Missouri treasurer says pensions underfunded by $5 billion

JEFFERSON CITY, Mo. -- Missouri's treasurer on Wednesday told a panel of lawmakers the state employee retirement pension plan is only 60 percent funded and warned action is needed to prevent damage to state finances.

Treasurer Eric Schmitt told the Legislature's Committee on Public Retirement the pension plan is underfunded by more than $5 billion. He cited an 80-percent funding mark as being healthy, although that would still leave the state below the amount needed to pay all the retirement benefits it potentially owes.

"This crisis is no longer on the horizon; it is at our doorstep," Schmitt said. "The future of Missouri's finances are at stake, and this is a conversation that we need to have."

Schmitt added 60 percent might be too generous. He said that's based on a higher rate-of-return on investments than is realistic and outdated death rates he said need to be updated because of longer life expectancies.

Schmitt said considering those two factors, the public pension system might be less than 50 percent funded.

The treasurer placed blame on the retirement issue on past administrations for what he said were unreasonably high expectations of investment earnings. Schmitt said returns have been below predictions in 16 of the last 17 years.

According to data from the Missouri State Employees' Retirement System, investment returns have averaged close to 7 percent over the past 20 years. Returns have been lower in recent years, averaging close to 4.5 percent over the past 10 years and less than 1 percent over the past three years.

Schmitt also complained the state is paying too much in investment fees.

He said he'll ask the Missouri State Employees' Retirement System board to lower expectations for earnings and work to lower investment fees during a meeting today.

Schmitt also said it's likely lawmakers will need to spend more money on employer contributions when budgeting next year. He estimated an increase of $15 million to $30 million is needed next year to help get the pension system back on track.

Some action already has been taken by lawmakers to address public retirement funding.

Lawmakers during the annual session that ended in May passed legislation to allow public employees to qualify for lump-sum buyouts on pensions after working for the state for five years, and the Missouri State Employees' Retirement System last week announced it was offering buyouts to more than 17,000 employees.

According to the agency's latest annual report, there were about 115,000 people in the public retirement system as of fiscal year 2016.

Buyouts are worth 60 percent of future retirement benefits, which could save the state money.