PERS is in trouble again. The PERS board jacked up the employer contribution rate again. And everybody lived happily ever after.
Not.
Finally a top state official expressed concerns out loud, the first time since Gov. Haley Barbour called the retirement system “financially unstable” back in 2011.
State Treasurer David McRae showed some political courage when he spoke the truth out loud about PERS funding. He opposed the board’s move to increase employer contributions another 5%. “I have a lot of problems raising it to 22.4%,” he said as reported by Jackson Jambalaya. “It will cost $265 million. Local hospitals and counties will be on the hook. They will have to raise taxes. I don't know if they can afford to raise property taxes. The problem is we keep raising the employer contribution to where it's unaffordable for counties.” (KF Note: $265 million is the state share. Local governments and public hospitals will have to pay $75 million.)
He added there “are a plethora of options on the table we need to explore. I think there are others on the Board who agree with me. We've kicked this can down the road.”
No surprise, the PERS board ignored McRae.
Few elected politicians have been willing to speak such truth publicly, including McRae’s predecessors as treasurer, now Attorney General Lynn Fitch and now Gov. Tate Reeves. The State Treasurer serves as an ex officio voting member of the PERS board and has a duty to address financial issues impacting the state.
Each time the Board has increased rates, its professional advisors have claimed the increase would get PERS in good financial shape. Each previous time it did not.
Each time, too, solving PERS’ big problem got harder as gaps got bigger.
The funding shortfall kept growing: PERS’ actuarial funding shortfall in 2011 was $12.3 billion with funding ratio of 62.2%. In 2022 after three rate hikes the shortfall was $20.6 billion with a funding ratio of 59.9%.
The gap between those paying in and those drawing out kept growing: In 2011 a total of 161,676 employees were paying into the system while 83,115 retirees were drawing out. By 2022 a lower total 144,416 were paying in with much higher total of 114,462 drawing out.
Meanwhile, employer contributions went from $723.8 million in 2011 to $1.2 billion in 2022.
The data shows PERS has been structurally unsound for years. Yet the professional accountants and actuaries who assess PERS regularly conclude the system is financially sound. They get there by adding caveats like this, “with the presumption that future contributions will be made at the necessary level to ensure adequate funding.”
Then there is this statement. “We believe that the active membership will continue at or around its current population of 144,416 active members over the projected period.” They say that even though membership has dropped every year for the past 10 years.
Good to see David McRae questioning such nonsense.
“When you tell the truth, justice is done” – Proverbs 12:17.
33 comments:
Sigh. Criticism of KF for posting about PERS...3..2..1...
I'd like to thank the Kingfish for posting about PERS... because I think it's HIGHLY entertaining watching something blatantly imploding like the slow-motion train wreck, and those responsible for it doing absolutely nothing... while those dependent on it, are like the frog in slowly boiling water who don't realize what's going on until it's too late.
Sorry folks, but it IS entertaining.
Candor and transparency are vital to a functioning democracy. McRae is doing his job, nothing more. Would be nice if he or the author of the above proposed a solution or solutions.
As long as Republicans continue to "make government smaller" the worse this problem will become.
PERS was not funded properly in the early 2000’s and has never been able to catch up because of it. This is a major part of the employee compensation package, as wages are particularly low. The plan helps keep employees. Change it for the future, but don’t cut the benefits for current employees and retirees who earned those benefits and worked with the agreement that those benefits will be paid. Otherwise it would be like a private employer taking back their 401(k) contribution and subsequent earnings when one retires, after having earned it.
Also, the state better get ready to increase salaries to hire new people.
Whatever. It’s $20 billion. The state is about to rebate $5 billion of budget surplus to taxpayers. Put it in perspective. The state could fix this in a wink.
You're full of crap, Bill. Go look at my PERS post last week. The state agencies only make up 12% or so of state employees. The vast majority work in local governments and in higher education. That is where most of the workforce reductions have been.
@11:55am Um, as 1:06pm said after you - state "leaders" (idiots) could fix it in a wink. Solutions abound as easily as with any kitchen table budget.
You would like others to think that governing is oh-so complicated. It's not. It's a matter of having the managerial courage to do what's right, regardless of one's reputation or re-electability. Too many Mississippians are locked into the golden handcuffs of PERS, and therefore are literally far too terrified to speak of modifying, cutting, or eliminating it. So that's what WILL happen inevitably. Pain now? Or pain later? Simple. As with all budgeting. In this case - there will be pain later - rest assured - and sooner that anyone wants to acknowledge.
In 2012, state agency employees were 32,618 out of 162,311 or 20% of active PERS members. In 2022, state agency employees were 24,466 out of 144,416 or 17% of active PERS members.
