Wednesday, March 27, 2024

2023 PERS: Scoring Touchdowns but Still Losing

 PERS just can't seem to catch a break.  The PERS team scored several touchdowns in 2023 but fell behind on the scoreboard yet again as its funding level fell to a new low even though it enjoyed decent returns in the markets.  



The numbers actually improved for PERS.  Retiree growth has long been a PERS-killer.  More retirees means more payments. There were years when PERS enjoyed double-digit investment returns only to slide backwards as waves of retirees swamped the system time after time.  However, there were only 1,428 new retirees in 2023, the lowest growth in over 20 years, thus giving PERS a much-needed breather. 

The markets were kind to PERS as well as it enjoyed a 7.4% rate of return, exceeding the assumed 7.0% rate of return but below the once-assumed 8% rate of return.  The annual rates of return since 2000 are published at the bottom of this post. 


The positive market returns increased the PERS portfolio to $32.6 billion, a slight increase from 2022.  


All this good news caused something to happen that has not happened in decades.  The deficit between employee contributions and retiree payments actually shrank.  Yes, you read that correctly.  The deficit by roughly $200 million, a much-needed breather for PERS. 

Unfortunately, PERS might have been scoring touchdowns in 2023 but it was still falling short on the scoreboard as the funding level fell to its lowest level ever at 56.1%. Read the chart and weep.  

There are several reasons for the poor funding level.  There are 17,328 fewer employees in 2023 contributing to PERS than there were in 2012 while there are approximately 28,900 more retirees than there were in 2012 as well.  The imbalance has created a structural imbalance in PERS as payments often swamp contributions and investment income, thus driving down the funding level.   

PERS consultants recommended for several years that PERS lower its assumed rate of return.  PERS did so as it lowered the rate of return from 8.00% to 7.55% a few years ago.  PERS lowered the rate of return to 7.00% last year.  The lowering of the assumed rate of return bumped up the unfunded liabilities. 


 The unfunded accrued actuarial liabilities grew to $26.5 billion in 2023 from $21.2 billion in 2022.  It was $14.7 billion in 2012.  The change in the assumed rate of return generated some controversy.  Some PERS critics argue the assumed rate of return should not change since the PERS portfolio has managed to outperform the assumed rate of return over the last ten years.  However, such claims ignore how such returns work as it usually takes the portfolio several years to recover from one year of negative market returns.*

Mississippi also had the highest assumed rate of return at 7.55% among public pensions.  The former 8% assumed rate of return is almost unheard of today when it was probably the standard 15 years ago.  New York cut its assumed rate of return to 6% and CALPERS is looking at lowering its assumption from 6.8% to 6%.  Table of other state assumed rates of return.

What does it all mean? It means PERS can not invest its way out of this mess as Steve Holland and friends said it could over ten year years ago.  Even if the assumed rate of return stayed at 7.55%, PERS would have only caught a breather as its structural problems would continue to worsen.   The PERS consultant, Cavanaugh McDonald, told the Board several times it could not invest its way out of the current dilemma. 

The Board voted in December 2022 to raise the employer contribution rate from 17.4% to 22.4%.  However, the Board agreed to phase in the increase over a three year period (2-2-1) the proposed increase generated a backlash.  The Legislature is considering a bill that will force the Board to rescind at least part of the increase.  The increase will cost the state $265 million and local governments $75 million.   


* Suppose PERS invested $100 in 2009.  The rate of return was -19.4%.  Let's just say it was 20% to keep things simple.  The $100 is now worth $80.  The return next year was 14%.  The original investment is now worth $91.  PERS got lucky the next year and earned a 25% return, bringing the worth of the investment to $114.  Thus it took 2 years for PERS to make back that double digit loss.  PERS suffered a negative return of 8.6% in 2022.  The $100 investment would only be worth $91.3.  The 7.4% return in 2023 increases it to $98, still below the original $100 investment.


