company is meeting its strategic and operation plan? Are you communicating and promoting the retirement plan? In this challenging economic environment, retirement plans have become the foundation in employee benefits.  Taking the time to review and evaluate now can translate to success in the future."


The views expressed by the writers of these pieces are entirely their own and do not necessarily reflect the views of MOSERS. Print Friendly and PDF

MOSERS - Not the Grocery Store

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The Ten Most Common Misconceptions about the Missouri State Employees' Retirement System (MOSERS)

OK, make that eleven, because no, we're not the grocery store! Though you'd be surprised how often we're mistaken for it. And there really are more than just 10 misconceptions that we hear fairly regularly. There are numerous examples of questions from members and inquiries from the public which suggest that what we do at MOSERS remains somewhat of a mystery to some people.  To be fair, managing an $8 billion public pension fund is complex, but we make every effort to be transparent in our actions and reduce complexity where possible.

Misconception One: Members of the MSEP 2011 can opt out of the required 4% contribution.

Members of the MSEP2011 make a mandatory 4% contribution of salary by payroll deduction. Members cannot opt out. You are a member of the MSEP2011 if you were employed for the first time in a MOSERS benefit eligible position on or after January 1, 2011. Your 4% payroll contribution is combined with state (employer) funding and investment returns to fund your retirement. The changes that were made in the implementation of the MSEP2011 were designed to help the state of Missouri continue to provide financial security for all members by maintaining the defined benefit (DB) plan structure. It is important to point out that the state's DB plan was preserved for all state employees, current and future. If you are a member of MSEP2011, visit our website for more information on your retirement plan.

Misconception Two: It's not worth my time or effort to participate in the State of Missouri Deferred Compensation Program, especially since the state no longer makes a contribution to encourage participation.

Whether or not the state of Missouri also contributes to your deferred compensation account, there are still many plan components that are beneficial to you as you prepare for a financially secure retirement. The Plan offers several investment options, including the easy "set it and forget it" Target Date Funds. Designed for participant success, these funds offer an all-in-one investment strategy that automatically shifts over time as you move toward — and through — retirement. They are simple, smart, affordable, maintenance-free, and will stay focused on your retirement goal, even when you’re not. Other great components of the Plan include:

  • quick online enrollment at www.modeferredcomp.org
  • easy payroll deductions
  • the availability of before- and after-tax (Roth) savings options
  • competitively low fees
  • local educational specialists with over 80 years of combined service with the deferred compensation plan
  • penalty-free access to your contributions after you separate from service (unique to 457 plans)
  • free seminars and consultations across the state
A key to success in investing for retirement is to start as soon as you can and contribute as much as you can to a tax-favored account. Investing discipline today equals more freedom in retirement.

Misconception 3: I can't be working full-time in non-state employment after my retirement from the state and receive a retirement benefit from MOSERS at the same time.

Employment in a non-state position following retirement will have no impact on your MOSERS benefits. If you retire and later return to work for the state of Missouri, in a benefit-eligible position covered by MOSERS, your retirement benefit will be stopped. Your employer determines if you are working in a benefit-eligible position. Working for the state in a position that is not deemed benefit-eligible does not have any impact on your eligibility to continue receiving a retirement benefit. You may work in that position and receive a retirement benefit from MOSERS.

Misconception Four: If I take early social security (such as at age 62) it will negatively impact my MOSERS benefit.

No other benefits impact your MOSERS benefit.  Whether MOSERS benefits impact any other benefits you may receive or be eligible for is a question for the other benefit administrators. However, taking early social security at age 62 will NOT negatively impact your MOSERS benefit. Under the MSEP2000 provisions, members who retire under Rule of 80 (or Rule of 90 for MSEP2011) receive a benefit for life plus a temporary benefit payable to age 62 – that temporary benefit is intended to provide a financial bridge from the time the member retires until reaching eligibility for social security retirement benefits.

The federal law that gradually raised the age to receive full Social Security benefits was enacted in 1983, but the age for early Social Security eligibility remained at age 62. The MOSERS temporary benefit became law on 7/1/2000 and was designed to serve as a bridge between your MOSERS retirement and your eligibility for early Social Security benefits. At age 62 the temporary MOSERS benefit stops and Social Security benefits, if you choose to take them, replace the temporary benefit.

