Thursday, August 2, 2018

Bigger Pie: PERS Should Take Some Pain

It was a move that everyone who has followed the problems of the Public Employees’ Retirement System (PERS) of Mississippi has known was coming for years.

The PERS recently board of trustees voted to increase the amount of employer contributions from worker salaries for the pension fund from 15.75 to 17.4 percent, starting July 1, 2019. The trustees said that increasing the contribution rate by 1.65 percent would have PERS fully funded by 2047.

This sort of prediction has happened before. In 2012, PERS officials increased the contribution for employers from 14.26 percent to 15.75 percent. In 2013, officials said that the fund would be 80 percent fully funded by 2042, thanks to the contribution increase.

The fund said, as it does now, that if the plan’s investments reach their goals of 7.75 percent, that the plan’s finances would be made whole again.

In the Soviet Union, the national economy was “planned” in grandiose five-year increments. There were 13 of these plans and the last one didn’t take effect since the USSR broke up in 1991. PERS’ plans for returning the fund back to fiscal health have a similar ring. They were wrong once and had to change one of the few factors they control — the employer contribution rate — to close the gap. Who’s to say they won’t have to do it again down the road?

At least the Soviets only planned in five-year increments. There is a lot of wishful thinking in projections that go 29 years into the future.

Right now, PERS is only 61.5 percent fully funded, which means present assets will only cover 61.5 percent of future obligations. That’s actually an increase from last year, when the plan was only 60 percent fully funded.

Things are only going to get worse for PERS. An aging workforce means fewer workers are paying into the system to support benefits for an increasing amount of retirees. The number of retirees is up 59.9 percent since 2005 and the average age of the plan’s members is 44.7, meaning the pace of retirements will increase, not decrease, in the coming years.

Members of PERS with at least 15 years of service represent 27 percent of all state and municipal employees. The next few decades will be tough on PERS, even if the fund sees nearly 15 percent return on its investments as it did last year.

The way to fix PERS in the long term isn’t the band aid solution of increasing employer contributions. The Legislature needs to transform the plan for new workers to a more 401k-type system and alter the cost of living adjustment system that is costing the plan more each year.

It’s either take some pain now or face a catastrophe a decade or two in the future.

 This post is sponsored content provided by Bigger Pie Forum.

30 comments:

Anonymous said...

can you say PONZI

Anonymous said...

Bigger Pie is a Mississippi treasure. Thanks Pie.

Anonymous said...

Its the funding formula that is the underlying problem The funding going in is not mathematically tied to future benefits. THAT is the only fix. You do that by changing/eliminating the COLA and a few other tweaks on minimum retirement age, vesting etc.


I am still amazed at how many educated people tie the problem to an aging workforce and growing number retirees. You don't fix a funding problem by adding more employees. If the formula is wrong, adding more employees INCREASES the unfunded liability. Why can't otherwise smart people get that?


Anonymous said...

Hey, great suggestion.

We'll stop any new employee contributions... and then that'll fix everything. When you slash the state's public workforce, there's going to be a shortfall in the pension system. 250 positions eliminated? 250 contributors eliminated. The math isn't that hard, you can do it on an envelope.

Also, kudos to that jarring transition from describing PERS to talking about Soviet Russia... because those things are so alike.

Bigger Pie = Rich blow hards with too much time on their hands.

Anonymous said...

Sigh, where do you begin with the level of futility with anything tied to State Government in Mississippi?

Bigger Pie made some excellent points in this article.

1. PERS is ONLY 61.5 percent fully funded
2. Fewer workers are paying into the system to support benefits for an increasing amount of retirees
3. Members of PERS with at least 15 years of service ONLY represent 27 percent of all state and municipal employees.

Another person made this comment regarding the Smoking Gun article and it makes perfect sense when it comes to state government in Mississippi,

"Cutting taxes is a lot different than cutting expenses. They’ve cut taxes and put the state in a hole. Infrastructure is going in the crapper. None of these gop officials could run a business if it was given to them."

