Life comes at you in waves. You graduate high school, watch friends start careers, get married, and have kids. Then social media shows you their children repeating the cycle. As a member of the Pacific High School Class of 1999, I didn’t expect to reach the retirement wave so soon.

Yet a recent post stopped me: a high school classmate, still in his mid-40s, announced his retirement after 25 years in Missouri public schools. Most recently a principal earning roughly $130,000 per year, he is now eligible for approximately $71,500 in annual (with cost-of-living adjustments) pension benefits for the rest of his life. He can also continue working and earning additional income.

He is retiring at exactly the age when most professionals hit their career peak—when experience, leadership, and judgment are most valuable. And that’s the problem.

Missouri’s Public School Retirement System (PSRS) is pushing talented educators out of the classroom at the very moment students and schools need them most. This isn’t just a fiscal issue. It’s a direct loss to Missouri’s school children.

My classmate is doing exactly what the system incentivizes him to do. The “25-and-Out” provision hands him a guaranteed lifetime annuity worth over $3 million in today’s dollars. He’d be foolish not to take it. But Missouri schools are left without a proven leader right when his institutional knowledge and expertise could have the greatest impact.

This is the perverse reality of the current defined-benefit system. It encourages strong teachers and administrators to leave mid-career, creating turnover, knowledge gaps, and disruption for students. Districts then spend time and money searching for replacements, often settling for less experienced candidates.

Reform is long overdue. What could Missouri do?

• Raise the minimum age or service requirements for unreduced early retirement.
• Adjust benefit formulas for new hires to match longer careers and lifespans.
• Offer new employees a hybrid or defined-contribution plan with portability and shared risk.

Current retirees and vested members should be protected. But going forward, incentives should align with what’s best for students. Competitive benefits matter, but not at the expense of keeping great educators in our schools during their most productive years.

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Among the many things that Missourians will vote on in November is Amendment 6, which if passed would reinstitute a fee on court filings in Missouri to fund a larger pension for sheriffs and prosecutors in Missouri. (The fee was previously $3 before it was overturned by Missouri courts.) There are many troubling aspects of Amendment 6 that I hope Missourians consider before they vote, because the proposed amendment would have effects that go beyond the understandable desire to support law enforcement.

Locally, this amendment is especially bad public policy for St. Louis County residents. St. Louis County has by far the largest number of court filings due to its status as the largest county by population in Missouri and the presence of CT Corporation Systems in Clayton, which is the largest registered agent company in Missouri. What’s more, the St. Louis County sheriff is not a law enforcement agent and is therefore the only sheriff in Missouri who does not participate in the Missouri Sheriff’s Retirement System in the first place. So, to be clear, St. Louis County residents would pay the largest amount of fees into the fund—probably several hundred thousand dollars a year—while at the same time receiving the least benefit of any county. Coincidence? Perhaps. Fair? Definitely not.

Every person in St. Louis County who seeks redress in court, who files for a domestic order of protection, who has to pay a traffic fine, or is in court for any other reason, would have to pay this reinstituted fee to increase the pensions of primarily rural sheriffs and prosecutors. (The St. Louis County prosecutor might be included in this plan, so that’s one person in a million, for a position that is already well-compensated with a generous pension.)

The ballot language for Amendment 6, as is so often the case, is highly misleading. A typical voter will read the language proposing to “levy costs and fees to support salaries and benefits for current and former sheriffs, prosecuting attorneys . . .” and understand that to include the many dedicated deputy sheriffs and assistant prosecutors around the state. It doesn’t. This new fee will only benefit the elected sheriff and prosecutor in each county (and not even the sheriff in St. Louis County). That’s two people per county. Deputy sheriffs and assistant prosecutors have their pensions funded separately and are not affected by this proposal.

As if the misleading language and targeting of one county wasn’t enough to object to, the fact is that funding pensions by court fees is a bad policy. That is why previous attempts to fund a sheriff’s pension in this manner were thrown out as unconstitutional by the Missouri Supreme Court. Imposing court fees that make it harder to seek justice in court, or harder to pay fines ordered by court—especially when those fees financially benefit the law enforcement officials who impose some of them—creates a perverse incentive. Funding for the salaries and benefits of sheriffs and prosecutors should come from general local taxation, and there should be no financial incentive for increased fines, arrests, and so on. But instead of trying change their proposals to address these constitutional objections by judges and others, supporters of Amendment 6 are attempting to do an end-run around the law by changing the constitution. Supporting law enforcement by going around the law is an ironic way to accomplish their goals.

