Wednesday, April 26, 2017

AP: PERS has problems.

Collection of all posts on PERS.  

Well, well, well. It seems the local media finally deemed PERS worthy of its notice.  Of course, the AP's Jeff Amy didn't do any real reporting but instead regurgitated a report spoonfed to him by a think tank but progress is progress.

A new report says that even if Mississippi's public employee pension system was meeting investment assumptions, governments still aren't putting away enough money to whittle down debt from previous pension underfunding.

The study, released last week by the Pew Charitable Trusts, raises questions about the long-term course of the Public Employees Retirement System, though the system has enough money to pay years' worth of benefits even if governments and employees didn't put in another penny.

Gee, where have we heard this before? This 2016 JJ post might be a good place to start.  
 
"You've heard me say, and I still believe, we're not in a crisis," said outgoing PERS Executive Director Pat Robertson. "Are there concerns? Yes."

Pat, Pat, Pat.  No one has said PERS is in a crisis.  What this website has said is PERS is going in the wrong direction and it's time our leaders took a real look at it to determine the how to reverse course.

The Pew report tries to measure whether contributions from employers and employees are enough to reduce the gap between assets and benefits owed if investment expectations are met. While 32 states did reduce that debt in 2015, the year the Pew report covers, Mississippi fell short, putting in only 97 percent of what's needed.


"Overall, states are still contributing less than they should be toward pensions," David Draine, a senior researcher at Pew, told reporters on a conference call last week.


That gap between assets and all benefits owed — the Mississippi plan's unfunded liability — increased to $16 billion in 2015, in part because the plan lowered its assumed rate of return on investments to 7.75 percent a year, meaning the plan's actuaries assume it will need larger contributions to make up the gap. The unfunded liability increased again to $16.8 billion in 2016, meaning PERS only has 60 percent of the money it needs to pay current and future benefits.

This paragraph is bogus and it is clear the reporter does not know what he is talking about.  The gap did not widen because of the lowering of the assumption but grew for a more basic reason: The number of retirees keeps increasing while the number of state employees decreases.  The deficit would be better if the assumed rate of return was 8.0% but the more important numbers such as actives and retirees are still going in the wrong direction.  The deficit between contributions and payments has not decreased a single time in the last fifteen years. These charts spell it out.




And that leads to this problem: 




The number of retirees will be more than 100,000 this year and that is the real problem.  However, some "experts" say there is nothing to worry about:

Some observers of public pension systems find the emphasis on paying down accumulated debt in pension systems misplaced, saying it's an artificial crisis created by accounting rules.


"Ultimately the best argument against the current rules is that following these rules is not necessary to keep the checks from bouncing," wrote Tom Sgouros in a report for the Haas Institute at the University of California, Berkeley.

No one has said they will bounce now.  However, it is easier to fix problems now before mushroom into a crisis.  One can look at the PERS trends to see things are going wrong.

PERS changed how it operates in 2011, trying to bring stability to how much it asked employers to pay. It locked in a contribution rate of 15.75 percent of payroll, aiming to use much of that money to chip away at its unfunded liability. The idea was that by 2042, PERS would have enough assets to meet 80 percent of its total liabilities. But actuaries told the PERS board last year that it had fallen off track from meeting the goal, and current board policy calls for the board to mandate higher contribution levels from employers if the pension plan is off track for two years in a row.


That may be easier said than done, though, as shown by experience with one of the smaller PERS funds. The board of the $312 million Mississippi Highway Safety Patrol Retirement System was supposed to mandate higher contributions from the Department of Public Safety this year, but the board agreed to put off that mandate until 2018. Robertson said there were concerns that higher contributions could eat into the agency's ability to provide services.


That's because the board can mandate higher contributions, but can't force lawmakers to appropriate enough money to schools and agencies to cover the costs. Robertson said she feared "legislative pushback" if higher contribution rates were mandated for the main fund.



"I don't think we can raise the contribution rate any higher than we are at 15 and three-quarters," she said. "It's a pretty expensive plan for the employer."

That is the problem, isn't it?

Keep in mind that the funding level for PERS has worsened even when PERS enjoyed great returns in the markets.  THAT is the real problem for PERS. 

23 comments:

Empty my pockets said...

This one is going to require some intestinal fortitude from some people who aren't known for having any. Things like the 13th check and even the legislators "enhanced" benefits should be on the table, but....ain't gonna happen. Anyone see this broke ass state pushing another pile of chips to the center of the table?

