Monday, April 15, 2013
State Sen. John Lamping worries that another recession could wreak havoc on the state’s pension plans.
So, he’s introduced a bill that would require those plans “to make contributions — both employee and employer contributions — such that the plan will be fully funded in five years,” rather than the 30-year funding plan most have now.
“What’s going to happen if the Dow falls to 7,000 and stays there for 10 years?” Lamping asked during a hearing last week of the state Senate’s Seniors, Families and Pensions Committee.
“What’s going to fund the pensions?”
Lamping, R-Ladue, is a securities brokerage firm branch manager and has a master’s degree in Finance from New York University.
Because the various state pension plans are state government’s responsibility, Lamping said, “This is an obligation of the sponsor. We’re going to have to pay.”
So, Lamping said, Missouri’s pension plans need to get better funded.
“I’m in the camp that believes that a promise made is a promise that must be kept,” Lamping said.
Lamping said he doesn’t expect lawmakers to pass his bill this year — but, “I think our job is two-fold. First and foremost is to secure those pensions, make sure they’re fully funded and remain fully funded.”
Ultimately, he said, state pension plans must move away from their current, defined benefit systems where retirees are guaranteed a benefit based mainly on their length of service.
“The reason the private sector moved away from defined benefit plans is because too much of their time, energy and risk were taken up by something that was away from what they were trying to do, their core function,” Lamping explained. “When you find yourself spending more and more time on your pensions and concerns about that, you’re taking away from your core mission.”
And the same is true for state government, he said.
Missouri has four main, government pension plans: The Missouri State Retirement System, or MOSERS, for most state employees; the MoDOT/Highway Patrol system, or MPERS; the Local Government Employees Retirement System, or LAGERS; and the largest of the group, the Public School Retirement System for teachers and Public Education Employee Retirement Systems for non-certificated employees.
“We cover about 540 school districts in the state, they are pooled together for one rate,” PSRS/PEERS director Steve Yoakum told the committee. “We’re 81.5 percent funded; we’re taking all of our gains and applying it against that unfunded (liability).”
PSRS/PEERS gets its money with a 29 percent payroll contribution — half paid by the school districts and half paid by each plan member, Yoakum said.
Adopting Lamping’s full-funding in five years proposal would push that contributions rate up to “59 percent for the five years needed to fund it,” he said.
Keith Hughes, LAGERS’ director, told the committee he represents “an accumulation of 640 employers, each selecting their own level of benefits — and paying for such benefits, which results in over 1,000 unique contribution rates each year.”
He said his trustees “commend Sen. Lamping for seeking a fully funded pension plan,” but don’t support his proposed accelerated payment schedule, because it “would place an undue financial burden on those employers.”
LAGERS “continues to have a strong, 83.5 percent funding ratio,” Hughes said — which would be 91 percent if calculated at the market value of assets.
“In 2007 we were at 98 percent — before the fall in the market,” he said, and returning to 100 percent funding “is the goal ... every day.”
Contribution rates are adjusted each year with the goal of reaching 100 percent, and “25 percent (of our plans) are over 100 percent,” Hughes said.
Scott Simon, director of the MPERS plan, acknowledged it, “over the years, has not been funded adequately.”
But it, also, is working to improve the funds available to pay retirement benefits when needed.
Yoakum noted he’s “been doing this for 35 years, and this is, probably, the most difficult time I’ve seen to be an institutional investor. But it’s not impossible, and we do have the advantage of having a long-term perspective in our plan.
“We don’t need to be 100 percent funded today — we need to be 100 percent funded when those payments come due.”
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