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Analysis: Pension plan outlook rosier with funding increase

December 21, 2018

JACKSON, Miss. (AP) — After mandating an increase in employer contributions to Mississippi’s public pension system, projections reported to the Public Employees Retirement System show its finances look to be in good shape — at least for now.

But that assessment comes with a caveat. Investment returns, economic conditions or state employee levels could change over the next 30 years and changes in any of those could change the projected outcomes.

“The results, collectively, are positive,” said the system’s executive director, Ray Higgins said last week after a presentation to the board by actuaries. “PERS is stable, but we’re not perfect.”

The whole goal with PERS is to improve its current position — where actuaries project its $27.7 billion in assets is 61.8 percent what’s needed in the future to pay off benefits employees and retirees have already earned. The board wants to reach at least 80 percent funding by 2047.

The PERS board, with projections showing it wouldn’t make that goal, voted in June to require employers to pay 17.4 percent of a worker’s salary to the system beginning July 1, 2019, up from 15.75 percent now. That money will mostly come from taxpayers, since PERS’ beneficiaries are employees of the state, public schools, local governments, community colleges, universities and other agencies such as hospitals. The employees themselves will keep contributing 9 percent of salary.

City and county governments have already set aside money to pay their increases, because their budget years run through Sept. 30. Lawmakers need to add about $75 million in the coming legislative session to cover increased contributions for state and education agencies. Gov. Phil Bryant asked for the money, and current revenue projections show it should be available. But top lawmakers adopted a proposed budget that basically says they’ll decide later.

With higher contributions pumping in $100 million more each year, projections show PERS should reach 96 percent funding by 2047. The ratio is projected to climb slowly for the next decade, and then more rapidly.

“We’ve got to weather this baby boom retirement bubble in the next 10 years,” actuary Ed Koebel told the board. “If we withstand that, this plan begins to strengthen.”

The projections rely on key assumptions. The most important is how much the system will earn on investments each year. The fund projects it will earn 7.75 percent each year. But there’s a lot of pressure from credit rating agencies and others who believe such a high rate of return will be unrealistic in the future, expecting low interest rates and low economic growth. If PERS returns drop to 7 percent annually, it would only be 57 percent funded in 2048.

Less important, but still significant, is what happens if the number of active contributing employees keeps shrinking, or if their pay raises are less than expected. The plan assumes the number of overall employees will stay flat and that pay will grow at 3.25 percent a year, but employee numbers have shrunk and pay barely budged in recent years.

The other worry is the power of one bad year in the market, especially early on. If the fund loses 7 percent this year, total assets would barely increase over three decades, even if every other year meets expectations. Part of the current hole stems from the bad years PERS had in 2008 and 2009, though returns since then have been good.

But the one thing most true about the projections — nothing will go exactly as planned for 30 years. Adjustments will be necessary.

“We’re here to monitor this every year,” Koebel said, “and we’re going to monitor this every year.”


Jeff Amy has covered politics and government for The Associated Press in Mississippi since 2011. Follow him at http://twitter.com/jeffamy .

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