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MOSERS' Funding RatioFeb 14, 2019, 8:56 AM By MOSERS
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 iinvestment 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.
Employer Contribution RateOct 5, 2018, 8:04 AM By MOSERS
I see the contribution rate has gone up to 21.77%. You're back at the trough again. I suppose it makes your job easier when all you have to do is simply charge institutions like MSSU more. It's an unfunded mandate that puts significant financial stress on all Missouri universities.
Where can I find the contribution rates for previous years? Is it a constant upward trend with no end in sight?
See our Employer Contribution Rate infographic for a summary of contribution rates.
After considerable deliberation, the MOSERS Board of Trustees voted to lower the assumed rate of return (ARR) on investments from 7.50% to 7.25% and intends to further reduce the ARR to 6.95% for the June 30, 2020 actuarial valuation.
Funding for the system comes from 1) investment returns, 2) employer contributions, and 3) employee contributions (from those first employed in a benefit-eligible position on or after 1/1/2011).
Changing the assumption about the amount of funding that will come from investments (the ARR) automatically causes employer contributions to increase and our funded status to decrease in the short term, but will work to ensure MOSERS’ sustainability over the long term.
FundingAug 3, 2018, 4:14 PM By MOSERS
I don't understand if mosers is profiting so well why do the retirees only get 1.5% raise. It seems like the pot gets bigger and why not pass it out. The cost of living goes up an up but the retirees are going backwards. I have been retired 14 years and only get 21% increase and Mosers does about 7.5% thats 147% increase. It looks a little lopsided. I know it's a complicated process. Like the ones that took the back drop you handed them a bonus that i never saw because I choose to retire and give a job to younger adults instead of letting them not work and the back droppers working filling that spot.
The way that MOSERS is set up, neither staff nor Board Members can decide to increase cost-of-living adjustments (COLAs) or monthly retirement benefits. It is all based on state statute and it all factors into the overall funding structure of the retirement system.
COLAs are calculated according to state statute (104.010.14 of the Revised Statutes of Missouri), which stipulates that the CPI used to calculate COLAs must be the “CPI-U (Consumer Price Index for All Urban Consumers). For most general state employees, the COLA is based on 80% of the percentage increase in the average CPI from one year to the next. COLAs are intended to help you cope with the rising cost of goods and services that you buy. You can see a detailed explanation of how the COLA is calculated in our annual COLA Memo.
Your benefit is calculated using the formula: Final Average Pay x Credited Service x Multiplier = Monthly Base Benefit. Benefit amounts vary for each retiree based on their individual pay and service history. Funding to pay benefits comes from three sources:
- Contributions from Employers, as a percentage of employee payroll
- Contributions from Employees first employed in a benefit-eligible position on or after January 1, 2011
- Investment Returns
The purpose of investing trust fund assets is to provide a funding source that helps pay the cost of the benefits. Over that past 20 years, 61% of the assets in the MOSERS Trust Fund have come from investment returns. If it weren’t for the income from investments, the cost to the state and to members would be significantly higher. When calculating how much the state will have to contribute going forward, our external actuaries make assumptions on various economic and demographic factors. One is how much we can expect to earn from investment income. That assumption for FY18, which ended June 30, 2018, was 7.5%.
BackDROP isn’t a bonus. It is a benefit payment option available at retirement if an employee works at least two years beyond their normal retirement eligibility date. It allows such members to get a lump-sum payment in addition to their monthly benefit. However, none of their pay or service credit during their BackDROP period counts toward their monthly benefit. So, generally speaking, their monthly benefit is less if they elect BackDROP than it would have been had they not taken BackDROP.
Thank you for your question and for your service to the State of Missouri.
Funded StatusJul 31, 2018, 8:11 AM By MOSERS
I have heard reports on the news saying that our retirement benefits are only 60% funded and that MOSERS is in trouble. What is going on with that?
Just to clarify, MOSERS pays 100% of the benefits due to members. The “funded” status that you are hearing about in the news has to do with the assets we have on hand relative to all current and future liabilities. As of June 30, 2017, MOSERS is 67.5% funded (p. 129 Comprehensive Annual Financial Report - 2017).
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 will result in higher employer contributions and a lower funded status in the short term but will strengthen MOSERS’ financial position in the long term. Each year, the MOSERS Board certifies an employer contribution rate which results in a state budget appropriations request. The employer contribution is based on a variety of factors and is calculated by our external actuary as the amount needed in order for MOSERS to pay current and future benefits.
Money to pay your retirement benefits comes from three sources:
- Employer Contributions: The Missouri General Assembly has consistently appropriated the full employer contribution to MOSERS as recommended by our external actuary. Governor Parson signed the FY19 budget bills passed by the General Assembly, including the MOSERS appropriation contained in HB 2005, which fully funds the Board certified employer contribution rate. Pension systems that are in trouble are generally those that have a consistent pattern of not receiving the full amount of employer contributions.
