Showing posts with label MOSERS Investment Portfolio. Show all posts
Showing posts with label MOSERS Investment Portfolio. Show all posts

MOSERS' Funding Ratio

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So I read on here that the Funding Ratio for Mosers was around 82% in June of 2010. Looking at the most recent Fund Ratio:59% (correct me if I’m wrong). Should I be concerned about this considering the 20-22% drop in just 8 years when I plan on retiring in 28 years? What is the reason for this significant drop?
If the drops related to poor investments why when the overall market has recovered and has been doing well during this period?
If because of liabilities continue to grow faster than contributions/investment returns what steps are being taken for this? Is the lump sum option presented to former employees that left the state going to help this?
-If it continues to go down wont employee/employer contributions continue to go up? The employer contribution rate has steadily been rising correct? Isn’t this a bad sign for sustainability of the fund?
What steps are being taken to prevent the pension fund from ending up like California or Arizona in the next decade or so? Is any research being done in relations to these funds on why they are failing and how to prevent similar outcomes for Missouri? I’m just asking as I have been very concerned for my future retirement as I’m sure many others are.
Thank you for your insightful questions and your interest in these very important topics. 

Certainly, one factor that spurred the decrease in MOSERS’ funded status was the Great Recession of 2009. In our fiscal year 2010 annual report (FY10 CAFR), it says, “During the year ended June 30, 2010, the funded ratio (of …the MSEP…) decreased from 83% to 80.4%, primarily as the result of the previous years’ unfavorable investment experience” (p 12 FY10 CAFR).

Consequently, Missouri was among the first of many states to pass legislation making changes to their retirement benefits. In 2010, the Missouri General Assembly created the MSEP 2011. By requiring employee contributions and increasing the retirement eligibility age (among other changes), this action assists in long-term plan sustainability, retained the defined benefit retirement plan structure for state employees, and provides stability for future generations. While the impact of these changes will grow over time, as of January 30, 2019, already 45.72% of active state employees are in the MSEP 2011.

However, the primary reason that MOSERS’ funded ratio has dropped so significantly is that our Board of Trustees has taken action over the past four years to incrementally reduce our assumed rate of return (ARR) on investments. This reduction is to more accurately reflect capital market expectations. The Board has also indicated their intention to further reduce the ARR going forward:

MOSERS Assumed Rate of Return
•         Effective 6/30/2011: 8.5%
•         Effective 6/30/2012 - 6/30/2015: 8.0%
•         Effective 6/30/2016: 7.65%
•         Effective 6/30/2017: 7.5%
•         Effective 6/30/2018: 7.25%
•         The MOSERS Board has indicated an intention to reduce the ARR to 7.10% for the June 30, 2019 actuarial valuation.
•         The MOSERS Board has indicated an intention to reduce the ARR to 6.95% for the June 30, 2020 actuarial valuation.

Your MOSERS Board of Trustees is actively engaged in prudent analysis, plan sustainability, and benefit security for members. The Board's recent decisions to reduce the assumed rate of return on investments automatically result in higher employer contributions and a lower funded status in the short term but work to ensure MOSERS’ sustainability over the long term. Each year, the MOSERS Board certifies an employer contribution rate which results in an appropriation request within the state budget. The employer contribution is calculated by our external actuary as the amount needed from the state, as the employer, (in addition to investment income and employee contributions) to systematically and appropriately pay current and future benefits. In other words, if we assume that, in the future, we will receive less income from investments and not change employee contributions, the difference must come from increased employer contributions.

As you inquired about, the voluntary Buyout Program, authorized by state law, was offered by the MOSERS Board of Trustees in 2017 and 2018 to eligible vested former state employees of the system in an effort to reduce MOSERS pension liability. It eliminated $41 million in net liability for the system.

Additionally, our investments staff reduced investment fees by $36 million in FY18 and the MOSERS Board adopted a new asset allocation, which began in January 2019 and will be fully implemented over a 36-month period. While MOSERS’ investment returns have not always met assumptions in recent years, our long-term investment results, of 9.4% (since first tracking this data in 1981), exceed our current assumed rate of return. This, combined with the new investment portfolio, put us in a good position to meet our assumptions in the future.

