Thursday, November 18, 2021

Bigger Pie Forum: PERS Board Makes Major Change

The board of trustees for the state’s Public Employees’ Retirement System (PERS) made an important, if unheralded, move recently when it voted unanimously to use a somewhat more realistic projection of its rate of return on investments.

This matters because an overly optimistic projection can mask a coming decrease in the solvency of the fund, which is already severely under-capitalized.

PERS, the retirement plan for most state, county, city, and school district employees, will plan on its investments earning 7.55 percent rather than the previous expectation of 7.75 percent.

That’s still short of the change recommended by PERS’ actuary, Cavanaugh Macdonald Consulting.  The firm recommended the board lower the expected rate of return to 7 percent.  The PERS board ignored the actuary’s recommendation in 2018 that it be lowered to 7.5 percent.  The estimated rate of return was last decreased in 2015, when it was reduced from 8 percent to the present rate.

The reason for the board’s move is the plan’s funding policy, which mandates that the board lower the expected rate of return whenever investment returns exceed a certain amount.

This year, PERS had a great year in the market.  In fiscal year 2021, which ended on June 30, the fund earned an astounding 32.71 percent in gross returns for the year.

A massive windfall like this year’s investment income can help improve the funding ratio, which is a vital indicator of its overall health.

PERS has been in financial doldrums for years despite several years of above-expected investment returns.  Its funding ratio (defined as the share of future obligations covered by current assets) has shrunk from a robust 87.5 percent in 2001 to 60.5 percent in 2020 thanks to a growing pool of retirees being supported by the contributions of a shrinking number of contributing employees.  In just the last decade, the number of retirees has increased from more than 129,000 in 2010 to more than 150,000 as of 2020, an increase of 16 percent.

The number of contributing employees in the plan has gone from more than 82,000 in 2010 to more than 78,000, a decrease of nearly 5 percent.

Transitioning to a lower expected rate of return allows the plan’s officials to forecast its future more realistically.  It’s also more transparent for both taxpayers and plan retirees and future retirees.

While there are bigger changes that need to be made to the fund, such as changes to the plan’s cost of living adjustment, lowering the expected rate of return is an important first step toward reform.

Kingfish note: The annual report will be released next month.  PERS had a great year in the markets. However, number to watch next month is annual retiree growth. If it stays below 3000, the retirement system will probably make up much lost ground on its funding level. If it's 3,500 to 4,000, the advance back toward stability will be blunted much as the 1918 spring offensive.  PERS still has a deficit between contributions and payments that is over $1 billion. 

PERS at a rate of return of 25% 10 years ago but the retiree growth was 4,000. The funding level fell 2 points.

Bigger Pie Forum authored and sponsored this post.


Anonymous said...

Thanks for this ray of sunshine.

Anonymous said...

I am Waiting for the onslaught of comments about pers being a "ponzi scheme" and "useless state employees suckling the government teet"

who completely ignore the FACT that the people they are talking smack about held a job for at LEAST 25 years, and paid part of their salary into a pension program. It's mind-boggling to me but I guess some people just need a public forum to show off their douchebaggery.

Anonymous said...

Tate screwed this up years ago

He’s been screwing up MS for 25 years

Last in everything then AND now

Yet he keeps getting elected

Stupid is as stupid does

New FASB Standard: FINO | First In, Never Out said...

Massaging the Ponzi time horizon until the inevitable appointment with the barber can no longer be avoided.

Anonymous said...

However, number to watch next month is annual retiree growth

Also, need to consider the number of people that are within 5 years of retirement too.

But Tater said he's going to cut taxes while increasing the number of LEO's - which will not bode well for the PERs fund. So the sh*t show shall continue at least while he's serving as governor. Yaaaaaaay!!!!

Anonymous said...

"who completely ignore the FACT that the people they are talking smack about held a job for at LEAST 25 years,"

Not always. One can retire at age 60 and draw a PERS benefit as long as he is vested.

But me, I put in 35 years.

Anonymous said...

I bet Covid has played somewhat of a part of PERS retirees that are collecting. Has to have with all the death Dobbs was talking about.

Anonymous said...

I'm just here for the part-time gig with higher pension supplements and higher matching funding from PERS than all the full-time peon state employees.

SLURP it up at the trough, and damn all you little people. Damn you to hell.

Anonymous said...

The governor and legislature benefits from both PERS and SLRP so don’t get your hopes up that any retirees will take a haircut. The taxpayers will pay up just like you always do for everything else including the military industrial complex, Wall Street, and private central bankers.

