Monday, January 4, 2021

COLA Woes Make 13 Unlucky for PERS

Thirteen remains an unlucky number for PERS, as the "thirteenth check" doubled in only ten years.  PERS paid $751 million to retirees in 2020 for a cost of living adjustment that is not a cost of living adjustment, sabotaging all efforts to fix the retirement system.

The graph below shows the COLA as it keeps on bubbling more and more each year with no signs of slowing down.  The COLA was $368 million in 2011, slightly less than half of what it is now.  Unfortunately, the COLA not only keeps increasing every year, but the amount of increases continues to grow as well.  The annual increases were in the low $20 million range, then moved up to the $30 million range for a while.  The increases continued to grow until they are now over $50 million per year.  It is a safe bet the PERS COLA will reach a billion dollars within five years.  Let that sink in for a minute.  The thirteenth check will hit a billion dollars within five years at its current rate.

 Annual PERS COLA (Increase from previous year) 

2020: $751,646,000 ($51.7 million)
2019: $699,947,000 ($50 million)
2018: $650,465,578 ($47 million)
2017: $603,318,841 ($43 million)
2016: $559,888,063 ($43 million)
2015: $517,283,072 ($41 million)
2014: $476,401,043 ($38 million)
2013: $437,808,691 ($36 million)
2012: $402,514,750 ($33 million)
2011: $368,645,000 ($30 million)
2010: $338,628,000 ($25 million)
2009: $312,471,000 ($31 million)
2008: $281,124,000 ($25 million)
2007: $255,939,000 ($23 million)
2006: $232,710,000 ($22 million)
2005: $211,530,000

One factor driving the explosion in the thirteenth check is the unprecedented number of retirees.  Their population grew a full third since 2011 to 110,000 in 2020. 

While the thirteenth check explodes, the funding level remained stuck around 60% for the last six years despite over 300 basis points worth of employer contribution increases during the same time period (and 450 basis points in ten years).  The PERS actuary recently recommended increasing the employer contributions another 210 basis points. What about all the money paid by employees and employers (i.e. taxpayers)?   Good question.  Much money is paid, but there is a deficit between contributions and benefit payments that is around $1.2 billion.  The thirteenth check makes up nearly two-thirds of that deficit.

Compare the COLA to 2011 when Governor Barbour created a commission to study PERS. 

2020: $751,646,000
2011: $368,645,000

Annual COLA Increase
2020: $51.7 million
2011: $30 million

Keep in mind the COLA is not a true cost of living adjustment. It is not based on inflation.  It is a guaranteed increase in benefits that is compounded.  The economy could enter a period of deflation and the "cost of living adjustment" would still increase.  The PERS Retiree handbook explains:

PERS retirees and beneficiaries who have been receiving benefit payments for at least one full fiscal year are eligible to receive an annual Cost-of-Living Adjustment (COLA). If you retired effective July 1, you would be eligible for the COLA during the fiscal year beginning 12 months later on July 1. If you retired effective August 1, you would be eligible for the COLA during the fiscal year beginning July 1, 23 months after the effective date of retirement.
The COLA is equal to 3 percent of your annual base benefit for each full fiscal year of retirement prior to the year in which you reach age 55 (Retirement Tiers 1 through 3, see table below) or 60 (Retirement Tier 4), plus 3 percent compounded for each fiscal year thereafter, beginning with the fiscal year in which you turn age 55 (Retirement Tiers 1 through 3) or 60 (Retirement Tier 4). (See the Appendix for simple and compounded COLA interest rates for years in retirement.)

Governor Barbour's PERS Commission recommended a review of the COLA.  JJ reported on December 15, 2011: 

  *COLA. The infamous but dearly-beloved COLA. The commission recommended freezing the COLA for three years. Mayor Schoegel said the amount of the COLA payment was $409 million. The amount of the COLA payment is roughly the same amount as the deficit between contributions and benefits payments (See earlier post about deficit). The Commission stated retirees would STILL GET THEIR THIRTEENTH CHECK. The Commission only recommended freezing the amount for three years and then tying it to the inflation rate (consumer price index. Interesting question: Should it be tied to CPI or instead tied to the headline inflation rate?).

