Pension COLA war could be coming to Mississippi Legislature's next session
A political fight could be coming over the cost of living adjustment, known as the 13th check, with Mississippi's defined benefit pension system.
The Public Employees' Retirement System of Mississippi — which serves most state, county and municipal employees — provides a cost of living adjustment (COLA) that amounts to three percent of the annual retirement allowance for each full fiscal year of retirement until the retired member reaches age 60. After that, the three percent rate is compounded for each fiscal year. Since many retirees and beneficiaries choose to receive it as a lump sump at the end of the year, the benefit is known as the 13th check.
The cost of that benefit is one of the many factors that is eroding PERS' fiscal position.
In 2005, the system paid more than $211 million to retirees for the COLA, but in just 11 years, that amount has swollen to $559 million. For those keeping score at home, that's an increase of 164 percent.
The 2011 commission on PERS reform called by then-Gov. Haley Barbour recommended that the PERS COLA be frozen for three years.
The COLA isn't the only problem with PERS. According to the last annual actuarial report released in October, PERS' unfunded liability — which is the amount the plan is short of being fully funded — have increased from to $6.5 billion in 2005 more than $16.8 billion in 2017. The plan’s unfunded liability has increased 154 percent in only a decade.
The fund also had the number of retirees increase in 2017 to more than 102,000, up 59.9 percent from 2005, when the system supported more than 63,000 retirees.
The good news was the the funding ratio increased slight from 60 percent to 61.1 percent thanks to strong return on the plan's investments, 14.96 percent. Funding ratio is defined as the share of future obligations covered by current assets.
PERS has become the third rail of Mississippi politics.
State Rep. Jeff Smith (R-Columbus) explained how the PERS COLA works in response to a question from a constituent on Facebook and was hit with criticism from state Rep. Jay Hughes (D-Oxford), who accused Smith of wanting to end the PERS COLA.
Smith later said on Facebook that there were no discussions to eliminate or change the COLA and he'd resign if any changes were made to it.
The exchange showed why none of the reforms recommended by the commission have been enacted by the Legislature.
Just ask former state Sen. Nancy Collins and former state Rep. Brad Mayo, who were defeated in the November 2015 election. Collins lost in the primary and Mayo lost in the general election to Hughes, the only Republican incumbent to fall in the House. Both proposed PERS reforms that played a role in their losses.
Collins proposed a bill that would’ve ended cost-of-living adjustments in lean years for PERS in 2012; Mayo proposed allowing younger workers to opt out of the pension system in 2013. Neither bill made it out of committee.