PERS’ Deficit “Mortgage” Ballooning, Not Shrinking

You know how a mortgage works right? You make your monthly payments and gradually your mortgage balance comes down.

Pat Robertson, Executive Director of the Mississippi Public Employees’ Retirement System (PERS), tells legislators and retirees to think of PERS’ massive $16.8 billion funding shortfall as a mortgage: “Having an unfunded liability (deficit) is analogous to having a mortgage and making mortgage payments faithfully every month.”

Well, PERS’ deficit “mortgage” does not work like yours and mine. Despite four years of payments, the balance has ballooned, not shrunk. And the number of years to pay off the mortgage has jumped from 30 to 40.6 years.

In October 2012 PERS increased public employer contributions to 15.75% of wages to start making those faithful mortgage payments on its then $14.5 billion deficit. Robertson assured all that this high rate would improve the funded liabilities ratio from 58% to 80% by 2042.

Four years later, the unfunded amount has risen from $14.5 billion to $16.8 billion and the time to reach the 80% funding level target has moved out to 2053.

In other words, four years’ worth of payments didn’t lower the “mortgage” balance any. Instead it increased by $2.3 billion and the mortgage’s term had to be extended, making it 40.6 years from its start in 2012.

Be aware of this, per Robertson in 2013: “GASB requires a maximum amortization period for the UAAL of not more than 30 years.”  (GASB means Governmental Accounting Standards Board; UAAL means Unfunded Actuarial Accrued Liabilities.)

So, PERS is out of compliance, again, with accounting standards.

To get in compliance without legislative action, PERS would have to increase employer contributions from 15.75% to 17.2% for 30 more years.

In an excellent analysis, blog site Jackson Jambalaya points to significant structural problems at PERS (http://kingfish1935.blogspot.com/2016/12/pers-continues-to-slip.html), concluding that, “The numbers that should be getting smaller are getting larger while the numbers that should be getting larger are getting smaller. In other words, PERS is going in the wrong direction.”

Key findings cited in the blog include:

“The ratio of active employees to retirees is getting worse as it declined from 2.3 active employees/retirees ten years ago to only 1.5 in 2016.”

“The total amount of employee and employer contributions was $1.593 billion. However, PERS had to pay $2.48 billion to retirees.  The deficit between the contributions and payments was $886.8 million.”

“Investment income was only $217.8 million – not enough to cover the $886.8 million deficit. Thus PERS had to dip into assets to pay benefits. The total assets of the PERS portfolio fell from $24.8 billion last year to $24.1 billion in 2016.”

Read the blog, then download and read the 2016 Actuarial Valuation Report at http://www.pers.ms.gov.

Better yet, get your legislators to read them – the numbers not Robertson’s customary rationalizations. Legislators are the ones who need to find the political courage to fix PERS’s ballooning deficit. An ever higher employer contribution rate is not the fix needed.

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