Anonymous said...

Tate screwed this up years ago.

How so? Be specific.

Anonymous said...

Hard to get folks to work for peanuts and giving up a good bit for the fund. Raise certain wages and folks will flock to be public servants. Good ones......not like what you are getting at this time. There are a few exceptions here and there within the county.

Anonymous said...

Why didn’t someone explain this plan to be 55 years ago. I could have gone to wok at 21, worked for 30 years, retired from the state, taken a private sector job and have my state pension increase every year. By 65 I would be in very tall Cotten.

Anonymous said...

Tate wants to eliminate the income tax but without any swap of any kind. Very clear that he wants to screw PERS down the road but he will be long gone.

Anonymous said...

How does eliminating the income tax "screw PERS down the road"?

Anonymous said...

It’s rarely mentioned that every dollar of contribution requested by the PERS board has been paid. Both employer and employee amounts. The actuary would be telling them the amount to ask for based on the plan document. They know the members covered, how many might retire, and how many working employees there are. They have an investment return target which have hit over the life of the plan. They know about the COLA, 13th check. So, what’s the problem? Asking for a friend.

Anonymous said...

I won't weigh in on politics of PERS suffice to say someone I knew who is no longer employed at PERS because they have been looking at replacing state employees with contractors.

Anonymous said... the time the state is required to backstop the plan, the state will be broke also. That's the only way the state sheds the burden, bankruptcy.

And the state will just blame PERS for the bankruptcy. Win Win

Anonymous said...

@2:07: "So, what’s the problem?"

There is something on the order of a $15B to $18B underfunding. As long as you are going to die before it runs out, it's not a problem. If you are a retiree or state employee, you need to worry about what is going to happen when the fund is exhausted. And if you live or own property in Mississippi you need to be concerned.

Politicians have long known that promising people future benefits that other people will pay for is a political winner. That can keep going for a long time when you take current money that is supposed to fund future payouts and use it for current payouts. But eventually, the current funds are not enough to cover the current payouts, and either taxpayers are going to get screwed or people are not going to get the pension they were promised.

I would say it's long been known that the only way PERS would meet its obligations would be to screw future taxpayers, so it doesn't seem right to confiscate money from those taxpayers to pay. But the politics are probably going to be the opposite of that, and we'll end up devastating the state and still not quite make PERS "whole".

Anonymous said...

Jerks like Kingfish are all about kicking state employees to the curb...even those eligible for retirement. Of course that adds to the problem. But, hell, that satisfies their urge to bitch and moan about the problem and gives them a semi-annual opportunity to pretend they're economists.

Whether or not state income tax is eliminated has not one damned thing to do with PERS. Goobers abound on this page.

Anonymous said...

6:25, maybe I’m a goober but I’m not blind. PERS will not last unless the state steps up to fund it. The state will go bankrupt before fully funding PERS. Cutting income taxes just accelerates that process. How can Tate say we are in such great shape and let’s eliminate all of income taxes when we have a $20 billion liability on the books for PERS’ shortfall? That’s beyond stupid. That’s dishonest.

Anonymous said...

How can Tate say we are in such great shape and let’s eliminate all of income taxes when we have a $20 billion liability on the books for PERS’ shortfall?

Ask voters if they'd rather have an income tax cut or spend the money they'd otherwise realize from a cut on bailing out PERS, the cut would carry the day in a romp.

Anonymous said...

9:07 - The elusive unfunded liability is purely speculative. If every covered employee were to retire next June 30, the system would (obviously) implode. The same would happen if there were a nationwide run on every bank or if every American showed up at Wal-Mart tomorrow looking for toilet paper.

Anonymous said...

someday I do not know when the word 'austerity' will be heard across the delta, pine forests and wet bottomlands. end the COLA and make is a defined contribution plan now.

Anonymous said...

Is Tate angling to switch from a defined benefits retirement package to a defined contribution package?

Anonymous said...

The state should not default on its obligations to fund the state retirement plan. That is a contractual employment obligation. It would be like your employer stealing your 401k contributions and you finding it out at retirement time.

Anonymous said...

November 20, 2021 at 9:12 AM
Yeah fuck the taxpayers. State retirements should be paid and taxes should go up. Idiot.

November 19, 2021 at 2:51 AM
Thank God you aren't a CPA or someone who could really do financial damage. Use the search function. It is an unfunded liability according to PERS itself.

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