Troubled Missouri pension system offers buyouts to former state employees

A Missouri pension system whose financial performance has raised red flags is offering lump-sum payments to some former state employees.

The Missouri State Employees' Retirement System (MOSERS) announced in a news release that buyout letters will be sent to 17,000 former Missouri state employees.

"The letters will inform former state employees of their option to cash out their future retirement annuity as a lump-sum payment now rather than wait until they reach retirement eligibility," MOSERS said. "The program is completely voluntary."

Current state workers and retirees are not eligible, MOSERS said. A new state law that took effect in late August allows MOSERS to offer the buyouts.

Any buyouts taken by former Missouri employees will be 60 percent of the amount required to fund their future benefits as of Oct. 1. On average, this comes out to $18,450.

MOSERS has set a Nov. 30 deadline to apply for a buyout.

The pension system provided a snapshot of the eligible workers, who average nine years of service; would earn an average monthly benefit of $450; and would normally retire an average of 12 years from now.

According to the law, anyone taking a buyout "shall forfeit all such member's creditable or credited service and future rights to receive retirement annuity benefits from the system under this chapter and shall not be eligible to receive any long-term disability benefits."

A MOSERS website offering additional buyout information notes that members electing to receive lump sums may take a cash payment, roll over the payment to another retirement plan or some combination of both.

Members taking buyouts might suffer tax penalties if they take cash buyouts.

In those cases, MOSERS says it would be required withhold 20 percent for federal income tax purposes.

Also, former employees younger than 59-and-a-half years-old would have to deal with an extra 10 percent "early distribution federal tax penalty," according to MOSERS, though some exceptions may apply. 

Over the past several years, the warning lights on MOSERS have been flashing faster.

The health of a pension system can be measured by the ratio of its assets to its future liabilities. In July 2011, MOSERS' funded ratio was at 79.2 percent — not dire, but not at the optimal spot of 100 percent funded.

By July 2017, the ratio had decreased to 69.6 percent.

The downward trend has drawn the attention of state Treasurer Eric Schmitt, who earlier this year cheered the passage of the bill containing the buyout legislation.

"Earlier this year, I called on the Missouri General Assembly to pass an advanced benefits reform package in order to reduce the fiscal burden of our state's troubled pension system," Schmitt said in a May statement. "I applaud the legislature for answering that call last night and taking this important first step toward shrinking the size of our pension problem through smart, fiscally conservative reforms."