THE MISSISSIPPI LEGISLATURE

The PEER Committee conducted a management and expenditure review of the Mississippi Public Employees’ Retirement System. PEER sought to determine:

• whether PERS’s expenses for administering the state’s retirement programs, including administration of recently approved capital improvement projects, are excessive;

• whether PERS ensures the accuracy of contribution collections;

• PERS’s implementation of laws and regulations for selected employee groups; and,

• investment performance for the last ten years and whether management fees are economical.

Over the last five fiscal years, PERS’s administrative expenses have risen 28%, primarily due to an increase in the number of positions and other routine expenses. The State Personnel Board approved the reorganization of PERS, which divided the Membership Services division into three divisions: Special Programs, Membership Services, and Wage and Contribution. According to PERS, these twenty-seven additional positions were needed to address expanded services and increases in retirees and new members.

In comparing the retirement system’s administrative costs to those of other states’ systems, PEER chose the salary cost per member measure. This measure provides the most consistent recurring expense information on all retirement systems and provides a comparable measure of resources used to support administration of the retirement systems.

PERS’s FY 2001 salary cost per member was $22.12, while comparable states’ salary cost per member ranged from $16.05 to $69.11. PERS’s salary cost per member increased 24.63% from FY 1997 to FY 2002; when adjusted for inflation at 1996 dollars, the salary cost per member increase over that six-year period was 14.40%. While this is a large increase, it is due to an increase in PERS staff. The increase in staff is due to the reorganization of PERS and the preparation of PERS to handle the increase of services, retirees, and members over the next few years.

In 2001, the Legislature appropriated $12.46 million for PERS to renovate its building at 429 Mississippi Street to add workspace, a boardroom, upgraded heating and cooling systems, and other improvements. As of September 2002, PERS had expended $270,132 on architectural fees and $210,436 on other building expenses.

PERS completed the purchase and renovation of a building at 301 North President Street in August 2002 at a cost of $1.08 million. PERS purchased this building for additional expansion space. However, PERS was required to have a long-term lease with a state agency or the Legislature. Therefore, the first tenant, the Office of the Secretary of State, moved in during September 2002 with a five-year lease, which will prohibit PERS from occupying the space for at least that amount of time.

Although the Bureau of Building approved PERS’s architectural contract and reviewed its renovation plans as required by state law, PERS did not use the bureau as its construction manager. Also, the Department of Finance and Administration (DFA) approved PERS’s building expenditures through the state accounting system, but in order to meet all requirements of the appropriation bill, DFA will have to add information to the Mississippi Comprehensive Annual Financial Report to show all expenditures.

PERS has not collected Social Security information on PERS members as required by statute. PERS requires all public employers to use its computer collection program, but PERS is not taking all steps necessary to ensure accuracy of the data collected.

PERS has also accepted contributions in the Public Employees’ and Municipal Retirement systems that were later ruled ineligible. PERS does not have an audit process for employer records, which could have detected the reporting errors.

As noted above, in addition to reviewing administrative issues and investment performance at PERS, PEER reviewed PERS’s implementation of laws and regulations for selected employee groups.

The first issue was whether PERS has complied with a Supreme Court ruling regarding the inclusion of travel expenses as compensation for Supreme Court justices and Court of Appeals judges. PEER found that PERS has complied with PERS v. Hawkins, 781 So. 2d 899 (Miss. 2001).

The second issue PEER addressed was PERS’s overpayment of $1.7 million to twenty-three retirees from 1987 to 2001. Due to a clerical error, PERS did not adjust twenty-three accounts to comply with a benefit option selection, thus resulting in the overpayment of $1.7 million to these retirees. PERS has instituted a repayment schedule with the retirees, but the entire amount will never be repaid due to the ages and income levels of the retirees.

During the course of reviewing the second issue, PEER found that PERS does not have a surety bond in place, as required by statute, for the executive director, nor does it have any type of public official or surety bond for the members of the Board of Trustees. This is necessary to protect the trust against the possible misspending of funds.

The Public Employees’ Retirement System’s investments have increased from a net assessed value of over $6.8 billion in 1993 to approximately $14.2 billion in 2002. During this ten-year period, the annualized rate of return for PERS investments was 8.6%.

PERS’s process for selecting investment managers enables it to negotiate reasonable investment manager fees and the system’s use of the Commission Recapture Program has enabled it to benefit from investment managers’ use of selected brokerage firms without inhibiting the performance of investment managers.