Anonymous said...

12:46. A big part of the reason people for local or state government at low pay is for the retirement benefits. The state has agreed to pay an amount and the state should honor its commitment. If the state defaults on its commitment there will be lawsuits just like if the state defaulted on bonds. Its like a private business partially paying its employees with company stock and then raiding all the money and bankrupting the business just before the employees retire.

The state simply needs to put more money in. I am sure the employees will agree to put some more in also as they have in the past. All these tax cuts to these big businesses will end up causing the state to default on its obligations. Of course, the legislature has protected themselves with a separate plan where the taxpayers fund at the rate of 37% of compensation, yet 15% is too high.

I don't trust our current elected officials to keep their word.

Anonymous said...

They won't do nothing until PERS stands on the verge of imminent plan bankruptcy. The Legislature will use that financial state-of-emergency declaration to force the retirees (and current participants) to take a haircut while sticking it to the taxpayers at the same time for part of the bailout.

Then they'll crow and self-congratulate to the TV cameras about having the courage to make the hard choices.

Anonymous said...

@1:12 PM efforts to connect dots between the problems with PERS to tax cuts but anyone who has been reading JJ for the past decade knows otherwise. BTW, @1:12 which political party was running the whole show when SLRP was passed? Do you know?

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Anonymous said...

In response to 1:12, the taxpayers owe government employees (one of which I assume you are) NOTHING. With few exceptions, the public payrolls are filled with the lazy, incompetent, or those simply lacking ambition. Are the taxpayers asked if they want to provide insanely-generous (when compared to the private sector) retirement benefits? No. Instead, legislators enact said benefits WHILE ALSO RECEIVING THEM. No conflict there, huh?

States such as Illinois & Michigan have shown us where we are heading: Insolvency.

Immediately, MS should:

1. Eliminate the ability of all new hires going forward to join PERS.
2. Eliminate the insane "13th check."
3. Change PERS from a Traditional to a "Cash Balance" benefit formula which would curtail future guaranteed liabilities.
4. Prevent the ability of retirees to draw benefits until their 65th birthday.

These steps would shore up the finances of PERS almost immediately and start it down the path of ultimately being wound down.

It's bad enough that the private sector taxpayers have to pay public workers (save police & fire) while they are working. It's simply unbelievable that we have to CONTINUE to pay them after they retire.

Anonymous said...

4:47 I wonder who you call when your house is in fire or a pipe breaks or if you ever attended a public school? Lazy and incompetent might describe the members of the SLRP plan but not the average PERS enrollee. You need to get a job and see what it's like to work for a living rather than watch Fox News all day and type on the internet.

Anonymous said...

3:47 is right on target. Taxpayers are going to get to the point of saying enough. I am still waiting to see what happens in Chicago.

Anonymous said...

Where does PERS and the state constitution come together? Seems as though I remember that Mississippi is the only state that guarantees state retirement benefits in the constitution.

A constitutional amendment....legislative action then a vote (50%, 60%?)

Anonymous said...

PERS will get rid of 13th check shortly. Pensions are dinosaurs; soon to be relegated to the past.

Anonymous said...

Go to the Mississippi government job listings. The jobs pay at least 20 percent lower than the private sector pays
and it gets worse for the jobs that require more education. Add in the fact that total number of state employees
is flat and you have a pretty demoralized workforce dealing with an increasing workload. Bait and switch and most of the comments seem
to be in favor of screwing the workers versus trying to properly reform the pension plan.

Anonymous said...

... versus trying to properly reform the pension plan.

Your words. So lay out your plan how you would "properly reform" the system. Tell us.

Anonymous said...

Enough is enough? You mean 30 years of putting in less money than the math requires? Taxpayers are sick of that?

Anonymous said...

This is equivalent to you showing up for work for a week and you are promised $500. And then they give you $400 and tell you come back next week. And you do it. Rinse and repeat. I don't believe the state can consitutionally renig on paying this promised portion of compensation, but they can push it out indefinately using pension rules.

Just assume this thing will be funded at 60% for at least the next 40 years.

Anonymous said...

I wasn't going to comment but will only to recognize the same tired trolls who post about 'haircuts' and 'Cut out the damned 13th check' and 'Taxpayers are tired of their taxes being raised to support this system' and 'All these people are fat and lazy'.

All of that is bullshit and boring, for the twelfth time. I mean the thirteenth time.

