Tuesday, October 8, 2019

Will PERS Need More Money?

Just when PERS clears a hurdle, it runs into another one.  A PERS consultant recommended making several changes to the public employees retirement system that will place it a little  more into the financial hole.  PERS funding level has hovered between 64% and 58% over the last ten years despite two increases in employer contributions and adequate market returns. 

 PERS financial advisor  Cavanaugh McDonald Consulting recommended lowering the assumed rate of return as well as several other changes in a report submitted to the Board of Trustees in April. Lowering the assumed rate of return will have several adverse affects for PERS.  Cavanaugh recommends:

*Change assumed rate of return from 7.75% to 7.5%.  PERS lowered it from 8.0% to 7.75% just a few years ago.
* Change wage inflation from 3.25% to 3%.
* Change price inflation from 3% to 2.75%.
*Increase administrative expenses from .23% to .25% of payroll?

The recommendations would have reduced the funding level from 61.8% to 59.9% last year.   The amortization period for reaching a 95% funding level would have increased from 31 years to 41 years while the projected funding ratio in 2047 would drop from 96% to 71%.  The unaccrued actuarial liability would have increased from $16.9 billion to $18.4 billion.  Most public employee pension plans have reduced their assumed rates of return to 7.5% or 7.25% over the last few years. 

The recommendations assume contribution rates remain constant.  PERS levied a $100 million contribution last year upon state and local governments to shore up its finances.  The Board adopted the recommendations in August.  The employer contribution rate increased to 17.4% last year.  PERS raised the contribution rate to 15.75% in 2012.

JJ reported in 2012:

She said the board was reaching a consensus of adopting an employer contribution rate of 15.75% to yield a funding ration in excess of 80% in thirty years (9:00). Representative Flaggs asked her how much money the additional employer contribution would require. She said it is estimated it will require an additional $44 million from the general fund (15:30). The current employer contribution is 14.26% (See p.30 of document posted below). She said creating a long-term rate of 15.75% was more stable than increase the rate to over 16 or 17 percent and then lowering the contribution rate as the funding level stabilized. .... Earlier post.

Ms. Robertson said PERS' funding level of "62% was not ideal" but that PERS "is financially stable." She said "changes have been made to ensure the sustainability of the plan" such as eligibility, contributions, and other measures. She repeatedly said the legislature increased benefits in 1999 without putting a funding mechanism in place to pay for the increase. She said the increase was made retroactive and "cost 10% of payroll." She said "those benefits were not paid for and its catching up with us now." She said only the legislature can change benefits.

The PERS Board of Trustees postponed the traditional October release of the annual report to December to incorporate the recommendations.  The S&P 500 had a 9.2% rate of return for the fiscal year so PERS probably had a decent year in the markets.  Unfortunately, the changes to the PERS assumptions will probably increase the unfunded liabilities and drop the funding level under 60%.

Kingfish note: More than a few people will be watching the PERS December Board of Trustees meeting.  

Just curious.  Remember that $75 million bailout last year? Those funds would have doubled the amount of the teacher pay raise.  Just a small observation. 


Anonymous said...

Nothing gets fixed until the retirees and current employees come to their senses and realize that the time bomb they are sitting on is real and will explode underneath them. There is going to be a haircut. The only issue is whether they actively participate to reform the system now while there remains an opportunity to reduce the level of hardship or whether they let it all go to hell and watch the trim they stupidly avoided become a full fledged butch.

Anonymous said...

Q: Where have I heard this before?

A: Not from the Legislature.

Anonymous said...

Instead of an abused 16 year old Swede rail against the current generation (us)about a non -existent climate crises we need a grandchild of ours to rail against the true crises of pensions all across the US.

Anonymous said...

Yet the Legislature and local governments continue to push for privatization and reducing the number of public employees. This reduces the number of people paying into the System.

Anonymous said...

Who cares.

Anonymous said...

Abolish PERS and contract all State Employee jobs out to the lowest bidder.

Without the MSPB you don't have to hire the dead weight that sits around dispensing sass just because you interrupted their paid phone browsing time. You see it every time you need assistance from a state agency.

Really sick of paying for this rubbish. And a private contractor won't stand for it.

Anonymous said...

This is a shake down. There is no basis for lowering the expected return. If anything it should be raised. PERS board is trying to see how far they can push the issue. If anything needs to be restructured, its the PERS board.

Anonymous said...

Don't be caught holding any bonds issued by the state of Mississippi. The only way the state can cut promised benefits is through bankruptcy.

This nonsense about hair cuts and cutting benefits won't happen. A pension plan goes into perpetuity, there's no reason to deal with it now. It will get kicked down the road. The only people at risk are the new employees just getting into the system. The terms of their deal WILL change, but the state isn't going to mess with current retirees or vested employees. Too many of them vote.

Anonymous said...

Employees paying into the system get a raise maybe once every 8 years.

Employees drawing money from the system get a 3% raise on their benefit guaranteed every year.

