The University of Missouri System is creating a hybrid retirement plan, combining defined benefit and defined contribution components, for employees hired starting Oct. 1, 2012.
University officials said the decision to close the existing $2.5 billion fund to new participants and create a hybrid was made to establish a long-term strategy for the still-healthy defined benefit plan to guard against problems that have afflicted other public pension plans.
“We are not immune to changes in the economy,” said Betsy Rodriguez, Columbia-based vice president of human resources at the University of Missouri System.
The decision doesn't change the terms of the current defined benefit plan for faculty members and staff.
Within the new hybrid, the DB component will have several features identical to the existing plan. The vesting period for both is five years. Annual employee contributions — 1% of pay per year up to $50,000 and 2% over $50,000 — is the same for both.
The hybrid DB component will be held in the same trust and managed with the current DB plan assets, which are run internally. The asset allocation for the current DB plan is 37% global equity; 15% global fixed income; 15% Treasury inflation-protected securities; 12% high-yield fixed income/bank loans; 6% real estate; 5% absolute-return strategies; 5% private equity; and 5% emerging markets debt.
The differences involve the university's annual budgeted contribution (7.25% of an employee's pay for the existing plan and 3.21% for the hybrid plan) and the multiplier used to determine a participant's benefits.
The hybrid's DC component includes an automatic annual contribution by the university of 2% of a participant's pay. The university also will match — dollar for dollar — a participant's contribution up to an additional 3% of pay.
The university's contributions will be put into the 401(a) plan while employee contributions probably will be made to a 457(b) plan, although a final decision hasn't been made, Ms. Rodriguez said.
“The goal was to keep the price of the plan about the same,” Ms. Rodriguez said. “We will spend slightly more (for the hybrid), but there will be less volatility over time.”