If legislators follow through with a teacher salary hike next year without also providing funds to shore up the state’s Public Employee Retirement System, local school districts will have to absorb a large portion of any teacher pay raise.
Members of the PERS Board of Trustees have announced their intention to increase the employer – schools and other governmental entities – contribution from 15.75 percent of payroll to 17.40 percent, starting July 1.
That increase would cost state-supported agencies an additional $75.2 million. The cost to local school districts would total an additional $40 million – most of which normally would come from state funds; a small portion comes from local funds.
But if the Legislature, for instance, approved the $25 million teacher pay raise Gov. Phil Bryant proposed, but did not provide funds to cover the PERS increase, local school districts could fall further into a financial hole.
“It would not be the first time the Legislature gave a teacher pay raise, but did not provide enough funds to pay for the cost of it,” said Sen. Hob Bryan, D-Amory.
In his budget proposal, Bryant provides funds for both – the teacher pay raise and the PERS increase. In the proposed budget released in early December by the Legislative Budget Committee, which includes Lt. Gov. Tate Reeves, Speaker Philip Gunn and other key legislators, neither are funded. But legislative leaders left room in the budget to consider these and other issues during the 2019 legislative session, starting in January.
“We are still working on that,” House Appropriations Chair Rep. John Read, R-Gautier, said of funding the pension increase. “That has to be addressed.”
A failure to include the cost of the pension increase in its final budget, expected in late March, would be tantamount to a cut to agencies. For instance, if an agency is level-funded, any additional contributions to the state pension program would mean less money for other items.
While the cost to state agencies is about $75 million, the cost for local governments will be close to $25 million. Traditionally, the Legislature does not provide state funds to help pay pension costs for local governments.
Still, most local, as well as state employees, including university and community college faculty and other employees, are in the state pension system, which covers about 325,000 current and former government employees.
The reason for the planned increased in the employer contribution is that PERS has total assets of $26.5 billion, but is funded at 61 percent of full funding, based on the latest numbers. That means that it has 61 percent of the assets needed to pay the benefits of all the people in the system, ranging from the newest hires to those already retired. It is about $17 billion short of full funding.
PERS officials have stressed the program is financially stable, but the goal of the PERS Board is to become fully funded by 2047.
According to a study by the non profit Pew Charitable Trust, Mississippi’s funded ratio is ranked 40 nationally as of 2016.
“Taxpayers or employees would have needed to contribute an additional 4.6 percent of payroll to pay for both the cost of new benefits and the expected increase in the existing pension debt,” the Pew study said. “Mississippi’s pension debt increased by $2 billion from 2015 to 2016.”
The good news is that PERS will not have to pay all of its debts (retiree benefits) any time soon and it is anticipated that the funded ratio, thanks in part to the planned increased employer contribution rate, will improve over time. Of course, dips in the stock market also could have short-term and even long-term impact.
Ray Higgins took over as PERS executive director in the summer, coming from Georgia where he was deputy commissioner of the Department of Early Care and Learning. He replaced long-time executive director Pat Robertson, who retired.
It was during Robertson’s final weeks as executive director that the PERS Board voted to increase the payroll contribution by governmental agencies – a move that was unpopular with legislators who did not want to have to deal with the added cost to state government.
In responding to questions from Mississippi Today, Higgins said the “current status” of PERS is the result of:
• A declining ratio related to workers in the system compared to retirees
• The rewarding of additional benefits in the late 1990s without paying for them
• Impact of the great recession
There has been no discussion of increasing the workers’ contribution to the pension system, which is currently at 9 percent. A 2017 study for PERS indicated why increasing the members’ contribution rate might not be feasible.
“Today’s members are paying 9 percent of their income for their pension benefit while the annual cost of their future benefit (i.e., the normal cost) is only 10.47 percent. This indicates that the employer is only paying 1.47 percent of the annual cost of providing retirement benefits for services performed by today’s members,” according to the report.