What impact will teacher pay raise have on PERS?

By Steve Wilson
May 14, 2019

The $1,500 teacher pay raise could be a net positive for the health of the state’s defined benefit pension system but that would require future earnings forecasts meeting projection targets, according to analysis of data by the Mississippi Center for Public Policy.

The good news is the increased contributions to the Public Employees’ Retirement System of Mississippi could add up to as much as $677 million over the next 30 years. This added revenue will mean more money will be available to pay benefits to retirees and give the plan more to invest.

One problem is the projected benefit payments, which will increase by $878 million over the next 30 years ($29.26 million annually) when compared to the previous projections.

The market value of the plan’s assets could increase as much as $2.9 billion over the next three decades, but that depends on a steady return on the investments of 7.75 percent, an assumption that hasn’t been lowered by the plan’s governing board since 2015.

The catch is the plan’s forward looking projections could be in error, as the plan’s actuaries rely on several generous assumptions that include:

  • Income from the plan’s investments, 7.75 percent.
  • Price inflation, three percent.
  • Salary increases, 3.25 percent.

Using those assumptions above, the original projections have the plan 99.6 percent funded by 2048.

A recent report by PERS actuaries suggests the assumed rate of inflation they use to make future projections should be lowered from 3 percent to 2.75 percent to reflect changes in their forecast prediction models.

The way this number was computed was to use the future-looking projections by the PERS actuaries, which provide guidance for the retirement fund’s governing board as a starting point and other data from the state superintendent’s annual report and the Public Employees’ Retirement System of Mississippi’s comprehensive annual report.

To find the most likely number of Mississippi teachers requires using the extra appropriation needed for the $1,500 raise ($14 million more than the original $58 million) and the formula used by the Mississippi Department of Education to compute the amount. 

When the agency submitted the information to lawmakers, it multiplied the number of teachers listed in MDE computers (31,157) by 1,500 and multiplied the result by 25.05 percent for fringe benefits to arrive the $58 million figure.

Using that data, Mississippi K-12 teachers represent about 25 percent of the 150,867 contributing members to PERS and 63.34 percent of the state’s 60,952 employees in K-12 public education. Using the larger figure, that would add up to about 38,260 teachers.

Multiplying the projected PERS payroll by 25.6 percent and the percentage of the $1,500 raise (3.34 percent) yields larger payroll numbers which affect total contributions to the plan.

The first 10 years of projected benefits data were excluded since the raise’s effects will be minimal on those retiring at that time. 

The best way to calculate the effect on benefit payments is to use the plan’s projections for the first decade and focus on the following 20 years. Multiplying the benefit payments by percentage of PERS members that are teachers (25.6) and the amount of the raise (3.34 percent) gives an idea of how much they would affect this crucial area.

PERS beneficiaries also receive a generous annual cost of living increase, 3 percent, that compounds every year after they reach age 60. 

In addition to the $1,500 raise passed by the legislature last session, teachers also receive small, annual raises once they complete two years of service, according to the pay schedule published by the MDE. Teachers are paid according to their qualifications and years of service. 

In 2018, PERS received $570,807,000 (employees contribute 9 percent of their income to PERS) from state, county and city workers and $1,018,163,000 from their employers (taxpayer contributions will increase in the new fiscal year from 15.75 percent of payroll to 17.4 percent). 

Divide that further and the state’s 60,952 employees in K-12 public education contributed $230,891,431 to PERS in 2018 while the employer contribution to their retirement added up to $411,846,933 for a total of $642,738,364.

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