Actuaries reported in October that the PERS funding percentage — the share of future obligations covered by current assets — ticked down to 60.4 percent from 61 percent the year before.
The unfunded accrued liability, the amount of money that the system is short of being fully funded, rose by $1.5 billion to nearly $16 billion.
Those changes are not because the pension fund lost money in the stock market. The fund returned 3.4 percent on its investments during the 12-month period.
However, the board made changes to its future outlook for inflation and investment returns. The board had assumed that, between inflation and stock market returns, it would make 8 percent a year on its money. But because inflation has fallen in recent years, the board lowered that assumption to 7.75 percent. PERS Executive Director Pat Robertson said the board had considered lowering the rate of return two years ago, but held off. But the underlying assumption of a 3.5 percent inflation rate no longer looked realistic.
The lower rate of return means, other things being equal, that the pension fund needs more money now to make future payments, dragging down the funding percentage and pushing up the unfunded liability.
“What it does is it changes the present value of that liability,” Robertson said.
The board also changed its other assumptions, including adjusting downward the projected rate of pay increases for state employees. Those changes also boosted the unfunded liability, but by much less than lowering the projected rate of return.
The changes mean that PERS now projects that it will be 34 years before it pays off its accrued debt, instead of the 29 years previously predicted.
Robertson continues to express confidence, though, that the October 2012 decision to freeze contribution rates at 9 percent of salary for workers and 15.75 percent of salary for state and local governments will bring the plan back to fiscal health.
“We’re still on target in conjunction with the 2012 funding policy, to exceed that 80 percent funding goal,” she said.
The main pension plan included 157,215 active contributors and 96,338 retirees as of June 30.
Mississippi is far from the only state to cut its projected rate of return. Figures kept by the National Association of State Retirement Administrators show that more than half of the 126 large public pension funds tracked by the association have lowered their rates since 2008. Mississippi’s rate or 7.75 percent is at the median, or midpoint, of assumptions nationwide.
It’s unclear whether lawmakers will react to the pension fund’s decline. Recommendations from a 2011 commission appointed by then-Gov. Haley Barbour, including freezing the 3 percent cost-of-living raise for three years, went nowhere. Any appetite among Republicans for further changes to PERS seems to have faded. That could have something to do with electoral opponents who are quick to criticize proposals for changes.
State Sen. Nancy Collins, R-Tupelo, lost her seat in a primary election in which her advocacy of changes to PERS was an issue. Collins introduced a bill in 2012 freezing the cost-of-living raise in years when funding was below a certain level, but pulled it back after sharp attacks. Rep. Brad Mayo, R-Oxford, was also subject to attacks over his proposal to let new employees opt out of PERS in his general election loss to Democrat Jay Hughes.
— JEFF AMY, Associated Press