Despite reported losses, Missouri retirement system employees received bonuses

Monday, April 6, 2009 | 12:01 a.m. CDT; updated 7:07 a.m. CDT, Monday, April 6, 2009

JEFFERSON CITY — Wall Street investment managers aren't the only ones who got big checks despite huge losses last year.

The 14-member staff of the Missouri State Employees Retirement System received almost $300,000 in bonuses even as the pension fund lost almost $1.8 billion, The St. Louis Post-Dispatch reported Sunday.

Chief Investment Officer Rick Dahl got the biggest payment, drawing $114,000 early this year. The next largest bonus was $29,400 for the system's hedge funds manager.

Pension officials said the payments were based on Missouri's fund outperforming the market.

Under an incentive plan approved by the pension board, the state fund is compared to similar portfolios over the last five years. While Missouri's fund declined in value by 23.9 percent last year, it still did better than many others.

But Missouri Gov. Jay Nixon, whose office didn't know about the payments until told by the newspaper, called the bonuses "unconscionable."

"It defies common sense that these folks would preside over the loss of almost $2 billion and receive bonuses," Nixon said.

He said it was "especially galling" that the bonuses came when the rest of state employees aren't getting raises this year.

"This bonus system is clearly broken, and we're going to fix it," he said.

Board members said the incentives have helped the state keep managers who, over the past five years, helped Missouri's fund earn $597 million more than comparable portfolios.

Pension board Chairman Wayne Bill, a Department of Agriculture employee and representative of state workers on the board, said Dahl "is worth every cent to us." Dahl's regular salary is $228,176.

The retirement system, known as MOSERS, covers about 55,000 state employees and 30,000 retirees. The fund comes entirely from investment income and taxpayer dollars. Keeping the best managers ultimately saves the state money, said Gary Findlay, the pension system's executive director.

The 11 members of the board overseeing the pension system determine how the portfolio's $6.1 billion is allocated between stocks and bonds, but Dahl and his investment staff decide the rest.

Dahl's team directly manages 18 percent of the money, with outside managers specializing in market niches contracted to look after the rest.

He said he and his staff decide which types of stock to buy so their jobs are not "just about hiring a bunch of managers."

"This portfolio is run very actively," Dahl said. "I've got an absolutely wonderful team of people. We're all focused on the same thing, which is generating the best returns for the system that we can."

Overall, Missouri's fund performed in the top 9 percent of all statewide funds in the country over the last five years, returning about 3.9 percent per year. That's higher than the target benchmark of 1.62 percent created through a blending of market indices.

The bonuses range from 4 percent to 50 percent of salary for the team members.

Findlay wasn't eligible for an automatic bonus but the board decided his work warranted it, awarding him $19,602 on top of his $206,000 salary.

The pension system has awarded incentives since 1998, making changes along the way. Three years ago, then-State Auditor Claire McCaskill questioned the practice, saying it didn't mesh with the rest of state government's pay policies. McCaskill is now a U.S. senator.

The system overseeing the Public School Retirement System of Missouri, which is even larger than the state pension plan, doesn't offer bonuses. Executive director Steve Yoakum said it would be hard to justify such payments in hard economic times, even if the fund did better than the market.

The other large pension program in Missouri, which covers transportation workers and highway patrol officers, provides performance awards to the top investment officer only.

Larry Krummen of the Missouri Department of Transportation and Patrol Employees' Retirement System received a $67,500 bonus on top of his $154,500 salary, reflecting the fund's performance for three years ending June 30, 2008 — before the stock market plummeted.

Dahl, whose sister, Susie Dahl, is executive director of the MoDOT and Highway Patrol system, could more than double his salary if he switched to the private sector, board members said.

The board gave Dahl a five-year contract several years ago to keep other programs from luring him away.

Board member Jason Crowell, a Republican state senator from Cape Girardeau, said he disagreed that the bonus policy needed to be changed.

"The overall fundamental understanding of why we made the decision hasn't changed in a down market or an up market," Crowell said. "We judge them by the job they do."

But Nixon's administration isn't giving up. Commissioner of Administration Kelvin Simmons, a new pension board member, criticized Findlay in a letter Friday, accusing him of "a serious lapse of judgment."

"With unemployment at a 25-year high and the state imposing layoffs of hardworking employees," Simmons wrote, "it is incomprehensible that MOSERS has awarded these bonuses."

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Judy Robinson April 6, 2009 | 7:49 a.m.

The MOSERS retirement system is funded by taxpayers dollars. State employees do not contribute one penny to the system. To add insult to injury, state employees can work beyond their retirement eligibility and be eligible for what is called the "backdrop". This means that for up to 5 years beyond retirement eligibility, the employee can work 5 years longer and take a lump sum refund of the money that the state has paid into the system for them for that 5 year period. This can result in thousands of dollars in a lump sum payment plus their monthly annuity. I am a state employee and I think this is an abuse of taxpayer money. Even federal employees have to pay around 7.5% of their salary into the federal retirement system. Additionally, the bonuses paid to MOSER executives are essentially paid by taxpayer money also. Even though their investments have earned money for the system, it is STILL a taxpayer funded system and I think this is a bunch of bull.

(Report Comment)
Greg Collins April 6, 2009 | 9:13 a.m.

Presumably under this type of nest feathering arrangement, the captain of the Titantic would have gotten a bonus for having gotten the ship halfway across the ocean in record time ...

[rolling eyes]

(Report Comment)
Mike Sykuta April 6, 2009 | 10:06 a.m.

I suppose people would be much happier if we saved the $300,000 in bonuses and lost another $60 Million (a mere 1% lower return) with managers that weren't so "greedy" as to expect a bonus for being about the top 9% of people in their professional nationwide.

Personally, I'd be happy if my investment advisers were able to consistently beat the market. Oh wait, as a tax payer, these ARE my investment advisers!

(Report Comment)

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