Nearly every time the board that oversees Mississippi’s Public Employees’ Retirement System jacks up the rate that the taxpayers have to kick in to keep the system financially viable, it says that the latest increase should provide long-term solvency.
And every time they are wrong.
Maybe the taxpayers should be grateful that it’s been six years since the last increase was approved, but they shouldn’t be overjoyed. When the next increase takes effect a year from now, for every dollar a public employee earns, taxpayers will have to fork out 17.4 cents to pay for the worker’s retirement, 10 percent more than they do now. It will be the eighth increase in the employer rate since 2005.
When combined with the nine cents the employees kick in, that means it will take more than a quarter for every dollar paid in salary to fund Mississippi’s defined-benefit retirement system — more than double the cost of the 401(k) plans that are common in the private sector, and about 75 percent more than the federal Social Security system.
The employer rate is going up because the last increase, which took effect in 2013, wasn’t enough to get PERS to the magic mark of being able to cover 80 percent of its future liabilities. Currently, the system is only 61 percent funded.
The increase is expected to cost state government about $77 million and cities and counties about $23 million. They’ll have to come up with that money either by cutting their budgets elsewhere or passing the cost on through tax increases.
The trajectory, as has been pointed out for years, is simply unsustainable. Some of the issues that are pinching PERS — declines in the number of state workers, anticipated modest investment returns — may fix themselves. Others will not, such as longer lifespans of beneficiaries and a two-decade-old error by the Legislature that increased benefits but omitted a way to pay for the generosity.
Over the years, lawmakers have enacted some modest reforms, but they’ve not been nearly enough. The last governor to try to tackle significant changes to PERS, Haley Barbour, waited until late into his second term and didn’t get much accomplished other than accurately outlining the long-term actuarial problems facing PERS and how the program got itself into a pickle.
Barbour’s successor, Phil Bryant, has been largely missing in action in addressing this issue.
There is no need to study the problem further. Some good recommendations have been made in the past, and it’s past time to start implementing them.
Start with slowing down the cost-of-living adjustment, which raises the benefit by three percent annually, no matter what inflation has been running.
Then, up the amount that current employees kick in. Although the current nine percent is a hefty chunk, if state employees want to maintain the generous retirement benefit plan they have, they can’t expect to keep hitting up the taxpayers to cover projected shortfalls. They’ll have to shoulder a greater share of the burden, too.
Once state workers feel the pain of that, it should make them more open to the most critical reform of all — moving away from a defined-benefit plan to a variable benefit one, such as a 401(k), where the payout at the end depends on the performance of the investment.
Certainly, defined-benefit plans are great for the recipients, but not so great for those who have to pay for them. That’s why most private employers abandoned these kinds of plans years ago. The economics simply don’t work when there are too many people drawing out, and too few paying in.