Retirement is one of the critical financial elements in the lives of thousands of Mississippi. With many Mississippians being employed by the state and local governments, the status of the state’s Public Employee Retirement System (PERS) is extremely important.

According to numbers provided by PER, approximately 13 percent of the total workforce members in the state are active members of the PERS system. This equates to approximately 150,000 Mississippians. Additionally, the system has approximately 112,000 retirees. According to the United States Census Bureau, 488,000 Mississippians are over 65 years of age, and about 11 percent of them are PERS retirees. In all, about 1 in 10 Mississippians are either active members or retirees under PERS. Despite the importance that PERS carries for so many Mississippians, it has not done very well.

The structure of the Public Employee Retirement System is based on a system of Defined Benefit Plans. Under this structure, government employees have a defined percentage of their income directed to the PER system (currently 9 percent). The government entity the employee works for also contributes to the fund via a match that is calculated as a percentage of the employee’s income (currently 17.4). In return, PERS invests the funds and guarantees that the employee will receive defined retirement pension benefits, even if the funds do not provide a good return on investment.

From a limited viewpoint, it may appear that PERS is doing relatively well with its investment returns. The fund saw a 32 percent increase in investment value from June 2020 to June 2021. However, it is important to note that the stock market was in a rebound from the historic effects of 2020 Covid. Thus while the fund saw large increases in 2021, annual investment returns in 2020 were only 3 percent. Furthermore, these increases are not enough to fully address the systemic issues that have caused a gap between the fund’s obligations and actual investment returns.

According to PERS 2020 fiscal year report, the fund had assets with a market value of $28.4 billion and total liabilities of $47.4 billion. This means that the investments were only supporting 61 percent of the total retirement liabilities. According to a recent report issued by the American Legislative Exchange Council, the state retirement system is the 15th most underfunded in the nation on a per capita basis. The state also has the highest amount in the country for unfunded liabilities as a percentage of GDP.

Although the policy issues surrounding the system are extremely complex, some fundamental reforms could be made to help address the level of underfunded liabilities. In addition, the state should also consider reforms that will provide government employees with greater retirement flexibility.

In the first place, it is important to consider the issues surrounding the assumed rate of return utilized by PER. In states across the country, an increasing amount of retirees and major market fluctuations such as the 2008 Crisis and the Covid impact in 2020 have shown many of the assumed rates of return to be higher than the actual annual averages. In light of this, some have called for PER administrators to lower the assumed rate of return to better account for the element of investment risk.

This alternative model that directly factors in risk is known as “risk-adjusted discounting.” Indeed, most of the retirement systems in states across the country have been all but forced to lower their assumed rates of return due to volatile market conditions. However, best practices have these changes implemented in the assumed rate of return without being forced to do so by the market.

Furthermore, rather than centralizing all pension investments into one centralized state agency, Mississippi should consider implementing reforms that would allow government employees more freedom with their retirement contributions.

Some states, such as Utah and Michigan, allow their government employees to opt to allocate funds to a 401(k) style Defined Contribution Plan. This gives state employees flexibility on what they would like to invest in for retirement if they choose to opt out of the standard Defined Benefit Plan. While 401(k) type plans do not have the same guaranteed return, employees have the benefits of greater growth potential, more portability, and the ability to have more personal responsibility over their retirement future.

Fiscal responsibility, good government, and sound public policy are important in ensuring that the public retirement system can best serve government employees. By implementing balanced reforms, the state could see a healthier retirement system that can serve its employees for years into the future.