There are lots of problems with the retirement system that covers Mississippi’s public employees.
The pension plan’s benefits are too generous. It has too many people drawing out and too few paying in, thanks to both longer lifespans and fewer state workers. And the default response whenever future benefits appear in danger is to jack up the amount that taxpayers are forced to kick in.
Another problem is that the board that oversees the Public Employees’ Retirement System is controlled by folks who currently draw benefits or will in the future. All 10 seats on that board are held by current or retired public employees, who are unavoidably conflicted between what’s best for them and what’s best for the taxpayers.
A bill that passed the House this past week would break up that arrangement.
It would instead transform the PERS board from one in which beneficiaries call the shots to one in which non-beneficiaries do.
Under the proposal, there would be an 11-person board. Four would be members of PERS, but seven would not. Those seven would be appointed by the governor or lieutenant governor, and each of those seven would be required to have “knowledge and understanding of the investment of financial assets and of the principles of a retirement plan,” according to the bill.
This change would mirror a suggestion made more than a dozen years ago by a commission appointed by then-Gov. Haley Barbour to study PERS and offer ways to strengthen it.
Most of those suggestions were ignored by the Legislature at the time, but the worsening financial condition of PERS has forced lawmakers to take another look at how to improve the financial health of the retirement system that covers not only state employees but city and county workers as well as the teachers and staff at public schools, colleges and universities.
According to PERS’ most recent financial report, the retirement system is short about $25 billion of meeting its future financial obligations. Based on current projections, the assets in the fund plus future contributions and investment returns would cover only about 60% of the fund’s obligations — a figure that PERS has hovered around for the last several years, even after it upped the employer contribution substantially in 2020. The gold standard for pension funds is to be 80% funded.
The PERS board does not have much control over benefits. Those are set by state law, and only the Legislature can change those rules.
But what the PERS board does control is how much to expect employers to contribute to the plan and how much to expect from employees. Presently, it’s almost a 2-to-1 ratio. Employees kick in 9% of their earnings into their retirement, and employers contribute 17.4%.
The employer rate has been increased eight times since 2005, each time with the assurance that the hike should fix things. It hasn’t.
Now, the actuaries say that, in order to assure the long-term solvency of the retirement system, the employer rate should be jacked up over a five-year period to 27.4%. The PERS board has approved the first of those 2-point increases, which is scheduled to take effect on July 1 unless lawmakers block it. It is also asking for the Legislature to appropriate hundreds of millions of dollars this year to help shore up the system.
The Legislature is not the only governmental body focused on PERS. Cities and counties are also fretting about how they would come up with the money to cover the projected increases in the employer match. They want lawmakers to come up with a solution.
Reducing the conflict of interest on the PERS board and adding some extra financial expertise to it would be steps in the right direction, but they would not be enough to fix the long-term underlying imbalance between money coming in and money going out.
Pushing the employer match to an untenable level is not the answer. Rather, benefits have to be scaled back, certainly for new public employees but also, where legal, for existing employees and retirees.
For example, instead of the currently fixed 3% annual increase in benefits, the cost-of-living adjustment could be pegged to the actual rate of inflation. Such a change would probably face a court challenge on the grounds that it would be a breach of contract, but it’s worth testing.
Another possibility, which would not be subject to legal challenge, is for the state to tax PERS income, just like the federal government already does to PERS, Social Security and other retirement income.
Lawmakers are reluctant to reduce benefits because of both personal and political reasons. As with the PERS board, they have a conflict of interest as beneficiaries of PERS and a second state retirement plan carved out just for legislators. Also, with about 1 out of every 7 adults in PERS, that’s a powerful voting bloc to anger.
Still, 6 out of 7 adults don’t benefit from PERS but are being asked to pay a steadily rising cost to fund it. They deserve some consideration, too.
- Contact Tim Kalich at 662-581-7243 or tkalich@gwcommonwealth.com.
