Jackson Jambalaya has a new post on the growing PERS funding problem. The funding level for PERS continues to decrease and is now at 62.4%. JJ states:
Here is the real problem- the deficit of payments to contributions keeps increasing. It is true PERS can use investment income and the assets themselves to erase this deficit. However, that is a band-aid to a problem that is getting worse each year. PERS will not always enjoy a 25% return in the markets. While it enjoyed investment income of over $3 million, suffered a loss in investment income over $3 million a few years ago. Investment income is nice when you have it but it won’t always be there either.
I’ve previously written about the huge PERS funding problem caused by Mississippi’s unrealistic investment assumption of 8%. A May 27 New York Times article discusses public pension funds nationwide using an unrealistic investment assumption.
New York mayor Michael Bloomberg calls an 8% assumption indefensible:
The actuary is supposedly going to lower the assumed reinvestment rate from an absolutely hysterical, laughable 8 percent to a totally indefensible 7 or 7.5 percent,” Mr. Bloomberg said during a trip to Albany in late February. “If I can give you one piece of financial advice: If somebody offers you a guaranteed 7 percent on your money for the rest of your life, you take it and just make sure the guy’s name is not Madoff.”
The article also explains why lawmakers treat public pension funding problems like a skunk:
In New York, the city’s chief actuary, Robert North, has proposed lowering the assumed rate of return for the city’s five pension funds to 7 percent from 8 percent, which would be one of the sharpest reductions by a public pension fund in the United States. But that change would mean finding an additional $1.9 billion for the pension system every year, a huge amount for a city already depositing more than a tenth of its budget — $7.3 billion a year — into the funds.
The longer Mississippi lawmakers wait to address this problem, the worse it’s going to be when they do address it. The possible fixes are all bad: (1) pump more money into the system from a fragile state budget; (2) require higher employee contributions; and/or (3) reduce benefits.
As Kingfish states, ignoring this problem will not make it go away. Politicians seem intent to ignore the problem regardless of their party affiliation. It’s easy to see why. Changes to PERS will be extremely unpopular.
The obvious person to assume leadership in addressing the problem is Lt. Gov. Tate Reeves. Reeves is young and he will still be around when this blows up. Having failed to address the problem now could be bad in 10–15 years for Senator Reeves.