PERS proposes state-sponsored hybrid retirement plan to improve funding stability

The Mississippi Public Employees Retirement System (PERS) Administrative and Other Committees convened on December 18, 2024, to discuss critical updates regarding the state’s retirement plans and funding strategies. The meeting highlighted the current status of PERS, including the ongoing challenges related to funding and potential changes to the retirement plan structure.

One of the primary topics was the static nature of active membership and the assumption of a 7% annual return to maintain the system's viability. The committee noted that the contribution rate is expected to remain at 19.9%. However, concerns were raised about the long-term sustainability of the fund, particularly if no additional funding sources are identified beyond the anticipated contributions. The cash flow projections indicate a troubling trend, with projections suggesting a decline to precarious levels by 2038.

The committee also presented a comparison between the existing Tier 4 defined benefit (DB) plan and a proposed state-sponsored hybrid plan that combines elements of both DB and defined contribution (DC) plans. Under the hybrid model, employee contributions would remain at 9%, but the allocation would differ: 4% would support the DB plan, while 5% would go into a DC arrangement. The proposed hybrid plan would feature a lower DB multiplier of 1% for all years of service, compared to the current 2% for the first 30 years under Tier 4.

Key differences between the plans include changes to retirement eligibility and final average salary calculations. The hybrid plan would require members to reach age 62 for unreduced retirement benefits, while the current plan allows for retirement after 30 years of service. Additionally, the hybrid plan would calculate final average salary based on the highest eight consecutive years of earnings, as opposed to the four highest years under Tier 4.

The committee discussed the implications of these changes on retirement benefits. For instance, a member retiring at age 62 with 30 years of service and a final average salary of $60,000 would see a significant difference in benefits between the two plans. Under Tier 4, the estimated annual benefit would be approximately $34,620, while the hybrid plan would yield around $16,455, highlighting the potential impact on future retirees.

The meeting concluded with a recognition of the need for further discussions on funding strategies and the potential adoption of the hybrid plan. The committee emphasized the importance of ensuring the long-term sustainability of PERS to protect the retirement benefits of Mississippi's public employees.