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Report: Mississippi pension fund won't reach oft-cited funding goal by 2042

According to a report released on April 11 by the Mississippi Legislature's PEER (Performance Evaluation and Expenditure Review) Committee, the state's pension fund won't meet its often-cited funding goal by 2042, possibly requiring the pension fund's board and the Legislature to make changes.

The Public Employees’ Retirement System of Mississippi is the defined benefit pension system for state, county and municipal employees and also manages the separate pension funds for state troopers, 17 municipalities with a fund that predates the PERS system and legislators.

According to the PEER report and a report that PERS issued in December, PERS's funding ratio — which is defined as the share of future obligations covered by current assets — will only be 70.1 percent by 2042, far short of the 80 percent goal set by the board in 2012.

According to the latest comprehensive financial report that was released in December, PERS improved from an anemic return on its investments in 2016 — when it earned only 1.2 percent — to 14.96 percent. The difference between this year's investment income was more than $2.4 billion.

Despite the big difference in the rate of return, the plan's funding ratio only ticked up slightly from 60 percent to 61.5 percent.

The much-improved investment returns also helped shrink the plan's unfunded liability from $17.9 billion in 2016 to $16.6 billion.

The report also laid out the case for and against some potential solutions that include:

  • The PERS Board could increase the rate of employer contributions from 15.75 percent to 17.65 percent, which would help the plan meet an 85 percent funding ratio by 2042. The employer contribution rate was last increased in October 2012.

  • The Legislature could alter benefits to present retirees, which will likely be highly unpopular and go against the contractual standard known as the California rule, which says that employees won't have their benefits diminish while they're employed. The last two bills in 2012 and 2013 that would've changed PERS even slightly didn't make it out of committee.

  • The report also says that the Legislature could change the plan for new members and lower the long-term costs of the plan, but it said this would do little for the current funding problems.

Demographics point to issues ahead with PERS. The number of retirees increased in 2017 to more than 102,000, up 59.9 percent from 2005, when the system supported more than 63,000 retirees. Conversely, the number of contributing employees has decreased to more than 152,000, down nearly 2,000 employees from last year.

The PEER report said that the PERS active member to retiree ratio of 1.46 at the end of fiscal 2017 was above the average ratio for other pension plans nationwide. That ratio was once as high as 2.22 in 2007.

The average age of the plan's members is 44.7 and members with at least 15 years of service represent 27 percent of all state and municipal employees in the PERS system.

Not mentioned in the report was the cost of living adjustment (COLA) that's anything but sweet for the plan's future fiscal picture. The fund provides the 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.

From that point, 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.

Since 2005, the annual amount PERS pays for the 13th check has increased 185 percent, going from $211 million to this year's $603 million.

It's little wonder that the 2011 commission on PERS reform called by then-Gov. Haley Barbour recommended that the PERS COLA be frozen for three years.

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