Hotdiggitydamn!!! The Executive Director of PERS must have had a conniption when Bloomberg said Mississippi had the tenth worst-funded public employees retirement system in the country. She defended her administration of PERS in a column published Sunday in the Clarion-Ledger. The Kingfish posted her column below with some additional color commentary by yours truly. Ms. Robertson wrote:
Our business is about the future. Every investment transacted, contribution received, benefit paid, law changed, regulation amended, decision acted on, and thought given is about meeting the promises we have made to the hundreds of thousands of people depending on us for their retirement.
We take this very seriously. And we know you do, too.
We also know that you might feel unsure about the future when you read headlines, articles, blog posts, and reports that come from sources other than the Public Employees’ Retirement System of Mississippi (PERS) that assert that Mississippi is in the midst of a pension crisis.
Unfortunately, Clarion-Ledger readers won't know what she is talking about since the "state newspaper" hasn't published this Bill Crawford column, Bloomberg's reporting that PERS ranks in the bottom ten, or any of the information reported in these JJ posts. No one has claimed PERS is broke or is about to blow up. What has happened is some people (such as this correspondent) have read the financials and questioned whether PERS is on the right path. However, such questions are discouraged. The Executive Director continues:
Sensational as those headlines may be, there is truth to the fact that we have unfunded liabilities. We report these unfunded liabilities clearly every year in our annual reports, in our newsletters, in e-mail updates, and online. Our current funded status has hovered around 60 percent since 2011. And it may continue to do so for years to come as we work through one of the country’s most difficult financial times since the 1930s. The Great Recession of 2007 to 2009 was the biggest recession PERS has ever seen since it was established in 1952, but it was not the first. We also weathered the dot-com bust (1999-2001).
That said, I cannot agree that we are in a pension crisis.
There is just one problem with the assertion that PERS is still recovering from the Great Recession of 2007- it is simply not true . PERS has enjoyed some great market returns since the recession*:
PERS investments also achieved a double digit rate of return four out of six years since the "Great Recession" and did not go into negative territory after 2009. There was even a five year rate of return of 14.8%. How many JJ readers would love to have an average rate of return of 14.8%?
The market came back but left PERS in the dust just as it did when it recovered from the "dot com recession". Remember, Ms. Robertson said PERS came back from that storm. The actual data shows otherwise:
The PERS market returns after the 2001-2002 recession were:
The market came back but the PERS funding level fell from 87.4% in 2002 to 73.7% in 2007. PERS sharpest declines took place after the recession and while it enjoyed double digit returns. However, Ms. Robertson didn't exactly mention those facts in her column.
We pay in excess of $150 million in benefits every month to more than 100,000 people. And we know that there are thousands of others who are expecting to receive their benefits when they retire. We work to ensure their monthly benefits will be paid, too. And they will be paid.
Our funded status means we presently have approximately 60 percent of the funds needed to pay not only all current benefits, but all projected and future benefits. Having an unfunded liability is analogous to having a mortgage and making mortgage payments faithfully every month while 60 percent of all the funds needed to pay the entire mortgage is in savings. Paying off the mortgage might be a desired or even preferred course of action, but having the mortgage is not a crisis. However, to ensure the long-term solvency of PERS and to ensure that we can pay benefits for years to come, the Board of Trustees, under the guidance of our consulting actuaries, manages the plan and monitors the funded status; the effects of which will be seen over time, albeit incrementally and very gradually.
Ms. Robertson loves to use this mortgage comparison when she defends PERS. PERS is indeed 60% funded. No serious person c;laims PERS is broke. PERS has $25 billion in assets but those assets, substantial as they are, can fund only 60% of the obligations to retirees. However, retirement plans don't exactly cash out so PERS will indeed be stable for years to come. However, the key to a successful pension plan is to ensure there is enough investment income to cover benefit payments without dipping into the assets so that assets may grow and generate even more investment income.
Suppose you quit your job but have $100,000 in the bank. Your monthly house note is $1,500 per month. You can pay that house note with your savings for years without getting a job. However, the day will come when you will be forced to either lose the house or generate some income. The longer you delay getting a job, the easier it is going to be to lose that house.
Blithely stating that a 60% funding level is not really anything to worry about takes the same approach. The Executive Director does not acknowledge there is a problem because PERS can meet its obligations for the near future. What she doesn't mention is that if the funding level woes continue, the ratings agencies will come calling and that will be a problem. It will also be a problem if the funding level continues to worsen.
