The board of trustees for the Public Employees’ Retirement System (PERS) of Mississippi voted last week to increase the amount of employer contributions from worker salaries for the pension fund from 15.75 to 17.4 percent, starting July 1, 2019.
It's an attempt by the board to deal with a problem that first came to light in April after a report released on April 11 by the Mississippi Legislature's PEER (Performance Evaluation and Expenditure Review) Committee said the state's pension fund won't meet its often-cited 80 percent funding goal by 2042.
PERS said the newly-passed employer contribution increase will help the fund become 100 percent fully funded by 2047.
PERS 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 predate the PERS system and legislators.
The 1.65 percent increase in employer contributions could add more than $100 million annually to state and local budgets. If the increase had been put into place in 2008, the plan would've added more than $1 billion in additional revenue to help it cover benefits for retirees and address the plan's unfunded liability.
Using 2017 numbers, that number could add up to about $87 million annually for state government and $27 million for local governments, including cities, counties and school districts.
Only the Legislature can authorize changes in the contribution rates for present employees, which is 9 percent. That would be an unlikely scenario with an election year coming up and retirees likely to rally against any legislator who proposed changes.
Since 2008, contributions by employees and their employers have totaled $15,256,501,500, while benefits paid to retirees during that time have added up to $20,319,827,500.
Making up the difference and keeping the plan solvent is the plan's investment income. Last year, the plan's investments earned a return of nearly 15 percent, up from only 1.2 percent in 2016.
With the investment earnings needed to pay retirees, it's little wonder that the plan's net position barely budged. The plan's funding ratio — which is defined as the share of future obligations covered by current assets — increased slightly from 60 percent to 61.5 percent.
The larger returns helped shrink the plan's unfunded liability from $17.9 billion in 2016 to $16.6 billion in 2017.
The difference between investment income for 2017 and 2016 was more than $2.4 billion. The plan expects an annual return on its investments, known as a discount rate, of 7.75 percent.
In its report in April, PEER recommended increasing the employer contribution for PERS to 17.65 percent.
Back in 2012 when the trustees last increased the employer contribution rate, PERS officials said that the fund would be 80 percent fully funded by 2042.
According to the PEER report and a projection report that PERS issued in December, PERS's funding ratio will only be 70.1 percent by 2042, far short of the 80 percent goal set by the board in 2012.
The employer contribution increase might not be enough to stem demographic headwinds that have hit the pension fund hard in recent years.
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 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.