Mississippi Public Employee Retirement System leaders will ask the Legislature for a cash infusion during the 2024 session.
The board of trustees for the public pension plan is “seeking a cash infusion or direct appropriation from the Legislature,” PERS Executive Director Ray Higgins said in emailed response to questions from Mississippi Today.
The rare cash infusion request is one of a litany of proposals board members plan to offer to the Legislature in an attempt to ensure the financial viability of the public pension plan, which provides retirement benefits for most state and local government employees, including public school teachers.
Normally the Legislature does not provide direct appropriations to PERS. Instead, it is supported by governmental entities paying 17.4% of payroll for each employee. In addition, employees pay 9% of their payroll into the system, and the system also receives investment earnings.
In recent years, efforts have been made to improve the system’s financial viability that has been negatively impacted by multiple factors, including a decrease in the number of government employees. A reduction in the public sector workforce means less funds for the system.
PERS is providing or will provide benefits to about 325,000 members, including current employees, retirees and others who used to work in the public sector but no longer do.
It is not clear how much cash the PERS board might ask the Legislature to consider pumping into the program.
“Officially, yet to be decided,” Higgins said of the amount of money the board will request. “However, it could and likely will be a general request for funding and consideration of a new or dedicated (continuing on a yearly basis) revenue stream. It will also likely include a request for direct appropriations and/or funding for the estimated costs associated with the benefit increases from the late 90s and early 2000s.”
Higgins has said that money was never provided to pay for the enhanced benefits that were provided to PERS beneficiaries in the 1990s and 2000s.
The request would be made at a time the Legislature is flush with funds, thanks in large part to a major rush of federal money. The state had about $3 billion in reserves before the 2023 session and still has well over $1 billion.
According to a study by the Pew Charitable Trust, the Mississippi pension plan would need an additional $1.4 billion to reach its “net amortization benchmark,” which is the amount needed to prevent the plan’s unfunded liabilities from increasing. The system’s current 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. Of course, all of the people in the system will not retire at once. Theoretically, though, it is recommended that retirement systems have a funding ratio of 80% or more.
The system has $30 billion in assets and is underfunded by about $20 billion.
During an August meeting, the PERS board also voted to propose a new benefits structure for new hires. Details of what the new benefit structure would look like are still being contemplated, but it could include a new method of providing cost of living adjustments instead of the current system, where a 3% cost of living adjustment is guaranteed each year. The change to the COLA would be for new employees only.
Another recommendation could be a change to the payout method for the cost of living increase for future employees.
Under the current system, many people take the annual 3% cost of living increase as one lump sum payment at the end of the year, often referred to as “the 13th check.” The PERS board recommendation is to make the default choice for retirees to receive the cost of living increase divvied up as part of their monthly retirement checks. The employees would have to request specifically for the cost of living increase to be paid as a 13th check instead of monthly.
Changing the payout method from a lump sum to monthly for the annual cost of living increases would not result in less money for retirees, but it would give more flexibility to the system since it would not be taxed with paying the entire total at one time at the end of the year.
The board did vote to increase the employer contribution rate for each employee by 2% starting with the new fiscal year in July. This means the employer contribution rate would increase to 19.40% of payroll in July.
The board anticipates additional increases in the employer contribution rates in coming years with a possible projection of a rate of more than 27% of payroll.
“This potential future employer contribution rate will be updated in subsequent actuarial reports (typically presented each December) beginning with the next one for the state fiscal year ending June 30, 2023,” Higgins said.
The board has sole authority to increase the employer contribution rate, but it is up to the Legislature and local governmental entities to find the funds to pay for the increases or to cut other services to provide the funds.
It is estimated the total cost of the 2% increase to all governmental entities is $138 million per year.
The board was considering increasing the employer contribution rate earlier, but delayed the increase after an outcry by legislative leaders during the 2023 session. At that time, Higgins committed to providing the Legislature with recommendations from the board to help with the system’s long-term financial viability.