Maybe it’s not the job of a legislative watchdog group to propose reforms to the unsustainable public pension plan in Mississippi. Or maybe those who do the analysis for lawmakers have a conflict of interest, since they, too, benefit from the plan as it is generously constructed.
Either way, the PEER Committee’s latest update on the financial soundness of the Public Employees’ Retirement System is better at describing the problems than it is at offering solutions.
The problems have been well-documented.
PERS is a terribly expensive retirement plan whose main response to its chronic structural imbalances is to keep raising the amount that taxpayers have to kick in to sustain it.
Last December the PERS board voted to increase the employer rate by 5 percentage points — the ninth rate hike since 2005 and the largest in history. The increase was supposed to take effect this October, but the PERS board — under political pressure from the Legislature — agreed to put off the increase for nine months. It’s now scheduled to take effect in July 2024.
The delay had nothing to do with PERS’ balance sheet. It was all about politics. Lawmakers didn’t want to increase the taxpayers’ annual share of the pension plan by another $350 million or so on the eve of the November election.
Nor is that the only delay that is designed to obscure how bad things really are. PERS continues to knowingly use an inflated projection for future returns on its investments. Almost two years ago, the retirement plan’s actuary said that average annual earnings of 7% were a more realistic target than the 7.75% PERS had been using. The PERS board, however, opted to phase this change in gradually, and to make reductions to the rate contingent on better-than-expected returns. The assumption has only been cut so far to 7.55%.
Assuming that the hike to the employer contribution sticks next year, for every dollar that state employees, schoolteachers and local government workers earn, it will cost 31.4 cents — 22.4 cents from the taxpayers, 9 cents from the employee — to cover the retirement plan costs. That is more than double what Social Security costs and almost three times more than the average combined employer-employee contribution to 401(k) plans, the dominant retirement savings vehicle in the private sector.
Constantly raising the contribution rates is not just an added burden for taxpayers. It’s also not a long-term solution. If it were, PERS would not have to keep coming back to the same well so often.
The public retirement system has been needing an overhaul for at least the past two decades, but most commonsense reforms have gotten nowhere. That’s because lawmakers don’t want to risk angering state employees and retirees by reducing benefits. Nor do they want to risk jeopardizing their own benefits, which include not just one but two state-supported pension plans.
Eventually, though, the system is going to crash if something isn’t done to change how benefits are calculated.
One obvious reform is to base retirement pay on an employee’s entire government salary history, not just the final four years, as is currently the case.
Another would be to replace the automatic 3% annual cost-of-living increase with one based on actual inflation. In this current period of high inflation, that change might cost more, but over time, based on historical data, it would cost less.
