There is a lot of distortion going on these days regarding public pensions. A recent You-Tube video captured this well, especially as regards the current battle in Wisconsin and the ongoing disputes in New Jersey (two places with very different situations–Wisconsin’s plans are actually rather well funded for state employees).
Seeing the effects the smear campaign is having on the general public, the International Association of Fire Fighters (IAFF) has responded back and has begun an ad campaign to educate people about the truths and myths of public safety pensions. Harold Schaitberger, president of the IAFF, made a lot of important points in his interview featured on the video and it is worth listening to.
After watching this video, I turned on the local St. Louis news to find a story about a 20+ car pile-up on a local highway. The news crew reported that the St. Louis City firefighters rushed to the scene, rescued over twenty people from their cars, and handled the catastrophe quickly and efficiently. After seeing both of these items, it makes me think that people should not rush to judgment regarding public safety pensions until they know all of the facts. The level of the rhetoric in St. Louis hasn’t reached the level in the two previously mentioned states, but the City’s distortions have been there for quite awhile. Add in the fact that the police have to go on the streets of America’s highest crime city, and it makes you wonder ‘what are these City officials thinking or are they thinking at all.
On October 6, the Firemen’s Retirement System of St Louis and its trustees sued the City of St. Louis. Read the official press release.
Media coverage has been extensive:
KSDK News Channel 5: Firefighter retirement system sues St Louis city
KMOV TV: St Louis firefighters sue city over retirement benefits
STLtoday.com: Firemen’s group sues city over cuts to sick leave
Appended: Oct 8, 3:30pm
KOAM TV: St. Louis firefighters sue city over retirement benefits
KAIT TV: Firefighters sue over city benefits
Firehouse.com: St. Louis Firefighters Sue Over Sick Leave
KTVI/Fox2: St. Louis Firefighters Retirement System Suing City
I drafted and published an article that was published as an op-ed piece in the St. Louis Post-Dispatch entitled, “St. Louis should keep its promises.”
The St. Louis Post-Dispatch recently reported upon the vote of the Board of the Missouri State Employees Retirement System (“MOSERS”) concerning state funding for the upcoming fiscal year. The Post’s heading “Missouri to increase funding of employee pension fund” was simultaneously accurate and misleading.
The $276 million was $20 million greater than the State had hoped to pay. However, pension funds such as MOSERS are operated on an actuarial basis, and Gabriel Roeder Smith & Company, the system’s actuary (and a nationally recognized firm in the public pension area) said that the proper contribution amount was $303 million. Even this number would have been much higher, except MOSERS uses a smoothing system that spreads out market gains and losses over a five year period.
One can understand why Governor Nixon and Missouri taxpayers may favor the approach taken by the MOSERS Board. If the actuarial amount had been contributed, the state budget would have had less money available for other state spending, or consideration would have had to have been given to a possible tax increase.
The strong objections from State Senator Jason Crowell, R-Cape Girardeau, are well taken, however. The retirement system is disregarding or minimizing actuarial calculations to reduce the contribution rate, but in the process of doing this, is creating uncertainty and possibly severe future problems.
Senator Crowell, a MOSERS Board Member, stated “We’ve put in jeopardy the actuarial soundness of the plan.”
Senator Crowell has special expertise in this area, since he is the chair of the Joint Commission of Public Employee Retirement Systems, and is a very knowledgeable legislator on the subject of public pensions. Though it is not made clear from the Post-Dispatch article, the MOSERS contribution level is also lowered by its expectation of investment returns at 8.5%. (Most public pension plans are currently forecasting investment returns between 7.25 and 7.75%.)
The wisdom of this year’s decision concerning funding of MOSERS can be meaningfully argued by both sides. However, my fear is that MOSERS and its Board may be getting on a slippery slope.
Once the Board decides not to follow actuarial funding guidelines in any given year, it is certainly subject to more political pressure to continue to do that in future years. If MOSERS Board had a publicly articulated a one-year only variance , due to extraordinary market and economic conditions, the actions of the MOSERS Board would be easier to justify.
With “5 year smoothing,” last year’s negative investment returns will impact contribution levels for years to come, so the funding issues are not likely to disappear in the next several years. When will MOSERS Board return to following the actuarial advice necessary to keep MOSERS sound?
The Missouri Constitution mandates that most public pension plans in Missouri, those having COLA benefits, must maintain actuarial soundness. If Senator Crowell’s predictions about future actuarial soundness problems do occur, the State of Missouri and the MOSERS Board will both regret this decision to fund at less than the actuarially recommended amounts.