PERS has a real problem and it is ignored in this column. See the chart below:
This chart shows the deficit between contributions and payments. More public employees are retiring while fewer are working. The deficit grew over half a billion dollars since the Great Recession and stood last year at nearly $800 million. Those great market returns PERS enjoyed after 2009 were eaten alive by this deficit. Investment income can cover these payments when there are decent market returns. However, investment income can't cover benefits payments when market returns are small and more than three thousand retirees are added to the system each year. This deficit is never mentioned by Ms. Robertson nor by the media. However, one can excuse most of the media as it is like a tree at the end of a runway when it comes to these subjects. Next comes the gobbledygook.
And as the hands of time slowly turn, taxpayers, media, and leadership begin to nervously tap their toes and allow their waning patience for substantial progress to turn their minds to the question of affordability for public retirement systems like PERS.
But there are two questions of affordability: Can Mississippi afford its public employees’ retirement system? And can Mississippi afford not to have a public employees’ retirement system? The respective answers are yes and no. The question of the affordability of PERS right now is best answered by looking at how much the state pays in contributions annually compared to how much it pays toward the rest of its expenses annually. Over the past 25 years — including the years of the Great Recession and the dot-com bust — the employer contributions paid to PERS by the state have remained less than 5 percent of the state’s overall expenses. Of the state’s $4.2 billion in expenses in 1990, 4.35 percent was paid to PERS. And of the state’s $16.3 billion in expenses in 2015, 4.65 percent was paid to PERS. The dollar amount that goes to PERS has risen over the past 25 years, but PERS’ percentage of the state’s overall spending has remained relatively consistent.
This passage throws out quite a few numbers but ignores the most important one: the deficit between payments and contributions. Next comes the fear-mongering and blackmail:
So, that leaves the question of the affordability of not having a public employees’ retirement system in Mississippi. Even being decades away from funding all of PERS’ liabilities and even with PERS being a steady percentage of the state’s annual expenses, the state benefits by about $2.7 billion annually from having a public employees’ retirement system with the creation of jobs and retiree spending, according to the 2016 National Institute on Retirement Security (NIRS) Pensionomics study.
NIRS reports that “Each $1 in state and local pension benefits paid to Mississippi residents ultimately supported $1.25 in total output in the state. This ‘multiplier’ incorporates the direct, indirect, and induced impacts of retiree spending, as it ripples through the state economy.” NIRS further reports that “Each $1 in taxpayer (employer) contributions to Mississippi’s state and local pension plans supported $4.63 in total output in the state. This reflects the fact that taxpayer contributions are a minor source of financing for retirement benefits — investment earnings and employee contributions finance the lion’s share.”
But the economic impact of PERS goes beyond helping with job creation and providing economic benefits to even the smallest of communities in the state. These factors work to assist in keeping many individuals off of social services. Furthermore, having a public employees’ retirement system is a key part of the overall compensation package used by state and local governments to recruit the needed workforce to do the jobs that we depend on to keep state and local government, schools, safety systems, utilities, public hospitals, libraries, etc. going.
The message is quite clear: don't look at PERS. Don't think about PERS. Leave PERS to us and don't worry your pretty little heads about it. She cites economic multipliers that rarely hold up to scrutiny. If you tamper with PERS, then you are going to ruin economies and blow up the state budget because everyone will be starving. The Republicans want to kill your grannie. Got it.
Ms. Robertson also states that taxpayer contributions are "minor" but then states that employee contributions constitute a large share of PERS funding. Um, Ms. Robertson, who exactly pays the salaries and benefits of public employees? Ms. Robertson then addresses the issue of management fees.
The relationship between the taxpaying public and the state’s public employees’ retirement system is a symbiotic one. Cost is associated with running a $25.4 billion pension system (2015), but that cost affords the state and her people a strong source of economic activity for each and every community throughout the state, security for a large number of our elderly, and a valuable recruitment tool for drawing in dedicated public servants who keep our state educated, safe, and running smoothly.We have to pay the piper but don't question the piper. Ms. Robertson has a point. This is Mississippi. We can't question Dr. Wright's crony contracts, the contracts thrown to Friends of Pheel, or campaign finance reports so why should we question paying millions of dollars in management fees every year?
Rest assured, the PERS Board of Trustees and staff at PERS are and will continue working to provide secure benefits to our members. We do this to keep our promises, and we do this because we know secure benefits help to keep PERS affordable and are a pivotal part of providing quality public service to the people of Mississippi.
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 declined 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.
However, some people don't want such facts mentioned nor their assertions questioned. After all, this is Mississippi.
*Here are the market returns since 2000: