The actuary for Mississippi’s defined benefit pension fund recommends the plan make some changes to the economic assumptions it uses to plan for the future.

The report submitted by the actuary of the Mississippi Public Employees Retirement System (PERS) — which serves most state, county and municipal employees — says that the plan’s administrators need to decrease its assumptions for price inflation, wage inflation, and returns on the plan’s investments and increase slightly the forecast for administrative expenses.

The report says the plan needs to reduce its price inflation assumption from 3 percent to 2.75 percent to reflect the recent trends with inflation, as estimated by the chief actuary for the U.S. Social Security Administration and other sources.

With the smaller than predicted inflation, the actuaries also recommended the plan reduce its expected return on plan investments from 7.75 percent to 7.5 percent due to changes predicted by forecast prediction models. The plan’s governing board last decreased the expected rate of return in 2015 to the present figure from 8 percent.

The report also recommends the plan reduce its assumption for wage inflation from 3.25 percent to 3 percent.

The report also says the plan needs to take into account a slight increase in administrative costs from 0.23 percent of payroll to 0.25 percent.

The actuaries also changed the plan’s predictions for the mortality of its participants, with the plan assuming that retirees will enjoy longer post-retirement lifespans.

Changing those assumptions will change predictions for the plan’s finances. The actuaries say in the report that PERS’ $16.9 billion in unfunded liabilities will increase under the new assumptions to $18.415 billion. The funding ratio will also decrease from 61.8 percent to 59.9 percent.

PERS’ bottom line has improved in recent years thanks to increased investment returns, but not enough to completely bring the plan to where it should be.

As of the last comprehensive annual financial report released on December 18, the plan’s funding ratio, which is defined as the share of future obligations covered by current assets, is up to 62.5 percent. In 2001, the plan was 87.5 percent fully funded.

The plan’s investments earned $2.385 billion in investment returns in fiscal 2018, a 9.48 percent rate of return, after earning $3.4 billion or a 14.96 percent rate of return in 2017. 

The plan has earned an average rate of return of 7.84 percent in the last 25 years, just a few ticks above the expectation of 7.75 percent. In six of those years, the rate of return was double or more from expectations.

The market is often rocked by fluctuations. Eight of those years have had returns below expectation and four of those years had the plan’s investments losing ground.

YearRate of returnYear Rate of returnYearRate of return
19941.320033.520120.6
199517.1200414.96201313.4
199615.120059.8201418.6
199719.9200610.720153.4
199819.1200718.920161.116
199911.32008-8.2201714.96
20008.42009-19.420189.48
2001-7.1201014.1  
2002-6.6201125.4  

Investment income isn’t enough to fill in the plan’s financial gaps, which have increased over the past decade.

The reason is the increasing number of retirees supported by a shrinking number of contributing employees. Benefit payments added up to $2.6 billion, an increase of 5.3 percent over 2017, as the number of retirees increased from 102,260 to 104,973.

The number of contributing employees dwindled from 152,382 in 2017 to 150,687. The amount of employer (taxpayer) and employee contributions added up to $1.6 billion, about the same as the year before.

With more retirees, the plan’s payments for its cost of living increase or COLA added up to $650 million, a 7.8 increase over last year’s COLA payments of $603 million. 

The PERS board voted last summer to increase the employer (taxpayer) contributions from 15.75 percent of payroll to 17.4 percent.