To Cut Pension Costs, Missouri Offers Retirees Option to Cash Out
By Kurt Erickson
Letters are being sent to more than 17,000 former Missouri state employees asking if they want to cash in early on their pensions.
For former workers, the move could mean exchanging a monthly pension check from the state for a lump sum payment worth about 60 percent of their normal retirement annuity.
For the state, it could clear the books of an estimated $7 million in annual costs and help shore up a pension system that is operating at about 69 percent of full funding.
The voluntary program is part of an initiative outlined in legislation approved earlier this year aimed at helping the Missouri State Employees' Retirement System.
The savings would come because MOSERS would pay out a percentage of what a regular pension would be worth over time and would no longer have to pay the administrative fees associated with tracking all 17,500 beneficiaries.
According to a calculation provided in the letters that began being sent out last week, a former worker who was expecting to receive $586 per month once they reach retirement age of 62 could instead receive a lump sum payment of $36,283 that could be rolled into a private retirement account or used for other expenses.
MOSERs said the average person affected by the program worked for the state for nine years. The average lump sum, one-time payment would be $18,450.
The application period runs through Nov. 30.
In the letter, MOSERS suggests that former state workers consult with a financial expert or a tax advisor to understand the implications of taking the money.
For example, MOSERS says it is required to withhold 20 percent of the taxable portion of a cash distribution for federal income tax.
And, the letter notes, "If you are younger than age 59 1/2 , an additional 10 percent early distribution federal tax penalty may apply."
The pension system also said potential applicants should be patient.
"We anticipate heavy call volume and additional email during this time," the letter reads.
The program is available only to state workers who left the payroll before June 30.
The first wave of letters was mailed to 3,500 former workers who live out of state or have complicated work service history.
The second wave of letters will be sent to about 7,000 former state workers in mid-Missouri in the week of Sept. 18.
Former workers who reside in St. Louis and Kansas City will receive letters sometime after Sept. 25.
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