Senator Chris McDaniel Column, October 3, 2011, In Defense of PERS
The Public Employees’ Retirement System (PERS) of Mississippi, is a governmental defined benefit pension plan acting as the retirement system for nearly all non-federal public employees in the state.
Established in 1952, it provides benefits to retirees, as well as future benefits to current and former public employees.
Earlier this year, a 12-member study commission was created to evaluate the program and recommend improvements, focusing on its organization, financial structure and funding mechanisms.
Naturally, as the press has reported on the commission’s work, tremendous concern has been communicated by members and retirees. Discussions surrounding benefits have caused anxiety and anger, especially since any action may affect financial futures, but this is no time to entertain alarmism, panic or fear-mongering by politicians.
Misleading retirees and state employees as a political ploy is inexcusable, and those fanning the flames of dissent and fear should be ashamed of themselves.
For the fiscal year ended June 30, 2011, PERS realized an investment return of 25.40 percent and had assets of approximately $20.8 billion, providing liquidity to pay retirement benefits for years to come.
And yet, factors have combined to impose a financial burden on the system, including: a downward trend in the stock market during 2008-09 that negatively affected investment earnings; a reduction in government workers during the recession, which decreased the number of people paying into the system; an increase in life expectancy of retirees, which enlarges future pay-outs; and alterations made by the legislature in the late 1990s to enhance benefits.
In an effort to correct deficiencies and salvage the long-term viability of the retirement system, employee contributions were recently increased from 7.25 percent to 9.00 percent; retirement eligibility was increased from 25 to 30 years for individuals hired on or after July 1, 2011; and the overall benefit formula was reduced for individuals hired on or after July 1, 2011.
But sadly, such changes won’t fully curtail the program’s accumulated unfunded accrued liabilities, which currently amount to more than $11 billion.
In the future, this could become problematic, so proposals are being made and contemplated to ensure stability.
Experts contend that the unfunded accrued liabilities could be addressed by achieving investment returns in excess of eight percent on a long-term basis; through increased contributions; by decreasing benefits for members; or some strange combination thereof.
But nothing is set in stone, and the commission’s report will be comprised of mere suggestions, not mandates.
Given the above, there are four primary positions I hope to defend.
First, employees vested in the system should not have their promised benefits jeopardized. For example, retirees rely considerably on the so-called “13th” check, which is a cost of living adjustment needed to ensure that retiree purchasing power remains relatively the same as years progress. The “13th” check isn’t a bonus, but an adjustment added to offset the effects of inflation.
Reducing or eliminating the “13th”check – a prominent feature of state government since 1966 – would cause economic calamity throughout an aging and vulnerable portion of our population, forcing thousands to seek new streams of income in the midst of an ongoing recession. PERS is presently paying annual benefits to 88,000 retirees, most of whom live in Mississippi. Since retirees have always had the reasonable expectation of receiving the check, many have planned their budgets and purchases around its continued use and are therefore rightfully dependent upon it.
Second, promises made should be honored and protected if at all possible. Many state employees begin their employment and remain employed, in large part, due to future benefits promised by the state. Indeed, as part of a bargained-for-exchange, many agree to work for relatively low pay in exchange for the guarantee of a healthy, dependable and generous retirement plan.
Third, any proposed significant reform, if absolutely necessary, should begin only with new enrollees. In such an arrangement, the terms of employment are fully understood from the beginning, and potential new hires may accept or reject an offer of employment with a firm understanding of what to expect, without duress or confusion. Also, it would be unfair and perhaps even legally improper to significantly alter the contractual expectations of current members.
Fourth, the government should act with prudence, understanding the needs of state employees, retirees and Mississippi’s taxpayers.
It is only through calm and reflective discourse, followed by action, that we navigate our way through economic storms.
I look forward to being a part of the discussion, as we work to improve PERS.
If you have any questions about these issues or any others, please feel free to contact me at cmcdaniel@senate.ms.gov.