Here is a link to the Social Security Administration’s website where you can find your full retirement age, as well as what benefits you are eligible for from them at age 62.

Misconception Five: If I work longer than five years past my first eligibility date for normal retirement I will lose my opportunity to take the BackDROP.

BackDROP amounts are based on the time worked after your normal retirement date. You may work more than five years beyond normal retirement eligibility, but the maximum BackDROP is limited to five years prior to your actual retirement date. Your benefit amount is based on years of service and average pay, so typically the longer you work, the higher your benefit amount.

It is possible under the MSEP2000 that your BackDROP amount could decrease the longer you work beyond age 62. The MSEP2000 has a temporary benefit amount that is included in both the monthly benefit and the BackDROP distribution. By law, this benefit cannot be paid after age 62. The longer you work beyond age 62, the less temporary benefit is calculated into your payment.

For example, consider a member who was eligible to retire under the Rule of 80 at age 55: If this member retired in 2014 at age 60, and elected a 5 year BackDROP payment, 5 years of temporary benefits would be included in the payment (since the member was under age 62 during the entire BackDROP period.) If this member retired in 2020 at age 66 there would be 1 year of temporary benefits and 4 years without the temporary benefit (the member was 61 at the beginning of the BackDROP period). If this member retired in 2024 at age 70, no temporary benefit would be included in the BackDROP payment (the member was older than 62 during the entire BackDROP period). The less the temporary benefit the smaller the BackDROP payment could be. However, by working longer the member is gaining additional salary and service credit which will result in a larger benefit payment for life.

Misconception Six: MOSERS has a direct connection to the Missouri Consolidated Health Care Plan (MCHCP).

Prior to January 1,1994, MOSERS and MCHCP were one organization. HB 1574, which passed in 1992 with a delayed effective date and signed by then Governor John Ashcroft, split the two agencies apart, so MOSERS no longer has a direct connection to MCHCP. Each is now a stand-alone entity. Of course, both agencies manage important aspects of our members' employee benefits package, and there are many instances of MOSERS and MCHCP working together to ensure that we provide accurate information to our members on these two very important benefits, including our PreRetirement Seminars, our NEW-B Webinars and our annual Benefits U Conference for agency human resources representatives.

Misconception Seven: My MOSERS benefit can run out before I die.

Your MOSERS retirement benefit will not run out before you die. Your MOSERS pension, a defined benefit (DB) plan, is paid for life. No matter how long you live, what retirement options you take, whether or not you take BackDROP (if applicable), no matter who your survivors or beneficiaries are, you will receive a benefit every month for the rest of your life.

Misconception Eight: Benefits paid to Missouri state retirees are overly generous.

Generally speaking, the state’s retirement benefit package, which consists of MOSERS and social security, is designed to replace approximately 75 percent of a career employee’s final average pay (with a career employee considered to be a member with 30 or more years of service). Additional personal savings through programs such as the State of Missouri Deferred Compensation Plan can add to retirement income security. MOSERS retirees receive a retirement benefit based on a formula which uses the member’s final average pay, years of service and a multiplier of 1.7% (the formula for MSEP includes a 1.6% multiplier). The average monthly benefit payable to new state retirees (as of July 30, 2012), was $1,168 per month or $14,016 per year. The average age at retirement was 60.8 years.

Defined benefit (DB) pensions are often the only source of income for many people. They are designed to provide a modest, yet reliable income stream to help reduce the rate of poverty among the elderly. According to the National Institute for Retirement Security (NIRS), in 2010, about 4.7 million older households would have been added to the count of poor or near-poor households if not for their receipt of DB pension income.

Misconception Nine: There is little public value in a traditional Defined Benefit pension plan.

The annual pension benefits paid to state retirees provide a steady, continuous and significant stimulus to Missouri’s state and local economies. Nearly 90% of state retirees remain in the state after retirement. MOSERS distributes over $600 million annually which flows into households of over 33,000 retirees and beneficiaries who buy basic goods and services in our local communities. Click here to see the economic impact MOSERS has on your legislative district.

