According to the latest report, Mississippi’s defined benefit pension fund took a big hit from the economic downturn due to the COVID-19 pandemic.
The governing board of the Public Employees' Retirement System of Mississippi, which handles retirement for most state, county and municipal employees, authorized the release of the annual comprehensive annual financial report Tuesday for fiscal 2020, which ended June 30.
The position of the plan decreased by $393 million (1.4 percent) due to a paltry 3.35 percent in investment returns ($844 million) and the pension’s unfunded liability increased to $19.4 billion.
The plan’s investment income was down 49.6 percent compared to the year before and the plan’s net position was $27.8 billion, a decrease of $379 million (1.3 percent).
Last year, the unfunded liability was $17.6 billion and the year before, $16.9 billion. The plan earned a 6.64 percent rate of return on its investments in 2019 ($1.7 billion), which is still below the plan’s annual expectation of 7.75 percent.
The plan’s funding ratio, which is defined as the share of future obligations covered by current assets, shrank from 60.9 percent to 59 percent. That's the plan's worst funding ratio since 2012, when it was 58 percent fully funded.
While the plan’s obligations won’t be due at once, the funding ratio presents a snapshot of the plan’s fiscal health.
One of the reasons for PERS’ financial health is demographics, where a shrinking number of employees support a growing pool of retirees.
Pension benefits paid to retirees increased from $2.747 billion in 2019 to $2.878 billion, a 4.8 percent increase. The number of retirees increased from 107,844 in 2019 to 109,881 in 2020, an increase of 1.89 percent. Last year, the number of retirees increased at a rate of nearly 3 percent, indicating that some employees put off retirement due to the pandemic.
The number of contributing employees decreased from 150,651 in 2019 to 149,855, a slight decrease of 0.52 percent.
Another part of the plan that is hurting the bottom line is the cost of living adjustment (COLA) better known as the 13th check since many retirees take it in a lump sum at year’s end. The COLA payments increased from $699 million in 2019 to $751 million in 2020, an increase of 7.44 percent. Last year, COLA payments increased by 7.5 percent.
Last year, the COLA represented 25.4 percent of all benefits paid to retirees, but this year, that increased to 26.11 percent.
The PERS plan provides a cost of living adjustment that amounts to three percent of the annual retirement allowance for each full fiscal year of retirement until the retired member reaches age 60.
From that point, the three percent rate is compounded for each fiscal year.