Treasurer says retirement fund in worse shape than anticipated

State Treasurer Eric Schmitt addressed a committee Wednesday morning on the status of retirement funds. (Garrett Bergquist/KRCG 13)

Unrealistic estimates and excessive fees led to a $5.2 billion pension liability, Missouri's chief financier said Wednesday.

State Treasurer Eric Schmitt told a legislative panel the state's employee retirement fund was funded at lower levels than once thought. Although Schmitt's office does not directly manage the retirement system, it has oversight due to his position on the Board of Trustees. After being almost 100 percent funded at the start of this century, he said the fund is now 60 percent funded. That's before factoring in investment fees and the fact that people now live longer than they did in the 1970s, the last time the state updated its mortality tables.

"This crisis is no longer on the horizon," he said. "It's at our doorstep."

Schmitt said the state already has parted ways with the financial agent it has used for nearly two decades. He said Missouri's old investment team consistently estimated an 8 percent return on investment despite missing that target in 16 of the last 17 years. Last year, the retirement fund netted a 2.5 percent return. This meant the retirement system was relying on funding from interest payments that never came.

"They made decisions in the 1990s in this state when they were flush with cash, and they did a lot of things like tax credits and enhancing benefits that wouldn't come due for 20 or 25 years," Schmitt said. "Well, guess what? We're 20 and 25 years down the road now."

Additionally, Schmitt said his office will work to lower the state's investment fees, currently 7th highest out of 135 public pension funds reviewed by a Boston College study. He said the state was paying more than 3.5 times the national average for investment fees on public pension funds.

Within an hour of Schmitt's testimony, lawmakers showed signs of action. Sen. John Rizzo, D-Kansas City, proposed updating the mortality tables used to calculate retirement payments. Sen. Rob Schaaf, R-St. Joseph, said a single standard should be applied to all retirement funds if possible and asked Rizzo to revisit the idea at the panel's next quarterly meeting. Schaaf told reporters afterward he would prefer to let Schmitt's office work with the state's retirement agency on reforms, but the legislature might have to step in on other issues such as return-on-investment estimates.

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