The Mississippi Public Employees Retirement System continued to plod along in 2015 as it got up off the canvas after the 2008 knockdown but is not yet ready to start throwing punches either. The markets slightly smiled on PERS in 2015 as the program enjoyed a rate of return that was only 3.5%. However, the system did catch a break as not as many Mississippi public employees retired as they have in past years. Unfortunately, the amount of money between contributions to the system and what was paid to beneficiaries grew to an unprecedented level of nearly $800 million. The average retirement benefit is $23,169 per year.
The problem PERS faces is structural in nature. The retirees and other beneficiaries continue to grow in number but the contributions paid into the system continue to fall. The ratio of active workers to retirees has fallen from 2.4 in 2006 to 1.6 in 2015. The PERS portfolio earned a return of 18% in 2014 but the growth in retirees prevented it from enjoying the full benefits of that return. The slightly positive rate of return in 2015 was not enough to keep the funding level from falling by half a point. The deficit's growth ate up nearly all of the investment income. PERS also increased the amortization period to 32 years. See the numbers for yourself.
The total assets are $24.838 billion. The total assets are nearly back at the 2008 level but fell slightly from $24.877 billion in 2014* as the low rate of return and larger deficit nibbled on them.
The rate of return was only 3.5% in 2015 and thus below the assumed rate of return of 7.75%. PERS lowered the assumed rate of return from 8.0% this year. However, the 2014 rate of return was 18%. PERS "smooths" the rate of returns so one great or horrible year doesn't skew things. The five-year average is 12.2%.
However, here is the real problem for PERS:
The retirees keep growing and growing and growing. There were approximately 63,900 retirees in 2005. However, there were 96,300 retirees in 2015- an increase of roughly 50%. The rate of growth for ten years is 2,560 new retirees per year. However, that rate has jumped up to 3,440 new retirees per year for the last five years. That is why the funding level hasn't recovered despite good returns in the market. It doesn't matter how well PERS is managed if the number of employees retiring each year swamps the income received from investments.
This chart shows how the growth in retirees is wreaking havoc on the financial structure of PERS:
What does this chart mean? It means that the amount of money received from employees and employers is not enough to cover the payments to PERS beneficiaries and the problem is growing worse each year.
Contributions come in, payments go out. PERS had a great year in the markets in 2014 yet the deficit grew to over $702 million. Investment income was $4 billion so PERS could easily handle the deficit and still add plenty of money to the assets side of the ledger. However, the 3.5% 2015 return meant PERS only received $846 million in investment income. The $784,209 deficit nearly ate all of the investment income for last year. All of it. If the retiree growth holds to the five-year average, then PERS needs to earn a great return on investments in 2016.
Keep this in mind: PERS earned a positive rate of return on investments and still lost ground. The deficit between payments and contributions still grew each year, a fact completely ignored by PERS defenders. The PERS defenders have gone from the "we will be fine once the markets return" mantra to one that is "we have plenty of money to cover our current obligations". About those obligations.
The unfunded liabilities are $15.977 billion in 2015. They were $14.445 billion in 2014. They were $10 billion in 2010. The unfunded liabilities increased 50% in only six years.
It doesn't matter how good the markets are to PERS or what the Wall Street Wizards can do if the retiree growth continues to swamp the returns. PERS can't return to the desired funding level of 80% if it can't manage the growing deficit. The markets came back five years ago for PERS but the funding level has not yet done so. That is the real story of PERS.
*This post is using fiscal years, not calendar years. Each fiscal year ends on June 30. The annual actuarial report is released at the October meeting of the board of trustees.
End of year annual benefits payments
2015: $2.116 billion
2014: $1.998 billion
Total Pension Liability
2015: $40.3 billion
2014: $37.0 billion
5 year smoothing: 11.9%
Rates of return since 2000
5-year average: 12.16%
Rate of return since 2000: 6.2%
Ten year average: 2,560
Five year: 3,440
Kingfish note: Oh, and the managers' fees were $88 million. The report was presented to the board at its October meeting. No media besides JJ attended the presentation. The complete video will be uploaded later today. It is a 5 gb file and has to be split into several videos.