THE MISSISSIPPI LEGISLATURE

Bryan, Pendleton, Swats & McAllister, LLC was commissioned to perform an actuarial audit of the Public Employees Retirement System of Mississippi (PERS) by the Joint Legislative Committee on Performance Evaluation and Expenditure Review (PEER). This report contains the findings and a description of the procedures used in the audit.

Findings

1. Each year on June 30, the PERS actuary prepares an Actuarial Valuation which measures the liabilities of the system and determines the appropriate amount of cost to assign to the current year. The actuarial procedures used by the PERS actuary in the June 30, 1994 Actuarial Valuation of the system conform to generally accepted actuarial procedures. In addition, we believe the system liabilities as determined in that valuation are a fair and reasonable estimation of the funded status of PERS. However, we believe some adjustments are appropriate.
   • Valuation techniques used by the PERS actuary should include an estimate for unused leave of absence included in credited service at retirement.
   • The valuation report prepared by the PERS actuary should include gains and losses by source for new members and the major economic assumptions.
2. We believe the Unfunded Actuarial Accrued Liabilities (UAAL), as determined in the June 30, 1994 Actuarial Valuation is unreasonably high. Under the current funding method for the system, the contribution rates are fixed by statute, leaving the amortization period of the UAAL as the balancing item determined by the Actuarial Valuation. As a result, the amortization of the UAAL should be monitored very closely. PERS currently places too much emphasis on the amortization period of the UAAL as a measure of the funding progress of PERS. The PERS Board of Trustees should consider adopting an objective standard for the amortization of the UAAL, such as reducing the UAAL to less than 80% of covered payroll over the next eight years.
3. The assumptions appear reasonable; however, we believe the economic assumptions may overstate the anticipated rate of future inflation. The assumption for rate of return is in the acceptable range but should be considered at the high end of that range. PERS has used 8% as the expected rate of return for several years. The PERS Board of Trustees should not consider this assumption as conservative as it was several years ago.
4. Benefits appear to be adequate and competitive; however, we believe unreduced benefits with 25 years of service weakens the system and is contrary to trends in the workplace and increasing life expectancy. The PERS Board of Trustees should commission a study of this benefit that covers its effects on PERS, and personnel needs. The study should include possible ways to remove the benefit with the least disruption to members.
5. The PERS member contribution rate is among the highest for the systems included in our survey group. Care should be taken before any future benefit increases are funded with member contributions.

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