State retirement system pays performance bonuses despite losses

Thursday, June 18, 2009 | 6:40 p.m. CDT; updated 11:16 p.m. CDT, Thursday, June 18, 2009

JEFFERSON CITY — Missouri's retirement system will continue paying performance bonuses, despite criticism from state officials that the incentives are inappropriate because of investment losses.

The board of trustees for the Missouri State Employees' Retirement System voted down an effort Thursday to prevent it from awarding the extra pay. Instead, trustees directed that a study of its salary structure be completed by Dec. 31.

Investment and operations staff at the retirement fund earned about $460,000 in bonuses as the investment system lost $1.8 billion in 2008. The incentives were triggered because the portfolio fared better than the market over the last five years and the operation of the retirement system met expectations.

Earlier this year, Gov. Jay Nixon described the bonuses as "unconscionable" given the fund's losses. Angry lawmakers removed $300,000 from the retirement system's 2010 budget as retribution.

Sen. Tim Green, who is a member of the retirement system board, said taxpayers are frustrated.

"Now you can say we didn't lose as much money as these other plans, but I'm going to give you the simplistic argument I gave you three months ago: That's like my daughter telling me 'Dad, I got a C but everybody else got an F, so it should be OK,'" said Green, D-St. Louis.

Gary Findlay, the executive director for MOSERS, said the system is out-performing its peers and attributed that to incentive payments. He said they reward workers who take on the responsibility of maximizing investment gains and they help recruit talented employees.

Findlay said investment losses mounted broadly amid last year's financial crisis, and that MOSERS was able to avoid about $200 million in further losses. Compared with other state retirement systems, its investment returns were in the top percentiles.

"Nobody did anything wrong, and a lot of them did a lot of things very right to protect this fund in the meltdown period," he said.

Findlay said examining performance over five years is fairer than a single year. The pension system lost 23.9 percent in 2008 but gained 3.9 percent over a five-year period ending last year.

Nixon spokesman Scott Holste said the governor still hopes for changes in the retirement system.

"The MOSERS board should not have passed up this first opportunity to take action to reform the system of bonuses paid to staff," Holste said. "The governor hopes that this study will be productive in bringing common-sense reforms to the way MOSERS does business."

The system operates differently than other state agencies. The Legislature sets pension levels, but an independent 11-member board directly oversees the retirement fund for about 55,000 state employees and 30,000 retirees.

State workers don't pay any portion of their salary into the pension. Instead, the entire operating budget comes from investment earnings and state revenues.

Board member Kelvin Simmons, who is Nixon's administration commissioner, tried Thursday to block the incentive payments.

"This state right now, today as we look at it, is in dire straits financially," Simmons said.

Some board members who support the incentive system quarreled with Simmons over accusations that the governor's office had politicized the debate of Nixon's budgetary decisions on issues such as tax credits and travel.

Trustees also approved a roughly $64 million operating budget for next year. MOSERS will also post a searchable database of its employees' salaries to its Web site and will decide later whether to post the pension benefits for former elected officials and judges.

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