Furthermore, any increase in the retirement benefits of elected sheriffs and prosecutors should be accomplished by an expansion of defined-contribution plans available to them rather than an increase in their defined-benefit pensions. Expanding the opportunities for these well-compensated elected officials to participate in 457 retirement plans [which are like 401(k) accounts but for public employees] or similar alternatives is a better way to allow them to save for retirement without further burdening taxpayers.

Missouri sheriffs and prosecutors deserve our support, but Amendment 6 is not the way to show it. There are several good reasons for all Missourians to reconsider their typical support for law enforcement in this case, and for the people of St. Louis County, this choice should be easier than rooting against Stan Kroenke’s Rams in the Super Bowl.

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If only someone had warned them about this years ago. Oh, that’s right . . . we did.

The topic of public-employee pension reform has long been important to Show-Me Institute writers. Back in 2013, for example, Andrew Biggs wrote Public Employee Pensions in Missouri: A Looming Crisis. The report did not specifically analyze St. Louis’s teacher pension fund, but the point about the pending crisis applied nonetheless.

When we call attention to impending problems, we are often called alarmists. I have twice had teacher groups circulate action alerts warning members not to respond to my requests for information regarding pensions. It was so bad we actually recorded a podcast telling people we were not trying to take away their pensions. The pushback we received led me to ask, “can we have meaningful dialogue on pension reform?”

So—what changed?

Now, it is the educators themselves raising the alarm. In the KSDK report, Byron Clemens, with the American Federation of Teachers in St. Louis, and his brother, state representative Doug Clemens (D-72nd District), are both quoted on the matter. They highlight how the underfunding of pension systems is harming retirees.

Unfortunately, the Clemens brothers do not call for significant pension reform. They see the symptoms of the problem, but rather than address the structural issues that got us to this point they seem to argue for policies that would only treat the symptoms.

St. Louis’s pension system is underfunded because of the program’s design. Missouri needs to explore new options, such as defined-contribution and hybrid plans, to provide retirees a safe and secure retirement.

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When you write an op-ed, you are often constrained by word count. Newspapers have limited space and often like guest editorials under 600 or 700 words. This means I couldn’t say all the things I wanted to say. In my op-ed, I focused on critical thinking and media literacy. Here, I would like to talk about civility and meaningful dialogue.

I have been writing for the Show-Me Institute for nearly a decade. I began writing about pensions early on. In all that time, I have been invited to debate or discuss ideas with Missouri’s educators exactly zero times. Instead, educators and the leadership of their organizations have attempted to shut down debate. They do this overtly, as in when they send out legislative alerts or emails from superintendents warning teachers to not take my survey, and they do this covertly with the language they use.

Instead of having a debate on the issues of pension reform or even school choice, they suggest I and the Show-Me Institute are enemies who want to “dismantle” the pension system and that we are “privatizers” who want to destroy public education. It’s smart really if the goal is to stifle debate. When you set someone up as your enemy who is out to destroy you, you have little incentive to engage them in a meaningful dialogue.

Dismissing our rivals by name calling and refusing to engage, however, is terrible if you believe the best way to the truth is by discussing and debating ideas.

Like it or not, there are some important policy discussions that we should wrestle with when it comes to Missouri’s teacher pension systems. What should we do about the three separate systems that place St. Louis and Kansas City at a competitive disadvantage? Should we be concerned about the large unfunded liabilities of these systems? Should we care that the systems are designed in a way that favors wealthy school districts and increases inequity?

We cannot have those conversations when one side simply wants to shut down the discussion.

I believe we should engage with the best arguments of our opponents. And I am more than willing to engage with any group of educators who would like to seriously discuss these issues.

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In the 2021–22 school year, 39 percent (yes 3-9 percent) of education dollars will be spent on pensions. While education spending has grown 17 percent since 2000, teacher and administrator pension costs have risen 458 percent. 458 percent!

