The House on Tuesday night killed Senate legislation that aimed to shore up the state’s underfunded public employee retirement system by offering less benefits to future hires.
The measures died after the House Accountability, Efficiency and Transparency Committee failed to take them up by a Tuesday night deadline. Earlier in the day, it appeared the measures would survive, after the House State Affairs Committee passed them after some debate, and on voice votes that sounded clearly like a majority of the committee voted no despite the chairman’s ruling they passed.
It’s unclear whether the retirement system overhaul, one of Lt. Gov. Delbert Hosemann’s top priorities, can be revived this late in the legislative session. Last year, a bill to alter the PERS board and limit its authority died with a similar deadline, but was revived late in the legislative session and a compromise version passed.
Proponents of this years proposed overhaul, authored by Sen. Daniel Sparks, R-Belmont, say PERS, with an unfunded liability of $26 billion, could potentially founder from recession or natural disaster. They say increased contributions from state and local government “employers” — hence taxpayers — are unsustainable. They say failing to make major changes now endangers current employee and retiree benefits and taxpayers down the road.
“For me, my commitment from the day I was elected is to honor the obligation we have to current employees, retirees and beneficiaries,” Sparks said. “… For me, this is two-fold, honoring the commitment we have made, and two, coming up with a plan that provides flexibility for the future. Keeping doing what we’re doing, is so out of whack from what the system should look like. It’s a fact that no one has taken a real look at it and had real solutions.”
Opponents, including public education and teachers’ advocates, say drastically reducing benefits for future state employees will make it impossible to recruit, and especially retain, teachers, police and others in relatively low-paying government jobs. They say the system, which has assets of about $35 billion, can be shored up for the long term with less drastic cuts for future retirees.
“I’ve been looking at this through specifically the lens of the educator pipeline …” said Toren Ballard, a public education advocate and independent researcher who has been critical of the proposed PERS overhaul. “If you look at the general career of a teacher, you lose a ton of people in the first few years … but generally, after a decade or so, they usually stay around at that point … (PERS) is a great deal if you stay in, and by taking away that incentive — I think we’re taking that level of retention we get from (PERS) for granted.
“People keep talking about we are going to treat government employees more like the private sector, and we don’t have pensions in the private sector anymore,” Ballard said. “But the problem is, if you don’t then make the salary like the private sector, you’re giving teachers and other public employees the worst of both worlds.”
PERS currently covers about 350,000 current public employees or retirees — about 10% of the state’s population. Changes to the system can have substantial economic impact on the state in the future.
While Mississippi’s pay for government jobs typically falls short of others in the Southeast, the Magnolia State’s defined benefit pension plan is relatively generous. It includes an annual 3% cost of living adjustment, compounding. This is typically referred to as the “13th check,” because employees can opt to take the COLA in a lump sum annually.
Some lawmakers in recent years have lamented that the Legislature in the late 1990s was too generous when it added the guaranteed COLA and increased other benefits. Others defend it, saying PERS is the only way Mississippi can compete for and retain employees, especially in teaching.
Sparks’ main PERS overhaul bill, SB 2439, would change benefits for employees hired after March 2026 to a “hybrid” retirement, part defined benefit and part defined contribution. Employees would still have 9% withheld from their checks, with 4% going into a defined benefit plan, and 5% going into a defined contribution plan, such as a 401(a) account, similar to the 401(k) plans popular in the private sector. There would be no guaranteed COLA, or 13th check, as current state employees would receive, although Sparks said state agencies or local governments could in the future offer increases or one-time adjustments as incentives, if budgets allow.
But Ballard said: “So, there’s two parts of the hybrid plan. You have the much-reduced, guaranteed pension aspect of it. If you make it eight years, you qualify for at least some of that. But the other half is more a 401(k)-styled plan that’s kind of standard in the private sector, but in the private sector, you generally get an employer match … I’m not against a defined contribution plan, in theory. But if you’re not offering an employer match, why not just let the employee keep that 5% of their salary and do it on their own at that point.”
Ballard and others — including some lawmakers and at least one PERS board member — have proposed the Legislature consider less drastic changes for future employees, including having a 1% COLA instead of 3% and-or tie such increases to the consumer price index.
But Sparks notes the PERS board endorsed the plan he’s now pushing, and said a proposal for such a lesser change and continued defined benefit plan failed to garner a second when proposed to the system’s board.
“To go in and have a defined benefit with fewer benefits — there’s still a risk factor,” Sparks said. “… Along with the board, I believe a pure defined benefit system is not what we see in the private sector and a hybrid is more in line with that corporate America is doing and could provide us some flexibility.”
Any proposed changes to PERS would not immediately true the system, but would take decades to balance the systems books. Ballard said actuaries have shown that within 30 years or so, there’s not a huge difference in the proposed new plan and “doing nothing” on balancing the books. He said projections on reducing the COLA from 3% to 1% have shown similar results long-term for the funded ratio of PERS.
And in the meantime, PERS will likely seek more money from taxpayers on the state and local levels.
The state House did not float a PERS overhaul plan of its own this session, but instead proposes in its major tax restructuring plan to divert state lottery money — roughly $100 million a year — to the PERS plan.
Last year, lawmakers stripped a key power from the PERS board, its authority to set the percentage governmental entities contribute on behalf of employees.
To deal with long-term financial issues, the PERS board last year had planned a 5% increase over three years to 22.4% that the employers or governmental entities contributed to each paycheck. Governmental entities, particularly local governments and school districts, said to pay for the increase they would be forced to reduce services and lay off employees.
While stripping the power from the PERS Board to set the employer contribution rate, the Legislature also enacted a 2.5% increase over five years instead of the 5% increase over three years planned by the PERS Board.
In addition, the Legislature last year provided a one-time infusion of $110 million into the system.
Ballard said reducing PERS retirement benefits might eventually mean the state cannot afford to recruit and retain employees, particularly those with experience.
But Sparks said savings gained from overhauling the system would eventually free up dollars where agencies or local governments could afford raises and other benefits to help with recruiting.
The House on Tuesday also kept alive a bill authored by Sparks to reduce benefits for institutions of higher learning employees in the Optional Retirement Plan, and eliminate the plan for new hires. ORP is a defined compensation plan where university employees can opt out of PERS and still receive a relatively large contribution from their employer for their plan. Sparks said the plan is not sustainable, and contributes billions to PERS underfunding.
“They’re getting a 15.5% (government) match on a 9% employee contribution,” Sparks said. “That’s unconscionable … My bill would cap it at 9%.”
House Minority Leader Robert Johnson III, D-Natchez, a State Affairs Committee member, questioned the proposed ORP changes.
“Has there been any consideration that this is a major recruiting tool for our universities?” Johnson said. “I don’t usually get calls from Ole Miss, Mississippi State … but I have been getting calls about this. If they call me, it means they really, really, really have a problem.”
State Affairs and the House Accountability, Efficiency and Transparency committees passed the two PERS Senate bills before Tuesday night’s deadline, but only after “reverse repealers” were added to the bill to prevent them becoming law without more debate and sending the measures back to the Senate. But the bills were “double referred” to the AET Committee, which did not take them up before the deadline.
House State Affairs Chairman Hank Zuber, R-Ocean Springs, ruled the bills passed his committee by a voice vote despite the “Nos” being magnitudes louder, and he ignored calls from committee members asking for a counted vote.
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