Day of reckoning ahead for Mississippi’s Public Employment Retirement System

Panel studying possible changes to state retirement system benefits

Gov. Haley Barbour

Upgrades in retirement benefits granted to Mississippi’s public sector workers a decade ago could get rolled back as the state, its cities, counties and school districts struggle to stay financially afloat.

Citing an “unsustainable” burden on Mississippi taxpayers inching toward $1 billion annually, Gov. Haley Barbour wants a close look taken at altering the retirement benefits awarded current and future public employees in the state.

To that end, he has created a study commission to determine options open to the state, its counties, cities and school districts that cover about 248,000 employees in the Public Employment Retirement System of Mississippi, or PERS.

About $400 million more is going out each year from the fund than is coming in, and projections are that the employer share of PERS funding is projected to climb yearly through at least 2015.

Barbour is leaving office insisting the state must free itself from the  “wrongheaded polices” that led to enhanced taxpayer-funded benefits in the late 1990s for public service workers enrolled in PERS.

Those extra benefits included guaranteed annual cost-of-living adjustments for workers through age 55, and compounded thereafter. In a further sweetening, Mississippi legislators increased from 1.875 percent to 2 percent the rate at which a state employee accumulates pension benefits. So a state worker after the year 2000 could accumulate 20 percent of his salary toward retirement after 10 years.

The tab for these system liability costs, according to Barbour’s office: $3 billion.

Meanwhile, unions representing teachers and state employees in Mississippi fear Barbour may be setting the stage for a rollback of benefit upgrades the state granted during the more prosperous late 1990s. A rollback could occur, but first the state must determine the legality of such a move, said State Treasurer Tate Reeves, a member of the PERS Board of Trustees, in an interview.

“The question is: Can they do a rollback for ones currently retired or who have been paying into the system?” Reeves said.

He said he hopes suggestions come out of the study commission that will help provide long-term solvency and ease the strain on the state and other public entities that pay into the system.

Barbour persuaded legislators last session to postpone an increase in taxpayer contributions to the plan for six months, a moratorium set to expire at the end of the year.  The funding delay saved the state about $70 million and counties, cities and school districts participating in the PERS plan an estimated $20 million.

Barbour’s push for the funding stoppage came after the PERS Board of Trustees approved an increase in the taxpayer contribution to 12.93 percent from 12 percent. Unless course is reversed, a projected employer contribution rate of 14.35 percent will be needed to fund benefits in 2014 and 16.20 percent in 2015, according to Pat Robertson, PERS executive director. Those projections are based on the PERS assets of slightly more than $20 billion continuing to see investment returns of 25.4 percent, a less-than-assured outcome in today’s volatile equities market.

Workers have had their contribution levels increased as well. Contributions went from 7.25 percent to 9 percent in 2010, the first employee increase in a couple of decades.

The Legislature also now mandates that new hires enrolled in PERS work 30 years to receive benefits before age 60. Previously, workers had to work 25 years to qualify for retirement before 60. You can be vested in the retirement system after eight years but must be 60 to receive the benefits.

Barbour created a 12-member study commission earlier this month and put it to work studying ways to make the pension fund less dependent on taxpayer funding. The special panel headed by Gulfport Mayor George Schloegel must submit its recommendations by Nov. 15. “They’ll be presented for the next Legislature to consider,” said Laura Hipp, Barbour’s spokeswoman.

Barbour has directed the commission to:

>> Analyze the financial structure and funding mechanism of PERS, including an analysis of the ratio of taxpayer-to-employee contributions;

>> Analyze the management structure of the agency, including the make up of the PERS Board of Trustees;

>> Analyze the investment structure of PERS, including any comparison to similarly sized funds, as well as larger funds, with respect to performance and fees charged; and

>> Analyze the legality of modifying the benefit structure for current and future state employees.

Union Anxiety

Barbour’s marching orders to the commission have created unease at the Jackson headquarters of the Mississippi Alliance of State Employees/Communications Workers of America and the Gulfport headquarters of the American Federation of Teachers, Mississippi.

The governor’s directive to re-evaluate the benefit structure for current and future state employees “could mean anything,” said Brenda Scott, president of the Mississippi Alliance of State Employees, a affiliate of the AFL-CIO that represents 3,400 state workers and an additional 300 City of Jackson workers.

“That’s why state employees need to be really, really listening,” she said.

Scott said the union has suspected ever since the state delayed paying its increased contribution that it “would come back after the election and try to pass on any increases to the state employees.”

Her worry, she said, is that the state will “flip-flop” the contribution ratios, handing the 248,000 workers covered in the plan a contribution rate of 12.93 percent (the current employer rate) and reducing its rate to 9 percent (the current employee rate).

The absence of rank-and-file workers on the commission limits its perspective and leaves the workers without a voice, Scott said. “We’re very disturbed that the 12 member committee the governor has appointed is full of business-type people.”

