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MOSERS' Funding Ratio

Feb 14, 2019, 08:56 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 Comprehensive Annual Financial Report), 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 Comprehensive Annual Financial Report).

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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