Mississippi Public Pension Plan Faces Risks and Funding Challenges
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Mississippi Public Pension Plan Faces Risks and Funding Challenges

Overly optimistic investment return assumptions have been the largest contributor to the Public Employees' Retirement System of Mississippi growing unfunded liability.

The long-term financial stability of the Public Employees’ Retirement System of Mississippi could be at risk. Despite a historic bull market run, PERS fell $9 billion further into debt to public employees over the past decade, reaching a record-high $18 billion in accrued, yet unfunded, pension benefits prior to the global pandemic.

As of 2019, PERS held only 61 of the assets actuaries expect are needed to pay for long-term benefits to state and local public employees. Given recent market volatility and the global recession, this funding challenge is likely to get worse if action is not taken soon.

According to a recently released analysis by the Pension Integrity Project at Reason Foundation, the lead driver of PERS’ growing unfunded liability has been overly optimistic investment return assumption. Going back decades, PERS depended on a return of 8%  and eventually adjusted that expectation down to 7.75% in 2015. Unfortunately, actual returns only averaged 5.94% since 2001. Looking forward, experts suggest achieving even a 6% average rate of return is optimistic over the next 10-15 years.

Using actuarial modeling to test future crisis events with varying market returns, the Pension Integrity Project has found under a wide range of realistic scenarios, Mississippi’s assets are not able to keep up with the growth in promised benefits without major cash infusions.

The results should concern any pensioner, policymaker, or taxpayer.

Such scenarios could result in annual costs more than doubling within the next 30 years – pulling funding from other public priorities like road repairs and education.

Beyond the state’s obvious funding issues, policymakers also need to reevaluate the effectiveness of the current system at providing attractive benefits to all its members. Most workers (71 percent) leave before vesting—within 8 years of service—and are required to forfeit employer contributions to their retirement account. Only a mere 4 percent of workers remain in the system long enough to enjoy full pension benefits, leaving the vast majority of PERS members without a path to a secured retirement.

When it comes to the retirement security of Mississippi’s public workers, there is no better time for stakeholders to come together and adopt meaningful change than now.

The plan’s inability to recover even during the longest bull market run in U.S. history highlights the need for a change. Lowering the assumed rate of return as well as prioritizing paying off the current unfunded liabilities as fast as possible should be at the top of the to-do list for state lawmakers. Undoubtedly, this will be difficult to prioritize amid many competing fiscal priorities facing the state in the coming years, but the value of meaningful and lasting reform would extend well beyond this challenging moment.

PERS finds itself in a precarious position, but it is not too late to right the ship. If state policymakers take swift action to make informed and lasting improvements, they very well could save the retirement security of Mississippi’s public workers.

This column was co-authored with Jameson Taylor, vice president for policy of the Mississippi Center for Public Policy. It originally appeared in the Clarion-Ledger.

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