By Steve Wilson

Mississippi Watchdog

A report by the Public Employees’ Retirement System of Mississippi shows the state’s pension fund lost money in the past year, which could further damage PERS’s already weakened bottom line.

According to the third quarter report, the fund has been hit with total losses of 0.47 percent so far this year, with the biggest hits coming in stocks. International equities lost 7.36 percent, global equities were off by 4.26 percent and U.S. equities lost 2.42 percent. Stocks represent 60 percent of the plan’s investments.

If the trend holds in the fourth quarter, it’ll be the first year in the red since 2009, when the fund lost 19.4 percent. In the past decade, the annual rate of return for the plan’s investments has been 8.69 percent.

Phillip Thomas, a Jackson-based attorney who has written about the retirement system’s woes on his blog, Mississippi Litigation Review, says one of the reasons PERS has so much of its funds in the stock market is because of what he considers an unreasonable annual rate of return.

Last year, the PERS governing board voted to cut its expected rate of return from 8 percent to 7.75 percent, but it still believes the pension will become 80 percent funded by 2042.

“Since bonds don’t yield anywhere close to that, they have to go chase returns in stocks,” Thomas said. “Ironically, bonds are still performing better than stocks because yields keep going down. Sixty percent in stocks is so risky right now.”

And it could get worse, he said.

“No one can explain where the growth in the market is going to come from. It could bounce around or slowly rise, but the next big move is probably down. In 2016 treasuries and gold have performed better than stocks. That’s a fear trade that suggests that people don’t trust the market.”

Last year, the plan’s investments earned 3.4 percent, and the funding level — the share of future obligations covered by current assets — decreased from 61 percent to 60.4 percent, according to its annual financial report released in December.

Mississippi’s defined-benefit pension system — which serves most state, county and municipal employees — has $16 billion in unfunded liabilities. That figure is likely to increase when this year’s annual report for fiscal 2016 — which ends July 1 — is released Oct. 27.

Retirees increasing

Another number to watch for Mississippi’s pension system will be the total number of retirees. That figure increased from 93,504 to 99,096 in fiscal 2015. According to the last financial report, only 37.8 percent of active employees who are part of PERS are younger than 40. Employees in the plan before 2007 can retire with 25 years’ service, at age 60. Those who entered it after 2007 need 30 years at age 60 to qualify for benefits.

Danger looms?

Despite the obvious danger signs, there is little appetite for reform, Thomas says.

“I think it’s going to take a catastrophe for the legislature to act,” Thomas said. “It’s already underfunded. How underfunded does it have to get for them to act?

“I tried to talk to a legislator about it a few years ago and he had no idea what I was talking about. Most don’t understand it,” he said. “The ones who do don’t have the courage to act.”