It is undeniable that Mississippi needs to improve how it manages the Mississippi Public Employees Retirement System (PERS) and the benefits this system offers to teachers, state and local employees, and public safety across the state. There is now a window of opportunity for the legislature to fix the status quo, but a lot of important details need to be addressed for Mississippi to take advantage of this moment in order to improve PERS for all. 

Last month, it looked like the Mississippi Legislature would finally attempt to take action to solve the problems facing the Mississippi Public Employees Retirement System. The Senate passed Senate Bill 2439 (SB2439) which, while flawed as originally written, was an important opportunity for legislators to come to the table to make vital improvements to a retirement system beleaguered by underfunding and inadequate benefits. Unfortunately, the House didn’t use their opportunity to propose improvements and SB2439 failed to get out of its necessary committees.

However, while that specific bill died in the legislative process, the Senate has revived its proposal by including it in a different legislative effort to overhaul tax rules. That means the original proposed design of Tier 5 under SB2439 is back as a political possibility and it should be very closely considered by stakeholders.

The Senate’s proposed solution would replace the current PERS pension plan with a “Tier 5” hybrid retirement plan. This “hybrid” would blend a small pension with a small individual defined contribution account for each PERS member. However, current design would not adequately address the retirement system’s funding shortfall, nor would it be a net improvement to workers’ benefits, according to our recent analysis. 

To be clear, this doesn’t mean the ideas or intent behind the Senate’s SB2439 initiative are misguided. In fact, modernizing benefit designs and improving funding policy are critical for PERS — which is among the worst funded state pension plans in the country. But it’s important to ensure that the proposed solutions to these problems actually address their root causes and ensure that they don’t reoccur in the future. 

Below, we look at the challenges facing Mississippi PERS and how the legislature can solve them in this session or the next.  

 

Why Mississippi PERS Needs Improvement

Mississippi PERS needs improvement for two primary reasons. The first is that PERS benefits are not adequately providing a path to retirement security for most workers. The second reason is that PERS is critically underfunded.   

When it comes to retirement benefits, Mississippi PERS is not serving most workers very well. Most public employees enrolled in PERS don’t work long enough to qualify for a pension and many of those who do aren’t on a path to retirement security. In fact, more than 4 in 5 workers will receive a benefit of less than $1,800 per year. According to our analysis, only workers with more than 20 years of service are served well by the current retirement plan, and this accounts for just 10% of the workforce.  

Looking at funding, Mississippi PERS faces a significant shortfall. It is currently 55.9% funded with $26 billion in unfunded liabilities as of 2024. Part of that shortfall was caused by past experience, like underperforming investments or taking too long to adopt safer actuarial assumptions. But, another part of the unfunded liability comes from a failure to ensure that large enough contributions are paid every year to cover the full principal and interest payments on PERS pension debt. 

Fortunately, there are a range of proven best practices that can be integrated into the PERS legislation to ensure Mississippi accomplishes both its retirement security and funding goals.  Below, we look at concrete policy steps the Mississippi legislature could take to ensure the financial health of both PERS and the state’s public workers. 

 

Mississippi PERS Needs a Plan to Pay Down the $26 Billion Funding Shortfall Responsibly

Right now, the state is trying to keep budget costs low by prescribing a fixed amount of money to be put into PERS each year. But it is not enough money to keep PERS pension debt from growing, and the pension plan’s actuaries say that more should be paid. The most responsible way to pay down a funding shortfall is to use “actuarially” determined contribution rates that are based on a plan to get the debt paid off in 20 years or less instead of legislator-set contribution rates that are based on politics.

The plan that was set forth in SB2439 earlier this session and now included in the Senate’s tax bill relies on changes to retirement benefits to lower overall costs to the state in the hopes of preventing future growth of unfunded liabilities. However, our research shows that benefit changes alone do very little to prevent the growth of unfunded liabilities. Without a plan to inject more money into the system to address this problem, it is likely the shortfall facing MS PERS would continue to grow. 

 

Mississippi PERS Needs to Adopt Realistic Investment Assumptions

 One way states determine how much they need to pay into the retirement system to prevent shortfalls from growing is by estimating how much the plan’s investments will make on a yearly basis. This is called the assumed rate of return, also known as an investment assumption. 

Currently, the Mississippi legislature assumes its investments will yield a 7% return. However, there’s only a 45% likelihood they will be able to earn that much, meaning the legislature is underestimating its yearly contributions, allowing the debt to snowball. 

As it stands, the reform proposed this session uses these same, outdated assumptions and amortization methods that got PERS into its current fiscal mess. But, if the legislature wanted to make a serious attempt at improving future funding levels, they could follow the example of Michigan which adopted a new hybrid tier of benefits that had its own 6% maximum investment assumption. Without applying improvements to the new benefit tier, even the hybrid plan proposed by the Senate runs the risk of accumulating pension debt in the coming years and driving up future costs for workers and taxpayers.

 

The Mississippi Legislature Must Ensure that All Workers Continue to Have Inflation Protected Benefits

There have been reductions to pension benefits in the past, such as when Mississippi introduced Tier 4 to replace Tier 3. But even those benefit changes didn’t take away cost-of-living adjustments that aim to help pension benefits keep up with inflation. If the purchasing power of pension benefits erodes over time it’s not really guaranteed retirement security. 

The plan proposed under SB2439 would eliminate the COLA, putting the retirement security of thousands of workers in jeopardy. Whatever plan the legislature puts forward in the future — whether it is a pension plan or a hybrid plan — there must be some degree of inflation protection in the form of a COLA, even if the specific COLA rules change.

 

Mississippi Must Ensure All Workers Have Access to a Path to Retirement Security

The simple truth is the current PERS pension plan design doesn’t work well for workers with less than 10 years of service, who account for 84% of all those enrolled in the retirement system. And the Senate’s proposed one-size-fits-all hybrid would similarly fail to ensure all workers have a path to retirement income security. Luckily, there are many ways to address this with smart and flexible retirement plan design decisions.  

This might look like a choice-based system that includes a plan designed for short-term workers that can later be switched over to a pension. Or the state could offer a pension, hybrid, or guaranteed return plan, better designed to account for the needs of workers with less than 10 years of service. PERS doesn’t have to be one-size-fits-all.

 

The Bottom Line

Effective reforms balance fiscal responsibility with providing a path to retirement income security for all public employees. Any solution that substantially reduces benefits for career employees, shifts virtually all costs of retirement benefits onto future workers, while eliminating inflation protection fails to maintain this essential balance. The Mississippi legislature would be doing the state a disservice if it failed to address anyone of these issues.