The Ten Most Common Misconceptions about the Missouri State Employees’ Retirement System (MOSERS)
OK, make that eleven, because no, we’re not the grocery store! Though you’d be surprised how often we’re mistaken for it. And there really are more than just 10 misconceptions that we hear fairly regularly. There are numerous examples of questions from members and inquiries from the public which suggest that what we do at MOSERS remains somewhat of a mystery to some people. To be fair, managing an $8 billion public pension fund is complex, but we make every effort to be transparent in our actions and reduce complexity where possible.
Misconception One: Members of the MSEP 2011 can opt out of the required 4% contribution.
Members of the MSEP2011 make a mandatory 4% contribution of salary by payroll deduction. Members cannot opt out. You are a member of the MSEP2011 if you were employed for the first time in a MOSERS benefit eligible position on or after January 1, 2011. Your 4% payroll contribution is combined with state (employer) funding and investment returns to fund your retirement. The changes that were made in the implementation of the MSEP2011 were designed to help the state of Missouri continue to provide financial security for all members by maintaining the defined benefit (DB) plan structure. It is important to point out that the state’s DB plan was preserved for all state employees, current and future. If you are a member of MSEP2011, visit our website for more information on your retirement plan.
Misconception Two: It’s not worth my time or effort to participate in the State of Missouri Deferred Compensation Program, especially since the state no longer makes a contribution to encourage participation.
Whether or not the state of Missouri also contributes to your deferred compensation account, there are still many plan components that are beneficial to you as you prepare for a financially secure retirement. The Plan offers several investment options, including the easy “set it and forget it” Target Date Funds. Designed for participant success, these funds offer an all-in-one investment strategy that automatically shifts over time as you move toward — and through — retirement. They are simple, smart, affordable, maintenance-free, and will stay focused on your retirement goal, even when you’re not. Other great components of the Plan include:
- quick online enrollment at www.modeferredcomp.org
- easy payroll deductions
- the availability of before- and after-tax (Roth) savings options
- competitively low fees
- local educational specialists with over 80 years of combined service with the deferred compensation plan
- penalty-free access to your contributions after you separate from service (unique to 457 plans)
- free seminars and consultations across the state
A key to success in investing for retirement is to start as soon as you can and contribute as much as you can to a tax-favored account. Investing discipline today equals more freedom in retirement.
Misconception 3: I can’t be working full-time in non-state employment after my retirement from the state and receive a retirement benefit from MOSERS at the same time.
Employment in a non-state position following retirement will have no impact on your MOSERS benefits. If you retire and later return to work for the state of Missouri, in a benefit-eligible position covered by MOSERS, your retirement benefit will be stopped. Your employer determines if you are working in a benefit-eligible position. Working for the state in a position that is not deemed benefit-eligible does not have any impact on your eligibility to continue receiving a retirement benefit. You may work in that position and receive a retirement benefit from MOSERS.
Misconception Four: If I take early social security (such as at age 62) it will negatively impact my MOSERS benefit.
No other benefits impact your MOSERS benefit. Whether MOSERS benefits impact any other benefits you may receive or be eligible for is a question for the other benefit administrators. However, taking early social security at age 62 will NOT negatively impact your MOSERS benefit. Under the MSEP2000 provisions, members who retire under Rule of 80 (or Rule of 90 for MSEP2011) receive a benefit for life plus a temporary benefit payable to age 62 – that temporary benefit is intended to provide a financial bridge from the time the member retires until reaching eligibility for social security retirement benefits.
The federal law that gradually raised the age to receive full Social Security benefits was enacted in 1983, but the age for early Social Security eligibility remained at age 62. The MOSERS temporary benefit became law on 7/1/2000 and was designed to serve as a bridge between your MOSERS retirement and your eligibility for early Social Security benefits. At age 62 the temporary MOSERS benefit stops and Social Security benefits, if you choose to take them, replace the temporary benefit.
Here is a link to the Social Security Administration’s website where you can find your full retirement age, as well as what benefits you are eligible for from them at age 62.
Misconception Five: If I work longer than five years past my first eligibility date for normal retirement I will lose my opportunity to take the BackDROP.
BackDROP amounts are based on the time worked after your normal retirement date. You may work more than five years beyond normal retirement eligibility, but the maximum BackDROP is limited to five years prior to your actual retirement date. Your benefit amount is based on years of service and average pay, so typically the longer you work, the higher your benefit amount.