- Employee Contributions: Members first employed in a MOSERS or MPERS benefit-eligible position on or after 1/1/2011 contribute 4% of pay to their retirement system.Investment Returns: Over that past 20 years,
61% of the assets in the MOSERS Trust Fund have come from investment returns. MOSERS earned approximately 7.5% for Fiscal Year ending June 30, 2018, which added approximately $600 million to the MOSERS trust fund.
Please see Key Facts Regarding Funding for more information. We will send a summary annual financial report for Fiscal Year 2018 to all members in December as part of the fall/winter newsletter.
Overtime & Final Average Pay (FAP)Jul 24, 2018, 10:32 AM By MOSERS
Given the extreme amount of overtime currently being worked by corrections officers (over 1 million hours so far in 2018, and 1.6 million last year), how will this effect the long term funding available for pensions? Their pension is based off their 3 highest consecutive grossing years of service. Many officers have been grossing 2-3 times their base pay due to the inordinate amount of overtime. This has been ongoing now for two-three years. This will make a huge impact on their pension monthly benefit, increasing it exponentially. Has there been any comprehensive study done on how this will effect our pension funding in the future?
Calculating Your Benefit
You are correct, retirement benefits for general state employees are calculated using a three-part formula:
Final Average Pay (FAP) x credited service x a multiplier = Monthly Base Benefit
As you referenced, FAP is determined using your highest 36 full consecutive months of pay when looking at your entire work history covered under MOSERS. Practically speaking, for most, that is their last three years, but not always. The exception to this would occur under the BackDROP (if eligible). If you become eligible for and elect the BackDROP upon retirement, your highest 36 consecutive months would be determined from your MOSERS-covered work history prior to your BackDROP date. In other words, any pay or service during your BackDROP period doesn’t count toward your monthly benefit payments.
Overtime pay can increase your retirement benefits if there is a pattern of overtime pay. We don’t count one-time payments or any payments from your employer after you terminate state employment such as for unused vacation/annual leave.
With regard to your question about how all this overtime will affect pension funding, you can rest assured that it is all being factored in to our funding process, we have made our external actuary aware of it, and we will continue to monitor it.
In setting funding policy, our Board of Trustees works with our external actuary to review and set assumptions about a variety of economic and demographic factors including payroll growth, inflation, life expectancy, and several other factors.
We conduct an annual “valuation” which is collecting all the above data (and more) and sending it to our external actuary. Our actuary does an “experience study” every 5 years to compare our assumptions to our actual experience with our members and with other economic factors. Then, we make adjustments accordingly. All that (and more) goes into the calculation of employer contribution rates going forward.
The Department of Corrections (DOC) is a large employer but is one of several that we cover. While there may have been increases in payroll at DOC, they are offset elsewhere. For the year ended 6/30/17, the overall pay increase for state employees we cover was slightly less than assumed (p. 20 of 2017-06-30 Actuarial Valuation MSEP). We will have the data for FY18 soon. Each of the 39 state departments, agencies, colleges, or universities that we cover makes employer contributions as a percentage of their total actual payroll, which includes overtime pay. So,paying overtime also increases the amount of employer contributions that DOC has already been making to MOSERS. As mentioned above, we will continue to monitor overtime at DOC and factor it into our funding calculations.
Sustainability of MOSERSMay 9, 2018, 12:18 PM By MOSERS
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.
As of June 30, 2017, retirement benefits for general state employees are 67.5% pre-funded. Money topay 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.
MOSERS' Funding StatusMay 1, 2018, 2:10 PM By MOSERS
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 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.
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.
MOSERS' AppropriationsApr 3, 2018, 8:42 AM By MOSERS
Now that the House has passed and sent to the Senate HB 2005, could you tell me whether the amounts appropriated for MOSERS ($417,959,249) include all of the amount requested by the MOSERS Board and, if not, what percentage of the request it does include.
Also, could you tell me whether the amount appropriated for MCHCP ($499,756,307) includes the amount requested by MCHCP to subsidize retired state employees' secondary insurance premiums as has been the case in past years?
Yes, the amount appropriated by the House Appropriations subcommittee in HB 2005 fully funds the employer contribution rate as certified by the MOSERS Board. HB 2005 has now been sent to the Senate and must be passed in the Senate and then signed by the Governor. Changes could still be made. We will monitor all bills related to retirement benefits and let our members know about changes, if any, that may affect them.
The House Appropriations subcommittee included $449,656,307 as the state’s contribution to MCHCP. Since health care is a benefit that we do not administer at MOSERS, we are not in a position to comment about whether or not it was the amount requested by MCHCP. Please contact MCHCP directly at (800) 487-0771 or www.mchcp.org for more information.
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We strive to provide the most accurate information possible in our answers to Rumor Central questions. However, occasionally, laws, policies or provisions change and individual circumstances may vary. Please contact a MOSERS benefit counselor or see the handbooks in our website Library for more detailed information. If there is any difference between the information provided in this blog or on the MOSERS website and the law or policies that govern MOSERS, the law and policies will prevail. See our Privacy, Security,& Legal Notices for more information.