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Moody's says unfunded liabilities for pension funds increased in fiscal 2017


SHRINKAGE: The Public Employees' Retirement System of Mississippi had its unfunded liabilities shrink in fiscal 2017. Graph by Steve Wilson

Unfunded liabilities continued to increase for state defined benefit pension funds in fiscal 2017, according to a recently released report by credit ratings firm Moody's.

The report also said that increased investment income in 2017 and 2018 would lead to a reduction in this figure.

Adjusted net pension liabilities increased to $1.6 trillion or 147.4 percent of state revenues. That's a big jump from $1.3 trillion or 122 percent of state revenues in 2016. The biggest increases occurred in Delaware, Hawaii, Oregon and South Dakota, whose pension liabilities all increased by 60 percent or more.

Illinois had a 25 percent increase and its adjusted net pension liabilities are now up to $250 billion or 601 percent of the state's revenues.

Mississippi was part of the national trend in 2016 before increased investment income helped prop it up in 2017. The Public Employees' Retirement System of Mississippi — which serves most state, county and municipal employees — actually had its unfunded liabilities shrink from $17.9 billion to $16.6 billion thanks to much-improved investment returns.

PERS earned only 1.2 percent from its investments in 2016, but that figure increased to 14.96 percent in 2017. The difference between this year's investment income was more than $2.4 billion. The plan expects an annual return on its investments, known also as a discount rate, of 7.75 percent.

According to Moody's, the national average is for adjusted net pension liabilities is $12 billion or 106.8 percent of a state's revenue. Mississippi's $16.6 billion in pension liabilities represents more than 301 percent of the state's general fund budget, which was $5.5 billion for fiscal 2019.

PERS: Mississippi's defined benefit pension fund had a good investment year in fiscal 2017. Photo by Steve Wilson

The increase in investment income isn't enough progress to change the fund's long-term cost curve. For years, the fund's board has said the funding ratio — which is defined as the share of future obligations covered by current assets— would be at 80 percent by 2042.

A report released on April 11 by the Mississippi Legislature's PEER (Performance Evaluation and Expenditure Review) Committee said that PERS wouldn't meet that goal unless changes were made.

The PERS board voted in June 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. The employer contribution rate was last increased in October 2012.

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