A year after losing $393 million due to the COVID-19 pandemic, Mississippi’s defined benefit pension system has a vastly improved position thanks to larger-than-expected investment returns.
According to the comprehensive annual financial report for fiscal 2021 (which ended June 30) released by the Public Employees’ Retirement System of Mississippi, the plan’s investments had a 32.71 percent return, the plan’s biggest investment windfall since it began investing in stock markets in 1981.
In 2020, the plan only earned 3.35 percent on its investments, far below the annually expected rate of return of 7.75 percent.
As a result of the investment gains, the plan’s unfunded liability shrank from $19.4 billion in 2020 to $14.8 billion, a decrease of 23.7 percent. This year halted a four-year streak of annual increases in the unfunded liability category.
That’s the best showing in three years, as the unfunded liability was up to $17.6 billion in 2019 and the year before, $16.9 billion.
The net position grew by 26.5 percent from $27.8 billion in 2020 to $35.2 billion in 2021.
As a result of PERS’ funding plan, that expectation will be reduced to 7.5 percent this year due to predictions of slower investment growth. The plan’s short-term balance sheet looks far worse than one would expect due to reduced assumptions on future investment returns, wage inflation and price inflation.
The plan’s funding ratio, which is defined as the share of future obligations covered by current assets, increased to 61.3 percent from last year’s 60.5 percent mark.
While the plan’s obligations won’t be due at once, the funding ratio presents a snapshot of the plan’s fiscal health.
Despite the good financial news, demographics continues to be a problem for PERS’ bottom line as a shrinking number of employees support a growing pool of retirees.
Pension benefits paid to retirees increased from $2.878 billion in 2020 to $2.995 billion to 2021 , a 4.07 percent increase. The number of retirees increased from 109,881 in 2020 to 112,158 in 2021, an increase of 2.07 percent. Last year, the number of retirees increased at a rate of nearly 1.89 percent.
The number of contributing employees decreased from 149,855 in 2020 to 145,673, which represented a 2.79 percent decrease from the year before. Last year, the number of employees dipped only slightly during the COVID-19 pandemic with a slight decrease of 0.52 percent.
The cost of living adjustment (COLA) — better known as the 13th check since many retirees take it in a lump sum each December — had a smaller rate of increase than the year before despite more retirees. The COLA payments increased from $751 million in 2020 to $800 million in 2021, an increase of 6.52 percent. Last year, COLA payments increased by 7.44 percent over the year before.
Last year, the COLA represented 26.11 percent of all benefits paid to retirees, but this year that increased slightly to 26.7 percent.
PERS retirees receive 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.
