The PERS Commission appointed by Governor Barbour has released its report (with supporting documentation). While many Chicken Littles out there were scampering about over the past few months proclaiming that the sky was falling, the Commission’s suggestions overall seem plausible and worth a serious look as the Legislature convenes in just a few weeks.
Barbour said in the release, “Mississippi has a retirement plan that is underfunded by more than $12 billion, a figure that has only worsened over the past decade despite hikes in taxpayer and employee contributions.”
The Governor went on to say, “In 2001, PERS had a funded status of 88 percent of assets needed to fund its liabilities; today, that level has dropped to 62 percent, far below the level recognized for such plans. Taxpayers are putting in about 50 percent more than they once were, but the system continues to fall farther behind. We must reverse this trend to protect our retirees and taxpayers future.”
The recommendations the PERS Commission presented are just that – recommendations; they are not law despite the Democrats’ implications during the recent elections. It will be up to the Legislature to review the Commission’s work and decide whether or not to implement what has been recommended.
* The PERS Board should reconsider lowering its investment return assumption from 8 percent to 7.5 percent as recommended by PERS’ own actuary.
* The Legislature and/or PERS Board should continue studying the issue of adding a defined contribution component in the state’s overall retirement program. There is no recommendation that PERS be converted to a defined contribution plan.
* The Legislature should consider revising the make-up of the PERS Board to include more financial subject matter experts and include non-participant taxpayer members.
* While the ultimate determination of the legality of any changes to PERS will rest with the state judicial system, the legal subcommittee believes the following modification tiers are allowable: new hires are subject to any new standards of retirement; current employees are subject to changes for future accruals but no changes to benefits already earned for previous service; and retirees are only subject to changes in future accruals of the COLA.
* The Legislature should provide that 62 is the normal retirement age with the following tiers for drawing retirement: Eligible to draw full retirement at age 62 if vested; Eligible to draw full retirement at age 55 with 30 years or more of service, but with no cost-of-living adjustment until age 62; or Eligible to draw an actuarially reduced benefit before age 55, after completing 30 years of service.
* The Study Commission did not recommend elimination of the COLA or any changes to the current option to take the COLA as a lump sum payment.
* The Commission recommends freezing the COLA for three years and thereafter tying the COLA to the CPI with a cap of 3 percent. (For retirees, COLA payments would continue but just not increase for three years. For individuals not yet retired, no COLA would be received for three years after retirement.)
* The Legislature should consider lowering the vesting period from eight to four years and continued study of SLRP (since the Legislature must address the question of whether it’s appropriate to have an additional benefit for members of the Legislature and the Lieutenant Governor).
Notice that there was no mention of taking away the 13th check, much to the chagrin of the Chicken Littles (Democrats) during the election. As we said then and now see in print, such notions were last resort political scare tactics by a floundering Democratic party.
It would seem that freezing COLAs will be the sticking point at this juncture, however such a move would be reasonable to ensure the solvency of the system. After all, maintaining benefits under such circumstances far outweighs the alternatives.
As the Commission points out:
“PERS beneficiaries received at least a 9 percent (or higher) COLA from 2008-2011. During this same time period, inflation rose half that amount (4.54 percent) based on the latest Consumer Price Index (CPI) data available. Additional study by the actuarial consulting firm GRS found that PERS pays out approximately $10 million more in COLA benefits each year than it would if the COLA program were indexed to the CPI. This means that some members are, on average, receiving more in COLA than they actually lost through inflation.”
What the Legislature will do with these recommendations is anyone’s guess. But burying our heads in the sand isn’t the answer; we must begin to eat this elephant and find a way out of our current situation.
Expect the Chicken Littles to continue to scurry around but don’t be fooled… the sky isn’t falling.