Evaluation and Sustainability of Mississippi’s PERS Retirement Plan

• New PEER report highlights the need for reforms in the public employee pension system to ensure its long-term viability.

Mississippi's public pension system has been operating with significant unfunded liabilities for years, at more than $20 billion, according to PERS. A new report from PEER underscores the fact that the funding gap cannot be filled by hiring new staff and lawmakers must take additional action.

PERS saw its first increase in active membership in over a decade in 2023. Still, the public pension system has a lower ratio of active members to retirees compared to the average pension plan in the U.S. and continues to need attention from lawmakers.

According to a November 2023 Survey on public fundsa lower ratio of active members to pensioners means that future obligations have to be financed through a smaller wage and salary base, although a declining ratio of active members to pensioners does not automatically represent an actuarial or financial problem.

“However, a low or declining ratio of active retirees to retirees, combined with an unfunded liability, can lead to financial difficulties for a pension plan provider,” says a recent report by the Joint Legislative Performance Evaluation and Expenditure Review Committee (PEER).

The overall ratio of active employees to retirees at PERS was 1.25 to 1 at the end of fiscal year 2022, slightly higher than the previous year but lower than the 1.74 to 1 in 2013.

While the committee noted that adding active members would increase the number of workers supporting existing pension benefits, PEER acknowledged that adding new public employees also increases future burdens on the pension system. One solution that reform advocates believe would help mitigate this would be to introduce a different benefits package for new employees, known as Tier 5.

The total number of active PERS members—those who are still employed and work for one of more than 850 entities representing a Mississippi city, county, school district, state agency, university or community college, or other political subdivision—is nearly 146,000. The number of retired PERS members is about 114,000.

“Although the PERS system experienced an increase in the number of active members from fiscal year 2022 to fiscal year 2023, the actual rate of increase (1.10%) was still slightly lower than the rate of increase in retired members of (1.18%),” the PEER report states.

The actuarial firm Cavanaugh Macdonald Consulting, LLC, has completed a four-year study for PERS ending June 30, 2022 and presented it to the Board of Directors at its April 2023 meeting.

As of June 2022, unfunded actuarial provisions for PERS exceeded $20 billion.

In the final days of the 2024 legislative session, the Mississippi House and Senate agreed to stop an expected 5 percent employer contribution increase that was set to take effect this summer for three years. In December 2023, the PERS board voted to change the employer contribution rate from 17.4 percent to 22.4 percent. The plan's actuary had also recommended to the board that the plan's mandated 2 percent annual contribution increases be extended until the plan eventually reaches an employer contribution rate of 27.4 percent.

Local governments made their voices heard at the Capitol, saying that maintaining the increase would result in significant local tax increases to balance city and county budgets.

READ MORE: Lawmakers approve phased increase in PERS employer rates, send bill to governor

Instead, lawmakers replaced the 5 percent increase with a 2.5 percent increase that will be phased in at 0.5 percent increments annually through 2029. Lawmakers also approved a one-time $110 million infusion for PERS and stripped the PERS board of control over setting contribution rates.

But according to the PEER report, more work is needed to shore up the state's pension system as the number of active retirees declines and liabilities rise. The report states, “It is imperative that lawmakers and the PERS Board continue to evaluate the plan's performance and assess the status of the PERS plan going forward.”

Had the originally planned change in the employer contribution rate remained in place, the pension plan would have had a projected future funding rate of 65.5 percent starting in 2047, an increase from the fiscal year 2022 projection of 48.6 percent. But after lawmakers intervened, the PEER report said, “The PERS plan is expected to be less funded in the future than it is today.”

“In addition, a strategy to increase the employer contribution aimed at a lower rate, even combined with a one-time financial injection from the legislature, may not be enough to get the plan back on track. In that case, a final employer contribution rate that exceeds the rate initially recommended by the plan's actuary may be required,” the report added.

Leonard Gilroy of the Reason Foundation told the Magnolia Tribune that the latest PERS report shows the need for further reforms to the state pension system.

“The recent PEER report on PERS underscores the validity of legislative leadership’s call for a financially viable Tier 5 for new employees, as well as the need to address the chronic, structural underfunding of PERS benefits,” said Gilroy, vice president for government reform at the Reason Foundation and executive director of the Pension Integrity Project.

PERS Executive Director Ray Higgins told the Magnolia Tribune during the 2024 legislative session that the PERS system is stable, but that work with the legislature must continue to keep it that way. He also pointed to the need for a Level 5 for future employees.

“To reduce future liabilities and better support PERS, the Board previously recommended a new tier (Tier 5) for future employees, but it is also important that the system is adequately funded to meet the plan's long-term needs,” Higgins said. “PERS is a complex issue with many moving parts. It is important that our data and information is used in the full or correct context and with the correct understanding.”

In October 2023, the PERS Board voted to establish a new Tier 5 for workers entering the system on or after July 1, 2025. According to the Board, Tier 5 would have a four-year vesting period and no guaranteed cost-of-living adjustment (COLA), also known as a “13th check.” Instead, any COLA would be at the discretion of the PERS Board and tied to inflation and the availability of funds. It was proposed that the employee contribution rate be set lower because benefits would be reduced without a COLA.

To read the full PEER report entitled “2023 update on the financial soundness of the public employees’ pension system” Click here.