With $26 billion in unfunded liabilities and inadequate benefits for workers, 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. But if the legislature does not act before the end of their next session, they will miss their current window of opportunity to save PERS from debilitating pension debt, inadequate benefit design, and the risk of becoming insolvent in the coming decades. 

In fact, the Mississippi Legislature has already missed two opportunities to make necessary changes that fix PERS. First, in 2024, the legislature voted to increase contributions into PERS, but not up to a level sufficient to prevent interest from accumulating on the debt or to cover the costs of lowering their assumed rate of return on investments.

Then, in March 2025, the legislature ignored the need to complete their changes to contribution rates and funding policy. Instead the legislature tweaked benefit design in a way that slightly improves portability for short-term workers while stripping future career public employees of inflation protected benefits.

The new benefit design calls for a “hybrid” retirement plan that would blend a small pension with a small individual defined contribution account for each PERS member. In theory, hybrid plans can be well structured ways to create a path to retirement income security. However, the adopted Tier 5 design uses all of the funding policy rules that got PERS into its fiscal distress in the first place. The version adopted by the legislature does nothing to address the retirement system’s funding shortfall — and because the benefit terms offer no inflation protection the package as a whole would it be a net negative for workers’ benefits, according to our recent analysis. 

This decision to adopt a poorly designed “Tier 5” for PERS has narrowed the timeframe in which policymakers can get Mississippi’s statewide pension fund on a road to financial sustainability. But either during a special session in 2025 or the normal spring 2026 session, the legislature could take actions that improve the benefit design structure of Tier 5 before it gets fully implemented. And at the same time the Mississippi Legislature could direct the PERS board to adopt better funding policy rules related to this new tier of benefits.

To be clear, this doesn’t mean the ideas or intent behind the legislature’s hybrid initiative are misguided. 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. And unless actions are taken in the coming months, the currently designed Tier 5 “hybrid plan” for PERS is going to be implemented that doesn’t solve PERS funding problems and makes benefits worse for career public employees.

The following is a roadmap for what additional changes are necessary in Mississippi to take advantage of this moment in order to improve PERS for all and prevent PERS pension debt from becoming a further fiscal strain on the state.

 

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. 

 

What to Improve #1: 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 hybrid plan adopted in Mississippi’s income tax bill relies lower overall retirement benefit costs and fewer future liabilities as the path to 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 Mississippi PERS would continue to grow. 

 

What to Improve #2: 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. 

The changes adopted this session use 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. All they would need to do is pass a law saying that when the PERS board implements the new Tier 5 that they have to use a rate at 6% or less.

Technically, the Mississippi PERS board could use their own authority to make this decision on their own—and they should if direction isn’t going to come from the legislature. 

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.

 

What to Improve #3: 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 (COLA) that aim to help pension benefits keep up with inflation (this inflation adjustment is commonly referred to as the “13th check” in Mississippi). If the purchasing power of pension benefits erodes over time it’s not really guaranteed retirement security. 

The plan proposed under SB2439 and adopted in Mississippi’s 2025 tax bill eliminated the COLA (i.e., 13th check) for future workers, putting the retirement security of thousands of workers in jeopardy.  But the legislature can amend Tier 5 before it is implemented to restore some degree of inflation protection in the form of a COLA, even if the specific COLA rules are different from Tier 4. 

 

What to Improve #4: 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 legislature’s one-size-fits-all Tier 5 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.  

For example, the legislature could introduce a choice-based system that includes a plan designed for short-term workers (like a defined contribution plan) to go alongside the current Tier 5 hybrid plan. And a choice could be added such that workers in either plan design are allowed to switch once during their careers. There are more than half a dozen states with such options, including nearby Florida and South Carolina. 

PERS doesn’t have to be one-size-fits-all.

 

The Bottom Line

Mississippi should adopt the following changes:

  1. Increase contributions into Mississippi PERS up to a level that is both paying at least 100% of the actuarially required contribution and is also ensuring that there is no interest accumulating on unfunded liabilities each year.
    • Meeting these goals will need increasing contributions as a percentage of payroll and getting pension debt paid off faster.
  2. Ideally, lower the assumed rate of return for all of PERS to a number below 6.5%. But if that is not feasible then the PERS board should at the very least start the new Tier 5’s benefit portion with a lower assumed rate of return.
    • When Michigan created a second hybrid plan in 2018 their legacy pension fund was using a 7.5% assumed return, but their new hybrid plan started with a 6% assumed return.
  3. Adjust the Tier 5 structure to add a COLA. For example, paying a COLA equal to CPI up to 3% on a compounding basis.
  4. Add a second retirement plan choice that has more portability, such as a defined contribution plan.

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.