Public employee pensions are much in the news, though not as much as the royal wedding or even the NFL draft. Those may be more exciting, but maybe we should shift our attention to the problems that hit closer to home.
A headline in Tuesday’s New York Times sounded an alarm: “Public pensions, once off limits, face budget cuts.” A report this week from the Pew Center for the States explained why. The states, including our own, are described as being at least $1.2 trillion short of funding their pension obligations and even further from having the money set aside to cover promised health care benefits.
For Missouri state workers, the picture isn’t quite as bleak as in some less blessed states. Although the Pew study points out that our pension system for state employees has slipped below the 80 percent level of funding that’s considered ideal, we’re at 79 percent. That leaves us in better shape than Kansas, which sits at 64 percent, and far ahead of Illinois, the worst in the nation at only 51 percent. Those are 2009 figures, and MOSERS, our state retirement fund, reports investment gains of 16 percent in 2010, so we might be even closer to solid fiscal ground.
In Columbia, a task force has been studying the problem of underfunded city police and firefighter pension funds since last September. No solution has been suggested yet.
Meanwhile, with an interim president and a short-handed Board of Curators, the university seems to be at a standstill in its consideration of changing retirement for future employees. On your behalf, I’ve just fought my way through the “Frequently Asked Questions” section on the university system’s website, and as far as I can tell (which admittedly isn’t very far), there’s a potential problem but no urgency, no looming disaster.
We should still expect that, before long, change will come. If that change looks like the plan suggested by the committee set up by then-President Gary Forsee, it would be a hybrid that mixes the “defined benefit” we current retirees enjoy and the “defined contribution” model that requires more from participants.
Currently, of course, retirees get and career employees can expect a pension that amounts to 2.2 percent of salary times the number of years employed, with the salary calculated as the average of the five highest consecutive years. For the first time, employees now have to contribute directly, 1 percent of the first $50,000 in salary and 2 percent of anything over that. We’ve always contributed indirectly, of course, because the money devoted to pension could otherwise have gone into salaries.
I used the term “career employees” because the study committee reported that more than 60 percent of new hires don’t stick around for even the 5 years required to vest in the retirement program, and only 16 percent stay for 20 or more years. For those who hang on for 30 years or more, the current pension isn’t a bad deal at all. For the more mobile, it’s not so good.
The proposed system, as outlined in the committee’s March report, would combine a smaller defined benefit (1.1 percent of salary times years of service) with a new and potentially more lucrative addition. Employees would contribute a minimum of 1 percent, which the university would match, up to a maximum of 3 percent each. Depending on how much the employee contributes and how wisely the money is invested, the payoff could be better than our current system. The vesting period is a little shorter, too.
In the newsroom, we used to call this kind of stuff DBI – dull but important. When it comes to retirement security, dull sure beats panic. Let’s hope it stays that way.
George Kennedy is a former managing editor at the Missourian and professor emeritus at the Missouri School of Journalism.