When the pension part of the state spending pie grows, the other slices of the pie shrink. That means that money that could be going to today’s teachers is going to yesterday’s.

Pensions are a perfect storm for governmental jiggery-pokery. The bill for bad decisions doesn’t come due for years after most of the people making decisions are out of office. The benefits are clear to those receiving them but are opaque to taxpayers (who tend to focus on metrics like teacher salaries, not total teacher compensation). Legislators can hide behind actuarial alchemy to obfuscate the magnitude of their decisions. Everyone wants teachers to have a safe and solid retirement, so quibbling with how much is spent can come off as teacher bashing.

Thankfully, Missouri is not nearly in the dire straits that Illinois is. Now, Missouri pensions are unfair. They invest in riskier assets to chase higher returns when they are underperforming. And, they are a bad deal for most teachers. But Illinois still serves as a cautionary tale for us.

And ballooning pension costs are bad for everyone (except, to be fair, those who are receiving them). It is bad for current teachers and students, who miss out on funding that could be used to support them. It is bad for current legislators, who have less money to spend on higher education, healthcare, roads and bridges, and more. And it is bad for future teachers, students, and legislators, who will be hemmed in by the decisions that their forebears made.

The great political philosopher Edmund Burke argued that the social contract is “a partnership not only between those who are living, but between those who are living, those who are dead, and those who are to be born.” Irresponsible pension policy violates that social contract and should be roundly criticized. Well done to the good folks at Illinois Policy for doing so.

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Download the 2021 Missouri Blueprint Here

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Learn more about pension reform at showmeinstitute.org

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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.

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What, that’s not the norm? Well, it is exactly what the “retiring” Pattonville superintendent will be doing soon.

The Kansas City Business Journal is reporting that the longtime superintendent will be retiring from Pattonville this year and taking up the superintendent position in the Shawnee Mission School District in Kansas. This move will allow him to retire from the pension system in Missouri and begin drawing his guaranteed benefit while also earning a salary in his new district, because the two school districts are in different pension systems.

According to the St. Louis Business Journal, the Pattonville superintendent earned $267,232 in 2016–17. In Missouri’s Public School Retirement System, members can earn 75% of their final average salary (defined as their three highest consecutive years). This would easily put his annual retirement benefit over $200,000, because the listed salary does not include other benefits, such as medical, which are also included in the final average salary.

There are three important things to take away from this.

First, we have to ask if it is wise to have a system that pushes effective leaders out at a relatively early age. This superintendent, who might likely work for another decade or more in Kansas, will begin drawing his retirement immediately and will draw it for the rest of his life. Indeed, there is a tremendous incentive for individuals to retire at this point in their career.

This leads us to our second point, pushing out effective educators  may not be an effective strategy if we want to improve the quality of education. This superintendent will take his services elsewhere, but many terrific teachers, principals, and superintendents are pushed out of education all together.

Finally, when people ask why the pension system is underfunded, this should be one of the prime examples you give them. The problem is that individuals like this superintendent often do not contribute enough to the system to cover their pension benefits. He is a big time pension winner, who will be receiving much more in benefits than he contributed to the system.

Don’t get me wrong: I applaud the superintendent’s decision. It’s a smart one, and we should all be so lucky. The problem is that we can’t all be so lucky. Lavish benefits like this must be paid for by someone. As I have shown before, they are paid by teachers who leave money in the system, by low-paid teachers in other districts, and ultimately by taxpayers.

Superintendents and others like Pattonville’s are not simply getting what they put into the system; they are getting much more. Let me ask you which system seems fair: this one, or a system in which retirees receive benefits that are in line with their contributions? If you ask me, the answer seems obvious. 

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The reason for the discrepancy is that according to the report, “cities balance budgets using accounting tricks” such as moving payments to a different year or failing to make sufficient payments to public pension funds. None of these solve the problems, of course; they just shift the burden to future taxpayers.

The organization Truth in Accounting, a nonprofit dedicated to honest accounting in municipal finances, “developed a sophisticated model to analyze all the assets and liabilities of the nation’s 75 most populous cities, including unreported liabilities.” Kansas City and St. Louis are ranked 55th and 66th (lower on the list means higher unreported liabilities), respectively. How did this happen?

