Investment earnings of nearly 33% during the past year allowed the governing board of the state’s Public Employee Retirement System to vote not to increase the contribution rate paid by the state and local governmental entities to the pension plan.
Earlier this year, it looked as though the board would vote to increase the employer contribution rate, meaning state and local governments would have to provide more funds to the massive system that about 10% of the state’s population is invested to some degree.
But earlier this week, the board opted to continue monitoring the system, but not to make any changes at this point.
“The board voted to retain the 17.40% employer contribution rate for fiscal year 2023,” said Ray Higgins, the executive director of PERS. “After considering the impact of last year’s 32.71% investment return on the fund and estimated actuarial projections, we felt it was appropriate to stay the course for now and continue to monitor.”
The large return on the system’s investment comes after earnings of 3.35% on investments in the previous year. Based at least in part on those earnings, there was a belief that the employer contribution rate was going have to be increased to move the system closer to full funding
A report earlier this year by the Legislature’s Performance Evaluation and Expenditure Review Committee highlighted the possibility of the employer contribution rate being increased. The report pointed out that some warning indicators were “flashing red” for the system.
The system had a full-funding ratio of 58.8% last June, down from 61.3% the previous June. That means that it has almost 59% 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. Theoretically, it is recommended that a system has a funding ratio of about 80%.
Most state, city and county employees and public educators are in the system that currently has about 335,000 members, including current employees, retirees and others who used to work in the public sector but no longer do.
If the employer contribution rate had been increased, it could have meant that the state and local governments would have had to plug an addition tens of million of dollars in the retirement system.
When the board voted in 2019 to increase the employer contribution from 15.75% to 17.40% for each employee, it meant an additional $100 million annually from the state and local governments were put into the system.
Under the state Constitution, the Legislature cannot block a decision of the PERS Board of Trustees to increase the amount paid by state agencies, local governments and education entities into the pension plan. If the Legislature opted not to provide the extra money to pay for any increase, it would just come out of the amount the Legislature budgeted for the agency, taking money from other programs.
While the Legislature cannot block the action of PERS to increase the employer contribution, both Senate Appropriations Chair Sen. Briggs Hopson, R-Vicksburg, and his House counterpart Rep. John Read, R-Gautier, praised the Board’s decision not to take any action at this point.
“Increasing the employer contribution would have taken money from agencies that would have gone for operations,” Hopson said.
Still, both Hopson and Read said the financial stability of the system is paramount and believed it should continue to be monitored. They both said other steps might be needed to stabilize the system.
“I think there are other steps that can be taken (without increasing the employer contribution) to stabilize our retirement system,” Hopson said.
Read said, “Of course a few years of 33% growth would solve a lot of the problems.”
Employees in the system pay 9 percent of their salary toward their retirement. It was increased from 7.25% in the late 2000s by the Legislature. The average yearly benefit from the plan is about $25,100.
The system has total assets of about $35 billion.
The PEER report from earlier this year cited a litany of issues with the system. They included:
- The decline in public sector workers.
- A growing number of retirees.
- Slow wage growth for public employees.
- Benefits that were added by the Legislature in the early 2000s.
- Investments not meeting returns in some years.