Here we go again at PERS, the state employee retirement system.
Despite last year’s promise to legislators that a boost in employer contributions would right the ship, the ship sank again in FY 2019. The latest Actuarial Valuation Report (delayed until after the election) showed PERS’ unfunded pension liability jumped up $1 billion, from $16.9 billion to $18 billion.
The funded ratio also dropped from 61.8% to 60.9%. The extra $100 million annually from increased employer contributions was supposed to reduce the shortfall and move the funded ratio upward, hitting 100% in 30 years.
While some changes to actuarial assumptions impacted calculations, PERS’ big problem remains growing numbers of retirees but decreasing numbers of employees. Over the past 10 years the number of retirees jumped 42% while the number of employees fell 9%.
Significantly, the payout to retirees since 2010 jumped from $1.4 billion to $2.6 billion, up 89%; annual payouts for 13th checks (accumulated cost of living adjustments) more than doubled from $330 million to $683 million, up 107%; and the unfunded liability increased 59% from $11.3 billion.
PERS actuaries regularly tell the board that if their measured assumptions come true, things will become shipshape over time. Unfortunately, as results show over the past 10 years, their liberal assumptions often miss the mark.
Should the downturn continue through this year, PERS will have to increase employer contributions again, estimated by the actuary at 18.97%. Remember, much of any employer rate increase gets pushed out to cities, counties and other locally funded governmental entities.
Gov. Haley Barbour spotlighted PERS’ financial problems back in 2011 when he appointed a special commission to recommend changes “to ensure the solvency of the fund.” A key Barbour goal was to reduce the employer contribution rate which was 12% headed to 12.9% at the time. Instead it keeps going up and up.
The commission recommended a number of changes to turn PERS around. Key among them were:
1) Freeze 13th checks at current levels for three years and tie future increases to the Consumer Price Index with a cap of 3%.
2) Balance membership on the PERS board currently dominated (10 of 12) by plan participants.
3) Make participants eligible to draw full retirement at age 62, or at age 55 with 30 years of service or more, but with no COLA adjustments until age 62.
4) Base final average compensation of a PERS retiree on four consecutive years of service based on the employee’s base pay. And study whether or not it is appropriate to include unused leave, overtime pay, special pay, and per diem and travel (in the case of legislators) as part of an individual’s final average compensation.
5) Revise all statutes related to PERS that allow for “spiking,” stacking of salaries, or other abuses within the PERS plan.
6) Form permanent legislative committees to oversee PERS with professional staff knowledgeable of actuarial science and retirement plan requirements and resources to hire independent actuaries.
Virtually none were pursued or adopted by the Legislature or the PERS board. Since then, political pressure from retirees has forced candidates for both to pledge there will be no changes at all to their benefits.
So the PERS ship keeps sinking.
For a comprehensive report on PERS see the Jackson Jambalaya blog (http://kingfish1935.blogspot.com).
“False weights and measures – the Lord detests them both” – Proverbs 13:22.