Nearly every time the board that oversees the Mississippi Public Employees’ Retirement System jacks up the rate that the taxpayers have to kick in to keep the system viable, it says that the latest increase should provide long-term solvency.
And every time they are wrong.
Maybe the taxpayers should be grateful that it’s been six years since the last increase was approved, but they shouldn’t be overjoyed. When the next increase takes effect a year from now, for every dollar a public employee earns, taxpayers will have to fork out 17.4 cents to pay for the worker’s retirement, 10 percent more than they do now. It will be the eighth increase in the employer rate since 2005.
When combined with the 9 cents the employees kick in, that means it will take more than a quarter for every dollar paid in salary to fund Mississippi’s defined-benefit retirement system — more than double the cost of the 401(K) plans that are common in the private sector, and about 75 percent more than the Social Security system.
The employer rate is going up because the last increase, which took effect in 2013, wasn’t enough to get PERS to the magic mark of being able to cover 80 percent of the its future liabilities. Currently, the system is only 61 percent funded.
The increase is expected to cost state government about $77 million and cities and counties about $23 million. They’ll have to come up with that money either by cutting their budgets elsewhere or passing the cost on through tax increases. The trajectory, as has been pointed out for years, is simply unsustainable.
There’s no need to study it further; the solutions are simple. Start with a cost-of-living adjustment, which raises the benefit by 3 percent annually, no matter what inflation has been. Then, up the amount that current employees kick in. Although the current 9 percent is a hefty chunk, if state employees want to maintain the generous benefit, they can’t keep hitting up the taxpayers to cover shortfalls. Once state workers feel the pain of that, it should make them more open to the most critical reform — moving away from a defined benefit plan to a variable benefit one, such as a 401(K), where the payouts at the end depend on the performance of the investment.
Certainly, defined benefit plans are great for the recipients, but not so great for those who have to pay for them. That’s why most private employers abandoned these kind of plans years ago. The economics simply don’t work when there are too many people drawing out, and too few paying in.
— Tim Kalich
