Those rightfully worried about the unsustainable rise in the cost of Mississippi’s pension plan for government workers have often cited the annual cost-of-living adjustment as an area of potential savings.
Lt. Gov. Delbert Hosemann and others believe, however, that legally the COLA can’t be messed with, and he says he now has a law firm’s analysis to back that up.
Mississippi has been overly generous with the COLA, as it has with other aspects of its pension plan. That’s why the Public Employees’ Retirement System is in long-term trouble.
The state automatically increases the benefit paid by PERS by 3% every year. The majority of retirees opt to take the COLA in December as a lump-sum disbursement, commonly referred to as the “13th check.”
The 3% increase is fixed, no matter what the actual inflation rate has been. In years of high inflation, such as occurred during the pandemic, retirees lost ground with a fixed COLA. But historically, the situation has been the reverse. Beneficiaries have received a higher-than-inflationary adjustment.
Based on a 30-year average, inflation typically runs 2.13% a year. If PERS benefits were pegged to the real rate of inflation, that would produce an average savings of about $27 million a year, based on current benefits.
Some have suggested an even more radical measure of freezing the size of the 13th check until PERS gets its unfunded liability, presently at $25 billion, under control.
A Jackson law firm, Jones Walker, was hired by the Legislature to analyze the COLA options. Hosemann said this week that the lawyers came back with the opinion that the cost-of-living increase is part of the state’s contract with current and former employees and cannot be amended.
Although that opinion is no more binding than an attorney general’s opinion would be, it does confirm what some, including Hosemann, have said would be the case. Curiously, though, the lieutenant governor’s office refused reporters’ request to see a copy of the report, claiming it was privileged as a work product in an attorney-client relationship.
Huh? Who does Hosemann and his staff think the client is?
Even though Jones Walker was hired by the Joint Legislative Budget Committee, the ultimate client is the people of Mississippi. They have a right to see the report, for which they paid, about a benefit for which they foot the majority of the cost.
It’s possible that the guidance provided by the lawyers is not as definitive as Hosemann says. The only way to be certain is to see the full report. He should release it.
If the COLA is legally off the table for those currently in the PERS system, so be it, but the COLA presumably could be changed for new hires. So, too, could the method by which benefits are calculated, basing them on a government worker’s average salary over a lifetime, rather than the highest four years, as is currently the case.
And one thing that would certainly be legal to do for both future and current beneficiaries is to make their retirement benefits subject to state income taxes. Presently they are exempt.
The PERS board has typically met every report of a long-term funding shortage by raising the taxpayer-funded portion. This year, the Legislature took that authority away, giving the PERS board only the power to recommend a rate increase to lawmakers.
The change reflects frustration with the escalating cost of the state’s pension system, but it’s not a solution. The Legislature will face the same pressure to kick in more of the public’s money — whether through higher employer rates or direct state appropriations — unless it reins in the benefits.