The two commission members who are enrolled in the PERS plan are Bill Benson, Lee County chancery clerk and current chair of the PERS Board of Trustees, and Kevin Upchurch, director of the Mississippi Department of Finance and Administration.

Atlanta-based attorney John Quinn, district counsel for Scott’s union, said it could be difficult to achieve a balanced solution without workers having a voice on the panel. “I wish that the governor had appointed at least a few worker representatives,” he said in a phone interview.

Nancy Kent, president of the American Federation of Teachers, Mississippi, said she has been trying frantically to find when and where the commission is meeting. The governor’s office referred her questions to Schloegel, who has responded to her queries, she said.

“We hope that the PERS study committee is going to be transparent and not meet behind closed doors,” Kent said.

Schloegel, in an email response to question, said the commission’s goal is “ensure equitable treatment of beneficiaries, current and future employees, and taxpayers, while also ensuring that the state can make good on the promises it has made to beneficiaries.”

Asked about the prospects for a rollback of benefits, Schloegel said only that the panel will consider ways to “strengthen the PERS system and enhance its long-term solvency.”

He said his goal is deliver a study that can be immediately used by the new administration and Legislature.

Funding The Increase

Robertson, the PERS director, said she expects the Legislature will resume full funding of the state’s share of the retirement system in January. She said she has a written commitment from House Speaker William J. McCoy and Lt. Gov. Phil Bryant that “affirms they are committed to funding PERS appropriately.”

She conceded in an interview last spring that the 2011 elections would bring new lawmakers to the Capitol and she will have to “re-educate all of those guys.”

Meanwhile, she does not expect the funding lapse to have an impact on the overall contribution rate, she said.

As now structured, PERS funding comes in two categories:  one is for the services that are funded through employee contributions (9 percent), employer contributions (slightly more than 2 percent) and investment returns; the other is for unfunded liabilities such as the enhanced benefits awarded in the late 1990s, mortality losses from retirees living longer and market losses.

The unfunded liabilities and periodic market losses account for about 10 percent of the total employer contribution, Robertson explained.  “The projected increase in he contribution rate is a direct impact of the benefit increases put in place in 1999 with no finding mechanism, in conjunction with the downturn in the markets as a result of the ‘dot-com’ bust (2001-2002) and the ‘Great Recession’  (2008-2009),” Robertson said .

“Had we not done the benefit increases and not had the market losses we could have gone to 100 percent funded.”

At the 100 percent funded level, the only contribution on the employer side would be “normal costs at the 2 percent rate.”

Robertson likened the funded rate to a home mortgage and the unfunded rate to an adjustable rate home equity loan. “In 1999 we kind of went out and got a home equity loan. Unfortunately, we did it on an adjustable rate. We’re doing fine on home mortgage payment; it’s the home equity loan that is kicking us.”

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4 Responses to “Day of reckoning ahead for Mississippi’s Public Employment Retirement System”

  1. Glen Harrison Says:

    I do not understand why the Governor has focused so much attention on PERS. What about the Legislators’ two retirement plans—PERS and SLURP (in which the state pays into, also) with at total higher percentage than PERS. The state also pays a higher percentage into State Highway Patrol retirement than PERS, yet you never hear any controversy about that! Check the facts!

  2. Paul Smith Says:

    The only acceptable retirement system for state employees is based on an IRA/401(K) program and not on an SS type program. All states and other groups using the SS-type program are going bankrupt. It is the ONLY viable option. FDR’s SS committee recognized this when they made their recommendations to Congress urging a two tier system: 1) temporary; roughly the current system we have now; 2) the permanent solution; IRAs. The reason for the temporary system was because older retirees would not have paid in enough to allow for an adequate retirement.

    Anyone who disputes this only has to look several places: 1) all the private pension systems going bankrupt using a SS type program. 2) state, local, and federal government systems using the same system that are currently estimated to be as high as $500 Billion in unfunded liabilities. 3) SS itself. Contrary to those who claim $4 Trillion will be paid in between now and 2041, the reality is it will receive this much money, but pay out $6.5 – 7 Trillion during the same period. 4) Other countries seeing the same issue. Start with Greece, France, soon to be followed by the UK (ongoing for a while now), Japan, and every other major country that uses an SS type system.
    If SS system is viable, then why did the IMF encourage Mexico to not go with it, but to go with an IRA system? A system that is viable for the long-term.

    The only reason that SS has survived so long is Congress regularly raising the amount we pay in. We will eventually reach Japanese levels where employees pay in over 20% of their gross in their SS system; an amount that has been routinely raised over the last few decades as Japan thinks the new levels will solve the problem, but it doesn’t.

  3. Lynn Harrison Says:

    MS already has some of the lowest paid State Employees in the nation. Please leave our retirement alone.

  4. Reba G. Cook Says:

    Be sure to look at the Leislators’ retirements. This is where the State is getting ripped off! You can always depend on politicians taking care of themselves first!

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