House Bill 1618: PERS

April 12, 2024April 22, 2024 Bill Tracker

Latest Action

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On April 15, the House invited conference on HB 1618.

Explanation of the Bill

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As amended by the Senate, House Bill 1618 would rescind a planned increase to the PERS employer contribution rate as well as require the legislature to approve any major policy changes by the PERS Board of Trustees going forward. These changes would effectively assert legislative power over the PERS Board.

As amended, HB 1618 would also authorize retired teachers to work in a critical shortage area for a reduced salary while receiving full retirement benefits from PERS.

Reduce PERS Decision-Making Power

The PERS Board of Trustees is currently empowered to establish policy to administer the PERS system. Significantly, this includes the authority to unilaterally (i.e., without approval of the legislature) pursue additional funding for the PERS system by increasing the employer contribution rate, which is the contribution that employers of PERS members (e.g., school districts, state agencies, etc.) contribute into the PERS system. (We should note that there are currently certain actions, such as reducing PERS benefits, that do require legislative approval).

As amended by the Senate, HB 1618 would grant the legislature “sole authority” regarding “additional funding sources for the plan, including employer contribution increases.” Rather than being authorized to unilaterally increase the employer contribution rate—as is currently their prerogative—the PERS Board would only be authorized to “make recommendations.” Additionally, any recommendations by the PERS Board would have to be “accompanied by at least two assessments from actuaries who are independent from each other and the retirement plan.” This would represent a significant reduction in the decision-making power of the PERS Board.

Though different in scope, these amendments by the Senate are similar in intent to a previous House bill (HB 1590, which is now dead) which would have reconstituted the PERS Board primarily with political appointees (the Board is currently comprised primarily of PERS members and retirees who are elected by other members and retirees). Both efforts represent an effort by the legislature to assert greater power over PERS policy.

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. As amended, HB 1618 would rescind the upcoming increase.

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 in part the result of PERS taking a more cautious approach to estimating pension liabilities.

Reemployment of Retired Teachers

As amended, HB 1618 would authorize retired teachers to work in a critical shortage area for a reduced salary while receiving full retirement benefits from PERS. Under these changes, retired teachers who meet all of the following qualifications would be authorized to teach while receiving PERS benefits:

• At least 25 years of creditable service
• Employed as a public school teacher at the time of retirement
• Has been retired at least 90 days
• Receives a retirement allowance from PERS
• Holds a standard teaching license in Mississippi

A qualifying retired teacher would be authorized to teach for up to five years (consecutively or intermittently) in any district designated by the Mississippi Department of Education as a “geographic critical shortage area,” of which there are currently 103 for the 2023-2024 school year. A qualifying retired teacher could also teach a critical shortage subject (special education, math, foreign language, or science) in any school district in Mississippi.

A school district hiring a retired teacher could pay up to 125% of the salary the teacher would have earned, based on years of experience and license type, if they were not retired. 50% of this salary would be contributed as an employee contribution to PERS in order to “actuarially offset any pension liability created by this act” (the employee contribution for most PERS employees is 9%). The remaining 50% would be paid to the retired teacher, in addition to the full PERS benefit. The extent of the PERS benefit varies due to factors including years of creditable service as well as years of retirement, but participating teachers could potentially outearn their final pre-retirement salary (for example, a teacher retiring after 30 years would receive an annual PERS benefit of about $34,680; if they also earned 50% of 125% of their final pre-retirement salary of $58,400, they would receive a total of $71,180 in pre-tax compensation). These teachers would also be eligible for any local salary supplements offered by the district, as well as state supplements for being certified by the National Board for Professional Teaching Standards (NBPTS). 
These changes, which were initially included in Senate Bill 2685 (which is now dead), are intended to address Mississippi’s critical teacher shortage by expanding the pool of prospective teachers to include retired teachers.