While both Kansas City and St. Louis have balanced budget requirements, both have accumulated a great deal of debt. The report points out that cities can do this by inflating revenue assumptions, understating the true cost of government, and delaying the payment of bills.

The report also states that most of the top U.S. cities do not have enough money to pay their bills. In the aggregate, these cities have $335 billion in unfunded debt. That includes $211 billion in pension debt, largely the result of cities papering over their cash problems by shortchanging their public pension obligations:

Although these retirement benefits will not be paid until the employees retire, they still represent current compensation costs because they were earned and incurred throughout the employees’ tenure. Furthermore, that money needs to be put into the pension fund in order to accumulate investment earnings. If cities didn’t offer pensions and other benefits, they would have to compensate their employees with higher salaries from which they would fund their own retirement.

Missouri is no stranger to these problems. The problems at the state level are well publicized, but there are also serious issues at the municipal level.

These are just some of the highlights; the entire list of factors contributing to the financial woes of St. Louis and Kansas City is too long to cover in a blog post. As we enter the new year with a list of new projects and priorities, perhaps policymakers should spend less time fixating on pie-in-the-sky solutions, like luring Amazon to the state. Instead, they should  focus on the less glamorous but more important task of regaining sound fiscal footing. 

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THE SOLUTION: Defined contribution plans.

Defined contribution (DC) plans consist of employer/employee contributions into individual accounts—think 401(k)—which employees can manage as they see fit. Upon retirement, the funds are available to employees. DC plans fundamentally differ from DB plans in that they cannot incur unfunded liability (so taxpayers are not on the hook), they put investment decisions into the employee’s hands, and they are transferable from one job to another.

WHO ELSE DOES IT? Public DC plans exist across the nation; states such as Michigan and Alaska offer DC plans for new state employees, while others such as Florida offer both DC and DB plans.

THE OPPORTUNITY: Pension reform offers a chance to stop the bleeding. DB plans cannot (by definition) incur unfunded liabilities. DC plans also offer employees a retirement account that they can manage themselves and take with them if they change jobs in the future.

KEY POINTS

• DC plans can protect Missouri from devastating budget shortfalls.
• When a DB plan’s investment returns are below (sometimes unrealistic) assumptions, taxpayers can be forced to pay the cost.
• DC plans put investment decisions in the employee’s hands and can be transferred from one job to another.
• Shifting to DC plans reduces the political incentive to overpromise when impacts won’t be felt for years.

SHOW-ME INSTITUTE RESOURCES

Policy Study: Public Employee Pensions in Missouri: A Looming Crisis

Policy Study: Missouri Transition Costs and Public Pension Reform

Essay: The Funding Status of State and Local Government Pensions in Missouri

For a printable version of this article, click on the link below. You can also view the entire 2018 Missouri Blueprint online.

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Certificate of Need (PDF): Missouri’s Certificate of Need (CON) law restricts health care competition by requiring health care providers to get state approval before entering new markets or expanding services offered in existing facilities. This restriction hampers innovative start-ups and market newcomers that would provide Missourians care and puts upward pressure on health care prices.

Charter School Expansion (PDF): Demand for charter schools in Missouri is at an all-time high. Unfortunately, charter schools are functionally limited to the Kansas City and Saint Louis School Districts. Tens of thousands of students are denied the opportunity for a better education.

Course Access (PDF): All across Missouri, students do not have access to higher-level coursework such as AP courses, calculus, or physics. A course access program would allow students to take courses outside of their traditional public school courses using a portion of their annual per-pupil funds to help pay for them.

Earned Income Tax Credit (PDF): State spending is on the rise in Missouri, led by a growth in public welfare dollars. Public welfare spending now accounts for more than 46% of total spending and 34% of spending growth. The growth in public welfare shares of total spending has eclipsed the growth of all other general expenditure functions. 

Economic Development Subsidies (PDF): Excessive use of economic development subsidies has hollowed out municipal tax bases and diverted tax revenue to specific developers. In the past 15 years, Saint Louis City alone has allocated $709 million away from municipal services through tax increment financing (TIF) and tax abatement. Studies from across the country indicate that these subsidies fail to generate promised jobs and growth. 