It is important to remember that a pension system, such as MOSERS, operates on a very long-term time horizon. While our actuaries expect that employer contributions will increase and our funded status will decrease over the next few years, they also expect that throughout your career, our funded status will improve and MOSERS will be well-funded by the time you retire – allowing us to keep our promise of helping to provide retirement security for you and all of our other current and future retirees.

For more information on the above, see our FY18 Summary Annual Financial Report and our Actuarial Valuation Report as of June 30, 2018 (p 32, column 6). 

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Sustainability of MOSERS

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I have recently read articles that indicate a decline in MOSERS viability, ie. their ability to cover promised benefits into the future. I am also concerned about the increased incentives for early retirement. So I wonder how much I should be concerned.
There have been no recent incentives for early retirement for active state employees. Any such incentives would require legislative action.

With regard to MOSERS’ ability to cover promised benefits into the future, we received a similar question and have a May 1 post about MOSERS’ funding status on Rumor Central. As of June 30, 2017, retirement benefits for general state employees are 67.5% pre-funded. Money to pay retirement benefits comes from:

employer contributions
employee contributions (if first employed on or after 1/1/2011), and from
investment returns.

Over that past 20 years, 61% of the assets in the MOSERS Trust Fund have come from investment returns. Beginning in FY17, the MOSERS Board adopted a funding policy to gradually lower MOSERS’ investment return assumption. This more accurately reflects capital market expectations and confirms the Board’s commitment to sound financial practices. (In other words, the board decided that we should expect less income from investments. So, the income that we are not expecting from investment income will have to come from the employer/the state.) It results in higher annual employer contribution requirements (and a lowered funded status) in the short-term. However, it is the board’s expectation that these changes will strengthen MOSERS’ financial position and will ultimately enhance the retirement security of our members. (See Chairwoman’s Message for more information.)

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MOSERS' Funding Status

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What is the status of the MOSERS fund? My wife heard on the radio that it is in fiscal trouble. Could you tell me the fund status or direct me to a site where I can review it's status. 
 As of June 30, 2017, retirement benefits for general state employees are 67.5% pre-funded. This information is contained in our Comprehensive Annual Financial Report. It was also included in our Summary Annual Financial Report, an insert in the fall/winter 2017 issue of our RetireeNews and PensionsPlus newsletters.

Money to pay retirement benefits comes from employer contributions, employee contributions (if first employed on or after 1/1/2011), and from investment returns. Over that past 20 years, 61% of the assets in the MOSERS Trust Fund have come from investment returns. Beginning in FY17, the MOSERS Board adopted a funding policy to gradually lower MOSERS’ investment return assumption. This more accurately reflects capital market expectations and confirms the Board’s commitment to sound financial practices. It results in higher annual employer contribution requirements (and a lowered funded status) in the short-term. However, it is the board’s expectation that these changes will strengthen MOSERS’ financial position and will ultimately enhance the retirement security of our members. (See Chairwoman’s Message for more information.)

While the dollar amount has increased, retirement benefits remain 1.5% of the total state budget. This is the same percent of the total state budget in FY2019 as it was 20 years ago in FY1999. For the past 60 years, the state of Missouri has honored its commitments to state employees and consistently funded the employer contributions recommended by our actuaries.


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Employer & Employee Contributions to MOSERS

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Where is the money that employees and employers pay into the MOSERS retirement fund deposited and invested? 
All funds are held in trust to pay benefits and administer the pension fund. Member contributions are tracked by person while employer contributions are pooled. Funds needed to pay benefit payments and current bills are held in a local bank account while all other funds are invested to produce the primary source of revenue for the pension system.

