Thursday, December 1, 2016

PERS continues to slip

Collection of all PERS posts

The Mississippi Public Employees Retirement System continues to spin its wheels in the mud as the latest actuarial report states that the program is only 60% funded.* The Board of Trustees received the news at the presentation of the annual report at the October board meeting.  The actual report and video of the presentation are posted below.  The nutshell version of the report is that the numbers that should be getting smaller are getting larger while the numbers that should be getting larger are getting smaller.   In other words, PERS is going in the wrong direction. 

PERS faces one problem that is structural in nature.  The ratio of active employees (those paying into the system) to retirees is getting worse as it declined from 2.3 active employees/retirees ten years ago to only 1.5 in 2016.  That little number means PERS is forced to pay substantially more in benefits than it receives in employer and employee contributions.  When the investing gods are kind, PERS can use investment income to pay the difference.  However, when those same gods frown upon the PERS portfolio, then the program must dip into its assets to pay benefits - something no competent portfolio manager wants to do for obvious reasons. 



The total amount of employee and employer contributions was $1.593 billion.  However, PERS had to pay $2.48 billion to retireesThe deficit between the contributions and payments was $886.8 million.  The money has to come from somewhere to make up the difference.  There are only two sources: investment income and using assets.  Look at the chart posted above.  The deficit has worsened every year since 2000.  That includes seven years where the rate of return was over ten percent.  Let that fact sink in for a minute.  The deficit between benefits and contributions worsens even when PERS' investments earn a rate of return of fifteen or twenty percent.  Remember the shrieks that took place when Governor Barbour appointed a commission to review PERS and make recommendations?  The deficit is now double what it was in 2011 and the funding level is two points lower. 

The number of retirees continues to grow every year.  There were 99,483 retirees in 2016 - an increase of 3,145 over 2015.  There were only 83,000 retirees five years ago and 67,000 retirees ten years ago.  The annual growth is approximately over three thousand new retirees.  PERS will have over 100,000 retirees next year for the first time.



 The rate of return for the PERS portfolio in 2016 was only 1.16% but it did track the market (The S&P 500 was 1.23%), a small consolation.  Make no mistake, the Great Recession dealt a cruel blow to PERS but PERS did enjoy some very nice market returns afterwards.**   PERS dropped its assumed rate of return last year from 8% to 7.75%.   PERS also uses a five-year smoothing technique for incorporating the rate of return into its assumptions. PERS "smooths" the rate of returns so one great or horrible year doesn't skew things.  The  average return for the last five years was 7.3%, more than half a point below the assumed rate of return.  



The investment income was only $217.8 million - not enough to cover the $887 million deficit.  Thus PERS had to dip into assets to pay benefits. The total assets of the PERS portfolio fell from 24.8 billion last year to 24.1 billion in 2016. 


 What does all of this mean?  It means the funding level of PERS fell slightly to 60.0%.  The unfunded liabilities increased nearly a billion dollars to $16.8 billion in 2016. Such performance yields a chart that looks like this:



A funding level of 80% is considered to be the minimum level for a well-funded public employees retirement program.  The problem PERS faces are structural in nature as stated earlier.  The number of retirees continues to grow.  The contributions are not  enough to keep up with the benefits payments.  Everyone is happy when PERS enjoys a double digit return in the markets but it is unreasonable to expect that to happen on a regular basis.  Mississippi has the tenth worst-funded public employees retirement system in America yet no one in Mississippi wants to even discuss PERS. 

The problems for PERS began in 1999 when Tim Ford and his crew decided to increase benefits without, as PERS Executive Director Pat Robertson used to say, finding a way to pay for them.  The stock market would give us double-digit returns forever.  PERS would always be a land of milk and honey for retirees.  Easy enough to do when the number of retirees is around 50,000, not so easy when they are over 100,000.  However, no one wants to discuss PERS.  Its easier to make a two degree course correction 50 miles away from an iceberg than it is to turn 90 degrees when the iceberg is in front of one's face.  However, this is Mississippi where we push off all problems to tomorrow and like our reality to be filled with sand as we bury our heads in it.

*The 60.0% funding level is based upon actuarial market value.  The funding level is 57.5% if one uses the actual market value of the assets.  The unfunded liability is actually another billion dollars higher if the actual market value of the assets is used.

**Here are the market returns for PERS since 2000:

2000: 8.4%
2001: -7.1%
2002: -6.6%
2003: 3.5%
2004: 14.6%
2005: 9.8%
2006: 10.7%
2007: 18.9%
2008: -8.2%
2009: -19.4%
2010: 14.1%
2011: 25%
2012: 0.6%
2013: 13.4%
2014: 18.3%
2015: 3.5%
2016: 1.16%

 Five year average: 7.3%
Average since 2000: 5.9%

Kingfish note: No other media was at the PERS board meeting when the annual report was presented.   Apparently $25 billion in assets and $42 billion in liabilities are not enough to get their attention.

