Missouri Continues to Enhance Pensions

August 13, 2014

Feeling financial pressure, states across the nation have reduced public employee pension benefits in recent years. But according to a new study by Robert Costrell for the Show-Me Institute, Missouri has not cut back on its pensions. In fact, the state recently extended two pension enhancements that were set to expire last year.

Retirement benefits are a form of compensation -- one that has become increasingly expensive over the years as states have eased eligibility conditions, with many states providing retirement benefits in a person's mid-50s. While an annual pension payment, standing alone, may not seem particularly high, Costrell explains that pensions become expensive because an individual collects them for many years.

There are a number of problems with current teacher pension policies:

  • Pensions incentivize teachers to remain in the profession, even if they want to switch careers.
  • Pensions discourage mobility, as staying in one state yields a much larger pension than moving from one state to another.
  • Those who stay in the teaching profession for many years receive a disproportionate amount of benefits relative to their contributions compared to teachers who leave early. Those who leave the teaching profession early fund the pensions of teachers who remain in their careers throughout their lives.

Between 1975 and 2001, Missouri has continued to enhance its pension benefit formula to provide greater pension wealth to retirees.

  • Contributions continued to rise throughout the recession in Missouri. Most states, on the other hand, reduced benefits for new hires.
  • In 2013, Missouri made permanent its 25-and-out rule, meaning that a teacher can retire after 25 years of service and access his full pension.
  • If a Missouri teacher retires at age 50 with 25 years of service, his pension wealth would be $683,000.

Costrell encourages legislators to restructure the pension system to do away with inequities and distorting incentives.

Source: Robert M. Costrell, "Teacher Pension Enhancement in Missouri: 1975 to the Present," Show-Me Institute, July 2014.  

 

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