According to the Post-Dispatch, some are leveling criticism at MOSERS, a Missouri state employee pension fund, because of bonuses paid to investment staff for their performance while the fund was losing money. The nature of the criticism is obvious, until considered in context.

As pointed out in the article, the entire market was down during this period, and the MOSERS staff lost less than the average investor, percentage-wise. It would be difficult to independently check the numbers, but — if true — this is certainly a good reason to give bonuses. The relevant thing to consider is that it is difficult to maintain positive gains in such a losing market, and that if the folks at MOSERS hadn’t invested the way they did, the fund would have lost MORE money than it did.

Here’s a tortured analogy: Suppose that all the investment personnel are engaged in a ditch-digging contest, and the deeper their ditches, the better off they are. Every day, the ditches grow deeper. However, because of a general lack of foresight and some misguided government policies, the dirt removed from each ditch is stored right next to the ditches. One day, there’s an earthquake that fills in a large portion of everyone’s ditches, and everyone’s long, arduous work seems undone. Because of one digger’s foresight and good practice, however, the earthquake filled the MOSERS ditch with much less dirt than everyone else’s holes. That ditch is worse off than it had been before the earthquake, but thanks to the employee’s efforts, it’s not as bad as everyone else’s ditches. Should this employee be rewarded or punished?

Again, I haven’t run the numbers myself, but from what I’ve heard and read, this loss does not bode well for an already underfunded system. We needn’t blame the managers for this particular loss, but this is a good time to pay attention to Missouri’s public pension systems. Check out the Show-Me Institute’s recent study for more information.