JJ does not oppose a public employees pension program per se as some do- if the numbers can work.  However, ignoring PERS is done at our peril.  The legislature increased the employer contribution rate a few years ago with little effect on the financial picture of PERS.   This website is not claiming PERS is about to blow up or go broke.  However, it is irresponsible to ignore these reports and pretend everything will be just fine if things are left alone.  Moody's and Fitch aren't ignoring them. 






49 comments:

Anonymous said...

The economic theory of a defined benefit plan failed decades ago, yet governments are still using them. One day, these plans will fail. No form of math supports allowing people to work 25 years, retire at 52, and draw retirement for 30 years. It's time this end. And why is there a 13th check when the plan is grossly underfunded?

How much does Bobby Moak weigh? said...

The Legislature can't address PERS politically without opening the SLRP can of worms. Odds are they'd rather take their chances playing Russian roulette.

Anonymous said...

Bobby Moak weighs about the same as Tate. Chubby knows no party affiliation.

Anonymous said...

the dow jones indy ave is up approx 12% ytd. Other indices are up more. WHO HANDLES THESE INVESTMENTS AND HOW MUCH ARE THEY CHARGING. We current and past state employees need to know.This has the appearance of some type of conspiracy and/or kickbacks (campaign contributions). Surely someone out there knows how to access these figures.

Anonymous said...

Attn 10:42 Apparently you haven't seen Moak lately!

Anonymous said...

@10:15 It's my understanding that new state hires have to work 30 years. It's already being killed slowly. Get the math straight to fund those already in the system, and allow the rest of the State employees to keep their contribution and put it toward traditional retirement investment vehicles.

Anonymous said...

Doubt that 10:42.

Kingfish said...

You sure about that 12%? The investment period for pers is July 1-June 30.

Anonymous said...

I'm not sure who they're trying to fool here.

I work with lots of PERS employees on a near-daily basis. They all want straight talk on this. Literally every single one under 50 says something like, "I'm okay with higher contributions or even later retirement, if I can just get some certainty on what I'll be getting."

Anonymous said...



FOLLOW THE MONEY !!!!!

FOLLOW THE MONEY !!!!!

FOLLOW THE MONEY !!!!!

I say that three times so you dumb asses can figure this out.

Anonymous said...

I thought Robertson explained that as long as they can lay the monthly note everything is fine? You know, like your car note or something.

Anonymous said...

PERS will not release their actual money management fees.

Anonymous said...


ONE MORE TIME.


FOLLOW THE MONEY !!!!!

Anonymous said...

Attn 11:12 How can PERS refuse to release fee totals when this money is in fact the property of the participants? Once again where is the "freedom of information". There are without a doubt somethings being hidden here.

Anonymous said...

The Legislature just doesn't get it. I talked to one of the smartest members of the Senate about it one time and they genuinely believed that the changes made a few years ago were sufficient. The smart ones MAY start to get it if the PERS board decides to deal forthrightly and drop the Assumed Rate to a more realistic number.

Kingfish said...

Most of them don't but I've talked to probably half a dozen who do.

Anonymous said...

Highway Patrol.

Anonymous said...

Why is an obese white guy the public face of the Donkey Party in Mississippi?

Anonymous said...

One could just liquidate the PERS fund and divide the proceeds amoung the members
based on contributions while starting another 401k style plan in it's place. The problem
would be that the competent State employees would leave for greener pastures.

Ghosts of Charlie Capps and Ellis Bodron said...

Kingfish is wrong about one thing. The 'problems' did NOT begin in 1999. Not saying no new ones emerged that year, but the problems started much earlier. Back in the eighties, those who make decisions decided it would be fine to let people retire at 25 years instead of 30 and actually paid them bonuses to do so. That killed two hogs with one acorn. It removed people from the system, paid them retirement and stopped their contributions.

Then back when they tweaked the retirement options and made it easier to retire and cover a spouse for life, that squeezed the tit a little tighter. Some retirees and survivors are now drawing three to five times (over a lifetime) what was the annual salary of the retiree with an insignificant reduction in the amount drawn if you choose this option.

Ever change seems to have been made with the 'best case scenario' (including pipe dreams) in mind.

Anonymous said...

"And why is there a 13th check when the plan is grossly underfunded?"

Because it's considered a legal contract entered into decades ago?

Kingfish said...

1:26: Not disagreeing with you.

My personal favorite was Justice retiring from MC and then coaching for full salary at Alabama while drawing a full retirement check.

Anonymous said...

PERS should be abolished. Pay out what they have paid in back to the workers and tell them to take risk like everyone else out there who actually works for a living.