It is possible under the MSEP2000 that your BackDROP amount could decrease the longer you work beyond age 62. The MSEP2000 has a temporary benefit amount that is included in both the monthly benefit and the BackDROP distribution. By law, this benefit cannot be paid after age 62. The longer you work beyond age 62, the less temporary benefit is calculated into your payment.
For example, consider a member who was eligible to retire under the Rule of 80 at age 55: If this member retired in 2014 at age 60, and elected a 5 year BackDROP payment, 5 years of temporary benefits would be included in the payment (since the member was under age 62 during the entire BackDROP period.) If this member retired in 2020 at age 66 there would be 1 year of temporary benefits and 4 years without the temporary benefit (the member was 61 at the beginning of the BackDROP period). If this member retired in 2024 at age 70, no temporary benefit would be included in the BackDROP payment (the member was older than 62 during the entire BackDROP period). The less the temporary benefit the smaller the BackDROP payment could be. However, by working longer the member is gaining additional salary and service credit which will result in a larger benefit payment for life.
Misconception Six: MOSERS has a direct connection to the Missouri Consolidated Health Care Plan (MCHCP).
Prior to January 1,1994, MOSERS and MCHCP were one organization. HB 1574, which passed in 1992 with a delayed effective date and signed by then Governor John Ashcroft, split the two agencies apart, so MOSERS no longer has a direct connection to MCHCP. Each is now a stand-alone entity. Of course, both agencies manage important aspects of our members’ employee benefits package, and there are many instances of MOSERS and MCHCP working together to ensure that we provide accurate information to our members on these two very important benefits, including our PreRetirement Seminars, our NEW-B Webinars and our annual Benefits U Conference for agency human resources representatives.
Misconception Seven: My MOSERS benefit can run out before I die.
Your MOSERS retirement benefit will not run out before you die. Your MOSERS pension, a defined benefit (DB) plan, is paid for life. No matter how long you live, what retirement options you take, whether or not you take BackDROP (if applicable), no matter who your survivors or beneficiaries are, you will receive a benefit every month for the rest of your life.
Misconception Eight: Benefits paid to Missouri state retirees are overly generous.
Generally speaking, the state’s retirement benefit package, which consists of MOSERS and social security, is designed to replace approximately 75 percent of a career employee’s final average pay (with a career employee considered to be a member with 30 or more years of service). Additional personal savings through programs such as the State of Missouri Deferred Compensation Plan can add to retirement income security. MOSERS retirees receive a retirement benefit based on a formula which uses the member’s final average pay, years of service and a multiplier of 1.7% (the formula for MSEP includes a 1.6% multiplier). The average monthly benefit payable to new state retirees (as of July 30, 2012), was $1,168 per month or $14,016 per year. The average age at retirement was 60.8 years.
Defined benefit (DB) pensions are often the only source of income for many people. They are designed to provide a modest, yet reliable income stream to help reduce the rate of poverty among the elderly. According to the National Institute for Retirement Security (NIRS), in 2010, about 4.7 million older households would have been added to the count of poor or near-poor households if not for their receipt of DB pension income.
Misconception Nine: There is little public value in a traditional Defined Benefit pension plan.
The annual pension benefits paid to state retirees provide a steady, continuous and significant stimulus to Missouri’s state and local economies. Nearly 90% of state retirees remain in the state after retirement. MOSERS distributes over $600 million annually which flows into households of over 33,000 retirees and beneficiaries who buy basic goods and services in our local communities. Click here to see the economic impact MOSERS has on your legislative district.
Defined benefit (DB) plans such as MOSERS have a significant impact nationally as well, in the creation of millions of American jobs and over $1 trillion in economic output. Additionally, a July 2012 research report from the National Institute on Retirement Security (NIRS), showed that defined benefit (DB) pensions play a large role in reducing elder economic hardships such as food, shelter and/or healthcare insecurities.
Misconception Ten: MOSERS does nothing but suck limited resources from public coffers, making it more difficult to fund other worthy government programs.
In general, payments to public pension systems account for a very small percentage of state budgets. However, there are state pension funds that are in financial trouble. The good news is that MOSERS is NOT one of them. In FY13, the state of Missouri’s contribution to MOSERS accounted for only 1.14% of the state’s total budget. The majority of MOSERS’ funding is not from state taxpayers. Rather, it is from its better than average long-term investment returns. For a small investment, Missouri taxpayers get a better bang for their buck because MOSERS is not your average pension fund.
MOSERS Straight Talk 