 Shares of employee population (2023 proportion) (2012 population) (2012 proportion)(difference between 2023 & 2012)

State agencies: 24,922 (17%) (32,618)  (20%) (-7,696)

IHL: 17,220 (12%) (11%)

Public Schools: 61,095 (42%) ( 64,252) (40%) (-3,157)

Jucos: 5,835 (4%) (4%)

Counties: 14,671 (10%) (9%)

Cities: 15,526 (11%) (11%)

Total 2023 Employee Population: 145,985

Total 2022 Employee Population: 144,416  (2012 Population: 161,744) (-17,328)


Employer Contribution Rates

2011: 12%
2012: 14.26%
2014: 15.75%
2019: 17.4%

Annual Rate of Return since 2000

2000: 8.4%
2001: -7.1%
2002: -6.6%
2003: 3.5%
2004: 14.6%
2005: 9.8%
2006: 10.7%
2007: 18.9%
2008: -8.2%
2009: -19.4%
2010: 14.1%
2011: 25%
2012: 0.6%
2013: 13.4%
2014: 18.3%
2015: 3.5%
2016: 1.16%
2017: 15%
2018: 9.2%
2019: 6.8% 

2020: 3%

2021: 32.7% 

2022: -8.6

2023:  7.43%

Five-year average: 8.13% 

Ten-year average: 8.85%

Assumed Rate of Return: 7.00%

43 comments:

Anonymous said...

Follow the money/commissions/grease.

The Barber of Jackson said...

C'mon in. A little off the top?

Anonymous said...

PERS bailout, Education, Medicaid Expansion. Can't afford them all Mississippi.

Anonymous said...

Not a bad summary but does not cover all the bases.This report does not mention the number of baby boomers which [ sadly ] will exit the system in the early 2030's thereby greatly reducing the unfunded liability.One other point concerning PERS is that the AVERAGE retirement compensation[ INCLUDING the COLA] is $28,000 per year... total. The existing PERS board has supervised the fund which is near the top in rate of returns for retirement funds in its class while paying investment advisors less on average that other similar sized retirement investment returns. One other note, the fully vested service time for retirement was changed from 25 years to 30 years several years ago and this must be factored into the 30 year investment review to get an accurate picture of the future strength of this fund. The fund is extremely well managed and has the potential to grow stronger when accounting for ALL factors.

Anonymous said...

If MS can afford to eliminate the income tax...

Anonymous said...

My father in law, now 92 yrs young has outlived the actuarial mortality tables and now receives more in his "13th check" than he collects in the other 12! Yep. The system needs a colon cleansing!

Anonymous said...

Just wait til the market goes to shit and we get negative -20+% returns for multiple years in a row. You think PERS is going broke now? You ain’t seen nothing yet!

Kingfish said...

And that is why if nothing is done, the consultants projected the system to be only 65% funded in 2047. p. 7.

That little chart on p.32 betrays your argument. Yes, the boomers go down but the benefit payments go up to over $6 billion from the current $3.4 billion on the chart. The consultants used that chart to justify the rate hikes.

Anonymous said...

The existing PERS board has supervised the fund which is near the top in rate of returns for retirement funds in its class while paying investment advisors less on average that other similar sized retirement investment returns.

Link?

Anonymous said...

"PERS bailout, Education, Medicaid Expansion. Can't afford them all Mississippi."

Wait til we cut our revenue by 27% !

Anonymous said...

the state should end PERS and convert all employees to a 401k.

Kingfish said...

Probably cost $10-20 billion to switch over

Anonymous said...


Will the last one in the room, please…….

Anonymous said...

4:32 Lets analyze your statement. I will have to make some assumptions. ASSUMING he was a teacher then he would have retired at around $18,000 per year. Since it is calculated at average of highest 4 year average then his retirement yearly amount would be around $8500 per year ASSUMING he retired with 25 years of service credit. I do not know how much his COLA is but he is an anomaly having lived to be 92 years of age. Assuming his COLA is 2 times his annual pension[ no idea if it is leas than or more but just using twice as much for an example] then his total annual pension would be AROUND $26,000 per year. Considering the fact that he worked for the lowest education wages in the country to earn that amount, do you think his pension is all that outrageous ?
Feel free to question my math skills but I think I am in the ball park.

