Monday, May 11, 2015

Senator Ed Emery's Legislative Report‏ May 11th 2015

As the 2015 legislation session is drawing to a close, there are several issues that remain in the legislative process. One issue receiving multiple inquiries deals with a segment of Missouri’s public pensions. Over the last decade, due to the turbulent investment environment, public pension issues have gained increased attention across the country. Missouri’s public pensions have had a more positive experience than many others across the country and for that we are all thankful.

A public pension provision moving through the Missouri Legislature this session deals with the permanent extension of the 2.55 percent benefit multiplier for public school teachers or administrators with 31 or more years of service within PSRS (Public School Retirement System of Missouri). PSRS is a defined-benefit pension plan providing lifetime pension benefits for most public school teachers in Missouri. It is based on the following formula:

The average of the highest three consecutive years of a teacher’s salary multiplied by a Benefit Multiplier (2.5 percent under normal provisions) multiplied by the teachers years of Service.

The bill before the General Assembly this session permanently extends a “bonus” program for teachers and administrators with 31 or more years of service. This program expired July 1, 2014 and an extension is being heavily lobbied for by the teachers' unions. There is, however, the rest of the story:

v The 2.55 percent bonus program was enacted in 2001 under HB 660 which was a public school pension package with a cost to taxpayers of $595 million in pension liabilities. When originally passed, this provision was set to expire in 2008.

v When reauthorized in 2007 under SB 406, the 2.55 percent bonus program was extended to 2013 at a costto taxpayers of $25.4 million in plan liabilities.

v When extended for one additional year in 2013 under SB 17, the 2.55 percent bonus program costtaxpayers an additional $16 million in plan liabilities.

In the General Assembly, we are now charged with the policy decision of permanently extending the 2.55 percent bonus program for public school teachers and administrators with 31 or more years of service which is now reported to produce a savings of $69.9 million in pension liabilities. Reducing pension liability is a positive endeavor, no doubt about it. The dramatic difference between multiple reports of cost associated with this bonus program and now a savings gives me pause for concern. I also find it in conflict with projections that in 1994 the average service of a teacher was 33 years without any kind of retirement incentive while the average service for new 2013 PSRS retirees is 23.2 years.

First, let me be clear, Missouri’s teachers are charged with one of the highest callings - cultivating our most precious blessing and resource: our children. Those that choose this honorable occupation have my highest respect. However, there are multiple concerns I share with a number of my Senate colleagues who, like me, are reluctant to endorse this proposal.

There appear to be two perspectives relative to the extension of this bonus program. One is that the retirement system actually becomes more solvent with the passage of this proposal according to PSRS actuarial professionals. Another perspective surrounds the individual school districts. As this bonus program works to keep long term teachers in the profession, some school districts, including Raymore-Peculiar in my district, have offered retirement incentives to move longer term, higher compensated teachers off of payroll as a budget savings measure. Through these kinds of measures school boards can create career opportunities for a new generation of teachers, lower personnel expenses, and free up budgetary resources.

There have been conversations at the Capitol as to whether it is better to keep long term experienced teachers on payroll or whether “burned out” teachers should be monetarily incented to stay in the classroom. No one seems to have a final answer to that discussion because each individual educator and situation is unique. The General Assembly over the last several decades has worked to craft a rewarding retirement package for Missouri teachers, and Missouri has one of the nation’s best. I believe teachers who want to continue teaching our children will do so without a bonus program. I am concerned about projected savings of a legislative proposal that is built on actuarial assumptions including an assumed annual investment return of at least 8 percent. Missouri’s taxpayers, along with the teachers, contribute the cost of providing these retirement benefits. Should assumptions such as investment returns not perform as assumed, a loss is experienced and must be made up by the taxpayers and teachers.

While Senate concerns and resistance with continuing this bonus program is not popular with teachers, it is important to consider all stakeholders, not just those with the most to gain, when considering legislative proposals. Missouri taxpayers must have a seat at the table in any proposal that exposes them to increasing risk or liability.

Thank you for reading this legislative report. You can contact my office at (573) 751-2108 if you have any questions. Thank you and we welcome your prayers for the proper application of state government.