Defined benefit (DB) plans such as MOSERS have a significant impact nationally as well, in the creation of millions of American jobs and over $1 trillion in economic output. Additionally, a July 2012 research report from the National Institute on Retirement Security (NIRS), showed that defined benefit (DB) pensions play a large role in reducing elder economic hardships such as food, shelter and/or healthcare insecurities.

Misconception Ten: MOSERS does nothing but suck limited resources from public coffers, making it more difficult to fund other worthy government programs.

In general, payments to public pension systems account for a very small percentage of state budgets. However, there are state pension funds that are in financial trouble. The good news is that MOSERS is NOT one of them. In FY13, the state of Missouri's contribution to MOSERS accounted for only 1.14% of the state's total budget. The majority of MOSERS' funding is not from state taxpayers. Rather, it is from its better than average long-term investment returns. For a small investment, Missouri taxpayers get a better bang for their buck because MOSERS is not your average pension fund.

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Friday Top Five April 12 2013

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The Friday Top Five: A collection of the top five news articles, blog posts, or other retirement related information from the past week.

From MarketWatch: For Women Only: 4 Retirement Planning Musts

From the article: "Women, when you are planning your retirement the fact is many of the decisions you make will have a bigger impact on you than on your male counterparts. Here are four things you can do to incorporate planning decisions that are right for you."

  • Career Based Decisions

  • Investing Decisions

  • Social Security Claiming Options

  • Long-term Care

From InvestmentNews: No Limit to Confusion Over Social Security Earnings Cap

Recently Mary Beth Franklin, InvestmentNews' retirement guru did an interview on NPR's Morning Edition that she says has "touched off a flood of e-mails and phone calls from consumers." This article touches on the social security earnings cap and the confusion the topic caused with some of the NPR listeners. Here is a transcript of the NPR interview with Mary Beth Franklin, on deciding the right time to claim social security.

From PlanAdviser.com: Health, Retirement Benefits Link is Strong

This article from PlanAdviser.com discusses several intersections between health and wealth, including "the impact of current health care costs on participants' ability to save for retirement," and "the employer impact of an aging workforce that is unable to retire due to a lack of savings and/or the need to retain employer-provided health care insurance."

From the Squared Away Blog at Boston College: Unemployed Boomers Resist Retirement

From the article: "Nearly three years after the Great Recession officially ended, more than 900,000 baby boomers laid off several months or years ago are still pounding the pavement, unable to find employment in an economy that produced only 88,000 jobs in March.  They simply are not ready to retire – financially or emotionally – but they often feel that unemployment is forcing them to do so prematurely."

See their follow-up post also: Jobless Boomers: How They Survive

From Huff/Post50: Women's Retirement Planning Woefully Inadequate, Study Finds

A recent study by the Transamerica Center for Retirement Studies finds that "nearly half of baby boomer women have no retirement strategy, while more than half either expect to work after 65 or simply do not plan to retire." From the article, the main key findings of the study are:

"-- Only 14 percent of baby boomer women have a written retirement strategy. Some 45 percent do not have a plan at all while 41 percent have a plan that's not written down.

-- About 36 percent of baby boomer women expect to rely on Social Security as their primary form of income in retirement. Another 36 percent expect to rely on 401K plans while the rest expect to rely on a mixed bag of savings and assets.

-- Of the women who expect to rely on Social Security, only 34 percent say they know "a great deal" or "quite a bit" about their Social Security benefits.

-- About 61 percent of baby boomer women expect to work after 65 or simply do not plan to retire.

-- Only one in five baby boomer women who expect to keep working have a backup plan if retirement comes sooner than expected."

The views expressed by the writers of these pieces are entirely their own and do not necessarily reflect the views of MOSERS. Print Friendly and PDF

Reemployment After Retirement at MOSERS and MPERS

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I am preparing to retire. I am also considering another position that is covered under MPERS. I have been informed that as a MOSERS employee, I can not be employed full time in a MPERS covered position. I know that there has been two MPERS retirees employed by our agency in the last year or so. Why is this so?
Reemployment after retirement is not prohibited, however, whether or not you are entitled to continue receiving your MOSERS benefit is determined by law.  The statute governing such can be found here.  Basically, if you retire and then become employed in a benefit eligible position covered by the MoDOT and Patrol Employees’ Retirement System (MPERS), your MOSERS benefit will be stopped until you retire again.

