It’s beginning to feel a lot like Wisconsin

August 21, 2011

COLUMNS

I’ve never been to Wisconsin, but I’m imagining what it will be like when Wisconsin comes to Mississippi.

Gov. Barbour has appointed a commission to “examine” the state retirement system, affectionately known as PERS. PERS is a defined benefit plan, aka pension plan. Its benefits are based on longevity, age at retirement, and salary. The State of Mississippi takes money from its employees’ paychecks, adds a hefty dose of their own, and invests it in such a way that those payments in retirement can be guaranteed.

Most employers have gotten out of the pension business. They simply don’t want the responsibility and the risk. Instead, they’ve shifted these burdens to their employees through 401(k) plans. The old pension plans are becoming extinct. Consider yourself lucky if you still have one of these.

Private retirement plans of all types are governed by a federal law called ERISA. This law requires private pension plans to set aside a certain amount of money each year, based on a formula, to cover that future stream of payments to retirees. Because the benefits of this plan are actually part of employee compensation, the idea is to protect employees from getting stiffed on future compensation for work they do today.

Pension plans have large investments in the stock market, and we all know what has happened to those investments over the last decade. Retirement portfolios have dropped dramatically, affecting the ability of the State to honor its commitment. But that’s not the whole story.

Because of the age-old fight about states’ rights, state retirement plans are not under ERISA. They can do whatever they want to, fund or not fund from year to year, depending on the budget situation. Many states (Mississippi included) have done just that. The actuaries presented figures this year to our elected executives. Barbour and Bryant have been hesitant to properly fund PERS, bringing the sustainability of this fund more into question.

Enter the appointed commission. They are scheduled to present their recommendations by Nov. 15. Will this be cover for further cuts to PERS? Get ready for a fight.

I feel a stiff, cold, north wind from Wisconsin heading our way.

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One Response to “It’s beginning to feel a lot like Wisconsin”

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