Mississippi pension system battered from all angles

The Public Employees’ Retirement System of Mississippi was hit with a quadruple fiscal whammy in fiscal 2016 that only worsens the defined-benefit pension system’s already shaky financial situation.

According to the latest annual actuarial report, PERS — which serves most state, county and municipal employees — had its unfunded liability increase to more than $16.8 billion, earned only a minimal rate of return, saw the number of retirees increase by more than 3,000, and suffered a funding ratio drop from 60.4 to 60 percent. The funding ratio is the share of future obligations covered by current assets.

The plan’s unfunded liability — which is the amount the plan is short of being fully funded —went from $15.9 billion in fiscal 2015 to $16.8 billion in fiscal 2016, an increase of 5.2 percent. In a decade the plan’s unfunded liability has increased 154 percent.

“The demographics of these plans are not in favor of solvency,” said Eileen Norcross, director of State and Local Policy Project for the Mercatus Center at George Mason University. “I think the big problem is how their investment plans look and how they value their liabilities.

“In other plans, when they have bad investment years, they end up having to draw more on employer and employee contributions and that becomes a real problem for state government and for employees, who are asked to give up more to fund the same benefits,” she said.

The non-partisan public accounting group Truth in Accounting considers Mississippi to be one of its 40 “sinkhole states” without enough assets to fully cover its debts. To cover all of Mississippi’s debts, including the pension system, each Mississippi taxpayer would have to pay $11,800, ranking the state 33rd among the 50 states.

The Mississippi pension system has a benchmark 7.75 percent rate of return that was reduced from 8 percent in 2015, a figure Norcross says is an unreasonable expectation. She also said many pension funds like Mississippi’s count on an overly optimistic rate of return from their portfolios for their future projections, which can camouflage the depth of the problem posed by a plan’s liabilities.

PERS says the plan will be up to 80 percent fully funded by 2040, the figure typically cited by administrators for a healthy plan. But according to the American Academy of Actuaries, the 80 percent funding ratio benchmark is a “mythic standard” and the financial health of any pension fund should be judged by factors other than just the funding ratio, such as the ratio of pension obligations to revenues, financial health of the plan sponsor, contribution policy and investment strategy.

On some of those counts, Mississippi is not faring too well.

Related: Mississippi’s pension crisis explained in four charts

Through the third quarter, Mississippi pensioners were looking at their first negative rate of return since 2009, but a slight rebound in the final quarter allowed the fund to earn 1.15 percent. That was the worst return for PERS since 2012, when its investments returned 0.6 percent.

The biggest losers, Norcross said, are younger state and local workers who are paying into the system to support present retirees. She said they likely won’t get back what they contributed because of the need to cut future benefits as the pension fund becomes less able to meet its obligations.

Demographics are also not favorable to PERS’s viability. The number of retirees receiving benefits has grown 40.6 percent since 2007, with 3,145 new retirees leaving the government workforce in fiscal 2016. The number of employees who contribute to the plan also fell from more than 157,000 in fiscal 2015 to about 154,000 in fiscal 2016.