Anonymous said...

6:56, your assumptions left out that this PERS retiree would’ve retired at the ripe old age of 47 years old on the backs of his family, church members and community’s taxes who all had to work and pay taxes til they could get Social Security and Medicare at the age of 65. Sounds like a great deal to me! Where do I sign up?

Anonymous said...

The existing PERS board has supervised the fund which is near the top in rate of returns for retirement funds in its class while paying investment advisors less on average that other similar sized retirement investment returns.

Link?

I'm not sure how to link but PERS (for a state agency) is incredibly transparent and posts all of this data on its web site and gives it out at all of its committee and board meetings. How do I know this? Easy I attend them; they are open to the public. What is sad about that is I only ever see Senator Blount attend. He is the only one that actually has a handle on this. All of the other Legislators that speak with such authority and act as though they know everything never have shown up. This would be easy to prove because you must sign in to attend. It would be nice if those legislators would stop with the misinformation, they are posting about a system that has always be completely transparent in everything it does.

Anonymous said...

Attn Kingfish. If eventually the retirement fund is only 45% funded in the future there is a simple solution. Cut the benefits back to 45 per cent. The only people I ever see breaking a sweat for Mississippi are prisoners chopping grass on the road beds with easily recognizable striped uniforms.

Anonymous said...

6:56 - Fucking A right. Your jaw would break when it hit the floor if you only knew how much some of these COLA checks are.

Kingfish said...

I've seen plenty of state employees working hard and some with barely a pulse

Anonymous said...

@7:18 - most, if not all, of the school districts in this state are begging for teachers every year. If you've got the guts to put up with those lovely children of yours all day, please apply and put in your 25 years.

Anonymous said...

Fucking A right. Your jaw would break when it hit the floor if you only knew how much some of these COLA checks are.

First off nice language. Second why not give us some real life examples? Give us the names you must know....since you used such colorful language to show how much in the know you are.

Anonymous said...

7:18 You can sign up at any local college, work your way through like he probably did and get a teaching degree.

Anonymous said...

PERS earned 7.4% last year while my personal portfolio during approximately the same period (Feb-Feb) earned 18%. I do not have an advisor and just do it myself. Just sayin...

Anonymous said...

Dear PERS: created a 5% allocation to bitcoin via the New Nine.

Or keep losing.

Anonymous said...

PERS earned 7.4% last year while my personal portfolio during approximately the same period (Feb-Feb) earned 18%. I do not have an advisor and just do it myself. Just sayin...


What was your asset allocation? Just askin....
What was your Benchmark? Just askin....
What was your Standard Deviation over the past 3-, 5-, 10-years? Just askin...
What was your information ratio? Just askin...

Yea.. love seeing comments like that. I put all my money ($100) in a Vanguard fund and made 18% but have no idea how much risk was taking.

Just saying.....

Anonymous said...

S&P 500 is up 18% since June 30, 2023, so that will help a bit. And these high interest rates are helpful returns on the shorter term investments and cash. I think the 7% expected return needs a closer look.

Anonymous said...

With inflation not backing down, most employees will need these checks just to cover normal living expenses with health issues & cost in later years!

Anonymous said...

S&P 500 is up 18% since June 30, 2023, so that will help a bit. And these high interest rates are helpful returns on the shorter term investments and cash. I think the 7% expected return needs a closer look.

The S&P 500 has returned 10% over the last 20 years and that was done with a lot of volatility. PERS does not only invest in the S&P 500 that type of volatility is not something that is prudent for a pension. PERS invests in Public Stocks, Public Fixed income, Real Estate, Private Equity,....It is a large properly diversified fund so as to lower total risk. Investing in just stocks is just too volatile and not prudent for a pension fund.

Anonymous said...

11:42

1) you cherry picked your dates
2) That is not a reasonable comparison. PERS has to keep a significant portion of the portfolio in cash and shorter term bonds in recognition of money scheduled to be paid out over the next few years. 7% or 8% is for the blended portfolio, not just the growth portion.