In 10 years, state agency employees declined 8,152 or a 25% reduction while the rest of active PERS members declined 9,743 or a 7.5% reduction.
https://www.pers.ms.gov/Content/CAFR/2012_CAFR.pdf page 39
https://www.pers.ms.gov/Content/CAFR/2022_ACFR.pdf page 37
PERS will be fine. The general fund budget is $7 billion. And that excludes a lot of other junk the state pays for. A $20 billion PERS bill sounds like a lot, but in the scheme of things it’s pretty affordable. State should have floated binds when rates were at 1% to make up the shortfall. Would have been less painful.
Some of that PERS bill won’t come due for 50 years. Seriously.
"...he said as reported by Jackson Jambalaya..."
So, Kingfish pays a syndicated columnist to quote Kingfish's blog? Crawford is genius!
Dees, you're joking right?
Even tho the mechanics of the funding is flawed, you (obviously) propose continually INCREASING the size of gov't only so PERS can be funded on well into the future?
What a brilliant thought.. for ALL Mississippians.
Will SLURP (Supplemental LEGISLATIVE Retirement Plan)
be affected ?
Asking for my state District Representative.
He knows all about Deer hunting ... but has no comprehension of financial matters.
Bill “ Democrat Water Boy” Crawford translation:
Dumb Republicans, please be stupid enough to commit political suicide and fix PERS – so my Democrat friends will be elected to run the State of Mississippi (and destroy it like Democrats have destroyed the City of Jackson).
And ole Bill has good reason to “praise” Republicans, since there’s plenty dumb enough to take the bait.
Oh, and when Republicans do, it will be under the heading of “bipartisanship” (which code for “do what Democrats want”). BWAHAHAHAHAHAHAHAHAHAHA
@January 15, 2023 at 1:02 PM
If you don't change it for the current, you don't fix anything. IT's not future employees that have a $20B deficit. It's the current employees. Really, it's probably mainly the employees from a decade and more ago. Even though we idioticallky do not set the contribution rate based on actuarial methods, I suspect PERS has been more or less fully funding obligations as they incur them since they moved the employer side to ~17% to go along with the employees 9%. On average, that probably does cover PERS costs.
The problem is they never addressed the shortfall and there's no real way to do it politically and legally. Politically, you can't touch it without being thrown out of office. Legally, even if you had a politicians that is as charismatic as the devil himself and could sell some sort of reform that moved the funding to an actuarially sound method (or moved it to defined contribution), took out some state bonds to cover some of the shortfall, and had political subsidivisions take out some bonds to cover some of their shortfall, and established some sort of mechanism that at least eliminated COLAs going forward for those retirees whose PERS payments are outsized compared to the contributions on their behalf, you'd run into legal problems for the haircuts.
SO we're just going to watch it become a trainwreck because you can't fix the $20B politically, and when it actually gets bad enough that you could get a political coalition to fix it, the deficit will be much bigger than $20B and you won't be able to fix it because of math.
*PERS was not funded properly in the early 2000’s and has never been able to catch up because of it.*
A game of 'catch-up' should never have been necessary, but it's become the norm. The problem was NOT 'improper funding'. That's simply an effect of the problem, not the root. And all these tax and growth wizards on PERS Board after PERS Board throwing darts at a dart-board? Declining active employees contributing and poor assumptions regarding future growth were the problems...but, the ROOT?
When governors, the legislature and the State Personnel Board allow agency heads to slice employees who contribute and replace them with contract workers who do not contribute, the contributions (guess what?) shrink.
Likewise, employer contributions for that large group cease, and will have to increase on the other end, the percentage. Sounds great, right? Get rid of slackers and save the state money, right? It never worked (other than for patronage).
The end result of that 'strategerie' is fewer employees contributing, fewer employer dollars funneled into the system and a constant supply of new and existing retirees with rising cost of living increases for retirees. Not to mention the money wasted by hiring (buddies) contract workers.
All the praise being heaped on Governor Barbour for his keen PERS-insight ignores the fact that he was the primary one (among governors) who gifted agency heads with the authority to slice large numbers of contributing employees and the SPB authorized rehiring many of them as non-contributing contract workers. Most, if not all, governors following Barbour have done the same. Not only agency heads have resorted to this system but, for example, the State Department of Education uses this as a staffing reality.
To pick random numbers out of the air: Would you rather have 33 thousand actively employed participants in the system, making $40,000 contributing 5% with their employers tagged for 18% annually...
OR...22 thousand actively employed participants (by) now making $45,000 contributing 6% with their employers tagged for 24%?
And at the same time have state agencies (and others) paying multiple hundreds of contract workers who will never contribute?
Do the math and make a meaningful comment.
Ok. A bailout is just that, a bailout. So you dump that tax cut money into PERS. $2.5 billion you said?
