Mississippi pension fund heads for final ‘Jeopardy’

We’ll take pension reform for a thousand.

Make no mistake, Mississippi is playing “Jeopardy” with its public employee retirement fund.

Failing to take steps toward reform might prove disastrous for retirees who depend on their benefits from the Public Employees’ Retirement System and the state’s budget. Mississippi, it’s becoming apparent, is making promises about its pension fund it surely can’t keep, according to a new study by the Competitive Enterprise Institute,

Let’s make it a true “Double Jeopardy, Alex.”

The state’s unfunded liability with PERS as a percentage of the state’s gross domestic product was third worst behind New Mexico and Illinois, according to the study by Robert Sarvis. The state’s unfunded liability is more than $15 billion, the state’s most recent report — in 2013 — says.

That’s an increase of more than 50 percent since 2007, when the state’s unfunded liability was more than $7 billion.

Sarvis found that states are using accounting gimmicks, such as an overly optimistic discount rate — the interest rate used to determine the present value of future cash flow — that tend to decrease the amount of unfunded liability.

He argues that the discount rate on state pension funds should be equivalent to that on 10- and 20-year Treasury bonds, which ranges in the 3 percent to 4 percent range.

The discount rate most state pension funds use is 7 percent or 8 percent.

“The state government needs to start putting more money into the pension system and make the necessary adjustments to the discount rate,” said Joe Luppino-Esposito, the editor and general counsel of State Budget Solutions. “And it needs to happen immediately. As time passes, the liability grows. It’s simple math.

“Unfortunately, too many state officials are only watching the short-term goals of government. But that does not make the future liabilities any less daunting — in fact, it makes them worse.”

The Government Accounting Standards Board has instituted new standards when it comes to calculating pension liabilities. If a state’s projected benefit payments are less than the resources available to make those payments, the discount rate is computed using the long-term expected rate of return of plan investments (which in the case of PERS is around 8 percent). If the ratio is reversed and the plan’s resources are less than the projected benefit payments, the discount rate is computed using a tax-exempt, 20-year, AA-rated or higher municipal bond rate, which is usually in the 3 percent range. According to the GASB, this “crossover point” — defined as when a pension’s projected benefit payments become larger than its resources available — can vary from plan to plan.

Mississippi’s PERS is 57.7 percent funded, according to the previous report. PERS issues a comprehensive financial report each year within six months of the end of the fiscal year in Mississippi, which is June 30. The previous one in 2013 shows why the fund is ailing, despite  a 13.4 rate of return on its investments in 2013.

The ratio of active, working members to retirees fell to 1.79 to 1, as retirees increased from 86,829 to 90,214. This explains a $644 million deficit between benefits paid out and contributions in 2013.

With an election year looming, the chances for a fix in this legislative session are slim. But according to Luppino-Esposito, the longer the politicians wait to institute reform, the more painful it will be.

Think 17th century French literature hard.

Even in its last report, PERS officials admitted employer contributions will have to rise from the present rate of 15.75 percent to 16.29 percent for the plan to remain solvent.

“It is important for state officials to work together with public employees and recognize the coming crisis,” Luppino-Esposito said. “On paper, generous defined benefit plans cannot be beat. But an honest look at reality shows us there isn’t enough money to go around. Rather than wait for the disaster, both sides must be proactive and make the change now.”

Photo: MORTAL DANGER: Mississippi’s unfunded liability with its state pension system ranks high among the states according to a recent study.

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