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Analysis: Public pension fund faces test after 2 weak years

JEFF AMY

JEFF AMY

Lawmakers, county supervisors, mayors, school superintendents and college presidents should hope that the run-up in the stock market that began after Donald Trump’s election continues.

Because if it doesn’t, Mississippi’s Public Employees Retirement System may be asking agencies to contribute more to make up the public pension fund’s deficit. That’s because, after two poor years of market returns, the $25 billion pension fund is no longer on track to meet its long-term goals. In fact, under PERS rules, if the fund doesn’t recover by this time next year, the board is supposed to seek higher contribution levels.

“We are not funded where we should be,” Executive Director Pat Robertson said. “However, we are not in a crisis. The board has a policy in place to make sure we don’t get to a crisis.”

It’s the first major test of a plan to stabilize PERS enacted in 2011. After years of changes, the plan locked in employers to paying 15.75 percent of payroll for pension contributions. PERS is supposed to use the vast majority of those contributions money to chip away at its unfunded liability — the difference between what it has on hand now and how much it needs to pay all current and future benefits. The idea was that by 2042, PERS would have enough assets to meet 80 percent of its total liabilities.

But a projection report presented last week to PERS trustees shows that right now, in 2042, PERS would be only 63 percent funded. The policy of the PERS board calls for asking for larger contributions from funding agencies if that level falls below 80 percent for two years in a row.

The projected funding level is falling because, in the last two budget years, PERS investments have returned 3.4 percent and 1.2 percent. Both are well below the assumption that investments will grow by 7.75 percent in the average year. Because the system’s income — contributions and investment income — are being outstripped by pension payments, total assets fell by more than $750 million in the year ended June 30.

This ugly picture could be greatly improved by a good year in the stock market. Robertson said that if investments earn more than 13 percent in the current year, projections for 2042 will rebound above 80 percent and PERS won’t have to ask employers for more money. While 13 percent sounds like a lot, the fund has earned more than that in five of the last 10 years. The biggest problem is that the last decade also includes what may be the worst year on record — 2009 — when the fund lost 19 percent of its value in the stock market’s meltdown during the worst of the recession.

The smaller, separate pension fund that covers the Mississippi Highway Patrol is already at the point where trustees must ask for more money. Robertson said actuaries want the contribution rate to rise from an already-high 37 percent of payroll to 50 percent. Robertson said that’s in part because the state isn’t regularly hiring new state troopers, only holding trooper schools periodically. Thus the number of employees contributing to the Highway Patrol fund has been shrinking.

Some observers have long worried that PERS would be a too-heavy burden to fund, but the politics of changing pension payouts for public employees who mostly don’t make very much money has led lawmakers to shy away from changes. Robertson keeps calling for patience, likening PERS’ situation to paying down the balance on a mortgage over decades.

“It’s going to take time to get out of this,” she said. “That’s where we are.”

» Jeff Amy has covered politics and government for The Associated Press in Mississippi since 2011. Follow him at: http://twitter.com/jeffamy . Read his work at https://www.apnews.com/search/JeffAmy .

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