Pension plan’s ills worse than stated
Maybe it’s not the job of a legislative watchdog group to propose reforms to the unsustainable public pension plan in Mississippi. Or maybe those who do the analysis for lawmakers have a conflict of interest, since they, too, benefit from the plan as it is generously constructed.
Either way, the PEER Committee’s latest update on the financial soundness of the Public Employees’ Retirement System is better at describing the problems than it is at offering solutions.
The problems have been well-documented.
PERS is a terribly expensive retirement plan whose main response to its chronic structural imbalances is to keep raising the amount that taxpayers have to kick in to sustain it.
Last December the PERS board voted to increase the employer rate by 5 percentage points — the ninth-rate hike since 2005 and the largest in history. The increase was supposed to take effect this October, but the PERS board — under political pressure from the Legislature — agreed to put off the increase for nine months. It’s now scheduled to take effect in July 2024.
The delay had nothing to do with PERS’ balance sheet. It was all about politics. Lawmakers didn’t want to increase the taxpayers’ annual share of the pension plan by another $350 million or so on the eve of the November election.
Nor is that the only delay that is designed to obscure how bad things really are. PERS continues to knowingly use an inflated projection for future returns on its investments. Almost two years ago, the retirement plan’s actuary said that average annual earnings of 7% were a more realistic target than the 7.75% PERS had been using. The PERS board, however, opted to phase this change in gradually, and to make reductions to the rate contingent on better-than-expected returns. The assumption has only been cut so far to 7.55%.
As a result, the already low funding ratio of the retirement system — that is, how much money from contributions and investments the system will collect to pay out future benefits — is most probably even more out of whack than the official figure of less than 50% fully funded.
Assuming that the hike to the employer contribution sticks next year, for every dollar that state employees, schoolteachers and local government workers earn, it will cost 31.4 cents — 22.4 cents from the taxpayers, 9 cents from the employee — to cover the retirement plan costs. That is more than double what Social Security costs and almost three times more than the average combined employer-employee contribution to 401(k) plans, the dominant retirement savings vehicle in the private sector.
Constantly raising the contribution rates is not just an added burden for taxpayers. It’s also not a long-term solution. If it were, PERS would not have to keep coming back to the same well so often.
The public retirement system has been needing an overhaul for at least the past two decades, but most commonsense reforms have gotten nowhere. That’s because lawmakers don’t want to risk angering state employees and retirees by reducing benefits. Nor do they want to risk jeopardizing their own benefits, which include not just one but two state-supported pension plans.
Eventually, though, the system is going to crash if something isn’t done to change how benefits are calculated.
One obvious reform is to base retirement pay on an employee’s entire government salary history, not just the final four years, as is currently the case.
Another would be to replace the automatic 3% annual cost-of-living increase with one based on actual inflation. In this current period of high inflation, that change might cost more, but over time, based on historical data, it would cost less.
Tim Kalich
Greenwood Commonwealth
Upholding the ‘takings clause’
How many states allow the sale of private property to satisfy unpaid local taxes? Just about all of them, presumably.
But how many states, after property is sold for taxes, allow local governments to keep the entire proceeds of the sale instead of just the amount of the unpaid tax bill? About a dozen of them, it turns out — until last week, when the U.S. Supreme Court said that’s unconstitutional.
The court ruled unanimously that a county in Minnesota violated the rights of a condominium owner by taking her property without paying “just compensation,” which is required by the “takings clause” in the Fifth Amendment.
A Minneapolis woman, now 94 years old, owned the one-bedroom condo until 2015, when the county took title to it for unpaid taxes. She had not paid $2,300 in property taxes — why she stopped paying is unclear — but interest and penalties increased her total bill to $15,000.
The county sold the condo a year later at public auction for $40,000 and kept all the money. The Supreme Court said the county should have sent the extra $25,000 above the tax bill to the former owner.
The Liberty Justice Center, which filed a brief in the case supporting the former condo owner, said that common law, dating back to the Magna Carta in 1215, requires the government to return excess money to a property owner after a debt had been repaid.
Chief Justice John Roberts repeated this in his ruling. He also cited English law and Supreme Court precedents in writing, “a government may not take more from a taxpayer than she owes.” He was even more direct at the end of his opinion: “The taxpayer must render unto Caesar what is Caesar’s, but no more.”
The broader picture is interesting, too. The Pacific Legal Foundation, a non-profit public interest firm that focuses on property rights, represented the former condo owner in the Supreme Court case.
It said that in the 11 states plus the District of Columbia that allowed governments to keep the full amount of a property sale even if it exceeded the taxes owed, at least 8,950 homes were sold for unpaid taxes between 2014 and 2021. Former owners received little or none of that money — though the Pacific Legal statement did not specify how many of those sales were for a larger amount than the unpaid taxes.
The county contended that the owner could have sold the condominium before it got seized for taxes. That certainly is true, since she reportedly moved out of the condo in 2010.
Lower courts, perhaps relying on Minnesota law, had sided with the county. The U.S. 8th Circuit Court of Appeals unanimously ruled for the county, saying that if state law recognizes no property interest in a surplus from a tax sale, “there is no unconstitutional taking.”
The Supreme Court’s ruling, though, showed once again that the U.S. Constitution overrides state laws — properly so in this case.
Jack Ryan
Enterprise-Journal