Anonymous said...

The private schools in Mississippi Kingfish are full of public school sports coach retirees.

Anonymous said...

It will suck on the front-end, but we need to get the Federal regs changed and put state employees (at least new hires) in a 403(b).

Pappy O'Daniel said...

PERS has a serious problem, but no politician will touch it with a ten foot pole. Everyone discusses one sided reforms on the side of the employees...the problem is damn management of this system. PERS is a giant piƱata for management firms, politicians and the jug-headed hanger-on morons that inundate this state with their BS schemes...now the evidence...back in the spring the bond market was crumbling away from all time highs...who would buy that...the management firms for PERS who know that we are asleep and the wheel and will buy whatever crap product they are selling...Japanese bonds...negative interest rates... Oh, but have to keep the Japanese happy or buh-bye Toyota. Oh, but we have the bright spot of private equity...can you say Bernie Madoff? Try diggin into where those PE investments are going for PERS...right into a black hole Ponzi scheme. But it's all good as long as the PERs yo-yo's get to be wined and dined and the politicians get their contributions from the mgmt firms...so ultimately who gives a rip about the employees because the game must go on.

Anonymous said...

If Gov. Feel Mr. Speaker and Lt. Tater were packing anything in their boxers they could ram something thru the house and senate and fix this. Who knows? Maybe they are wearing panties.

Anonymous said...

just invest the thing in a Vanguard index fund and let the state treasurer manage the operation. I was curious why KF did not raise the issue of PERS costs rising yearly.

Anonymous said...

There is this little issue of legally owing the money....when you go to work in the morning you expect your employer to stand behind whatever deal he made with you. When that bond is broken, the whole system falls apart.

Bernie got 25 years because he was "supposed to know". Somebody ought to bring charges against the legislature because every year that PERS becomes more underfunded, the legs are spending the money on their pet projects instead.

Anonymous said...

@ 3:03. It should be funded higher. BUT, the PERS Board is the one who makes the funding recommendation/request to the Legislature. The Legislature has funded it per their request. They aren't shorting the request to pay for a Fish Park in Wayne County. They're funding the PERS request and issuing bonds for the Fish Park. If you were trying to make criminal charges, you'd have to go after the advisors and Pat Robertson (PERS Director).

Anonymous said...

Looks and smells like a 3-card Monte card game to me. These money managers are raping the employees and legal discovery is in order, and hopefully these managers gets sued and thrown in jail...

Kingfish said...

3:00 PM: I can only put so much into one post. There is quite a bit of info in this one.

Anonymous said...

In 13 years of service as a teacher, my wife has an account balance of around $50k. Assuming she does the last 12 years and retires, it is reasonable to assume that she will have around $100k or so. She can then retire and draw a nice retirement with her income based on here last x years of average pay. This math simply doesn't work, even if they did a decent job investing. She stands to draw WAY more than she invested even with gains...

Anonymous said...

@ 4:30 is right. It would really take more like 45 years to even get close to making the numbers work.

Anonymous said...

@4:30

50k for 13 years of service meant your wife was putting around $320 a month into her PERS account. With annually compounded interest and an 8% interest rate, your wife's contribution alone should be worth about $300k (were that pushed out to 30 years, it would be worth almost $500k).

If she were to receive 25k a year (my guess as to what half a teacher's salary might be) it would take her 12 years to go through that (20 on the 30 year plan). But the math is a little more complicated than that because you don't take your entire retirement at once, and theoretically the account should continue to grow after retirement.

The question is, why isn't PERS getting an 8% or better return, and how much are they paying in fees to manage the plan. 30 years x 10% interest x yearly compounded interest would yield nearly $700k for your wife (or at the very least 30 years of retirement). Under that calculation, PERS would be fine since the average lifespan is around 78.

So it's possible she doesn't stand to draw "WAY more" because compounded interest is a thing.

Anonymous said...

It's a damn shame that we have such poor representation in the legislature. Nothing gets done because those that should be getting ahead of this problem are either too stupid to understand the issue or too cowardly to do anything about it.

Bet they understand how to make the most of their retirement though.

Don't know why anyone, Republican or Democrat, would want more government of any type.

Anonymous said...

So....What is the problem with Mike Justice, or any other employee, retiring and then going to work somewhere else? It's patently absurd to suggest that a retired state employee (or retiree from any organization or company) should NOT be able to start a new career which might or might not include another retirement down the road.

There are thousands of retirees from the PERS system who worked their ass off for thirty years, retired and went to work somewhere else, again working their asses off, and perhaps, after years, drawing a retirement there as well.

Same is true for millions of military retirees. Even a 'correspondent' could conceivably do it if he had a-mind to.

Anonymous said...

