Public pension plans across the U.S. are revamping compensation policies that allowed bonuses for investment staffers and other top officials while the funds were losing hundreds of billions of dollars during the financial crisis.
In the aftermath of the crisis, state officials are dealing with increases in unfunded liabilities for their plans amid budget crises that have resulted in layoffs, program cuts and reductions in cost-of-living increases for state retirees.
Against that backdrop, “bonuses“ has become a dirty word.
“In recession years ... it's very difficult to give bonuses without people being up in arms,'' said Girard Miller, consultant at PFM Asset Management LLC in Philadelphia.
The issue has played to front-page newspaper headlines in Missouri, where Gov. Jay Nixon has called pension staff bonuses “unconscionable” and has led efforts to terminate the state's bonus program for pension system employees.
Legislators are debating whether to reduce benefits for future state employees who would be covered by the $6.2 billion Missouri State Employees' Retirement System.
At MOSERS, bonuses totaling more than $500,000 to investment and administrative staff are scheduled to be paid in June. But the MOSERS board voted 8-1 in January to terminate the program after 2010, except for the system's two top officials. Leading the charge were the governor's two new appointees to the board.
Scott Holste, a spokesman for the governor, said Mr. Nixon believes the MOSERS bonus system was not transparent and seemingly gave every employee a bonus every year.
“This misguided system had gone on for far too long despite the fact that every dollar the state spent on MOSERS bonuses was a dollar less we are able to spend on education, health care or public safety,“ said Mr. Holste.
Gary Findlay, MOSERS executive director, defended the bonuses at a January trustees' meeting. In an interview with Pensions & Investments, he said the system is now exploring how to best reward employees for their performance, including whether to raise base pay.
“Pension plans must walk a thin line between ensuring talented employees are motivated and retained, and appeasing the greater community struggling to understand the rationale for incentive payouts for negative returns,” said Priya Kapila, a senior consultant with CBIZ Human Capital Services, St. Louis.
Most state pension funds are either studying the compensation issue internally or have hired outside consultants to help. Ms. Kapila's firm, for example, recently was hired by MOSERS.