JEFFERSON CITY, Mo. – Missouri State Treasurer Eric Schmitt is once again calling on the legislature to take action against the looming cloud on Missouri’s pension horizon.
The Republican statewide official and former state senator appeared before the Joint Committee on Public Employee Retirement Wednesday morning to unveil what he described as “troubling new discoveries related to the state pension system.”
“Shortly after taking office in January, I directed my team to evaluate Missouri’s pension plans with a particular focus on MOSERS, the Missouri State Employee Retirement System. I was alarmed by what I saw,” Schmitt told the committee.
Schmitt penned an editorial in the Kansas City Star following that, saying that Missouri’s pensions were a “crisis on the horizon” and called the single greatest threat to Missouri’s AAA credit rating. In Wednesday’s hearing, Schmitt changed his terminology, saying instead that the crisis is no longer on the horizon; it is now on Missouri’s doorstep.
“On Friday afternoon, MOSERS’s new actuaries delivered their valuation of the plan to us. As of June 30th, the unfunded liability of MOSERS has surged past $5.2 billion dollars,” Schmitt stated before the committee. “$5 billion dollars means we are thousands of dollars in debt for every single Missouri taxpayer. This liability is the number one liability for our state – a problem that, without action, will only get worse and worse every year. To put that in context, we owe more in pensions than we owe in state bonds.”
According to Schmitt, MOSERS is currently only 60 percent funded, which he says means that for each dollar future retirees are owed, the state has just 60 cents in assets.
“A pension plan is considered healthy when it has an eighty percent or higher funding status,” he said. “So sixty percent is alarming, but even more alarming is the trajectory. In the early 2000s, we were nearly one hundred percent funded. Now, just a few years later, we’re at sixty percent and falling.”
The reason for this debt, Schmitt says, is bad decisions made in the past.
“Past administrations have tried to keep the MOSERS contribution rate low by artificially inflating the MOSERS assumptions,” he said. “For years – including during the peak years of the financial crisis – they assumed that our investments would earn more than eight percent. When everybody else knew that returns would be at historic lows, they kept assuming they’d have one of the highest returns in the nation. That never happened.
“MOSERS has missed its assumptions in 16 of the past 17 years. And that’s how, since the start of the new millennium, we’ve seen this plan go from nearly full funding to only being 60 percent funded.”
He also attributed part of the problem to investment fees, saying MOSERS has spent hundreds of millions of dollars in recent years.
“Data from Boston College’s Center for Retirement Research shows that 135 other public pensions that disclosed investment fees and asset levels,” he said. “Of those 135, MOSERS has the seventh highest investment costs. This is unacceptable.”
As State Treasurer, Schmitt serves on the MOSERS Board, and he says now is the time to take action.
“Tomorrow at the MOSERS board meeting, I’m going to move that we work in conjunction with the new Chief Investment Officer, who we’ve already reach out to so that we can curtail these outrageous investment fees,” he told the joint committee. “We are going to demand that we get our assumptions to reasonable levels. We are also going to bring together the best minds about pensions to see what else can be done. I believe states are laboratories of democracy, and we’ve already begun studying what other states have done to fix their pension crises. We need to take the best ideas from across the country, regardless of party, and maybe even come up with a few new ones of our own.
“As a state, we need to start talking about our $5.2 billion liability. We need to find ways to fix it. I hope today is a turning point. I hope today is the day when Missouri turns toward fiscal responsibility.”