Anonymous said...

As a state employee I think a couple of things should be done. I don't think we should be able to roll years of accrued leave towards retirement. (That would also mean that agencies shouldn't give more leave because they haven't been able to give raises in close to a decade.) I also think that retiring and drawing at thirty years is insane. However, I'm not sure it is good for either party to still be in the classroom past thirty years.

I'd also like to see the numbers for years of service before retirement ten years ago and now. It is completely anecdotal, but it seems to me that people would work 35-40 years before they retired. Now, more and more people are getting to their minimum age and getting out. For all the talk of state employees being unemployable in my field that simply isn't the case. People leave all the time for other states and private sector jobs. We won't have to worry about paying pensions for state workers hired now because darn few of them stay five years much less thirty. From my perspective the lazy state worker is a self fulfilling prophecy. Lack of raises, weak benefits (My provider likes to call our insurance the best of the worst), the very real fear of broken pension promises all cause retention to go down and the recruitment pool to get weaker. Some of us have enough time in we feel the need to roll the dice and hope we get a few years in before we get completely screwed but the younger generation won't take that bet.

Anonymous said...

3:47, Imagine you make a contribution to your employers 401k with matching for 30 years. Then at retirement, the employer keeps their matching along with the income earned over the years. Same scenario you endorse against the state employees. By the way, I work in the private sector, but I believe you honor your commitments and keep your word. Old fashioned I know.

Anonymous said...

9:53 is correct. These lazy state workers includes teachers, police officers, fire fighters, water & sewer workers who are called out in the middle of the night in storms and other necessary workers. In fact, the vast majority are these people.

Kingfish said...

I see my share of hard-working state employees. Of course, it's not like I've ever seen lazy workers at Wal-Mart, McDades, Target, Kroger, or other private businesses.

Anonymous said...

3:47 Come down off your soap box before you break your neck.

Anonymous said...

Regardless of the bluster (on both sides of the issue) above, other issues remain.

1. The math (for MS and virtually every other states) simply doesn't add up to keep funding state pensions in their current state. You can't have people working for 20-30 years, then retiring and collecting for 30-40 years. Social Security is in the same sitution due to longer lifespans, but even it limits people to collecting benefits (early) at age 62. I would say the majority of state retirees get their pensions ASAP, which is generally in their 50s. Simply limiting state retirees to collecting at age 65 (like most of the remaining private pensions) and eliminating the "13th check" (COLA) would take care of the vast majority of underfunding issues facing the system. Allowing people of retire based on years only with no age component to the formla, but paying benefits for a lifetime, is a recipe for disaster.

2. Should there even be a state retirement system with guaranteed benefits, at all? This one is more philosophical, but should be considered. Private pensions outside of utilities and a few major Fortune 500 employers have virtually disappeared due to longer lifespans, unrealistic return assumptions, and the view that corporate profits should go to growing the business instead of paying retirees. Due strictly to sheer size, PERS could run a 403(b) or 457 (as currently exist in tandem with the guaranteed pension) with ultra-low expenses and a generous match for employee contributions. This would give state employees more "ownership" in their own retirement while also limiting the future unfunded liabilities for the state.

While there is no perfect answer, the current system is broken and needs to be addressed instead of just kicking the can down the road and waiting for doomsday.

Anonymous said...

An employee of the state has a contract that will stand up in court. They need to eliminate the 13th. check on new hires. They could also put some safeguards in the law that will trigger additional checks into the balance. But for now, if you are a state employee, you're safe from losing the 13th. check. Another thing that won't raise much money would be to require SLRP members to increase their amount that is required to be put into their retirement fund. A few years back, the legislature required current state employees to increase their contribution, but did not make legislators do the same!

Anonymous said...

If the state was properly funding this according to MATH every year, it would not be in the shape that it is in. This is simple math. Maybe simple is the wrong word, but it's basic math and it has nothing to do with how many people retire.

You simply calculate the value of the future benefit using mortality tables and back into how much should go in every year for each employee. And the formulas the state uses to fund PERS are intentionally flawed so they don't have to put in enough.

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If you get tired come relax at the Fox News Tent. To gain admittance to the VIP section, bring either your Republican Party ID card or a Rebel Flag. Bringing both will entitle you to free drinks.Get your tickets now. Since this is an event for trolls, no ID is required, just bring the hate. Bring the family, Trollfest '07 is for EVERYONE!!!

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