The St. Louis Public School Retirement System is suing the state of Missouri, St. Louis Public Schools and Confluence Charter Schools to halt a new law it says will cost the city school retirement fund more than $232 million by 2033 and make it virtually impossible to fully fund.
The law in question, passed by the Republican-majority Missouri Legislature last session and enacted in August, changed state pension statutes so the St. Louis school district will have to pay significantly less money to the city schools pension fund, which covers retirees from the district and the city’s charter schools. The new law also allows employees to retire earlier — when their age plus years of service equal 80, rather than the previous total of 85.
St. Louis Public Schools lobbied for the new law because the retirement system has required the district to pay millions more each year in the past decade, to cover the unfunded liability of the pension fund, something many businesses are facing, often prompting them to walk away from their pension obligations. The difference is St. Louis Public Schools and Confluence – the biggest contributors to the pension fund – are doing so with the backing of state government.
The School Retirement System lawsuit filed Jan. 5 says the new law “will cause significant financial harm to the [retirement system] and permanently damage its ability to provide benefits required by law to its members.”
The retirement fund is currently just 70 percent funded. Before the new law was enacted, Retirement System Executive Director Andrew Clark said, the fund was on track to become fully funded within 19 years. Now, he said, the fund will likely never become fully funded.
“The simultaneous increase in benefits and decrease in employer contributions substantially harms the Retirement System’s ability to provide retirement benefits that are required by law,” Clark said in an email to the St. Louis Post-Dispatch.
The district is currently required to pay 19 percent of its employees’ compensation to the pension system. Before the new law, employees paid five percent.
Under the new law, schools will pay a gradually decreasing rate: 16 percent for 2018, dropping to nine percent by 2032, while employees will contribute nine percent by 2025.
From 2019 to 2033, the schools will pay $232 million less than what the retirement system says is needed to keep the system on track toward being fully funded.
Retirement system officials estimate that the retirement system will be underfunded by $192 million 15 years from now and 80 percent funded.
Without the new law, the system would have been 90 percent funded by 2033, with an unfunded liability of $59 million.