Showing posts with label financial market. Show all posts
Showing posts with label financial market. Show all posts

What Happens to the MOSERS Fund in the Event of Another Stock Market Crash?

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What would happen to the pension fund if the stock market collapsed?
Perhaps a better way to frame your question would be, “What would happen to the pension fund if the stock market collapsed again?” Two times since the turn of the century, the broad US stock market declined by over 40% -- once at the beginning of the century and again in the 2008-2009 time frame. By most standards, both of those could be thought of as a collapsing stock market and, despite those events, all MOSERS’ benefits have continued to be paid in full.
One of the greatest priorities of the MOSERS Board of Trustees, with advice from the internal investment staff and our asset consultant, is the diversification of the MOSERS portfolio and the appropriate mix of stocks, bonds, and other assets to provide risk reduction and enhance the performance of the total fund.
MOSERS’ portfolio is diversified among a myriad of investments and investment strategies. The objective of this diversification is to provide risk reduction in a variety of market/economic environments. While a portion of the portfolio may experience market downturns in any given period, the mix of assets with their unique characteristics allows the fund to “weather” these downturns more easily. We have a portion of the fund allocated to investments that are not dependent on the returns generated by the stock market. Some examples are core fixed income (bonds), commodities, timberland, private equity, and Treasury Inflation Protected Securities (TIPS).
You can read more about MOSERS asset allocation here and the investment performance here. It is important to keep in mind that MOSERS is a long-term investor and, as such, stays focused on long-term investment objectives.
But most importantly for you, MOSERS is a defined benefit plan, meaning that unlike individual investment accounts, your benefits are not impacted by financial market ups and downs. Your benefit amount is based on your length of service and salary history using a formula that is defined by Missouri law. Consequently, your benefit amount is not impacted by volatility in the financial markets.
Regardless of investment returns, your benefits are secure. The benefit formula is established by law and contributions to the fund are an obligation of the State of Missouri. The MOSERS board and the staff are committed to managing the trust fund assets with the utmost care, professionalism and prudence.
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Financial Health of Plan

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Recently we’ve heard from members in the field who’ve expressed concern about the financial health of MOSERS. Hearing of the System’s 84% funded status has raised questions among some members who then wonder if this will impact the state’s contribution rate for FY2012. Some are even hearing rumors that the contribution rate would be 20% next year, and the difference (between the FY2011 rate of 13.81% and 20%) would be paid by the employee.
First, and most importantly to you, no employee contributions are being considered for present employees. We are definitely on an economic roller coaster ride, but our returns are exceeding expectations so far this year. The state’s contribution rate, which was certified by the MOSERS board for FY 2011 to be 13.81% of payroll, fully recognized our funding ratio of 84% (which is viewed by the industry as a healthy position). We have no idea what would have prompted someone to suggest that the rate is going to 20%.
These and other rumors may have stemmed from press reports on the recent Pew report. That report, unfortunately, had a misleading title, and the data they used included the Public School Retirement System’s (PSRS’) liabilities in their calculation. There are still a few PSRS members who are state employees and because of that the preparers of the Pew report included PSRS’ total liabilities in their report on the state of Missouri. That’s not just misleading – it’s simply wrong. You can read MOSERS’ response to the Pew report
Also, the state cannot require contributions from any employees without a change in the law. SB 714 (which is now also attached to HB 2357) has a provision which would require a 4% of pay contribution rate for new employees only, who are hired for the first time on or after January 1, 2011. While the University of Missouri recently established a contribution rate for current employees, their plan specifically allows the Board of Curators to make those types of changes without a law change. Our statutes do not.
The fact that the funded status is not higher than it is currently can reasonably be attributed, in part, to significant benefit increases that have been enacted over the years. Benefit changes enacted in the 1990s that resulted in material increases in unfunded liabilities are described below.
Benefit Changes Since 1992

  • 8/28/94 - Permanent Rule of 80 adopted (It had previously been put in place for a one
    year window period commencing 8/28/92)
  • 1/1/95 - Benefit multiplier increased from 1.5% to 1.6% (applied to active and retired
  • 8/28/97 - COLA made permanent for life rather than temporary period (applied to active and retired members)
  • 8/28/97 - “Free 50” survivor benefit enacted (applied to active and retired members)
  • 7/1/2000 - Year 2000 Plan became effective but this was cost neutral. (However, the
    other changes identified here resulted in significant additional liabilities and related
    contribution rate increases.)
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Effect of Financial Market Turbulence on MOSERS' Benefits

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I have heard the financial meltdown now happening has caused Mosers a lot of losses, how will this affect our retirement?
Many retirees and employees have asked us if the current financial market turbulence will have a negative impact on their MOSERS retirement benefits.
It is important to understand that our retirement program is a “defined benefit” plan. The MOSERS retirement benefits are “defined” by Missouri law and are based on your years of service and final average pay. (Benefits are not based on the earnings of the plan as would be the case if it were a defined contribution plan.). The State of Missouri, as the employer, is obligated by law to make the contributions to MOSERS that are necessary to fund the promised retirement benefits. Regardless of the MOSERS investment returns, your retirement benefits are secured by law.Our Executive Director posted the following feature on our website to address current financial market and investment return concerns of our members.
Executive Director Message – “Your MOSERS Benefits Are Secure Print Friendly and PDF