What could be wrong with that scenario? The fix is easy. If you tie the COLA of current employees and retired employees to the same rate, this mismatch goes away and we probably jump up to about 85% funding level immediately. This is not rocket science.

Anonymous said...

The only thing worse then overpaying for money managers is paying big money for a consulting firm then disregarding their opinion because you lack leadership. If you aren't going to listen to the pros why hire them?

Anonymous said...

Legislators should start taking acting classes now so they can act surprised when this issue blows up in their face.

If you have ever met your representatives you will know that most are truly unqualified to handle this issue. Some are unqualified to handle any issue.

intelligent_guy said...

6.09 PM

OMG!!!! Are you the same dimwit who on every PERS story posts the blather about how increasing the number of public employees is the answer to the PERS problem? Where do you and others of your extremely limited intelligence get that gross misinformation?

Please, Please, PLEASE do the simple math and then illustrate how your proposal improves the State's financial picture. You can't. Because it won't.

Every Day is Saturday except Sunday said...

Keep that mailbox money coming ever month baby

Anonymous said...

"Retired" after 10 years with COJ and vested in PERS. Total contributed to PERS during these 10 years = $20,600. At 60, began receiving $428/month. With COLA, after 8 years I now get $515/month. I am RECEIVING every year, more that 25% of the TOTAL amount I contributed. No wonder PERS is not solvent. Oh yeah. should i die before my wife does, she will get the same amount, with a 3% increase per year (COLA) until she dies. Again, NO WONDER IT IS BROKE.

Anonymous said...

I would kill to get a 7.5% return.

Fire Them All.. said...

Well...There's the 'haircut goober' again.

What's the value of an 'assumed rate of return'. It signals guesswork, speculation, and has no ultimate value down the road. It's similar to the scare tactic of telling us all what an average funeral will cost in ten years. Or what the resale value of that Tahoe will be five years from now.

Oh, WAIT! Just get rid of all state employees.

Ignorance abounds.

Anonymous said...

Intelligent Guy: You're not displaying intelligence at all. Pointing out that reducing employees is antithetical to the notion of increased contributions is not at all the same as advocating for increasing employees. It's a fact that employee reduction seriously affects the amount added to the pudding.

Pointing out to the screamers that firing people will solve nothing does not at all suggest the solution is to hire more people. Turn your cap around.

Anonymous said...

10:48, the contribution rate for an employee is about 10%, so you are saying after 10 years you had contributed $20,600, therefore over a ten year period you are telling us you made $206,000, or $20,600 per year. I hope you had a wonderful career.

Personally, I think you type too well to have only made $20k annually at the peak of your career. You should have signed on at Applebees.

Or maybe you should quit making crap up.

Anonymous said...

9:57....AGREE. Wish we had a "like" button.

More employees = bigger liability.

I'll grant you this, more employees does move the day of reckoning our further into the future, but it does not make the funding level better.

Anonymous said...

In a word, yes. I believe that the state should honor its commitment to current retirees and participants, offer a one-time buyout to current vested employees and modern retirement options to new employees and those who opt for the buyout. This will take courage and leadership on the part of the legislature and PERS board, which means it will probably never happen.

I also think that there should be one retirement system for all public employees - no special carve-outs for legislators and troopers - BUT I would allow those in public safety roles (LE and Fire) to get full retirement benefits after 25 years, and non-sworn, non-first responders (sorry MEMA, you're not first responders) to get their benefits after 30 years. I'd also prohibit double dipping by troopers and legislators...

Again, this will take courage and leadership, but this problem is not going to get better with time.

Anonymous said...

@10:48 - You failed to account for the employer match percentage contributed along with your PERS contributions. And also any investment returns on yours and your employers contributions over the 10 years you worked. It may be in bad shape, but not as much so as your example portrays.

I agree that PERS is in need of reform, as I myself have no expectation of receiving the pension as it stands now in 26 years when I would be eligible for full retirement. I’ll likely leave state employ much prior to that and rollover my contributions into something else. I know PERS loves the folks that do this because they get to keep the employer contribution portion and also not pay out at retirement, but I don’t have any faith that a pension will be in place when I become eligible for any portion of it.

Anonymous said...

PERS has to pay this killer while in prison,


Anonymous said...

10:48, isn't that a rather simplistic illustration? After all, your pension comes not only from your contribution, but the much greater employer contribution made on your behalf, and invested, on our behalf, hopefully for our long term benefit. Our pension IS a defined benefit, and is, in part, the sacrifice we make to work for the state. We make less money than we could in the private market for many reasons, but in part, due to the contributions that come out of our paychecks and also more than matched by our employers. If you want to brush off my comments as those from a deep blue liberal, I'm not. I'm a well educated conservative who only recently began service for the state. I'm definitely concerned about the long term health of PERS. We all should be. But I don't think it's as black and white as some commenters want to make it. And by the way,I've been the recipient of a LOT of rude and unacceptable service the in private sector. I'm sure all of you have, too.

Anonymous said...

