Hosemann calls state pension problems ‘the major issue’ of 2024 legislative session
Published 4:00 pm Thursday, February 15, 2024
- PHOTO BY ERIC J. SHELTON/MISSISSIPPI TODAY Lt. Gov. Delbert Hosemann speaks during the State of Our Union: Mississippi event at The Faulkner in Jackson, 2023.
Lt. Gov. Delbert Hosemann said that deciding how to ensure the long-term financial solvency of the massive Mississippi Public Employees Retirement System is “the major issue” facing lawmakers during the current legislative session.
PERS provides pension benefits for more than 360,000 current and former government employees in Mississippi, including school district employees and higher education and community college staff.
The system has experienced financial problems for years that many argue have gone largely unaddressed. It has about $32 billion in assets to pay its retirees, but it is about $25 billion in long-term debt. It has a funding ratio of about 56%, meaning the system has just 56% of the revenue needed to cover its liabilities over a 30-year period.
PERS leaders this year are asking the Legislature for an infusion of cash — which lawmakers traditionally do not provide on an annual basis — to help offset the system’s uncertain financial future.
Hosemann recently said until the issues facing PERS are resolved, the Legislature cannot commit on how much to provide in funding for state agencies, schools and other programs.
“We are going to pay the retirees,” Hosemann said.
House Speaker Jason White, R-West, has also talked of the importance of addressing PERS.
“I think there has been a commitment at least around the coffee pot that we (legislators) want to fix this long term,” White said before the session began. “… For myself, I would say we are not going to just increase it (the amount of government money put into the plan) 5%, 10% and hope it gets better.”
While Hosemann and many legislative leaders appear to be locked in on PERS, the problems have not been addressed by Gov. Tate Reeves. Reeves, in the first year of his final term as governor, did not mention PERS in his recently released budget proposal. At a time when legislative leaders and local government officials are grappling with how to fund PERS, Reeves instead touted his plan to eliminate the state income tax, which would, if passed, do away with one-third of the state’s current annual general fund revenue.
Fixing the pension program, many leaders believe, will take a significant infusion of funds. Some proposed solutions could place a significant strain on city and county governments, on school districts and state agencies that currently pay into the system unless the Legislature commits to appropriating an additional amount of money.
During a recent meeting with the Senate Finance Committee, Ray Higgins, the PERS executive director, did not provide a specific amount of money that he believes the Legislature needed to contribute to the program. Hosemann has spoken of the program possibly needing an additional $360 million annually.
“When it comes down to the long-term sustainability of PERS, we should either fund it, change it, or eventually we may risk it,” Higgins wrote in a letter to lawmakers. “Revenue must increase, expenses and liabilities should decrease, or both.”
The retirement system’s revenue to pay pension benefits is generated in the following ways:
- From employees contributing 9% of their salaries to PERS.
- From employers or governmental entities contributing a sum equal to 17.4% of an employee’s paycheck to the program.
- From investment income. Investment income is key since the employee/employer contributions are not enough to cover the monthly costs.
The average annual retirement income for retirees is about $26,900.
Multiple factors are contributing to the financial uncertainty in the system, including:
- Recessions through the years that have impacted the investment earnings.
- A shrinking governmental workforce and additional retirees.
- Legislature-approved added benefits through the years, dating back to the 1990s — some of which were provided, some argue, without a revenue stream to pay for them.
Perhaps the most confusing and controversial change that placed stress on the system was the action by the 10-member board that governs PERS to change what is known as the assumed rate of return. Based on recommendations from actuaries, the board recently dropped the assumed rate of return from 7.5% to 7%, meaning that PERS’ investments will earn 7% instead of 7.5% annually. The change was made to paint what PERS officials said is a more accurate picture of the system’s financial outlook. But the lower assumed rate of return means the expectation is that the investment earnings will generate less money, thus causing more debt.
Sen. Daniel Sparks, R-Belmont, pointed out that at one point not too long ago the assumed rate of return was 8%. He said, optimistically, that each year the investment earnings exceed the assumed rate of returns means the system’s debt is decreased.
Still, the PERS board believes that strong investment earnings will not be enough to totally resolve the financial woes facing the system. The board plans to phase in a 5% increase in the employer contribution rate over a three-year period. There has been talk of phasing in a 10% increase in the employer contribution rate. The first 2% increase that will be enacted on July 1 will cost the state $60 million, not counting the cost for local and county governments. Under current law, the board has the authority to act on its own to increase the employer contribution rate, though the Legislature could change the law.
City and county officials have told legislators they cannot afford the increase.
Senate Appropriations Chair Briggs Hopson, R-Vicksburg, said he already is hearing from state agency directors about the issue.
“I guarantee they are coming to me saying whatever you do, give us enough money to pay for the PERS increase,” Hopson said. “ … Either we provide the money or they have to absorb it,” meaning they cannot provide raises or enact other programs that cost money.
Hosemann said such increases in the employer contribution would be “catastrophic” for the system since local governments would start hiring contract workers instead of full-time government employees who would be eligible for PERS pensions. That, Hosemann said, would further reduce the number of employees paying into the system.
Sen. Hob Bryan, D-Amory, pointed out that each time the Legislature privatizes a governmental function it reduces the number of state employees paying into the system.
Bryan also pointed out that years ago, a separate public retirement system for Mississippi Highway Patrol troopers faced financial difficulties. Bryan said in that instance, the Legislature passed a law to place a fee on traffic citations with the revenue earned from the fee directed to the retirement system.
Whether there is the legislative will to create a similar source of revenue dedicated to the much larger PERS system remains to be seen.
In the meantime, the Legislature is expected to act on a proposal by the PERS board to change the benefits for new governmental hires. The proposal includes eliminating the guaranteed 3% annual cost of living increase for new employees. Instead, under the proposal, new employees would get a cost of living increase when revenue is available and tied to the annual inflation rate instead of the automatic 3% cost of living increase each year. The proposal would not make any changes to the guaranteed 3% annual cost of living increase for current employees and retirees.
Both Hosemann and Hopson said they do not believe it is legal to reduce the benefits for current employees and retirees.
“I don’t think you can do that,” Hosemann said. “I am not going to do it.”
By Bobby Harrison, Mississippi Today