The commission estimates this change would improve the funding level to 67% and reduce the employer contribution rate by 2.12%. The consultant estimates PERS pays an extra $10 million per year because the COLA is not linked to the CPI. The commission also pointed out the COLA is 3% a year for the first three years but is compounded after that period. The result is the COLA is determined each year on a retiree's principal that increases each year.

That proposal never had a chance and wouldn't have one today.  The Lieutenant Governor said during the 2019 campaign there should be no changes made to the thirteenth check nor PERS itself.  The Speakah has been in that job for two terms now and has taken no action other than to rubber-stamp employer contribution increases.  The same can be said about the Governor when he was the Lieutenant Governor.  The media itself doesn't cover the subject while it tries to play gotcha digging through 50 year-old high school yearbooks.  Expect more PERS bailouts (otherwise known as employer contribution increases) that will take money away from teacher pay raises, public schools, police, and other important government functions. 


35 comments:

Anonymous said...

Only way to fix that is grandfathering the employees currently and creating a whole new program or PERS program for new hires. If not, the state will pay dearly in suits saying they signed up for the low pay of the state retirement system for the retirement benfits.

Anonymous said...

Will the last person to leave the room please turn out the lights-

Anonymous said...

10:21 - Your suggestion to "create a whole new program" is the most logical and well thought suggestion I've seen. The benefits for current beneficiaries can't legally be reduced. The legislature created that monster. However, the legislature can stop the monster from growing by creating a new system more in line with private sector systems where the employee is a much more significant contributor and benefits are not set at some guaranteed minimum. But, the legislature is made up of politicians (men, women, black, white) most of whom do not have the courage to do something bold and intelligent that would stop the bleeding.

Anonymous said...

For it to be meaningful in conversation, you have to compare the mandatory COLA with actual inflation. Looking at the past 20 years at June 30 of each year (2001-2020) you will see the consumer price index has increased by 44.83% A 3% compounded increase over the same 20 years means retirees got a 75.35% increase in their benefits.

The mandatory COLA has certainly resulted in benefits that exceed inflation by about 30%, but you can't just say the entire COLA is bad. And remember, when the legislature set 3% as the fixed amount back in 1999 that 3% inflation was not uncommon. It was a way they didn't have to legislate it every year and frequently short-change retirees.

It needs to be adjusted some, but ultimately the COLA is not what is making PERS unsustainable unless you subscribe to the idea that retirees should never get an increase at all.

Anonymous said...

10:21 AM
If they do that they'll need to raise pay, but they could kill two birds with one stone by changing all PINs to X level PINs. I do agree they need a new system. You'll see even more turn over if they keep the current beast and keep raising contribution rates. Can you imagine forking over 25% of your pay to a pension fund on the low pay they already make? They already fork over 10%.

Anonymous said...

And 10:53, what really sucks about the legislature's failure to act is that the higher contribution rates being paid by today's workers are funding COLA payments to retirees who paid in much much less during their working years. Pain should be shared, but the state and current workers seem to always bear the brunt of it.

Anonymous said...

1. Abolish PERS
2. Refund all employees their contributions
3. Let employees open 401K accounts

Anonymous said...

The benefits for current beneficiaries can't legally be reduced.

Incorrect.

Anonymous said...

Pain should be shared, but the state and current workers seem to always bear the brunt of it.

Simple question. How frequently are state workers RIF'd?

Anonymous said...

11:14am, AMEN!!!!!! That would place the responsibility of each person's retirement back on themselves, and would also abolish another government agency that we don't really need.

Anonymous said...

@ 11:14 Hold on a darned second!

What if one had already been paid VASTLY more than he/she contributed?

Would that person have to repay his/her payments in excess of what he/she paid in?

Don't seem fair to me.

We all know state jobs are supposed to be no-work jobs (and in some cases no-show jobs). The only logical reason to take a no-work job is to get something for nothing AND great benefits.

Now you want folks to earn what they get. To actually produce something? Something wrong with you? You some kind of subversive?

