In 2001, two years after the Legislature passed major and retroactive increases in retiree benefits, the Mississippi Public Employee Retirement System (PERS) was underfunded by $7 billion, but still at 88 percent of the fund. Today, PERS is underfunded by $12 billion and has fallen to 62.5 percent of the fund. It is not sustainable.

Gov. Haley R. Barbour appointed a study commission to review PERS and come up with recommendations to correct the impending solvency crisis. He unveiled the PERS Study Commission Report at a press conference last week.

Prior to the election, some suggested Gov. Barbour made a political fumble in creating the Commission. I think he knew the political demagoguery was not a true threat to the political interests of his party, as was proved true with the election results giving Republicans continued dominance in the state Senate and newfound control over the House of Representatives.

Those familiar with polling before and after the election share that PERS was a significant issue among voters - Democratic voters - but not so strong among Republicans and particularly conservatives. The fear tactics used against Republican candidates succeeded in frightening their campaigns, and in the end, despite assurances from Republicans regarding PERS, Democratic voters did exactly as one would expect them to do, they voted for Democrats. Meanwhile, Republican voters cast their ballots for the GOP regardless of PERS.

Some politicians will continue to prey on the fears of retirees to fight the reforms necessary to ensure PERS continues. But refusal to make critical changes to PERS is not about the state keeping its promise to state employees and retirees. Because that promise extends to a state worker starting their first day of work today and under the current system we cannot assure that person of their full retirement. If the Legislature is truly serious about keeping its promise, it would act to make PERS solvent.



If the Legislature does not act, PERS will fail in the future. Every year the Legislature fails to act, the challenge becomes greater.



Like Aesop's grasshopper in winter, opposing reforms demonstrates a short sightedness which ultimately rests on the idea that they won't be around when the crisis occurs, or that some magical prosperity will resolve the problem (e.g. the state wins the lottery every single year) or that the taxpayers could eventually bail out the problem. A taxpayer bailout is not feasible and massive tax hikes are politically untenable. The current shortfall is equal, in the words of Gov. Barbour, "two and a half years of total general fund revenue. If we didn't use any money, for anything in state government, it would take us two and a half years to get us to the funding level that is recommended." Taxpayers have already increased their contribution 46 percent over the past several years; we cannot afford to bailout PERS now or in the future. PERS is broken and must be fixed.

The PERS Study Commission made a number of recommendations.

First, it suggested the PERS Board reconsider lowering its projected investment return from 8 percent to 7.5 percent. The PERS' own actuary made that recommendation earlier this year and the Board voted to reject that adjustment, despite the actual rate of return for the past ten years only achieving 5.41 percent. Understanding that the actual investment returns is a third of what the fund assumes paints an even more disturbing picture of the fund's solvency.

Second, the Commission urged the Legislature and the PERS Board to study the addition of a defined contribution component to the state's overall retirement program.

Third, the PERS Board should be adjusted to include more financial experts and include members who do not receive benefits from the program (i.e. non-state employee/retiree taxpayers).

Fourth, the Legislature should adjust the retirement age and lower the vesting period.

Fifth, the Commission recommended freezing the cost of living adjustment (COLA) for three years to catch up with the actual cost of living and then link COLA to inflation. Some retirees choose to take this COLA as a lump sum payment at the end of the year and it is referred to as the "thirteenth check." Over the past three years retirees saw an increase of nine percent, but inflation only increased 4.5 percent. So retirees get this annual raise to compensate for the increase in the cost of living even when the cost of living does not increase; they even get it when the cost of living decreases.

Among other recommendations, the Commission suggested the Legislature review SLRP (supplemental legislative retirement program) that provides additional benefits for members of the Legislature and the lieutenant governor; and review statutes and policies that allow for salary spiking to manipulate an employee's "high four" salary years.

If the Legislature does not act, PERS will fail in the future. Every year the Legislature fails to act, the challenge becomes greater. PERS cannot afford another ten years like the past ten years.



Brian Perry is a partner in a public affairs firm. Reach him at reasonablyright@brianperry.ms.