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The PERS standoff

<< MBJ’s March 7 cover story, by Ted Carter, was the first in-depth look at what Mississippi’s state retirement program was facing, which, by the end of the year was restructured by a committee formed by Gov. Haley Barbour.

The year ended with out-going Gov. Haley Barbour tossing the Mississippi Legislature a plan for revamping the $20 billion Public Employees Retirement System — a hot potato capable of burning politicians on both sides of the issue.

The PERS issue is a clear choice for designation among the Mississippi Business Journal’s “Stories of the Year.” The overhaul of the Public Employees Retirement System would have a large impact on the tens of thousands of current and future public service workers in the state as well as the taxpayers who fund a great portion of it.

A 12-member study panel Barbour appointed in August released a report Dec. 14 that projects more than $100 million in taxpayer contributions to the Public Employees Retirement System of Mississippi could be saved annually through a range of changes to the 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.

Legislators are expected to take up the revamp proposals in the 2012 session.

The changes would apply to both the 86,000 current retirees and the 246,000 public service workers covered in the system.

Barbour says the $20 billion PERS trust fund has a $12 billion shortfall that will require closing by either initiating new limits on the plan’s payouts or relying on taxpayers to find ever-increasing portions of the PERS trust.

Barbour further claims the changes would save state taxpayers $122 million in the first year alone.

If enacted, the changes would keep 30-year workers on the job to age 62 to gain full retirement benefits. They could retire at 55, provided they had worked 30 years. On the downside, they would have to go without cost-of-living increases, or COLAs, until they reach 62.

Retirement before 55 would still be possible for workers with 30 years of service, though eligibility would be limited to “an actuarially reduced benefit.”

The idea, the report says, is to structure benefits consistent with a policy that encourages workers to stay on the job until age 62.

The retirement age changes and the tiers they entail would apply to current and future employees, the governor’s office said.

Also likely to ignite fierce debate are proposed changes to cost-of-living allowances and the compounding of the 3 percent COLA that current retires receive upon reaching 55.

COLAs and their compounding account for more than 25 percent of the PERS plan’s payout each year — and $402 million of the plan‘s $500 million annual unfunded portion, according to the study commission.

The panel wants a three-year freeze on COLAs and elimination of the 3 percent payout in favor of a COLA based on the Consumer Price Index, with a 3-percent cap.

An estimated $10 million a year could be saved by tying the COLA amount to the inflation index, the study commission says.

The idea, the report says, is to keep workers on the job until age 62.

The retirement age changes and the tiers they entail would apply to current and future employees, the governor’s office said.

Employees now pay 9 percent of their wages into the retirement fund. The employer share is to increase from 12 percent to 12.93 on Jan. 1 and rise to 14.26 percent.

Officials say the state’s PERS trust has an asset-to-liabilities ratio of 62.4 percent, meaning that if payouts had to occur today the trust could pay only 62.4 percent of what it owes. Bond ratings agencies prefer to see ratios several percent age points higher.


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About Ted Carter

One comment

  1. The changes adopted already will solve much of the problem in the long run. Changes include increasing the employee contribution from 7.25% to 9.0%, requiring 30 years of service before persons under 60 can retire and receive benefits, and increasing the years of employment required for vesting from four years to eight years. These changes will influence the payouts. Partial benefits for early retirees is one idea worth considering. Social Security uses this system. The cost of living increase for retirees helps this group cover additional medical costs. In addition to medicine not covered by Medicare part D retirees must pay additional premiums on the Medicare wrap around plan sponsored by the state of Mississippi. The stock market is coming back and economy is growing. The PERS shortfall will decline as the market increases and measures already put in place take effect.

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