Anonymous said...

Where is our State Treasurer in this train wreck. He's wanted the job for years, so it's time for him to earn his salary an come up with some solutions!

Anonymous said...

Freeze the 13th check, the fund would replenish to 90+ percent in no time.

Anonymous said...

Told you, told you, told you-15 years ago that this bomb was going off. If you only put the investment income back into the fund and not paid it out this would not be happening. Even if you paid out a 2% increase for inflation the fund would be close to 80% funded by now. What do you think is going to happen when inflation increases to 5 or 6% in 2 years? No one wants to bite the bullet on this but you better right now or it will be really ugly in 4 or 5 years.

map maker said...

Is there there a legal contract that says the 13th check must be used and how much?

Anonymous said...

Note to all of you “experts”who are Not State retirees!
LEAVE MY DAMN RETIREMENT ALONE!!!
11:14 AM, you are crazy if you think the legislature wants to do that. Doing so would start a massive “Keep your job” contest and many legislators would lose their seats.

Anonymous said...

Shame on 11:24. You should know in 2021 it's "Amen and Awomen".

Anonymous said...

2:11 I didn't say that they wanted to do that. I said it is the smart rational thing to do and for that very reason, no legislator will touch it because they are more worried about reelection than what is best for Mississippi. They like their legislative checks (and free drinks and dinners). Many legislators need to lose their seats.

Anonymous said...

Get rid of SLURP.

That would be a good first step.
Yeah, a small improvement, but still an improvement.

The damn legislators should have never had an additional "special" retirement from the start.













Anonymous said...

"Unfortunately, the COLA not only keeps increasing every year, but the amount of increases continues to grow as well."

Ah, OK. Let's see...The COLA keeps increasing but it also keeps increasing. Is the blog admin swilling the last of the Eggnog?

Anonymous said...

The state pay is terrible but the hook is “benefits”. If you change the benefits then you need to raise the pay. There hasn’t been a state pay raise in over 10 years. Not complaining I make a choice to work at the state but with the “benefits “ in mind.

Anonymous said...

You do realize this type of ponzi scheme was and still is used by the labor unions, if there are any left, and it didn’t work out so well for the future employees or the corporations or retirees. It’s a lose/lose situation. We lost our manufacturing due to unions and their constant want want want. That is what caused the price of goods to increase and force our plants to transfer overseas. Wake up state employees. Your constant nagging and wanting out of our back pockets is not going to work much longer. Your retirement system is failing. History repeats itself.

Anonymous said...

Keep hearing the argument that state employees are owed PERS and 13th check because they accept less pay. Does anyone have the #s on that plus factoring in the additional years they work in the private sector plus both retirements?

Anonymous said...

10:53 - Do you also moan about military retirees, who, after 20 years go to work in the private sector for 25 more? Do you also groan about the fireman who works for the city for 25 years, retires under PERS, then takes a supervisory job at the manufacturing plant and earns another retirement? (key word EARNS)

Anonymous said...

You do realize this type of ponzi scheme was and still is used by the labor unions, if there are any left, and it didn’t work out so well for the future employees or the corporations or retirees. It’s a lose/lose situation. We lost our manufacturing due to unions and their constant want want want. That is what caused the price of goods to increase and force our plants to transfer overseas. Wake up state employees. Your constant nagging and wanting out of our back pockets is not going to work much longer. Your retirement system is failing. History repeats itself

Well you'd have a point if state employees in Mississippi were union workers. They are not.

Because if one thing is for certain, if they were union workers - the state legislature wouldn't have gone 13 years without giving them a pay raise.

Mississippi state employees are the lowest paid in the country. Hell, it's so damn bad our salaries hurt state workers in contiguous states.

Kingfish makes a good point, something needs to be done. But going to a volatile 401k plan for the lowest paid workers in the country is not it.

Anonymous said...

Luckily, the Republicans have a solution: stop collecting income tax. You see by lowering the amount of money they collect, and raising the amount they give away, they can have their cake and eat it too. It’s simply genius! We are lucky to have such intelligent politicians, not sure why everyone doesn’t do it, it’s just too easy.

