The Public Employees’ Retirement System of Mississippi Has Taken a Hard Hit
Mississippi’s defined benefit pension fund was hit hard by the economic downturn caused by the COVID-19 pandemic.
The Public Employees’ Retirement System of Mississippi released its annual comprehensive annual financial report on December 15, 2020 for fiscal 2020, which ended June 30 and the plan continues to take on water.
The position of the total pension plan decreased for the fiscal tear 2020 by $393 million (1.4 percent) due to a paltry 3.35 percent in investment returns ($861 million) and the pension’s unfunded liability increased to $19.4 billion.
The plan’s investment income decreased 49.6 percent compared to the year before and the plan’s net position was $27.8 billion, a decrease of $379 million (1.3 percent).
Last year, PERS’ unfunded liability was $17.6 billion and the year before, $16.9 billion. The plan earned a 6.64 percent rate of return on its investments in 2019 ($1.7 billion), which is still below the plan’s annual expectation of 7.75 percent.
The plan’s funding ratio, which is defined as the share of future obligations covered by current assets, shrank from 60.9 percent to 59 percent. While the plan’s obligations will not be due at once, the funding ratio presents a dipstick into the plan’s fiscal health.
One of the reasons for PERS’ financial health is demographics, where a shrinking number of employees support a growing pool of retirees.
Pension benefits paid to retirees increased from $2.747 billion in 2019 to $2.878 billion, a 4.8 percent increase. The number of retirees increased from 107,844 in 2019 to 109,881 in 2020, an increase of 1.89 percent.
The number of contributing employees decreased from 150,651 in 2019 to 149,855, a slight decrease of 0.52 percent.
PERS’ cost of living adjustment (COLA) is better known as the 13th check since many retirees take it in a lump sum at year’s end. It continues to be a sea anchor on the bottom line of PERS.
The COLA payments increased from $699 million in 2019 to $751 million in 2020, an increase of 7.44 percent.
Last year, the COLA represented 25.4 percent of all benefits paid to retirees, but this year, that increased to 26.11 percent.
The PERS plan provides a cost of living adjustment that amounts to three percent of the annual retirement allowance for each full fiscal year of retirement until the retired member reaches age 60.
From that point, the three percent rate is compounded for each fiscal year. COLA maybe the 13th check but due to the magic of compound interest, it now amounts to more than a quarter of the average retiree benefits. This is not sustainable.
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Suggested solution: publish for public inspection a list of the individual monthly retirement amount along side of the amount of the “13th Check” (names redacted). The public outcry may cause elected officials to finally address this issue regardless of fear of their next election. This system is fixable.
Retirees should be more concerned about the solvency of their 12 monthly retirement checks—-not the unfunded 13th check.
Convention wisdom indicates that no individual, no company, no government can long pay out more than it takes in.
“Suggested solution”: Let the retired go back to work in governmental jobs and continue to collect benefits as promised. All retirement deductions must still be paid. The retiree shall not have any additional gain or change to the already agreed terms that they retired under. And guess what, more $ goes into the retirement system without any increase of “paid out benefits”. Plus we get some really great people working in governmental positions. What are the Legislatures worried about??? Just “Convention wisdom”.
I don’t get a “13th” check. I get a Cost-of Living Adjustment.
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