Makes maybe a small dent in the unfunded liabilities but ok. It does nothing to fix the problem of fewer employees and more retirees. Even if there weren't fewer employees there would still be the same problems just at a slower rate.
The benefits payments are projected to increase to $5 billion per year from the current $3 billion. All you are doing is cleaning up a puddle of oil underneath a leaking car without fixing the leak.
The politicians have been kicking this Ponzi scheme can down the road for years. They are terrified of losing those votes.
Luckily for us, our Republican leaders are making the state so successful and desirable that out of staters will start flocking to our great state and they won’t be able to resist the great jobs our state government provides. With all these new, working Mississippians, the system will fix itself.
Republicans have been having a problem paying their bills for years. You think this is a mess with PERs just wait for the yo-yos in congress to force a US default . Some of your 401ks will never recover. With a 4 person majority in 1 house they think they have a mandate. I have cashed out and paid off my home and cars the rest I have in a couple of FDIC insured banks.
12:36 - What the hell good do you think FDIC insurance will do in the scenario you lay out?
Doing the math suggested at 10:24 suggests that if Barbour et al had not insisted on a statewide system of firing contributors and contracting with non-contributors to fill vacancies.....The current employer contribution-increase would not be necessary to maintain the total contributions.
So, while McRae, for political reason, complains about the increase in employer contributions, where is his solution? And where are the heavy-weights on the Board who are investment experts?
We can save the ongoing discussion of the 'unintended Ponzi' for another day. The subject of Crawford's article is how fidgety McRae got when outvoted on the increase.
The two scenarios suggested at 10:24 turn out to be within 2% of each other. So, let's place a large amount of blame on the legislature and Barbour and Fitch or whoever was running the State Personnel Board.
3:47 with the FDIC they might not get it all, but they will get more than most.
What’s the take of the investment firms that are handling the PERS retirement fund ?
My guess is just north of 1 % of assets under management. Doesn’t sound like a lot
but it should be tenth of that. That skim is contributing to the funding issue.
6:49
PERS's investment manager fees are 0.34% of assets under management.
https://www.pers.ms.gov/Content/CAFR/2022_ACFR.pdf page 83 of the report
If you had $100,000 actively managed and invested in stocks, bonds, real estate, and private equity, you would pay $343 annually, or less than $1 a day.
Why can't the Clarion-Ledger or SuperTalk report on the dismal PERS program in Mississippi?
At 9:44
1) Nobody reads the Clarion Ledger
2) Can you imagine listening to Gallo talk about retirement programs for thirty minutes?
Bonus Answer: Just imagine listening to Russ Latino discuss the subject for an hour without a comma or period or pause.
'If you had $100,000 actively managed and invested in stocks, bonds, real estate, and private equity, you would pay $343 annually, or less than $1 a day.'
A dollar a day isn't bad money if the outcome of your efforts doesn't matter, year after year after year.
Are these 'investment managers' under long term contract? How often are they changed?
Effective Jan 1, 2024 all new hires/members of PERS will be participants and enrolled in a defined contribution plan rather than a defined benefit plan. Make this market based and you can even use the Wisconsin public employee model. As of Jan 1, 2024 the SLRP plan is hereby closed for any new members of the Mississippi legislature.
All of this should resolve itself around 2031 when the massive global war happens and the ratios improve due, sadly, to deaths.
@1:35pm Curious...
It would be interesting to see a breakdown of how many of present retirees have their spouse or a family member that will continue to receive benefits after their deaths.
2:12 - Actuarily, it's supposed to level out. If you opt to cover another person (at your death) you draw a greatly reduced retirement amount during your lifetime, due, obviously to the fact that two people are being covered. The coverage extended to the second person is determined by age. Life expectancy always plays a part in the design of insurance and retirement programs.
It's a dice-roll, though. If you opt to cover your spouse and die when you're 60, she receives the same retirement amount you were receiving for the rest of her life. But, when you decided to retire and covered her, at your death, and you both lived to the ripe old age of 80, then died, you had received a greatly reduced retirement all those years and she draws nothing since she's dead.
Choosing this option probably saves the system more money in the long term.
"Candor and transparency are vital to a functioning democracy."
Who said that? Andy Rooney, Robin Williams or Benjamin Franklin? It sounds cool, but it's bullshit. Besides, we'll never know since this is not a democracy.
For 40 years I’ve seen our state government trying to take over PERs. They’ve wanted to control it in the past because, at that time, they wanted to put OUR funds into the general fund, since every year it came up empty.
Today it is a power grab. As far as I’m concerned, I prefer governing my OWN money than letting any state agency or politician get their nasty, dirty, corrupt hands on it.
Please take care of your own glass houses.
Post a Comment