That point is as significant to the roads and bridges in Mississippi, as it is to the Human Capital that keeps the state running.

Now that PERS has increased employer contributions, the next thing that's going to happen, that has to happen, is that current civil servants will have to increase their contributions as well. But at their own detriment considering they have not received an across the board Cost of Living (COLA) increase since FY2007. Their wages are stagnant and are the lowest paid in the country. They will not see any gains in their wages, as well as, based on the recommendation by the Bigger Pie Forum, they will not have the same retirement benefits as their predecessors.

That's why the turnover is high and people are getting up out of here.

This is the reward you get for staying in Mississippi and trying to make it a home. Amazing how the Mississippi legislature treats its own citizens. SMH

Anonymous said...

Bigger Pie ought to start a constitutional amendment petition that provides that, on an annual basis, all monies in the SLRP slush fund above the PERS % funding level shall be transferred to PERS until those funding level are equivalent. It would be fun to watch the legislature respond with hypocrisy and self-interest.

Anonymous said...


59.9% more retirees since 2005?

Holy shit !

The legislature should cap the state contributions to this final increase. Let the employees make up the difference, or get less.

intelligent_guy said...

Aug 2 @ 10.45 AM

Your response clearly identifies you as a current or soon-to-be-retired PERS beneficiary who has bought into the myth that the State needs to hire, hire, hire so that you can be guaranteed your full pension benefits.

That may be well and good for you and others who will get all of your payouts over the next 20 years or so, but as 10.14 points out, it doesn't solve the bigger problem, which is that PERS will eventually be insolvent unless fundamental changes are made.

And, by the way, it is not just the employees who are contributing to PERS. In fact, the above article is talking about the EMPLOYER contribution rising from 15.75% to 17.4%. The EMPLOYER refers to school districts, state agencies, etc. For every person that a PERS-participating entity hires, they bear a 17.4% additional burden above and beyond the base salary, payroll taxes and health benefit costs of that employee. In short, these are tax dollars.

No one is suggesting that existing PERS participants be stripped of benefits. But, to continue to operate a defined-benefit pension plan (aka Ponzi scheme) is foolish. Politicians don't want to touch it, because the problem is so bad, doing anything alienates a lot of voters. So, they keep kicking the can down the road, but the end of the road is a lot closer than anyone is willing to believe.

Anonymous said...

The new State Auditor Shad White should do an audit on high level managers/officers of state agencies an colleges to see their minutes of who authorized and when the exorbitant salaries some of them gave themselves (or bullied their boards to give them) in the last few years to maximize that pension. They move long-timers up to higher level positions "just because" they want them to be able to maximize their pension. Shouldn't be allowed, but happens every month somewhere.

MAJOR AWESOME said...

PEERS needs to do what the Army just implemented with the Blended Retirement System (BRS). Instead of the traditional pension, new Soldiers entering service after 2017 are required to contribute to their 401k style TSP. The downside is that they don’t receive the traditional 50% pay of their high 3 pay grades at 20 years. But the upside is that Soldiers who serve less than 20 years (vast majority) and get out have a 401k account they can take with them as opposed to receiving nothing if in less than 20.

BRS shifts the contribution and risk burden to the individual Soldier, but saves the government TONS of money long term. While I’m great full to be grandfathered into the traditional system, I agree that something needed to be done and PEERS needs to follow suit.

Anonymous said...

Don't worry 11:26. Jim Hood's plan is to increase income taxes to pay for the additional employer contribution.

Because make no mistake about it, Jim Hood's pre-campaign campaign is all about sharing his belief that government is not spending enough.

Anonymous said...



State employees that leave before 8 years (vested?) can freeze PERS or as many do receive their contribution as a disbursement(probably taxable because it was paid pretax).

