Opinion: PERS lessons from the municipal pension system

The Public Employee Retirement Systems of Mississippi (PERS) had one of its best years ever from July 1, 2020 to June 30, 2021. That’s good news for its participants, and good news for those behind the plan’s defined benefit obligations—those of Mississippi taxpayers.

A small standalone plan, which PERS also oversees, provides a glimpse of how these liabilities may unfold decades from now. The Municipal Retirement Systems (MRS) manages residual retirement funds for 19 cities across Mississippi.

On July 1, 1987, the 19 municipal plans transferred into administration by PERS and MRS were closed to new members, with employees hired after that year enrolled with PERS. The plans now have beneficiaries only, with the last two contributing employees retiring in 2020.

This is important because the normal funding mechanism for defined benefit (D/B) plans is through employee and employer contributions for active participants. Without this source, cities were forced to resort to property taxes to meet their pension obligations.

MRS is now funded with Millage Rate Assessments ($10 in taxes per $1,000 in appraised property value) for the 19 cities.

For YE 6/30/21, PERS earned 32.2 percent from its investments in the US and global stock markets. That added up to $39.5 million for MRS, a huge improvement from 2020 when MRS investments hit a five-year low of just $4.2 million.

According to the PERS Comprehensive Annual Financial Report, 2021 returns reduced unfunded liability for the MRS from $145.7 million in 2020 to $134.1 million in 2021, a decrease of nearly eight percent .

Actuaries also reported an unexpected increase in beneficiary deaths as the total number of beneficiaries fell from 1,585 to 1,510 (a 4.7 percent decrease). Since 2012, the number of beneficiaries of the plan has decreased by 23.6 percent from 1,978 in 2012.

As a result, the average MRS plan funding increased from 49.1 percent to 51.1 percent. Funding for the Jackson Plan – defined as the proportion of future obligations covered by working capital – is slightly above the average of 52.98 percent.

While these unfunded liabilities don’t become due immediately, the funding ratio is a good way to gauge a plan’s financial health.

35 years after its closure, MRS still covers 1,510 retirees in these 19 cities. (Jackson has 500 retirees in his pension plan, with the other participating plans — Biloxi, Clarksdale, Clinton, Columbus, Greenville, Greenwood, Gulfport, Hattiesburg, Laurel, McComb, Meridian, Natchez, Pascagoula, Tupelo, Vicksburg, and Yazoo City — accounting for the remaining 1,010 retirees.)

The lessons from the 35-year history of MRS are manifold.

The liabilities from defined benefit pension funds are significant and have very long maturities.

One cannot assume that current funding sources will always deliver what they promise.

While MRS has liabilities in the tens of millions, PERS has liabilities in the tens of billions.

What (if any) are the backup funding sources for PERS in difficult times?

The implications for taxpayers of a prudently managed PERS are very real.

Bigger Pie is an independent, non-profit organization based in Mississippi dedicated to transparent government and free enterprise.

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