Missouri’s public employee pension system faces a “crisis,” with the state on the hook for benefits costing at least $4 billion more than what the state is prepared to fund.
That’s according to state Treasurer Eric Schmitt, who presented takeaways from a 50-page annual report on the Missouri State Employees Retirement System, or MOSERS, to a panel of lawmakers last Wednesday.
“This crisis is no longer on the horizon; it is at our doorstep,” Schmitt told the Joint Committee on Public Employee Retirement. “The future of Missouri’s finances are at stake and this is a conversation we need to have.”
Schmitt also presented the findings of his office’s own analysis, which shows MOSERS pays some of the highest investment fees in the country, yet, consistently, its investment returns fall short of expectations.
“Investment fees are another part of the problem,” Schmitt said.
In 16 of the past 17 years, returns earned on the pension fund, which delivers benefits to most state employees, have fallen short of the bar set at the beginning of the fiscal year.
Schmitt, a Republican who took office in January, said his staff analyzed 135 public pensions nationwide which disclosed their actuarial assets and their investment expenses.
Of the 135 funds, the five Missouri funds analyzed all rank in the top 10 of funds which pay the most investment fees in relation to assets.
According to the analysis, MOSERS, with $8.87 billion in actuarial assets, paid $77.8 million in investment fees last fiscal year. The fund earned a 3.45 percent return, far below the 7.65 percent goal laid out, according to the MOSERS report.
The pension funds for Missouri State Highway Patrol and Missouri Department of Transportation retirees, Missouri teachers and local and county workers also pay more investment fees in relation to assets than nearly every other fund analyzed.
Because of MOSERS’ unrealistically high projections on investment returns, the Legislature has appropriated less money than it should be appropriating, Schmitt said. Each year, the Legislature appropriates money to the pension system by setting what is known as a contribution rate.
“Past administrations have tried to keep the MOSERS contribution rate artificially low by artificially inflating the MOSERS assumptions,” Schmitt said.
The contribution rate has still grown steadily.
This year, for the first time, the contribution rate is expected to surpass 20 percent. That means for every $100 an employee earns, the state agency where the employee works pays in $20 to the pension system.
Schmitt also said the amount the state owes current and future retirees is growing — at the same time the amount of assets the fund has shrank over the last year.
In 2004, MOSERS paid out $324.6 billion in benefits and had nearly 56,000 active members. The figure has grown steadily throughout the last decade. Last fiscal year, MOSERS paid out $710.2 billion in benefits and only had about 49,000 active members.
The treasurer’s office attributes the growth to an increase in state payrolls, failure to meet investment assumptions and a 4 percent cost-of-living increase received each year by members who joined the retirement system before the year 2000.
The market value of the state’s pension fund shrunk over the last year. At the end of fiscal year 2016, the market value of the funds tallied $8.1 billion. At the end of this past fiscal year, in June, the market value decreased to $7.9 billion.
At the same time, the gulf between the pension’s long-term liabilities and how much assets it has is growing. In “actuarial” terms, which factors in the value of the fund’s assets over several years, the state owed $13.1 billion in long-term liabilities and had $8.87 billion in assets at the end of the fiscal year — an almost $4.3 billion gap.
This is a 67.5 percent funded ratio, which is not considered healthy, Schmitt said. In 2001, the funded ratio was near 100 percent, according to the MOSERS report.
Schmitt said the problem is even more stark when considering the market value of the pension fund’s assets, not the “smoothed” actuarial value.
The market value of the funds assets — if they were liquidated today — stands at about $7.9 billion. Because the state owes about $13.1 billion, the gap increases to more than $5.2 billion, according to the report.
“This liability is the No. 1 liability for our state,” Schmitt said. “The problem without action will only get worse and worse every year.”
A representative with MOSERS could not immediately be reached for comment.