YELLOW SHEET Office of the State Auditor of Missouri Claire McCaskill

Report No. 2006-02

January 2006

The following items were noted as a result of an audit conducted by our office of the Missouri State Employees' Retirement System.

In fiscal year 2005, the retirement system board began providing its employees the same guaranteed annual cost of living adjustments (COLA) as provided to system retirees and survivors.  Fiscal year 2005 COLA increases, which totaled approximately $56,000, were less than the state pay plan.  In years when the state pay plan provides no, or smaller, COLA increases, the new policy may provide raises to Missouri State Employees' Retirement System (MOSERS) employees significantly higher than available to all other state employees.  Additionally, once every two years the board adjusts salaries based on a salary survey conducted by MOSERS employees.  The 2004 salary survey process provided for total annual increased compensation of approximately $78,500 for 28 employees, effective January 1, 2005.  The next salary survey is to be performed in 2006.

The board also provides its employees with significant potential annual performance incentive payments which are generally not available to other state employees.  If the retirement fund performance benchmarks are met or exceeded, the Chief Investment Officer and investment section employees are eligible for various  incentive amounts based on quantitative and/or qualitative measures.  For example, the Chief Investment Officer's employment contract provides for an annual incentive payment of 30 percent of base pay in addition to the incentive payment received under the investment employees incentive program.  Effective in fiscal year 2005, the board implemented an incentive compensation program for all other staff, based on various other quantitative and qualitative measures.  Additionally, the Executive Director's employment contract, effective March 2004, provides for an annual incentive payment up to $20,000 as determined by the Board of Trustees.  In his response to the audit recommendations, MOSERS' Executive Director stated "the pay plan was designed to attract and retain the high caliber talent needed to effectively and efficiently administer a multi-billion dollar pension plan" and cited information regarding MOSERS' investment and operational performance.  The complete response is included in the audit report.

MOSERS spent approximately $314,000, $311,000, $275,000, and $363,000 on travel and meeting expenses during fiscal years 2004, 2003, 2002, and 2001.  Although the board has established travel policies, the policies do not provide limits on the amounts that will be reimbursed for certain travel expenses.  The board also has not established a system for reporting travel expenses and gifts that board members and employees have accepted from third parties.  Accepting meal expenses or other gifts, including those allowed by MOSERS current policy, from entities which MOSERS contracts with or could potentially contract with could give the appearance of a conflict of interest.

Complete Audit Report