A report by the state’s defined benefit pension fund’s actuary recommends that the expected rate of return on investments be decreased.
The Public Employees’ Retirement System of Mississippi says the plan’s 7.75 percent expected rate of return on its investments is not supported by the actuary’s forecasting models. It recommends that the rate be lowered to 7 percent.
The actuary, Cavanaugh Macdonald Consulting, recommended in the last experience investigation report from 2018 that the rate be lowered from 7.75 percent to 7.5 percent.
Another recommendation by the actuary says that the payroll growth assumption used by PERS officials should be reduced from 3 percent to 2.65 percent.
These reports are important because they provide a tool that the PERS governing board can use when planning. The governing board voted to release the report at its Wednesday meeting, but will decide in the next few months whether to act on the actuary's recommendations.
Reducing the expected rate of return on investments from 7.75 percent to 7 percent would put the plan’s finances in a deeper hole. PERS’ unfunded liability would increase from $19 billion to $23 billion. The plan’s funding ratio — which is defined as the share of future obligations covered by current assets — would shrink from 60 percent to 55.1 percent.
The plan’s funding ratio in 2047 would shrink from 63.4 percent on a 7.75 percent investment income expectation to 40.4 percent on a 7 percent expectation.
Changing the investment income expectation would also require another increase in the employer (taxpayer) contribution, which is now at 17.4 percent.
An increase would be the second time in three years the plan’s board has asked for a bigger contribution from taxpayers after increasing the employer contribution to the present rate in 2019.
The board of trustees can vote to increase the employer contribution, but the Legislature must appropriate the funds. An employer rate increase will also hit city and county governments as well. The last rate increase in 2018 cost the state an additional $73 million annually and local governments $25 million.
Only lawmakers have the power to authorize changes to the contribution rate for employees, which has remained at 9 percent since the last increase was passed into law by then-Gov. Haley Barbour.
In 1985 and 2005, there was only one increase in the employer (taxpayer) contribution that increased the rate from 8.75 percent to 9.75 percent.
From 2005 to 2012, the rate was increased several times to 15.75 percent before another increase was passed by board in 2018 that increased it to the present rate.