However, retirees of MPERS do not have the same statute, therefore, it does not prohibit them from being reemployed elsewhere.

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Friday Top Five April 5 2013

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The Friday Top Five: A collection of the top five news articles, blog posts, or other retirement related information from the past week.

From Pension Dialog: What about Retirement?

April 2 was National Employee Benefits Day, and our friends at PensionDialog wrote this blog post "to consider the critical recruiting and retention tool of retirement."

From the Center for Retirement Research at Boston College: Do Income Projections Affect Retirement Saving?


The brief’s key findings are:

  • One barrier to saving may be ignorance about how it translates into retirement income.


  • A recent study conducted a field experiment to see whether providing workers with retirement income projections affected the amount they saved.


  • The results show that such projections, accompanied by information on retirement planning, could modestly increase saving.

    • The experiment’s positive effect on saving works, in part, by boosting individuals’ knowledge and confidence.

    • But its effect on saving is limited among those with who have difficulty paying bills, prefer to “live for today,” or tend to procrastinate.


From PlanSponsor: State DC Plan Sponsors Offer Financial Education

PlanSponsor reports on a survey that "found all public defined contribution (DC) and hybrid plans offered some sort of financial education and/or advice to employees." The article summarizes the results. The State of Missouri Deferred Compensation Plan has been awarded "2013 Plan Sponsor of the Year" by PlanSponsor magazine. MOSERS was named "Public Plan Sponsor of the Year" by PlanSponsor in 2008.

From NPR: Deciding The Right Time To Claim Social Security [audio]

The importance of making smart decisions on how and when social security benefits are claimed can't be underestimated. This NPR story from 4/2 examines questions of when to begin to receive social security benefits, and the impact of choices on married couples and divorce.

From The National Retirement Planning Coalition: Retire On Your Own Terms

From their website: "The National Retirement Planning Coalition was formed by a group of prominent education, consumer advocacy and financial services organizations to raise public awareness of the need for comprehensive retirement planning. The Coalition recognizes that the need to educate Americans on retirement planning is an ongoing effort and is committed to making this a national priority."

The views expressed by the writers of these pieces are entirely their own and do not necessarily reflect the views of MOSERS. Print Friendly and PDF

Retirement Benefit as Income Replacement

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Thank you for all your answers to our questions: My feeling of why the State of Missouri's retirement fund is NOT in trouble as other states are is that the state is not only the lowest paying/compensating state but also one of lowest in benefits that includes the retirements. Compared to other states well...wow wonder how we will make it in retirement. Thank you. 
We are always happy to answer questions and respond to our members. You are correct. The Missouri State Employees’ Retirement System (MOSERS) is NOT in trouble. The defined benefit (DB) plan administered by MOSERS was designed so that a 30-year career employee could expect a benefit of about 75% of salary from MOSERS and Social Security. Social Security and personal savings are necessary to achieve the target of 75% of salary.  MOSERS retirees receive a retirement benefit based on a formula which uses the member’s final average pay, years of service and a multiplier. This provides a modest, yet reasonable, benefit payout for our retirees.

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Divorce and Your Retirement Benefit

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If someone gets divorced, why is the spouse entitled to half of the state employee's retirement? If so, when did this become effective? Is the "ex" also entitled to half of the backdrop and/or deferred comp? Thank you
Division of Benefits became effective August 28, 1994. Section 104.312 RSMo permits the division of MOSERS retirement benefits in the event of a divorce. This law allows MOSERS to pay a portion of pension benefits directly to a former spouse at the time a member begins receiving payments from MOSERS.

Before we can divide a benefit, a court of competent jurisdiction must issue a Division of Benefits Order  (DBO). According to the law, the court may award an ex-spouse up to 50% of the benefit accrued during marriage.

The ex-spouse will not be eligible to receive formula increases. the temporary benefit, or any portion of a BackDROP payment (if applicable).

For more information, please review our "Divorce and Your MOSERS Benefit" brochure.
While MOSERS has assumed oversight of the State of Missouri Deferred Compensation Plan, it is administered through ICMA-RC. You can reach a representative by phone at 800-392-0925 or online at www.modeferredcomp.org.

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