Education Savings Accounts (PDF): Missouri students are underperforming. On the 2015 NAEP exam, only 31 percent of Missouri 8th-graders were found proficient in math and only 36 percent were found proficient in English. For the Class of 2016, only 22 percent of Missouri ACT test-takers scored “college-ready” in all four tested subjects. Education savings accounts could help students who are trapped in failing schools via residential assignment to purchase school supplies, tutoring services, or even private school tuition.

Higher Education (PDF): The University of Missouri system, and higher education in the United States in general, are at a crossroads. Tuition is rising, resulting in over $1 trillion in student loan debt nationwide. At the same time, students who fail to secure a high-income job face serious financial consequences. As schools struggle with these crises, a rising tide of anti–free speech policy is sweeping across the higher education landscape.

Highways/Transportation Infrastructure (PDF): The Missouri Department of Transportation (MoDOT) will likely face funding shortfalls in the near future. The state will need to generate new revenue in fair and economically sound ways.

Income Tax Reform (PDF): Missouri’s economy has been stalled for almost two decades, as startup growth has slowed and entrepreneurs and taxpayers are leaving the state. Missouri is shrinking relative to other states and economies, ranking 48th out of 50 states in real GDP growth between 1997 and 2015. Individual income taxes are destructive to the state’s economic growth, productivity, and income, encouraging taxpayers to move their work or investments out of Missouri. This not only lowers economic output for the state, but also destabilizes revenue for state and local governments.

Open Collective Bargaining (PDF): Under current Sunshine Law in Missouri, government bodies may close meetings, records, and votes relating to contract negotiations until the contract is executed or rejected. This lack of transparency in negotiations between government unions and government officials can lead to contractual agreements that aren’t in the public’s best interest.

Prevailing Wage (PDF): Many government construction contracts dictate what potential contractors must pay workers. This can put projects out of reach financially for taxpayers, and can also hurt laborers by denying jobs to people who can do them at a more competitive price.

Public Pension Reform (PDF): Defined benefit (DB) pension plans promise employees annual payments for life upon retirement, but if a public plan does not have enough money to make these payments, taxpayers can be forced to fund the difference. Pension plans can come up short if they fail to make sufficient contributions or overestimate their investment returns. Nationwide, state and local public pension funds are underfunded by more than $1 trillion dollars.

Public Union Recertification (PDF): Once a government union comes to power, it can stay in power indefinitely. No further elections are scheduled and no term limits are imposed. This means workers can do little to ensure their union truly represents their interests and is held accountable.

Right to Work (PDF): Until last year, many workers in Missouri could be forced to join unions. That was unfair not only to the employees disempowered by the law, but also to employers who had to operate under it. Governor Eric Greitens signed right to work legislation into law on February 6, 2017, but in 2018 the state will hold a referendum on that law.

Sentencing Reform (PDF): High crime and incarceration rates present a significant cost to taxpayers, and imprisoning minors is especially expensive. Relaxing harsh and automatic sentencing laws for minors—while still allowing judges to try minors as adults for especially serious crimes—could reduce costs while increasing public safety.

Special Taxing Districts (PDF): Special taxing districts are political subdivisions formed to fund specific services and improvements such as fire protection and infrastructure. In practice, however, they often allow narrow special interests to tax the public for their own private gain while allowing little or no public input or oversight.

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 You have to understand this aspect of defined-benefit pension systems when you consider the recent report, “Unaccountable and Unaffordable,” produced by the American Legislative Exchange Council. They estimate that state-administered pension plans have more than $6 trillion in unfunded liabilities. That is the difference between the amount we’ve promised workers and how much we have in the retirement accounts to pay for those promises. This figure is up $433 billion since 2016. (These figures use a risk-free discount rate.)

 Missouri ranks 31st in total unfunded liabilities with more than $107 billion across the state’s pension plans. This translates to $17,642 per capita. That is, each Missourian would have to pay more than $17,000 to meet the obligations we’ve already promised. Unfortunately, these liabilities look like they will keep growing.

