Leaders of the Mississippi Legislature and those who run the state employees’ retirement system have come to a temporary agreement.
The Legislature won’t mess with the authority of the Public Employees’ Retirement System board as long as that same board postpones for at least nine months a hefty increase in the taxpayer-funded employer rate that was supposed to take effect in October of this year.
This is a temporary arrangement, though, not a lasting fix. The Legislature has done nothing to address the underlying problems that caused the PERS board to vote to increase the employer rate by an eye-popping 5 percentage points — roughly $350 million more a year from state and local governments as well as public schools, community colleges and universities.
The latest rate hike, which would have been the largest in state history, got more attention from lawmakers than normal. But these increases have been steadily occurring for some time. Since 2005, there had already been eight hikes in the employer rate in an unsuccessful effort by the PERS board to keep the retirement plan financially sound for the long haul.
The Legislature’s initial knee-jerk reaction — to take away PERS’ authority to raise the employer rate — was not the answer. Thankfully the idea has been shelved, at least for now. The rate increases, while exorbitant, are only a symptom of the problem, not the problem itself.
PERS is on shaky financial ground for several reasons, starting with demographic trends (people living longer) and state policy (shrinking government). The result of those two forces alone means there are too many retirees drawing out for the number of current workers paying in. That scenario is being repeated all over the country with defined benefit retirement plans, including the granddaddy of them all, Social Security.
But also at the root of the problem has been legislative action or inaction. PERS has never recovered from the state Legislature’s decision in the late 1990s and early 2000s to increase benefits without a mechanism to pay for the largesse. Lawmakers, meanwhile, have resisted several proposals over the years to rein in the explosive growth in the cost of PERS. The inaction is partly because of the perceived political risk in doing so, and partly because lawmakers personally benefit from the system as it is.
The current truce is supposed to buy some time, and get past the 2023 election cycle, before the projected funding shortfall is again addressed. Until lawmakers face the reality, however, that PERS in its present form is unsustainable, the situation is only going to get worse. The two most obvious and reasonable reforms are:
- Base retirement pay on an employee’s entire government salary history, not just the final four years. By using only the last few years in the formula, benefits in Mississippi are inflated, since nearly all workers are paid more toward the end of their career than at the beginning.
- Replace the automatic 3% annual cost-of-living increase with one based on the actual rate of inflation. In 2023, the fixed increase is less than inflationary, but that’s not usually the case. Since 2000, even with this past year’s big jump in prices, inflation has totaled 70%. Meanwhile during that same 22-year period, the PERS cost-of-living adjustments have raised benefits by a cumulative 92%.
Without reforms such as these, and possibly others, there is no other recourse but to raise rates, not just on the employer but most likely on employees as well.
Tying the hands of PERS board is not the solution. The solution is to make an unsustainably generous retirement system less generous.
