Public Employee Pensions: Time to Get Our Heads Out of the Sand
Andrew Biggs’ Show-Me Institute essay on the current condition of the Missouri State Employees Retirement System (MOSERS) demonstrates that, like so many state plans, MOSERS is experiencing a decline in its funding health. This is bad for public employees and for taxpayers.
Consider the costs to taxpayers. As of 2018, the plan has assets equal to less than 70 percent of their liabilities and—just to maintain that level of funding—the Missouri state government will have to contribute nearly 20 percent of its total employee payroll to the plan this year. In addition, employees hired after 2011 contribute 4 percent of their paychecks to the system. Imagine a private-sector benefit that cost nearly one-quarter of employee salaries but was considered so sacrosanct as so be untouchable. The hard truth is that we’re going to have to start talking about policy changes aimed at averting a funding crisis. Biggs’s essay explores various options, including grandfathering current plan participants and designing a new system for future employees.
Of course, MOSERS is just one of many public pension plans in the state. The pension systems for teachers aren’t any better. Teachers argue that they work for low salaries and, in exchange for their sacrifice, they are “taken care of” with generous retirement benefits. But that is only true for those teachers who start their teaching career right out of college and work in the same state for at least twenty-five years. In fact, an analysis of the Missouri Public Schools Retirement System (PSRS)—the plan that covers all Missouri teachers other than those in Kansas City or St. Louis—found that a teacher in the Springfield district would have to work for 26 years in order to hit the “crossover” point at which their total retirement benefit is worth more than what they contributed.
Imagine that! Working for 26 years before your retirement plan is worth more than you put in.
While the PSRS is in better financial health than MOSERS, total annual contributions to the plan are 29 percent of payroll (with 14.5 percent coming from the teacher and 14.5 percent from the school district). This is only likely to get higher because there are now 78,000 teachers (active members) supporting 60,000 retired teachers. In 2000, roughly the same number of active teachers supported just 25,000 retirees. In addition, while the plan is currently nearly 84 percent funded, it has an unfunded liability of more than $7 billion and its administrators continue to assume that the plan will earn a 7.6 percent return on its investments every year, indefinitely. You don’t have to be a math teacher to know those numbers just don’t add up.