After Public Employees Retirement System Board of Trustees voted to require an additional $345 million annually from state and local governmental entities to fund the pension plan for their current and former employees, lawmakers are considering changes to the system’s authority.
The PERS board voted in December to increase the employer contribution rate, which is paid by state governmental agencies, school districts, county and city governmental entities. The current government contribution is 17.4% of the employees’ paycheck. The board voted to increase the rate to 22.4%.
Ron Higgins, PERS executive director, said the increase is needed to ensure the system is properly funded long-term.
The increase means state agencies will have to provide an additional $265 million toward their employees’ retirement, and local governmental entities will have to provide the rest. If more money is not appropriated by the Legislature to pay for the increase, the state agencies, university and community colleges and local school districts will have to make cuts in other areas so they can meet the mandate of the PERS Board. Local governmental entities also are required to provide the funds for the increase. Under current law, the Legislature cannot prevent the employer increase from going into effect.
A bill is pending in the Legislature, though — House Bill 605 — that could be used to give the Legislature final authority over whether to enact such an increase. Legislators have expressed frustration this year with the PERS board’s decision to increase the employer contribution rate.
When asked if he planned to bring the bill up for consideration before the full chamber, House Appropriations Chair John Read, R-Gautier, said, “All I can say is the bill is on the calendar. It is out there. It might need some more research.”
During a recent meeting, Senate Appropriations Chair Briggs Hopson, R-Vicksburg, said he understands the need to ensure the pension plan is properly funded, but also expressed concern that the actions of the PERS Board have “a direct impact on the state agencies and programs and opportunities for other people to have jobs and salaries and not get laid off and have cuts in a number of areas.”
Higgins, the executive director of PERS, said, “We just have to make sure it is fiduciary (and) that the system is funded property.” Higgins said the board postponed recommendations of its financial experts to increase the rates in earlier years because of the impact it would have on state and local budgets.
But he said under state law, the only option the board has to correct any funding deficiencies is to increase the employer contribution rate. It would take the Legislature changing the law to allow the board to increase the employee contribution rate or to change the level of benefits. The Legislature has the authority to take such action.
Higgins said more than 300,000 people are members of the system, meaning they are current retirees receiving benefits or are eligible to receive benefits in future years because of their public service. He said the average retiree receives an annual benefit of $26,000.
The planned increase in the employer benefit, which is not slated to go into effect until October, comes on the heels of a year when the system lost more than 8% on its investments. The board postponed recommended increases in the employer contribution rate the past two years in part because of investment earnings of 32.71% in 2020.
But Higgins said the rate increase is not because of investment earnings for any one year. He said it is being enacted because of the long-term prognosis for the system.
The system’s current full-funding ratio is about 61%, meaning it has the assets to pay the benefits of 61% of all the people in the system, ranging from the newest hires to those already retired. It is recommended that a state retirement system has a funding ratio of about 80%.
Hopson pointed out that the Mississippi Public Employee Retirement System employer contribution rate and the rate paid by employees (9% of their paycheck) is among the highest in the country. Higgins agreed, saying the national rate for employees in similar plans is about 6% of their paychecks, and for employers about 15%. The employer rate in Mississippi is currently 17.4%.
Lawmakers questioned whether the board is hiring competent experts to oversee the system and to make investments.
Higgins responded the system’s investment earnings are comparable to those in other states.
But he said the system is stressed by the fact that additional benefits were added for employers in the late 1990s and early 2000s without a method to pay for those benefits.
In addition, the current governmental workforce is shrinking while the number of retirees in the system is growing. Higgins said during the past 10 years, the governmental workforce is down by about 10%, while the number of retirees has increased by more than 25%.
“Every time we take a public service at the state or local level that was performed by a PERS contributing employee and privatize and give it to a someone who is not contributing, that ratio gets more out of whack,” said Sen. David Blount, D-Jackson.
Higgins said the board could provide recommendations on how to reduce the cost to the system. In the past some legislators have talked about temporarily suspending or altering the annual automatic 3% cost of living increase. But outcry from retirees who represent about 10% of the state’s population has stymied those efforts.
Higgins said another option would be to change the benefits for new hires. While that would help long term, Higgins said it would not be an immediate fix.
Sen. Jason Barrett, R-Brookhaven, asked if the board had made any recommendations for the 2023 Legislature to consider. Higgins said it has not, but added it is his understanding that there is not an appetite to address the issue during an election year. But he said the board could provide recommendation.