House Bill 1590: Changes to PERS Board

March 20, 2024April 3, 2024 Bill Tracker

Latest Action

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The Senate Government Structure Committee failed to take action on HB 1590 by the April 2 deadline, causing this bill to die in committee.

Explanation of the Bill

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As amended, House Bill 1590 would reconstitute the PERS Board of Trustees with political appointees, as well as rescind a planned increase to the employer contribution that was set to go into effect on July 1, 2024.

Rescind Employer Contribution Increase

The PERS Board of Trustees previously voted in August 2023 to increase the employer contribution rate by two percentage points each year until the rate “reaches the amount recommended by the actuary and approved by the Board.” The first increase, from the current rate of 17.4% to 19.4%, is slated to go into effect on July 1, 2024. The Board estimated that 27.4% would be the target rate (an increase of 10 percentage points over the current rate), meaning possible rate increases for the next five fiscal years.

Increasing the employer contribution rate by any amount will result in a financial burden on employers such as state agencies, municipalities, and school districts. For example, a school district employing a teacher earning the current average salary of $53,354 would contribute $10,351 to PERS under a 19.4% contribution rate, up from $9,284 under the current rate of 17.4%. These increases would add up: the first increase to 19.4% is expected to cost the state an additional $60 million in FY25, an amount that does not include additional expenditures for counties and municipalities.

PERS has sought to increase the employer contribution as an effort to address concerns about the long-term fiscal health of PERS, often represented by the system’s “funded ratio” (i.e., current PERS assets as a percentage of its estimated payments to current and future retirees, known as pension “liabilities”). However, it should be noted that some of these concerns are the result of accounting changes, in particular how PERS calculates its pension liabilities—which are, in effect, an estimated amount of future payments to an estimated number of retirees in an estimated time frame

In August 2023, PERS lowered its assumed rate of return from 7.55% to 7%, meaning that, for the purpose of estimating its ability to make payments decades in the future, PERS is now assuming that its investments (its primary source of revenue) will grow at a lower rate. The estimated employer contribution rate target of 27.4% is based on the new assumed rate of return of 7%, which is notably lower than historical rates (as of June 30, 2023) over the past one year (7.76%), three years (9.36%), five years (7.63%), ten years (8.47%), fifteen years (7.51%), and twenty years (7.82%). Setting the assumed rate of return lower than what we might, in practice, expect in most years comes at significant cost: by assuming lower investment returns going forward, PERS must collect additional revenue elsewhere—in this case, increasing the employer contribution rate. In other words, concerns about the fiscal health of PERS are largely the result of PERS taking a more cautious approach to estimating pension liabilities.

Reconstitution of PERS Board of Trustees

Under HB 1590, as passed the House, the PERS Board of Trustees would be reconstituted to include the following 11 members:

• The State Treasurer
• The Commissioner of Revenue
• Four members appointed by the Governor
• Three members appointed by the Lieutenant Governor
• One PERS retiree elected by PERS members
• One member with at least 10 years of creditable service elected by PERS members

Currently, the PERS Board of Trustees is primarily made up of PERS members and retirees who are elected by other members and retirees (in total there are currently six seats for current PERS members and two seats for retirees). The Board also includes the State Treasurer and one member appointed by the Governor. Under HB 1590, the Board of Trustees would see a decrease in PERS members and retirees (from eight to two) and an increase in political appointees (from two to seven).

It remains largely unclear how reconstituting the Board in this manner would impact PERS policy. We can safely presume that a board comprised primarily of political appointees would result in less conflict with the legislature, but the only area where the policy implications of this dynamic are clear relates to rescinding the planned increase to the employer contribution—a policy change that would be achieved under HB 1590, rather than through future action by a board primarily comprised of political appointees. It is less clear what the policy implications would be for other PERS decisions, such as setting an assumed rate of return for PERS assets and potentially creating a new retirement tier for new hires.

Still, reconstituting the PERS Board of Trustees in this manner would represent a significant change in approach to governing a retirement system with over $30 billion in assets and whose membership comprises 12.2% of Mississippi’s workforce.