IRON MONEY: One of Mississippi’s pension system’s investments in 2013 was corporate bonds in the Walt Disney Company, which produced hit movies like Iron Man 3 and Frozen, which grossed $1.2 billion apiece.
By Steve Wilson | Mississippi Watchdog
Thanks to some improved returns on its investments, the Public Employees’ Retirement System of Mississippi is in better shape, according to the newest financial report, but the news isn’t all rosy.
Mississippi’s defined-benefit pension system — which serves most state, county and municipal employees — still has $14.4 billion in unfunded liabilities and is still far below the 80 percent funding level, considered a benchmark for a healthy pension fund.
According to the report, the plan’s return on its investments shot up to 18 percent, and the funding level — the share of future obligations covered by current assets — rose from last year’s dismal 57.7 percent to 61 percent.
Last year, the plan’s rate of return on investments was 13.4 percent.
“I think it means that as we’ve indicated in the past, that time and patience will help get us back on the right path,” PERS Executive Director Pat Robertson told the Associated Press. “Our focus is long-term and our investments on a long-term basis will sustain the plan.”
According to projections from PERS, the plan should be up to 72 percent funded by 2034 with the plan’s benchmark return on its investments at 8 percent.
“The 8 percent is still not a good idea, even when the stock market has a banner year,” said Joe Luppino-Esposito, an editor and general counsel of State Budget Solutions. “Pensions are guaranteed assets, so the safer bet is to assume they will only be able to pay out at a lower rate, similar to bonds. That ensures there will be some protection for retirees for when the stock market has an off year.”
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
Another increase was in the number of new retirees, as 3,300 are now drawing benefits from the plan. That number is expected to grow with the plan already serving 93,504 retirees. The median age for the 161,360 employees paying into the plan is 44.4. Employees in the plan before 2007 can retire with 25 years of service at age 60, while those who entered it after 2007 need 30 years at age 60 to qualify for benefits.
According to the PERS plan for the next 25 years, all three factors affecting the fund’s financial health — the number of benefits paid to retirees, investment returns and employee contributions — are expected to increase. This year’s increase in the funding percentage was the first without a decrease since 2007.
That means the clock is ticking. But in an election looming next November, don’t expect much progress.
“Pension reform is always going to be a tough political issue, but it only gets harder to fix as every year passes,” Luppino-Esposito. “A reform in 2015 might be difficult, but a reform in 2016 would be even worse. There is no escaping the need for reform.”