Mississippi’s pension system one of nation’s worst

By Steve Wilson | Mississippi Watchdog

Got $18,722 to spare for each resident of the Magnolia State? That’s each Mississippian’s percentage of the state’s growing unfunded liabilities in its defined-benefit pension system.

Good luck finding that in your seat cushions.

A new report by nonprofit State Budget Solutions says Mississippi’s Public Employees’ Retirement System of Mississippi is carrying $56 billion in unfunded liabilities, worst in the nation — now at 53 percent of the gross state product in 2013. It covers only 27 percent of the state’s liabilities, which is fifth-worst.

The state’s PERS system — according to its latest financial report — paints a far rosier portrait. It has just $14.4 billion in unfunded liabilities, according to its latest report. That’s still far below the 80 percent funding level considered the benchmark for a healthy pension fund.

Joe Luppino-Esposito, author of the study and an editor and general counsel of State Budget Solutions, said via email the study uses a “fair market valuation” to calculate the unfunded liability of the nation’s pension funds, now up to $4.7 trillion nationwide and counting.

The discount rate — the expected rate of return — in the SBS study is calculated from the rate on 15-year U.S. Treasury bonds, which is 2.734 percent. Because interest rates being held at record lows, SBS lowered it from last year’s 3.255 percent.

“We get that number by altering our assumption to a risk-free rate,” Luppino-Esposito said. “Mississippi pension plans assume a much higher rate that makes it more likely to come up short. Better to put more money in up front and guarantee pensions actually get paid later.

“And if that cost is too much for the state to handle, then it ought to consider major reforms. It isn’t right to make a promise to state employees that you can’t keep.”

Mississippi’s pension system has a benchmark rate of return is 8 percent. This year, the plan’s return on its investments shot up to 18 percent.

Last year, the plan’s rate of return on investments was 13.4 percent. The funding level — the share of future obligations covered by current assets — rose from last year’s dismal 57.7 percent to 61 percent, the first time the funding level hasn’t decreased since 2007.

The rate of return has fluctuated over the years, with an average of 9.75 percent. Here are the numbers from the past decade:

• 2004 – 14.6
• 2005 – 9.8
• 2006 – 10.7
• 2007 – 18.9
• 2008 – minus 8.2
• 2009 – minus 19.4
• 2010 – 14.1
• 2011 – 25
• 2012 – 0.6
• 2013 – 13.4
• 2014 – 18

Luppino-Esposito pointed to Wisconsin’s system as an example of a plan on much firmer financial footing and with more realistic expectations. Wisconsin, under Republican Gov. Scott Walker, has increased the employee contribution and has a more realistic discount rate of 5.5 percent.

“Those changes have put their system a head above the rest,” Luppino-Esposito said.

California’s plan is in the biggest peril, according to the study, with a $754 billion shortfall. As far as percentages go, Illinois has the worst shortfall — 22 percent of its liabilities are covered.

Get regular updates on Mississippi through our Facebook or Twitter accounts