@ 12:10...then you're doing it wrong

Anonymous said...

Young-ish public university employee here. I'm 100% fine with significantly reducing COLA if it means funding the plan at a sustainable level.

I'm looking for basic security in retirement, not free vacations every year. I have private investments for things like that. I'd say the vast majority of my peers feel the same way.

Anonymous said...

6:09 that's about the dumbest argument made as to how to 'save' the system. I do realize that those public gubment employees promote this stupid idea because they want to protect their jobs with all their benefits.

But to 'save' the system by hiring more public workers - claiming that their contribution (and of course never considered by the employees, but the increased amount of the tax dollars required due to these additional employees) will add to the funding does nothing to look at the long term impact that occurs when these more workers retire. And, with the state (or city, or county, or school district, or hospital) having to "match" the employee contribution with the now 17.5% tax dollars, your 'save' is nothing more than an additional expense into the system.

And that ignores, of course, the benefits from reducing the number of government employees from the workforce.

Anonymous said...

@5:58 - If Applebees had existed 45 years ago, they would not have paid $20,000 per year. A state employee making that salary 40-50 years ago or a little higher salary, was actually the norm. Sure, some made more....and some made way less, but that was probably a good average. I guess you would have to have been there.

Anonymous said...

We need to cut who is eligible for PERS first. Why should a mayor or alderman or any elected city/municipality employee be considered a state position? Most of them have jobs outside of their elected position. They come in, get elected for a few terms, and BAM, set for life. While the teachers and nurses other state employees worry if they are going to get their fair shake after 25 years.

Anonymous said...

3:30- You are real smart aren't you?

Yes, businesses do want to know the value of things down the road. Including a Tahoe if it part of a fleet program.

It may come as a surprise to you but the value "down the road" is the basis for things like leasing, insurance, lottery payouts, prepaid tuition, retirement portfolios, reverse mortgages, etc.

All of these things require you to make educated assumptions. Leave out the educated part and you run into problems. Regardless you must assume a rate of return, you can't use zero.

Guess you think a budget is a waste of time and money too because who knows what you might want to spend a couple months from now.

Anonymous said...

8:52 said- "Our pension IS a defined benefit, and is, in part, the sacrifice we make to work for the state. We make less money than we could in the private market for many reasons, but in part, due to the contributions that come out of our paychecks and also more than matched by our employers. If you want to brush off my comments as those from a deep blue liberal, I'm not. I'm a well educated conservative who only recently began service for the state"

The part about making way less is such BS. If you can find a civilian job that pays more take it. The fact of the matter is that many (of course not all) public employees could not find a better job. They are public employees in part because of how difficult it is to fire them, how mediocre they can perform and have not other prospects.

You should really get out more and see the type of service going on in the public sector.

Anonymous said...

5:58 AM, I am making nothing up. If you would like to meet and go over all of my numbers, say so. We can arrange it. After we do, I will accept a "phuck you I am sorry" apology. Deal?

Anonymous said...

11:41 is correct. Twenty percent (guesstimate) of participants never should have been 'let into' the system to begin with. Another example: County Supervisors. Another example: Town Aldermen who meet once a month. Another example: All these Deputy Directors that governors slide into various agencies.

Anonymous said...

Public employee footprint is a function of state and local government. State government head count is slightly down, I would guess. County government head count is steady. How many county governments would be operative if we modernized and consolidated them? Thirty? Twenty? How many community colleges or 'universities' would we have if we modernized them. A dozen? PERS hinges on our concept of self-government. Apparently we have the state and its subdivisions as the social contract. Any Rynd style is NOT Mississippi. Its fantasy land. Mississippi is a social democracy that is somewhat antiquated but very Jeffersonian.

Anonymous said...

10:32 - What makes you think 'county government headcount is steady'? What makes you think state government head count is down, other than a guess? What has 'self government' got to do with PERS?

Lay the crack pipe down and get some ice cream. It's snack-time. Chill.

Anonymous said...

10:32 AM is what you call a "pseudo-intellectual" which would define most leftists who derive their political opinions from propagandists like Vice or HBO.

Ayn Rand is exactly like Mississippi. She projected herself as a prophet of individualism and self-sufficiency while subsisting off the generosity of others, including the state.

I can think of no better definition of Mississippi.

Anonymous said...

So answer the questions. How many counties should Mississippi have? How many public universities? How many state agencies? How many local or regional special boards covering levees, drainage, water supply, etc? When you answer these questions you will have a different state workforce and a different PERS. You will have another social contract or philosophy of government. Read John Taylor of Caroline or the modern theorist, Theodore J. Lowi.

Anonymous said...

5:13 - Put on your thinking cap. We could eliminate 75% of the agencies and all but one county, roll all that work (and demands from the public) into one large county, one statewide school district, one police force and a handful of agencies and the same amount of work would be mandated and expected by the citizenry. That means the same number of people, or perhaps even more, with a tremendous bureaucracy at the top. Now, take off your cap and go back to playing pocket pool and watching wrestling.

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