Tired of the state retirement system’s board going repeatedly to the same taxpayer-funded well to shore up the plan, Mississippi lawmakers this past year took a major chunk of that board’s authority away.
No longer is the Public Employees’ Retirement System’s board able to unilaterally raise the percentage that employers — that is, the taxpayers — fork over into the system. The PERS board now can only recommend an increase, leaving it up to the Legislature whether to accept, reject or modify the recommendation.
This year, lawmakers opted to modify. PERS had planned on a 5-percentage-point increase over three years, bringing the employer share to 22.4% of a worker’s paycheck. The Legislature reduced that to a 2.5-percentage-point increase over five years, plus a onetime infusion of $110 million.
The actuarial firm that annually evaluates the financial soundness of PERS says the legislative action will be inadequate. This conclusion should not be a surprise, since the actuaries’ initial recommendation was 10 percentage points over five years — four times what the Legislature was willing to do.
The reason that the increases in the employer share authorized by PERS in the past didn’t restore the fund to financial soundness, and the reason that the Legislature’s approach won’t either are the same. They’re tackling the problem from the wrong direction.
PERS is in long-term trouble not because employers don’t kick in enough. The employer match is already way more than private employers put toward pension plans.
PERS has a $25 billion unfunded liability because it pays out too much and, as with Social Security, there is a growing demographic imbalance as the population ages. There are too few active workers paying into PERS to cover the benefits of the retired ones. In Mississippi, that imbalance has been compounded by successful Republican efforts to reduce the size of government, which mostly means cutting the number of state government workers.
In fiscal year 2013, there were 1.74 working members of PERS for every retiree. Ten years later, that ratio was down to 1.25 to 1.
The only way to reasonably sustain PERS is by reducing its overly generous terms, not just in terms of the monthly benefits but how soon they can be tapped. Legal analysts say these kinds of changes can only be done for future hires, not existing ones. Even still, that should be done.
A reform that can be implemented for all beneficiaries, current or future, is to start collecting state income tax on PERS benefits, just as the federal government does. Maintaining the exemption from state income tax is simply not justifiable given PERS’ poor long-term projections.
There are only two things that can happen to keep PERS from facing insolvency over the next two or three decades. The state can continue to put an increasing burden on the 6 out of 7 adult residents who are not covered by PERS. Or it can ask the 1 out of 7 to be satisfied with less.
If majority ruled, it would be obvious what would happen. It hasn’t so far for one major reason. Those who can order the necessary reforms — Mississippi’s lawmakers — are also in the 1-out-of-7 group.