Now the interesting portion....the employer contribution stays in the system (15,16,17% or whatever). Also if the departed employee never vests they are only eligible to receive the actual dollars they contributed. At some point they will withdraw their contribution and the employer portion goes somewhere in the system.

Curious as to how PERS accounts for these orphaned funds.

Anonymous said...

10:45....Rich blowhards? Really? Ashby Foote, III ain't rich. He's on the City Council only because he can get a retirement check from PERS. Good joke though!

Anonymous said...

All the politicians who run for office swear they will "never touch PERS". I'm not aware of any that have the courage to admit that there is a problem and work on fixing it.

The only thing most of our elected officials are good at is finding a way to squeeze every dollar out of PERS.

Anonymous said...

Crap, what idiot in the state plans says that every year we have to average 7.75%. Their consultant should be sued for bad advice using this figure. Yea we might make it like last year and this year but look at the last 8 years and you made 2-4% return at the max. Do what is normal such as base the plan on a 5% return and make sure it is properly funded. That's the problem with the State Employee Plan. They should have NEVER done the 13th check and plowed the money back into the fund so it could shore up any short falls. If this had been done the State Plan would be 90% funded instead of 61.1% where it is now. But hell cut it back and we don't get the extra benefit.

Anonymous said...

State employees haven't had a raise in over 11 years! How many pay raises have
our illustrious legislators voted for themselves during the past 11 years?...
POS every last one of them..

Anonymous said...

Think about it people. If PERS is only 61.1% funded that means that if you go on vacation and spend $2,000 you can only pay 61.1% or $1222 of the bill. You still owe the difference of $778 and have to pay it or finance it and pay interest. Now add some zeros-- You owe 200,000,000 million and you have to pay or finance the difference of $77,800,000 that you can't pay. CUT THE 13th check out or at least cut it by 50%.

By the way, the same smart consultant must have done the College Impact Plan as it used a similar high rate of return instead of 5%.

Anonymous said...

There are a lot of potential fixes which have been ignored. The State's deferred compensation plan is, essentially, a 401k-type plan. Yet, employees cannot opt out of PERS and elect only to contribute to the deferred compensation plan. The do not have a "either or" option, only a "both and" option -- you must contrubte to PERS but you also may contribute to the deferred comp plan. Nor do State employees coming onto PERS rolls after age 55 (or 65 for that matter) have the right to opt out of PERS. There was a legislative proposal several years go allowing employees who entered PERS after 2013 to opt out, but it went nowhere. The days of defined benefit plans like PERS should be over (as they are in the federal sector), but we can't bring ourselves to make the transition.

Anonymous said...

3:02...You're the one who mentioned 'idiots' and 'suing for bad advice'. And then you go on to suggest that the employee COLA formula still be used but the product of the formula should be 'plowed back' into the general fund. Talk about idiocy.

Either eliminate cost of living and give zero annual increase, like pay raises that have not been given for almost a decade...or change the formula. But, it's nuts to suggest using the contracted formula (yes it's a contract) to 'plow back' into the system in order to shore it up. My God....I'll stop.

Anonymous said...

"State employees that leave before 8 years (vested?) can freeze PERS or as many do receive their contribution as a disbursement(probably taxable because it was paid pretax).

Now the interesting portion....the employer contribution stays in the system (15,16,17% or whatever). Also if the departed employee never vests they are only eligible to receive the actual dollars they contributed. At some point they will withdraw their contribution and the employer portion goes somewhere in the system.

Curious as to how PERS accounts for these orphaned funds."

Yes, and any interest earned on contributions by non-vested employees who leave state employment, stays also.

I never understood why separate accounts are not kept so there wouldn't be such a mess.

Anonymous said...

State cannot afford an abrupt shift to a 401k type plan. PERS depends on current employee payments with matching employers payments to keep itself solvent. Take that away and taxpayers will have to come up with the extra billions needed to pay out all vested employees and existing retirees until their retirements are paid out. You see, the State of Messupsi has guaranteed these payouts. Pie doesn’t always get it right. Have to fix it before you can change it.

