The governing board of the Public Employees’ Retirement System of Mississippi (PERS) has settled on 15.75 percent as an employer contribution rate that will return the $20 billion retirement fund to safer ground.
If the 15.75 percent of covered payroll rate holds beyond 2013, it will mark the first year since 2005 without a hike in the amount the state, counties, cities and school districts pay into the defined benefits plan. The rate stood at 9.75 percent in 2005.
Employees paid 7.25 percent of wages into the plan in 2005 and have contributed 9 percent since 2011.
The PERS trust board voted unanimously in late October to set the fixed rate effective July 1 on advice from actuarial consultants that the rate should return the retirement plan to 80 percent funded by 2042, a funded ratio that public pension plan analysts say is fiscally sound. Eighty percent is a sizable distance away from today’s funded rate of 58 percent, down from 62 percent the previous fiscal year.
The funding ratio is expected to drop even further before starting an upward climb with the 15.75 employer contribution rate, said Pat Robertson, PERs executive director . She attributed the expected decline to asset losses from 2009. Losses from 2008 have been “fully recognized,” Robertson noted.
“After 2013, as we continue to recognize deferred gains from 2010 and 2011, offset with deferred losses from 2012, we expect to see improvement in the funded ratio,” she said in an email:
Employers have been paying 14.26 percent of covered payroll since July 1, up from 12.93 percent the previous year.
Robertson said the plan is to keep the 15.75 percent employer contribution in place until the pension plan reaches 100 percent funded. She could not rule out a change in the contribution rate at some point, however. “While keeping the rate fixed is anticipated, in accordance with the funding policy, the board will increase the employer contribution rate if it becomes necessary to meet its funding target in 2042,” she said.
Though the funding ratio has declined from 79 percent in 2003 to 58 percent this year, Robertson insists the pension trust is not in jeopardy. “I stand behind my statement that the Public Employees’ Retirement System is financially sound and that the benefits of our members and retirees are secure,” she said.
The previous decade brought significant expansion of the plan’s defined benefits to retirees without funding dedicated to paying for them. In the meantime, the Great Recession battered the value of invested assets.
Trust board member Butch McMillan said he backed adoption of the 15.75 percent fixed rate on employer contributions as the best alternative to constant revisions to the rate. “I like the concept and think it’s a pretty good idea,” said McMillan, the elected representative of state employees and executive director of the Mississippi Department of Rehabilitation Services.
He said he thinks the system is solvent, though he noted its continued weakness from the effects of the sustained recession and the enhanced benefits the Legislature granted in 1999 without “corresponding money.”
A 10-member board governs PERS. It includes the state treasurer, a gubernatorial appointee who is a member of PERS, two retirees, two state employees and one representative each of public schools and community colleges, Institutions of Higher Learning, counties and municipalities. With the exception of the state treasurer and the gubernatorial appointee, members are elected to staggered six-year terms.
The trust board voted unanimously at its Oct. 23 meeting to enact the flat rate employer contribution.
Virgil Belue, retired superintendent of the Clinton public school district, has served on the PERS board for 18 years, including the year legislators sweetened up the retirement package for public employees. “In 1999 everything was looking food,” said Belue, elected by retirees. “Based on the actuarials, legislators thought we could have an enhancement of our retirement system.”
An economic slump brought on by the new decade’s dot.com bust soon followed. A rebound came only to be snuffed out by the late decade recession.
Many public officials view the unfunded enhancements as a mistake. Belue is not among them. “No way in the world am I going to tell you it was the legislators’ fault. They have been good to the retirees,” he said.
Even with the expanded benefits, the state is contributing less to the retirement system than it did 20 years ago, based on total expenditures, Belue said.
“The contribution rate is all the state puts in.”
He said it would be a “shame for legislators to reduce benefits to people they promised them to based on a formula.”
Belue, who is leaving the board in 2013, said he has faith the 15.75 percent employer contribution rate will eventually get the trust back to its desired funding ratio. “If it doesn’t work then somewhere we will have to make some adjustments,” he said.
Board member Thomas J. Lariviere, Madison fire chief and representative of the state’s municipal employees, acknowledged some uncertainty surrounds the PERS fund but noted “I’m optimistic” the fixed rate employer contribution will hold. “Hopefully, it will hold for several years and put some stability back into the process,” he said.