State government would pay less and new employees would pay more toward their retirement benefits, under a proposed law discussed Thursday in the Missouri House Retirement Committee.
Rep. Andrew Koenig, R-Manchester, wants lawmakers to approve a "hybrid" retirement system for state employees hired after next Jan. 1, who would be served by the Missouri State Employees Retirement System (MOSERS) or the MoDOT/Patrol Employees Retirement System (MPERS), with a greater combination of defined benefit and defined contribution plans.
His proposal wouldn't affect other state or local government plans.
"According to the Pension Benefit Guaranty Corporation, in 1980 there were 250,000 pension plans, and today there are around 27,000," Koenig told the committee. "So, the private sector is getting away from doing the defined benefit."
He said the "benefit of the defined benefit plan is, they have that guarantee of that money coming in after retirement. But it also ties the hands - they're limited on what they can do with their money, because it's not really theirs."
With a defined contribution plan, Koenig said, retirees "can pass their money on to the kids, give it to charity - they're a lot more flexible with what they can do with their money."
Under current law, a retiree's benefits are defined, and calculated at 1.7 percent times the employee's years of active service, times their final average pay (based on their best years of earnings).
Koenig's proposal would reduce the 1.7 percent in that formula to just 1 percent.
Since Jan. 1, 2011, new state employees have had to contribute 4 percent of their earnings to the retirement program, while the state continues to pay all contributions for employees hired before that date.
Koenig's bill still would keep that 4 percent deduction, but send only 3 percent to the state-operated plan, and let the employee control how the other 1 percent of the deduction is handled in "a personal account, which would be similar to a 401(k), or defined contribution."
The Legislative Research Oversight Division calculates the fiscal note - the bill's estimated financial impact on state government - as $1.8 million in increased costs to the state in the 2014-15 business year that begins July 1, more than $4.3 million in the 2015-16 business year and more than $5.7 million in the 2016-17 business year.
Currently, some employees get a temporary extra benefit that Koenig's bill would end, and he told the committee the fiscal note doesn't take those savings into account.
Within a decade, he later told a reporter, the state government should be making, not losing, more money.
Under current law, retirees in the two programs can get an annual "cost of living adjustment" (COLA) benefits increase of up to 5 percent. Koenig would cap the COLA at 2 percent, which would save the state some money in higher inflation periods.
If the law were in effect today, Koenig's proposed cap wouldn't change anything - for 2014, the MOSERS COLA was 1.172 percent.
Rachel Payton, deputy state director for the 57,000-member Americans for Prosperity-Missouri, urged lawmakers to pass the bill.
"Unfunded pension liabilities are the number one driver of state fiscal insolvency and massive debt," she said. "Missouri is not an exception to this case.
"According to the Show-Me Institute, our state's unfunded pension liability is more than $54 billion - roughly five times larger than the official estimate which is, itself, an incredibly daunting figure."
Under Koenig's proposal, she added, "Workers will enjoy greater choice, and be in a position to take a more active role in their own retirement planning.
"AFP believes that workers, not politicians, should be empowered with decision-making on how their individual pension benefits are accrued."
But representatives of several retirement plans that serve public employees disagreed.
Brad Tielmeier, the Missouri State Troopers Association's legislative director, said: "We currently - through the Highway Patrol and the MPERS system - have three retirement systems that our troopers are working under (and) with each plan, we gave up a little more."
Former state Sen. Tim Green, D-Spanish Lake, representing the Missouri Retired Teachers Association - even though they're not covered under the proposed law - testified the group's 22,000 members believe "defined benefit plans are the best way to go."
Otto Fajen, the Missouri National Education Association's lobbyist, noted some of their non-teaching members are covered by MOSERS.
"The concern that most employees and teachers have is more that, in the overall compensation package, salaries are (what's) out of place," Fajen said. "We really encourage the committee to look carefully - when you start to pull new employees out (of a good plan, like MOSERS) into a defined contribution plan, (the) long-term impact will create a funding crisis for the employer" as much as 25 or 30 years out.
The committee took no action Thursday on Koenig's bill.