Amos Bridges

ABRIDGES@NEWS-LEADER.COM

What it is: The combined shortfall of Missouri's 89 public pension plans.

The plans, which provide retirement benefits to a combined 546,000 current and former employees, had accrued future costs estimated at about $73 billion through the end of 2012, according to a recent report released by the Missouri state auditor. The plans' combined assets totaled about $57 billion, enough to cover about 78 percent of the benefits promised.

Springfield's police-fire pension plan, which in recent years had a funded ratio as low as 35.5 percent, had been among the most troubled in the state. But the pension, which provides benefits to police and firefighters hired before 2006, has been on the mend thanks to revenue from a 3/4-cent sales tax approved by voters in 2009. The plan's funding level had improved to 67.7 percent as of June 30, 2013.

Pension board members will receive a report Thursday showing the fund's condition as of June 30, 2014. Janelle Manley, the pension fund's administrative director, said Friday the report will show a slight increase in the funding level, to 69 percent.

Who receives benefits from public pension plans? Although defined benefit pension plans (in which retirees are assured a certain monthly payment that isn't dependent on individual investments like a 401(k) plan) have become less common in the private sector, they remain the standard for employees of many government agencies.

The state runs a number of pension plans for its workers. Some cities and counties oversee their own pension plans while others participate in group plans such as the Local Government Employees' Retirement System (LAGERS) or the County Employees' Retirement Fund (CERF).

As of December 2012, Missouri government agencies sponsored a total of 89 defined benefit retirement plans, providing coverage for about 546,000 current and former employees.

How healthy are the various state plans? Of the 89 plans included in the Missouri state auditor's review, only eight were fully funded at the end of 2012. Funding levels for other plans varied widely, with an average funded ratio of 78 percent. A funded ratio of 80 percent or higher traditionally has been considered healthy, although actuaries and government regulators in recent years have emphasized the need for higher funding levels.

Many of the largest state plans had fallen below that threshold by 2012. The Missouri State Employees' Retirement System (MOSERS), which provides benefits for more than 106,000 current and former state employees, was about 73 percent funded at the time of the auditor's review, while a separate pension fund for state troopers and highway workers had less than half the assets needed to pay for promised benefits.

The two pension systems that provide retirement benefits for teachers and other public school workers had maintained funded ratios between about 81 percent and 84 percent despite the economic downturn. The LAGERS program, which provides benefits for City of Springfield workers (other than police and firefighters hired before 2006), also remained above the 80 percent threshold. Its funded ratio still declined significantly, from 97.5 percent in 2008 to 83.5 percent five years later.

CERF, which offers additional pension benefits for Greene County employees, saw its funded ratio fall from almost 75 percent to less than 69 percent in the same period.

How well have investments performed? The auditor's report singled out the 2007-08 recession and accompanying dive in the stock market as particularly damaging for public pensions, which typically rely on investment income to help provide funding for long-term benefits.

Most pensions in Missouri expect annual returns averaging between 7 percent and 8 percent. Instead, some saw losses of 20 percent or more in 2008, the report shows.

Averaged over 10 years, investment results have been closer to target, according to the report. But several of the large pensions that were surveyed still lagged.

Investment returns for the two public school pension systems averaged a little less than 6 percent from 2003 to 2012, more than 2 percentage points behind the 8 percent target. The pension system for the Missouri State Highway Patrol and state Department of Transportation earned an average of about 6.9 percent a year, trailing its target of 8.25 percent. Both LAGERS and CERF, which provide benefits to city and county workers, were off-target by fractions of a percentage point.

Are government agencies paying enough into the plans? Some pension programs, such as those for public school employees, are funded primarily by contributions from employees. Others depend heavily on government contributions made on employees' behalf.

Springfield city leaders drew harsh criticism in the mid-2000s when they chose not to contribute the full amount into the police-fire pension fund recommended by the plan's actuary. Council members later made up for the $10 million shortfall using money won in settlements with telecommunication companies.

The auditor's review found that only about three out of five of the pension plans surveyed paid the full recommended contribution. Many of those paying less were smaller plans, however — when considering all plans together, the contributions paid in 2012 came to about 94 percent of the total recommended amount, up from 84 percent in 2006.

What changes are being made? The report notes that a number of pension plans have increased contributions and/or decreased benefits for new employees in an effort to curb declining funded ratios. A number also have reduced the assumed rate of return they expect to earn on investments.

Springfield has done all of the above, moving new police and firefighters to the less costly LAGERS plan and increasing the amount existing employees must contribute. In September, the pension board voted to reduce the assumed rate of return from 7.5 percent to 7 percent.

The reduced rate, which was recommended by the pension's actuary, means more contributions will be needed to fill the pension shortfall. The pension still is expected to be at or near full funding when the second term of the pension sales tax expires in 2019. Board members have said the lower rate of return is more appropriate for a closed plan that will be moving to more conservative investments as the proportion of retired participants grows.