The market returned and yet the funding level for PERS still fell. PERS released the annual actuarial report for several retirement systems it manages last month at its bi-monthly meeting of the board of trustees. PERS enjoyed a 13.4% return on investments and enjoyed $2.6 billion in investment income but saw the number of retirees grow as payments continued to outpace contributions.
The number of retirees in the PERS system increased nearly 4,000 last year to 90,214 (from 86,829). The growth shows the main problem facing PERS: there are not enough active members to support the growing number of retirees. The ratio of active members to retirees fell from 1.86 to 1.79 in 2013. As the difference between actives and retirees narrows, the deficit between contributions and benefit payments continues to widen. The deficit increased nearly another $3 million to $644.4 million from $641.7 million (2012). That is an improvement of sorts as the deficit grew by $60 million to $170 million each year since 2009. However, the deficit still grew after a great year in the markets. What will happen if PERS only enjoys a 2% or 6% return in the market? Too technical for you? Here are some charts that will spell it out the problems facing PERS.
Here is the first problem: growth in retirees. It has not gotten any better and as more employees retire, the costs to PERS will keep going up. Almost a straight line going in the wrong direction.
PERS does have assets of over $20 billion. However, the assets have not seen consistent growth since 2008 as they have been used to cover benefit payments when investment income fell short of doing so. PERS enjoyed investment income of $2.6 billion in 2013 so the assets were largely spared.
However, here is the real problem and it is killing PERS: the deficit between benefits payments and contributions. 2012 saw the largest one-year deficit increase ever: $170 million. It was only $3 million in 2013. A huge improvement but still an increase in the deficit. The $2.6 billion investment income was almost enough to cover the benefits payments but still fell short. As asked earlier, what will happen when the market returns are not in the double-digits range? Note: The first few years of the graph are slightly skewed as data was not available for some years. The figures used for this chart are found on page 28 of the report.
Which gives us this problem:
Rates of return since 2000:
3-year rolling average: 13%
5-year rolling average:6.74%
10-year rolling average: 7.95%
3-year rolling average: 13.23%
5-year rolling average: 2.42%
10-year rolling average: 6.96%
Post on 2012 report
Kingfish note: Treasurer Lynn Fitch did not even appear at the board meeting when the report was presented. Ms. Fitch has been very quiet on PERS. She went full speed ahead in shutting down MPACT and making changes to the program when it had a funding level of 80%, yet is strangely quiet over the big elephant in the room: PERS. Nearly $21 billion in assets, $15 billion in unfunded liabilities, funded at a level of 57.7%, yet not a peep out of the Treasurer. Actually, not a peep out of the legislature or Governor either. Several sources have told me no one will take a lead on this problem unless it is a concerted effort by both sides, as it will generate no small amount of controversy. No surprise as Moak and Cottonchicken see PERS as a chance to smear Republicans and win elections, the actual problems be damned. Frankly, I think few of any on both sides of the aisle are even smart enough to address the problem and those who are such as Bryan would rather manipulate the politics than actually solve the problem.
That is why my recommendation is to do nothing. Let the funding level drop to the 40's. Then the legislature will have no choice. It will have to do something. Moak and the rest of them won't be able to say much when Moody's and Fitch come calling.
No comments on SLRP. SLRP is getting a separate post later this week.