Mississippi’s defined benefit pension system’s investments took a massive hit from recession associated with the COVID-19 pandemic, according to a quarterly investment report through March 31
The next investment report due later this month from the Public Employees’ Retirement System of Mississippi for the next quarter could have better news, as both key indexes (Dow Jones Industrial Index and NASDAQ) showed big gains during that period.
For the quarter that ended on March 31, PERS’ investment returns were in negative territory, with 4.69 percent losses for the year and 14.11 percent for the quarter.
In the first quarter of 2020, PERS holdings in U.S. stocks endured losses of 22.21 percent, while international (24.06 percent losses) and global stocks (21.14 percent losses) were also in negative territory.
PERS holdings are 26.21 percent in U.S. stocks and 31.36 percent in non-U.S. stocks. Since August 1980, PERS has been investing in the stock market, which promised larger returns than the bonds that represented most pension fund investments up to that point. PERS and most other pension funds did this at the cost of increased volatility.
The U.S. stock market rebounded after the initial round of COVID-19 related closings. On March 31, the NASDAQ index was at 7,360.58 points before ascending to 10,058.77 on June 30. The Dow Jones index had a similar upward trajectory, rising from 20,943.51 points on March 31 to 25,812.88 on the final day of the second quarter.
Two large recessions, the one after the 9/11 terrorist attacks and the Great Recession in 2008, could offer a preview of how bad the COVID-19 pandemic could be for PERS.
In 2001, PERS’ investments lost 7.1 percent and 6.6 percent of their value in 2002 before rebounding in 2003 with a 3.5 percent rate of return.
In 2008, PERS lost 8.2 percent on its investments and a ruinous 19.4 percent in 2009 before a rebound to 14.1 percent returns in 2010.
Despite those downturns, the plan’s investment assets have grown from $15.4 billion in 2009 to $28.6 billion in 2019, an 85.7 percent increase, but the gains aren’t enough to stem the tide of a double-barreled demographic tsunami of an aging workforce and fewer contributing members supporting an ever-increasing number of retirees.
In 2005, there were 157,101 employees contributing into the system and 69,939 retirees.
By 2019, the number of employees contributing to PERS had shrunk to 150,651, while the number of retirees was up to 107,844. This represents a 54 percent increase in 15 years.
The demographic issues are one reason why PERS has a funding ratio — which is defined as the share of future obligations covered by current assets — that decreased from 61.8 percent in 2018 to 60.9 percent in 2019. While the plan’s obligations won’t be due at once, the funding ratio provides a look under the hood at the health of PERS.
PERS now has an unfunded liability of $17.6 billion that will likely be worse when the next comprehensive annual financial report comes out in October.