Mississippi Senate approves hybrid pension plan with new Tier 5 contributions

Mississippi's Senate convened on February 12, 2025, to discuss significant reforms to the state's Public Employees' Retirement System (PERS), focusing on the introduction of a new tier for future employees. The proposed Tier 5 aims to address the growing unfunded liability of the retirement system, which currently stands at approximately $26.5 billion.

Senator Sparks presented the key legislation, emphasizing that the new tier would not reduce benefits for current retirees or employees. Instead, it introduces a hybrid model combining defined benefit and defined contribution plans, similar to 401(k) programs. This shift is designed to provide future employees with more control over their retirement savings while ensuring that the state meets its obligations to existing beneficiaries.

The legislation includes provisions for a 9% employee contribution, with 5% allocated to a defined contribution account, allowing for greater flexibility and potential growth based on individual investment choices. The employer's contribution is set to remain at 19.9%, with an expected annual infusion of approximately $140 million directed toward reducing the unfunded liability.

During the discussions, concerns were raised about the implications of shifting to a defined contribution model, particularly regarding the risks employees would face in managing their investments. Critics, including Senators Parker and Blunt, argued that this change could disadvantage future employees, especially those who may lack the financial expertise to navigate investment decisions effectively.

Supporters of the bill, however, highlighted the necessity of reform to prevent the system from facing a crisis similar to that experienced by the Singing River Hospital pension plan, where retirees lost their benefits due to mismanagement. They argued that the proposed changes would create a more sustainable retirement system for future generations.

The Senate ultimately passed the bill through a morning roll call, with discussions indicating a strong commitment to reforming the retirement system while balancing the needs of current and future employees. As Mississippi moves forward with these changes, the focus will remain on ensuring the viability of the PERS system and protecting the interests of all stakeholders involved.