Anonymous said...

January 4, 2021 at 11:45 AM
I very much disagree with this characterization of state work. When I left the state I got paid more and work less with less stress. I was working alternating 80 hour weeks and my team couldn't keep 3 people. I had to train replacements almost constantly. The only reason I stayed was because of my boss and his tenacity. We were the black sheep of the department even though we were instrumental to the operation of the system. And these systems are core to State funding.

That's not to say there aren't useless knots on a log, but having worked both private and public it's a lot more similar than you'd think. I think the biggest problem is that the useless ones are promoted. Literally, find the dumbest, least qualified moron and they're virtually guaranteed to get promoted if they stay there long enough. Ask any ex-State employee who's been a manager. The theme is all the responsibility and none of the power.

KF if you want some stories about State drama I'm more than willing to share. Enough water has flown under the bridge I'd be glad to divulge and have a beer.

Anonymous said...

10:53 - No, do you. Please post the numbers when you find them. Thanks in advance.

Anonymous said...

Posters here continually complain about state workers in PERS. These posters either are ignorant of or ignore the composition of PERS members:
Public schools 41%
Counties and municipalities 19%
State agencies 18%
Universities and community colleges 16%
Other governmental entities 6%

Posters also complain about the generosity of the PERS plan.The average annual PERS benefit, including the 13th check, is $25,000. The average benefit for highway patrol retirees (yes, it's a separate plan) is $45,000.

The average salary of a person in PERS that is still working is $42,000.

https://www.pers.ms.gov/Content/Supplemental/persfacts_figures.pdf

Anonymous said...

@ 4:03 - read it again, surely you can figure it out

@9:55 - it is generous because those people can retire after 20 or 25 years and draw that amount for longer "retired" than they actually worked. 13th check needs to go or checks 1 - 12 will be gone. It is also generous because it pays out more than it takes in and subsequently is going broke because politicians are too spineless to address the problem.

Also, my wife is a teacher, but you won't see me crowing about keeping all her retirement benefits 100% as they are right now because that isn't sustainable.

Anonymous said...

KF is correct that something needs to be done - especially the 13th check. I will agree that retired teachers and lower level workers probably deserve everything they get, but the formula needs to be looked at. I know this blog is about Jackson, but if anyone has been following the saga of the crooked Walker family down on the coast it is outrageous. From the December 16 Sun Herald on the latest of their court appearances:

"Bill and Sharon Walker draw a combined $17,500 in monthly retirement from the state, but they also receive lump-sum retirement checks in December that total around $29,000 each."

https://www.sunherald.com/news/local/crime/article247871665.html

If I am calculating correctly, this convict couple is drawing about $268,000 a year from PERS.

Something needs to be done!

Anonymous said...

@11:16 AM
For someone with a wife that is a teacher, you are remarkably uninformed. Anyone hired since July 2011 has to work 30 years to draw the full retirement amount and it takes 8 years to become vested. A person can retire at age 60 if they are vested but they will draw a pension based on their reduced years of service.





Anonymous said...

9:55 Illustrates that the govt is the largest employment agency... wholly owned and operated by themselves.

Anonymous said...

Question for 2:15 - If not the people, who should own the government?

Anonymous said...

OK, just thinking out loud here, but has anyone considered that maybe - just maybe - there are a few too many folks employed by the state? Is it really a good idea if "the state," i.e., public money/taxpayers (somewhere) are the largest source of employment AND retirement, not to mention a rather healthy trough? After all, socialism (or a semi-sorta approximation thereof) is fine and dandy...until it runs out of money to, um, equally redistribute. Add to that the money in the pockets of the alleged "haves" which also came from the actually-working, and hoo-boy, this won't end well.

Moreover, a hypothetical pol - Bill Fryant or Baley Harbour, for example - paying taxes on a small portion of what they suckled from the government tit is really not even putting the ante back after they stacked the deck while going light on the pot. But Pat Middlemanager of Acme Company paying some percent of actual earnings in taxes in a futile, forced attempt to fund the utter bullshit? It cannot end well.



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