As with Social Security, the problem with Mississippi’s retirement program for public employees is obvious.
Both are on a financially unsustainable trajectory, with projected income unable to cover the projected outgo.
Yet those who are charged with enacting the difficult but necessary changes to correct the problem — Congress on Social Security, the Mississippi Legislature on PERS — stick their head in the sand. They are afraid of the political fallout and, in the case of state lawmakers, the ramifications the reforms would have on their own cushy retirement benefits.
Just before Christmas, another huge alarm was sent out over Mississippi’s Public Employees’ Retirement System. Its trustees voted to jack the employer’s contribution percentage (i.e., the taxpayers’ portion) from 17.4% to 22.4%, effective Oct. 1, 2023.
That is the ninth increase in the employer’s rate since 2005 and the largest single jump in the employment system’s history.
PERS’ outside financial experts had recommended in 2021 an increase less than half as large, but the board passed at that time due to a stock market boom that produced a whopping 33% return on the retirement fund’s investments. Last year, though, the market went south, forcing the trustees to try to catch up.
To comprehend the magnitude of the coming increase in the employer contribution, it’s important to not confuse percentage points with percentages. That 5-point increase translates into a 29% increase in taxpayer dollars that will have to be funneled into the retirement system.
In other words, taxpayers kicked in $1.2 billion last year to cover their share of the cost of the retirement system for current and former state, county and city employees. A 29% increase comes to an extra $350 million a year or so.
Here’s another mind-blowing comparison. In 1990, when the employer share was 9.75%, the taxpayer-funded portion of PERS just for state employees ran about $183 million. Adjusting for inflation, that would have come to $417 million in 2022 dollars. The actual figure in 2022 was $950 million, a jump that was more than twice the rate of inflation.
Combined with the employee’s 9% contribution, the next employer increase means that for every dollar in salary a state worker receives, it will cost 31.4 cents to cover the employee’s pension plan. That is more than double what Social Security costs and almost three times more than the average combined employer-employee contribution to 401(k) plans, the dominant retirement savings vehicle in the private sector.
Every time the PERS board raises the employer contribution rate, it says the hike will ensure the pension system’s long-term financial soundness. Every time it is proven wrong.
Russ Latino, a conservative Mississippi commentator who recently launched the news website Magnolia Tribune, cites a new study by the Equable Institute, a nonprofit research group that tracks the health of pension plans. It lumps Mississippi with just five other states where the public pension plans are “in distress” with a funding ratio of under 60%. A pension plan is not considered healthy unless it has a funding ratio of at least 80%.
The costliness of PERS has another consequence as well, according to Latino. It is making it more difficult to hire new state employees.
In the past, Mississippi would lure new hires to jobs in state government with a tradeoff: comparatively low salaries while they’re working but extra-generous pensions when they retire.
Today’s younger workers, who are more prone to change jobs than their parents or grandparents, are less likely to stick with it long enough to benefit from the bargain, however. Latino cites a U.S. Bureau of Labor Statistics study from last year that found the median tenure for a state government worker is 6.3 years — almost two years less than it takes to qualify for PERS benefits.
Since this younger generation of workers is more interested in their pay than their pension plan, the system Mississippi has created “makes it harder to attract and retain top talent,” Latino concludes.
Unfilled jobs — on top of those that have been eliminated in recent years by Republican-driven cutbacks in state employee numbers — means fewer workers paying into the PERS system to provide the benefits to a rising number of retirees. Ten years ago, there were 82% more active state employees than retirees; today the difference is less than 25%.
Dating back at least two governors ago, there have been reforms proposed to tame the explosive growth in the cost of PERS. Those include more closely following the methodology used by Social Security to calculate benefits and cost-of-living adjustments, and to make state retirement income taxable.
The recommendations, though, have gotten nowhere because few in state government are willing to address the issue.
With the current record budget surplus and this being an election year, the Legislature is likely to continue to punt the problem. Sooner rather than later, though, PERS is going to start eating up that surplus and more.
- Contact Tim Kalich at 662-581-7243 or tkalich@gwcommonwealth.com.