Anonymous said...

Vanguard S&P 500 ETF (VOO)

YTD 10.36%
1-year 30.4%
5-year 14.72%
10-year 12.66%
Since inception 9/7/10 14.27%

Expense ratio .03% (3/100 of 1%)


Anonymous said...

Something else to think about. My wife & I both have accounts, we chose the "Reduced Lifetime Payment Option". That means for a small reduction in monthly benefits we enjoy payments for Life even if the payments ourun the amount of money in our accounts. Also If I pass before my wife PERS still pays the whole amount to my wife for the rest of her life. Dunno who dreams these things up but they way PERS keeps books would cause a Calculator to have a Meltdown...

Anonymous said...

Everyone rises to their level of incompetence.

Anonymous said...

11:42p.m. All of our personal accounts out perform PERS. Why? Beacause PERS[ LIKE OTHER AGENCIES[ must and should invest in lower risk products in order to ensure that the funds maintain a stable rate of return. Yours[ and my ] personal investments are much more volatile. You would not want government agencies to take great risk with these funds.

I have heard many people including legislators make this argument about their funds earning more than PERS. It is very disturbing that these same legislators want to takeover the PERS board while they obviously have an elementary understanding of financial investment.

Anonymous said...

Risk=Reward

Anonymous said...


Risk=Reward

Just raw risk? Do you understand what you are saying? If so then Uhmm... sure if you are willing to risk the entire investment.

Bill Dees said...

This is the problem: "Total 2022 Employee Population: 144,416 (2012 Population: 161,744) (-17,328)" Republican politicians' mantra of "smaller government" has substantially reduced the number of people paying into PERS. Financial disaster was easy to predict. But Republicans don't care. They know their constituency is too stupid to understand the consequences of what small government really means.

Anonymous said...

Kingfish keeps posting. But y’all don’t get any smarter.

Anonymous said...

12:56, so you’re suggesting we multiply the number of local and state employees costing the taxpayers millions each year so those employees can pay into PERS and slow it’s imminent bankruptcy? Tell us you have a rudimentary understanding of basic math without telling us you have a rudimentary understanding of basic math.

Anonymous said...

This situation really went bad after the little dicktator starting cutting PINS while Lt Governor. Some of the cuts were probably needed but everyone had to know that less people in the system equals less money going into the fund.
It would have made too much since for the state to continue paying the employer portion into PERS every year. State still would have saved over 70% but they couldn’t do that because
1. Most of the people that created the cuts will not still be around when it really goes to shit
2. If are wonderful elected officials don’t create a problem then they can’t take credit for fixing it

Anonymous said...

There are three things in this life that give Kingfish an instant erection, such as it is. One of them is PERS controversy.

Anonymous said...

Dear PERS board please go head hunt from Eastman Kodak

Anonymous said...

Just a few notes to add to the discussion.
1. The board has never offered a single proposal to change the plan for its long term health other than increasing the employee and/or employer contributions.
2. The plan has never not received every penny requested from contributors as calculated by the actuaries.
3. The plan has achieved its desired net investment returns over its lifetime.
4. The actuaries have the needed information about every single person who is a member of the plan, such as salary, age, probable retirement date, etc.
5. Are there other “assumptions “ in the calculation of contributions we are not aware of such as growth in number of participants, which would expose the plan as having Ponzi scheme characteristics?
6. Calculations have been made that show that if the 13th check were simply not increased over a two or three year period the plan’s health would be greatly improved. Not eliminate the check, just not increase it. This would involve the membership actually slowing down what they take out to insure its viability for future generations and ease the pressure of property tax increases by local governments.
7. In addition to fees paid to investment advisers out of the plan, all expenses for funding PERS staff and their related expenses are paid by the plan.
8. Any mention of converting future employees to 401k style retirement plans is met with howls from the retirees that those new hires are needed to pay into the plan to keep it healthy, which suggests Ponzi scheme funding.

Anonymous said...

9:44
Bingo



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