Know the Facts about PERS

The Public Employees’ Retirement System of Mississippi

The Mississippi Retired Public Employees’ Association (MRPEA), founded in 1985, is a non-profit organization that serves as an advocacy group for retired and active members of the Public Employees’ Retirement System of Mississippi (PERS).

MRPEA is pleased to provide the following information to assist members, Mississippi public policy makers, and the citizens of our state in better understanding PERS. MRPEA was created to preserve and protect the interests of the members of PERS.

Since the economic downturn of 2008, significant attention – much of it negative – has been directed toward the financial status and sustainability of our country’s state and local government pension systems. As one listens to the national discussion, the situation is often inaccurately portrayed as unsolvable, and the discussion often demonizes employees who have devoted their lives to serving the public. Special interests at the national level are promoting this line of thinking and are attempting to influence policy agendas and outcomes related to PERS and other matters in Mississippi. MRPEA believes that Mississippians are best able to address matters affecting their state. We hope that the facts presented below will assist you in forming a sound understanding of PERS.

PERS members serving Mississippi

If you attended public school, community/junior college, or a state university in Mississippi, you were likely taught by a PERS member. Your neighborhood, business, and home are protected by local police and fire departments made up of PERS members. PERS members build many of the roads you travel on each day, oversee essential sewer and water systems, immunize children throughout the state, care for the mentally impaired, heal the sick, and lead ground-breaking research into devastating diseases such as cancer and Alzheimer’s. They are the first on the scene and last to leave at the many natural disasters that have plagued Mississippi over time. If you live in Mississippi, regardless of whether you work in the public or private sector or live in an urban or a rural area, your everyday life is touched by PERS members in some way. All Mississippians benefit from the services PERS members provide.

PERS membership by the numbers

PERS members include not only state employees but also employees of Mississippi’s public schools, universities, community/junior colleges, counties, cities, and other political subdivisions. System membership as of June 30, 2016, totaled 399,757 with 102,212 of these individuals receiving benefits. PERS employers are in virtually every county of the state, as are its members. PERS members are an active and vital part of the communities in which they reside, pay taxes, vote and raise their families.

How PERS is funded

PERS manages a trust fund to provide retirement benefits to current and future public retirees. Funding for the trust fund comes from three sources. First, participating Mississippi public employers make required contributions to the fund. Contributions to the fund from these employers were 4.81 percent of total state expenses in 2016. The second source of funding comes from public employees. As a condition of their employment, they are required to contribute to PERS (currently at a rate of 9.00 percent of their total salary) through deductions from their paychecks with the promise that they will receive retirement benefits at some point in the future after meeting all eligibility requirements. The third source of funding comes from investment income. The combined contributions from the employers and their employees along with investment income are used to pay retiree benefits and administrative expenses. The cost of administering the retirement system is less than 1.00 percent of total plan expenses annually.

PERS governance and accountability

PERS is governed by a board of trustees that includes eight elected employee/retiree representatives along with the State Treasurer and an appointee of the Governor. The Board is supported by the highly trained professional staff of PERS as well as competitively selected advisors with global expertise in investing and actuarial science. PERS is required to comply with state and federal laws and regulations and is accountable to the executive and legislative branches of Mississippi state government.

The economic impact of PERS

In fiscal year 2016, PERS distributed $2.4 billion in benefits, 93 percent of which stay within the state of Mississippi. Expenditures made by PERS retirees and beneficiaries in Mississippi provide a significant, steady economic stimulus to communities in virtually every county of the state. Each dollar in retirement benefits spent by PERS retirees ripples through the state economy, creating a multiplier effect. Per a 2016 study completed by the National Institute on Retirement Security, in 2014, expenditures stemming from state and local pensions supported 19,513 jobs in the state. Virtually every industry sector in the state benefited from increased revenues due to the injection of these retirement system dollars into the state’s economy. Federal, state, and local governments also benefited, receiving $478.5 million in tax revenues that year. Finally, the study found that each dollar invested by Mississippi taxpayers through employer contributions to PERS generated $4.63 in total economic activity in the state. Most expenditures made by the state do not provide that kind of return for the taxpayers.

PERS member retirement benefits

The average benefit paid per retiree through the PERS retirement plan is a modest $22,607 per year. The modest benefit that retirees earn through PERS, when combined with their Social Security benefit, enables them to contribute to the state’s economy and avoid living in poverty after paying taxes, health care, and other living expenses. This helps the state avoid the inherent public assistance costs it would pay if these individuals lived at or below the poverty level.

PERS is sustainable

At the end of fiscal year 2016, the system held $24.5 billion in assets. These investments represent real assets in hand, not IOUs. This amount represents approximately 60 percent of the funds required for each dollar owed in liabilities today. Only if PERS were to cease operations completely would everyone’s benefit need to be paid out in single day – a very unlikely scenario. It is important to understand that traditional defined benefit plans such as PERS operate on a very long time horizon. Recognizing the need to further strengthen the system’s funding status, PERS has already implemented multiple changes to bring down future costs of the system and continues to examine options for improving the system’s funding level.

The true cost of PERS to state taxpayers

Over the 30-year period that ended June 30, 2016, mandatory employee contributions and earnings from investments covered 71 percent of the cost of the public retirement system in Mississippi. Employer (taxpayer) contributions made up only 29 percent of pension revenues over the same 30-year period. Employer contributions were 4.81 percent of total state expenses, compared to 4.35 percent of total state expenses in 1990. Again, it bears mentioning that PERS members are taxpayers, and they represent a significant portion of the tax-paying public in Mississippi. In addition to the 9.00 percent of their total salary that is paid directly to PERS, their tax payments to the state fund a meaningful portion of all state and local government operations, including PERS. Further, 93 percent of benefits paid to PERS retirees remains in the state’s economy, generating $4.63 in total economic activity for the state for every $1.00 invested by Mississippi taxpayers.

Defined benefit (DB) vs. defined contribution (DC) plans

PERS is an important attraction and retention tool for state and local public sector workers in Mississippi. Members of PERS receive benefits through a DB plan. DB plans such as PERS encourage employee loyalty enabling employers to limit the high cost of employee turnover. On the other hand, DC plans are portable, facilitating the movement of employees from one job to the next. Also, some make the argument that DC plans are cheaper than traditional DB plans for employers and, therefore, for taxpayers, when it comes to public pensions. But that’s not actually true. A study by the National Institute on Retirement Security concluded that the cost to deliver the same level of retirement income to a group of employees is 46 percent lower in a DB plan than it is in a DC plan. So how is it, then, that employers save money by moving from DB to DC plans? The study notes that employers almost always cut the average employee benefit in the process through a reduction in employer contributions. Per the study, DB plans provide a more efficient use of taxpayer funds when offering retirement benefits to state and local government employees.

Sources:  PERS Facts and Figures, January 6, 2017 | Pensionomics 2016: Measuring the Economic Impact of DB Pension Expenditures, National Institute on Retirement Security | A Better Bang for the Buck: The Economic Efficiencies of Defined Benefit Pensions, Beth Almedia and William B. Fomia, FSA, National Institute on Retirement Security