The Board of Trustees of the $20 billion Public Employees’ Retirement System of Mississippi trust fund has agreed to up the state’s contribution to the plan in 2014 in hopes of reversing a slide in the funded portion of the trust’s liabilities.
The move follows a composite loss of $1.87 billion for fiscal 2012 and a 10-year drop in the amount of liabilities actually funded from 79 percent in 2003 to 58 percent in the last fiscal year.
Under the new plan, the employer contribution rate to the defined benefits plan will climb to 15.75 percent of covered payroll on July 1, 2013, from its current 14.26 percent. It conceivably would remain there through the next three decades.
“While the fixed rate is an increase from the current rate, the fixed rate is lower than the 15.83 percent rate that would have been required effective July 1, 2013, under the prior policy,” Pat Robertson, PERS director, said in a notice to the state, county and local officials who must plan for the increased contribution.
Robertson said the fixed rate is designed to provide more stability in the budgeting process of participating employers and could put the trust on track to achieve an 80 percent funded ratio by 2042.
That would mark a substantial reversal from the slide the funded ratio has taken in recent years. The share of the PERS trust available to cover today’s payments to the plans approximate 88,000 retirees fell to 58 percent from 62.2 percent in the fiscal year that ended June 30. The 58 percent represents $14.5 billion in pension obligations that are unfunded.
A return on assets that fell 3 percent short of the 8 percent earnings target contributed to erosion of the funded ratio.
Analysts say they are uncomfortable with funded ratios that drop below the high 60s and have warned states that continued declines in funded ratios could lead to downgrades in credit ratings. For the states, downgrades could significantly increase the cost of borrowing money.
A 25-year cash flow projection shows the trust took in $1.38 billion in fiscal 2012 and had projected benefit payments of $1.83 billion. With investment earnings, the assets rose to $1.56 billion, though that sum still left nearly $500 million more exiting the plan than coming in each year.
Fiscal 2013 projects benefit payments of $1.83 billion offset by contributions and earnings of $1.65 billion.
Seeking to increase the funded ratio when investment losses began shrinking the plan’s assets, the PERS trust board increased employee contributions from 7.25 percent of wages to 9 percent effective July 2010.
Whether legislators will tackle reform of the PERS system in the 2013 session is anyone’s guess. Lawmakers are reluctant to tinker with a plan that covers nearly 90,000 retirees and has another 120,000 current workers. Before leaving office, former Gov. Haley Barbour appointed a PERS task force that presented a host of proposals that Barbour touted as having the potential t save Mississippi taxpayers more than $100 million a year in state general fund contributions to the retirement plan.
Much of the savings would come through increases in retirement ages, changes in the way retirement benefits are calculated and freezing of cost of living allowances for retirees.
The state has four public employee defined benefit retirement plans to provide pension benefits for all state employees, sworn officers of the state highway patrol, other public employees whose employers have elected to participate, and elected members of the state Legislature and the president of the Senate.