Anonymous said...

It's simple math, really. You've got a population bubble, the boomers. They are retiring, and the new workforce is younger and has fewer numbers.

This brings up a question... do you 'tax' the heck out of the incoming workers, knowing that as soon as the boomers die off you will have a grossly OVERfunded plan? Or do you let it 'squeak by' and even out over time.

None of these projections are a) linear and b) go on forever.

Anonymous said...

Actually employees can choose already between a 401a plan (similar to 401k) or the traditional PERS. The problem is you only get one time to make the election, and it is permanent. If you leave the position, only to return years later you are stuck with your original selection.

Even if you are in the 401a (called the ORP - Optional Retirement Plan), you get 2.475% of Employer contributions (i.e. the State contributions) siphoned off "for application to the accrued liability contribution fund". See page 11 at http://www.orp.ms.gov/ORP/Documents/ORP_Plan_Document.pdf

They should follow suit with federal plans which has basically phased out the old pension model in favor of the TSP (again, similar to a 401k). TSP is the envy of many personal investors as it has the lowest expense ratio funds and no management fees.

The State however should look into the extravagant administration fees that these 401a providers (Voya, Valic, etc) are charging and replace them with low cost providers with better fund options. Perhaps a post for a later date KF...

Anonymous said...

To the above, I should have clarified that 401a (ORP) is only available to employees of "institutions of higher learning teaching and administrative faculty in Mississippi." Sorry for the confusion.

Anonymous said...

The 13th Check is blatant financial rape of the taxpayers. It's very existence is a SLAP in the face of every taxpayer. The inner circle laughs.

Bloodlust in The Radar Room said...

Maybe if I ran my post by Alan Lange for his approval it could get published here. I offered what I think were six or seven sensible suggestions but they must not agree with where Kingfish wanted the thread to go. He likes a little more crucifixion of State Employees on the PERS threads. Bloodlust, they call it in the movies.

This one won't see the light of day either, but what else is new?

Anonymous said...

The genius at 10:14 sez this:

"You do that by changing/eliminating the COLA and a few other tweaks on minimum retirement age, vesting etc."

So, the way to fix the system is by telling retirees they will never get a cost of living increase (elimination). Then you 'tweak' retirement age so thirty years at any age is no longer a qualifying age and maybe age 75 is appropriate. And bump up vesting way beyond that of any 401k. Gotcha.

There you have it folks....a hot poker up the arse of retirees and lowly state employees courtesy of....not sure who.

Hang 'Em High! said...

10:14; there's no employer in America with a pension plan that requires more than thirty years of employment prior to retirement. Why should that apply to those covered by the state retirement program?

You must not know much about vesting. Every 401k program I've ever dealt with required less vesting time than the PERS system requires.

Too many of you people are stuck in the ditch of employee-sacrifice and totally ignore the available enhancements and changes to the system that would not cripple retirees (further than their pre-retirement wages already cripple them).

But, on the other hand, we have to realize the foundation of your logic, and that foundation is this: Let these people retire and give them a little something to bridge them between social security checks and along with their SNAP benefits, this would be sufficient to ease them into old age when they become eligible for medicaid.

And if they need additional income to be able to purchase insurance or take an occasional trip up to Memphis, they can always apply at Wal Mart or the mini mart since those places are always hiring. There's value and pride to be found in these part time jobs following retirement. Get these people off the couch.

Anonymous said...

Bigger Pie is a Mississippi treasure. Thanks Pie. August 2, 2018 at 10:12 AM

Bigger Pie is a Mississippi treasure in the same sense that River Hills and other private clubs for the rich and famous are Mississippi treasures. As with the Alan Lange crowd, you can see photos of all these people (holding alcoholic beverages) in those free mag-rags in the doctors' offices.

Bigger Pie for 'them'. The rest of you stay in the kitchen and bus tables.

Anonymous said...

What is “the Alan Lange crowd?”

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