 I don’t want to take away anything that we’ve promised to a public-sector worker, but we need to realize two things. First, pension benefits are not simply a function of how much workers contribute. Second, we must do something about these mounting unfunded liabilities. Either employees and employers must contribute more (which is asking a lot when they already contribute the equivalent of 29 percent of a teacher’s salary), we must hold down benefits, or we must move to a different system. If we don’t, these unfunded liabilities will eventually wreck Missouri’s finances.

 You can check out the full report here.

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Given that teachers will be a constituency that would be significantly affected by any changes to pensions in the state, we thought it wise to ask them what they think, both about their current pensions as well as possible alternative arrangements. We worked with both district and charter school leaders to cast a wide net and include as broad a range of viewpoints as we could.

Unfortunately, not long after we put our survey in the field, one of the state’s teachers’ unions instructed its members not to participate in our data collection. It’s unfortunate, but at this stage, not unexpected.

While it significantly curtailed our sample, 53 teachers did choose to respond, and we thought their voices deserved to be heard—even when they disagreed with some of the stances that Show-Me Institute writers have taken in the past. Accordingly, in addition to the complete survey results we have included an appendix with every open response that teachers gave—the good, the bad, and the ugly.

We encourage you to give the paper a read. Teachers have complicated and often conflicting views on their pensions as well as alternatives. Understanding those views will improve public pension policy.

The post Teachers’ Opinions on Missouri’s Public School Retirement System appeared first on Show-Me Institute.

Given that teachers will be a constituency that would be significantly affected by any changes to pensions in the state, we thought it wise to ask them what they think, both about their current pensions as well as possible alternative arrangements. We worked with both district and charter school leaders to cast a wide net and include as broad a range of viewpoints as we could.

Unfortunately, not long after we put our survey in the field, one of the state’s teachers’ unions instructed its members not to participate in our data collection. It’s unfortunate, but at this stage, not unexpected.

While it significantly curtailed our sample, 53 teachers did choose to respond, and we thought their voices deserved to be heard—even when they disagreed with some of the stances that Show-Me Institute writers have taken in the past. Accordingly, in addition to the complete survey results we have included an appendix with every open response that teachers gave—the good, the bad, and the ugly.

We encourage you to give the paper a read. Teachers have complicated and often conflicting views on their pensions as well as alternatives. Understanding those views will improve public pension policy.

The post Teachers’ Opinions of Missouri’s Public School Retirement System appeared first on Show-Me Institute.

The St. Louis Post Dispatch reports “Missouri mulling pension payouts for some former state workers.” Meanwhile, the Springfield News-Leader writes “Troubled Missouri pension system offers buyouts to former state employees.” In the PD piece, State Treasurer Eric Schmitt, who is also on the MOSERS board of directors, is quoted as saying, “Now is the time to start taking our pension troubles seriously. If we don’t, it will mean less resources for our schools, roads, and health services down the line.”

The buyout for MOSERS employees would provide a lump sum payment, rather than collect pension benefits down the road. The buyout is worth less than the actuarially assumed pension benefits the workers would stand to receive; thus it would generate a savings for MOSERS and it could potentially help some workers.

The treasurer is right. We cannot keep kicking pension problems down the road and this buyout is a smart, common sense strategy for reducing pension obligations. Smart, that is, for the state. Whether it is smart for the workers to take it is another story. Andrew Biggs doesn’t think so. Check out this Twitter interaction between, Biggs, Mizzou economics professor Cory Koedel, and me. 

Biggs suggests MOSERS pensioners shouldn’t take the deal. Koedel and I offer responses in jest, as Missouri taxpayers we stand to benefit from MOSERS shoring up its bottom line. Then Biggs offers a startling calculation. He suggests the buyout is worth approximately 39% of the value of the worker’s benefits. I doubt that’s actually worse than the odds on a lottery ticket, but it is certainly not a good payout.

Does this mean no one should take the buyout? Not necessarily. There may be circumstances in which some workers might be interested in having a lump sum of money rather than a pension that pays out over a course of 30 plus years. For instance, if you don’t expect to live that long!

The most important thing here is for workers to be educated on this option. With that said, I commend the MOSERS board for exploring this option and encourage MOSERS workers to fully understand their options before making any decisions. 

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https://showmeinstitute.org/publication/public-pensions/missouris-teacher-pension-system-unfair

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