The MOSERS investment portfolio is diversified across a myriad of asset classes and investment strategies to mitigate the potential impact of negative economic circumstances. The Total Fund Allocation chart below reflects the actual percentage of the total investment portfolio by specific asset class at June 30, 2016. This asset allocation is built on the belief that diversification is critical in achieving consistent, high, long-term, risk-adjusted investment returns. Please see the Investments section of our annual report and the Asset Allocation page of our website for additional information.


Total Fund Allocation  Policy vs. Actual (As a Percentage of the Total Fund) 



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Stock Market Impact

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How are the continued drops in the stock market impacting our retirement system?
First, MOSERS is a "defined benefit" plan and, as such, your retirement benefit amounts are not impacted by financial market volatility. The benefits provided to retirees are obligations of the State of Missouri.

Money comes into the fund in two ways 1) Contributions - by the employer and from employees in the MSEP 2011 and the Judicial Plan 2011, and 2) Investment earnings. The two are linked. Over the past 30 years, investment earnings have accounted for approximately two-thirds of MOSERS’ revenues. This saves money for the state, but regardless of investment returns, your benefit is secure because it is an obligation of the state.

Investment market activity has an impact on the state’s annual contribution (as the employer) to MOSERS. The annual contribution rate is approved through the appropriations process. When the market and investment earnings drop, the state’s annual contribution to MOSERS (as computed by MOSERS’ actuarial professionals) may increase. While in any one year, the annual contribution could increase or decrease, the financing pattern over time is fairly consistent and tends to stay within a relatively narrow range. This is by design. MOSERS is structured, by law, to maintain a stable contribution range to mitigate swings in the cost to the state and to fund MOSERS benefit programs over time.

While we are disappointed with our short-term decline in value, it is important to keep in mind that MOSERS is a long-term investor. Our number one investment belief is that diversification is critical because the future is unknown. Over the last few years we have been taking steps to diversify the portfolio well beyond what most institutional investors consider to be mainstream (e.g. excessive reliance on the stock market). The longer-term story (in spite of FY15) exemplifies our patience, fortitude, and willingness to lean against the wind – all qualities which are cornerstones of our success over the years. For additional information, see the 2015 Chief Investment Officer Letter from our most recent Comprehensive Annual Financial Report. Print Friendly and PDF

Will MOSERS retirees be able to the MOSERS Investment Portfolio (MIP)?

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Will MOSERS retirees with investments in the Deferred Compensation Plan be able to [invest in] the MOSERS Investment Portfolio (MIP) which was discussed on Rumor Central?
I called 1-800-827-1063 and was directed by the recording to select the subject I wished to discuss. I chose "Deferred Comp" and was re-directed to the new plan administrator. Would my first question be within the new DC Plan administrator's purview?
As long as a MOSERS retiree has a balance in the deferred compensation plan in either the 457 or 401(a) plan, he/she will have the ability to invest in the MIP option when it becomes available as it will be an option in the investment line-up similar to the target date funds, stable income and brokerage option.
At this time and considering that the “behind the scenes” programming is just getting underway for this offering, and we have yet to communicate with Plan participants, the plan administrator call center representatives are not equipped with the MIP specifics. Once the initial fund information and roll-out date is communicated with Plan participants in April on the Plan website and in the Plan quarterly newsletter, the Plan administrator call center representatives will be able to answer questions on the new addition.

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The MOSERS Investment Portfolio (MIP) Fund

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Awhile back, we received this question: Now that the Board established a trust fund, when will deferred comp members be able to invest in MOSERS?
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 www.modeferredcomp.org and the plan’s quarterly newsletter - Simply Put
More recently, we received this question: Do you have any additional information on the investment option described.
The response to the follow-up question is below:
We are still waiting on a definitive “live” date confirmation, but we expect that it should be live by the end of the second quarter, assuming that all programming/testing goes as planned. Assuming this timing, Plan participants will see communications on the fund in the first quarter newsletter (which will accompany the March 31st statement) and on the plan website (www.modeferredcomp.org) in April.
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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 www.modeferredcomp.org 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 (https://ess.mo.gov/Common/HomePage.aspx), 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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