State employees who "retire" in their 50's usually have to get jobs elsewhere bc the retiree state insurance rates are insanely high and most people can't live on half their salary plus take on the huge cost of retiree insurance premiums.

Anonymous said...

127, the q3th check was not a guarantee in the hiring contract with state employees. It was,a freebie given to them by the legislature back when 'times were good'. The problem is now -me and thousands of other state retirees love our 13th check and if they tried to take it back we would be raising hell.

Yes, Extra Butter On My Popcorn, Please.. said...

9:55; an employee handbook is a contract. Likewise the Public Employees Retirement System handbook that is issued to employees is a contract. Thousands enter employment and plan for retirement based on the guarantees and promises and provisions of those documents and handbooks.

Since the policy of the so called thirteenth check was put into effect, that has been covered in the PERS Handbook (its available on line as well). There are no 'ifs, ands or buts' mentioned in the thirteenth check policy in the documents of the Public Employees Retirement System manuals, documents, promises and contracts. It is therefore a contractual agreement, a promise.

Of course the Legislature can do whatever it likes in addressing the issues. And whatever they do might pass muster without a hitch. Their actions might, though, cause an uproar and significant legal challenges. Then all these bleacher sitters, Monday morning lawyers and sideline prognosticators will have an opportunity to stock up on popcorn.

Anonymous said...

A lot of good points made on this thread, but Kingfish made a great point in his original post - less people paying in, with way more eligible to retire - the PERS fund is gonna go "pop" soon.

Big picture, the Republicans probably want the damn thing to go belly up to show how state employment is such a heavy burden on the budget and if you privatize services - you can cut cost. But needless to say, people never question who pays for those services once they go to the "private" sector.

The Mississippi GOP's sole aim is to shrink state government and privatize damn near every service you can imagine, assuming a for-profit company can do something better than a non-profit looking out for the general publics own interest.

So anyway, state employment is unattractive as ever because the legislature is doing everything in its power to cut costs - through suppressed wages, cutting benefits, increasing contributions, and increasing tenure time to receive a pension upon years of service.

The Governor has proposed in his FY2018 budget recommendation to remove all state workers from the personnel boards purview, so state agencies can go ahead and terminate whomever at will. So if you are eligible for retirement, now is a good time to try and cash in on what you worked for in the first place.

More people depending on the fund, less people paying in - this will not bode well in the long run.

Anonymous said...

Ah, yes, an altruistic government agency can do it better because it is looking out for the "general public's own interest". You must also believe in the Tooth Fairy and Easter Bunny.

Anonymous said...

@ 5:55's Mind: We must expand the pyramid in order to pay for the one's at the top. Government must expand to pay it's debts - never mind the increase in future obligations or future state employees or future taxpayers. I'll be long gone by then. Hey look a can. Whistle>

Anonymous said...

@ 8:17am

"an altruistic government agency can do it better because it is looking out for the "general public's own interest"

well what does Public Safety have to gain by distributing drivers license as opposed to a private company?

what does Medicaid have to gain to providing healthcare coverage to our most vulnerable citizens as opposed to a private insurance company that answers to stock payers?

what does corrections have to gain financially by housing our criminals?

There are things we should want to be maintained by the public trust and other things we should want coming from the private sector - such as goods and certain services.

Its just that simple.

Anonymous said...

Is Steve Holland gaining weight?

Anonymous said...

Who knows? Maybe Wackenhut could patrol the highways. I'm sure they could sit in the median just over that next hill.

We already know Job Service became Win Centers which do virtually nothing to facilitate the movement of workers into jobs. Thirty years ago 'Job Placement' was the name of that game, but now it's only a warehouse for Jackson State Grads punching on their i-Phones, cruising toward retirement benefits.

Yes, prisons can be effectively run by the private sector, Medicaid can be better run by a private insurance company and Electrical contractors across this state could put up traffic lights. Any service or job rendered or done by government that can be done by the private sector should be cut from the state budget.

Yet every state agency has become its own empire and fiefdom. Every one!

Anonymous said...

One problem is the fact some of the people who retire from state employment go back to work for the state on a part-time basis. They draw from PERS without contributing anything further. Maybe forbid working for the state once retired, and the state could increase contributors into PERS. Trade two part-timers for a full-time contributing employee.

Anonymous said...

Ah...5:08; In what alternate universe to you think 25k is half a teacher's salary in Mississippi? Or are you thinking about a forty year teacher with masters and specialist degrees teaching special ed in the wealthiest district in the state?

Anonymous said...

How about stopping MHP retired people from going to work for a Local PD with state retirement ? Being a state employee myself, I have not had a pay raise since June 2006. And the only one before that was May 1998. So 2 in 22 years you do the math. Wait let me do it for you. It comes out to about 15 dollars per month over 22 years.

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