Cost of Missouri pension system creating conflict among Republican officials

A showdown is looming over the cost of funding state employee pensions in Missouri.

It’s pitting Republican officials against one another in a fight over how best to keep the retirement system fiscally sound while the state faces a massive budget shortfall. And both sides worry about the long-term consequences if the other prevails.

The Missouri State Employees Retirement System, commonly known as MOSERS, covers roughly 113,000 current and past state employees. Its board of trustees requested an additional $45 million from the state to help cover costs in the fiscal year that begins July 1.

House Budget Chairman Scott Fitzpatrick, a Shell Knob Republican, says that big a funding boost isn’t possible. The budget proposal he’ll lay out Wednesday would still increase MOSERS funding, but by only $15 million.

In the long term, both the House plan and the MOSERS plan project to pay off the pension system’s debt in 28 years. But the House plan calls for the state’s portion of the fund to be roughly the same every year, while MOSERS wants the funding to spike in the early years before tapering off over time.

The pension system is already underfunded, said Missouri Treasurer Eric Schmitt, a Republican who serves on the MOSERS board. With that in mind, he said, the House plan would be “extremely foolish.”

“I’m absolutely opposed to shortchanging the pension system. It’s 180 degrees in the wrong direction,” Schmitt said, later adding: “It will only exacerbate our funding problems in the coming years.”

Sarah Steelman, commissioner of Gov. Eric Greitens’ office of administration, said the House plan could hurt the state’s credit rating if enacted. That, in turn, would increase the state’s borrowing costs.

“If (Rep. Fitzpatrick) moves forward with his plan, it presents a risk to the state in future years,” said Steelman, who also serves on the MOSERS board. “We’ve seen other states go down that path, and we don’t want to follow. Rating agencies watch pensions very closely. That’s what I’m worried about.”

Kansas saw its credit rating downgraded last year by both Moody’s and S&P, in part because of underfunded pensions. Illinois has long struggled with funding its employee pensions.

John Watson, MOSERS executive director, said the pension system’s assumptions on rate of return on investment have been far too optimistic for years. Because of that, the unfunded liability of the system has grown in 14 of the last 16 years. Much of the increase requested from the state budget this year, he said, is to “pay off the optimistic views over the last 16 years.”

The MOSERS plan would lower the expected return on investment and boost the initial state funding requirement. While the unfunded liability would continue to grow for the next decade, Watson said, after that “we turn the tide and become a very cost-effective benefit system.”

Fitzpatrick said that if he had any concern that MOSERS was in a long-term financial crisis, “I’d have no problem giving them this money. But they’re not. They just aren’t.”

In 2011, Fitzpatrick noted, the system began requiring new hires to contribute 4 percent of earnings to the pension fund and changed the number of years and age needed to qualify for benefits. That put the plan on more solid footing, he said.

It makes no sense for MOSERS to expect such a large funding increase, he said, “when we’re dealing with the worst budget situation since before I was born.”

Fitzpatrick’s budget proposal will be “the most amount of money (MOSERS) has ever had in the state budget.”

And he isn’t worried that his plan will hurt the state’s credit rating.

“If I had a dime every time someone tried to dangle the credit rating over my head,” Fitzpatrick said, “I’d be a rich man.”

Even if the rating agencies do penalize Missouri, he said, he doesn’t think that alone would justify putting even more money into the system.

“I have to do what’s best for the state,” Fitzpatrick said. “We’re making cuts from education and social services, and we’re giving MOSERS more money than they’ve ever gotten before. If that’s not good enough for MOSERS, they can take their argument to the Senate.”

This story was originally published March 14, 2017 at 2:52 PM with the headline "Cost of Missouri pension system creating conflict among Republican officials."