Pension Flexibility: Mississippi

Analysis of Mississippi's policies

Mississippi only offers a defined benefit pension plan to its teachers as their mandatory pension plan. This plan is not fully portable, does not vest until year eight, and does not provide any employer contribution for teachers who choose to withdraw their account balances when leaving the system. It also limits flexibility by restricting the ability to purchase years of service. The state is commended, however, for offering a fully portable supplemental savings plan.

Teachers in Mississippi also participate in Social Security, so they must contribute to the state's defined benefit plan in addition to Social Security. Although retirement savings in addition to Social Security are good and necessary for most individuals, the state's policy results in mandated contributions to two inflexible plans, rather than permitting teachers options for their state-provided savings plans.

Vesting in a defined benefit plan guarantees a teacher's eligibility to receive lifetime monthly benefit payments at retirement age. Non-vested teachers do not have a right to later retirement benefits; they may only withdraw the portion of their funds allowed by the plan. Mississippi's vesting at eight years of service is very late and limits the options of teachers who leave the system prior to this point. According to a recent report, only 24 percent of employees in Mississippi's teacher-covered pension plan vest, meaning that 76 percent of teachers do not become eligible for a pension and, therefore, can only collect their refundable contributions.

Teachers in Mississippi who choose to withdraw their contributions upon leaving only receive their own contributions plus interest. This means that those who withdraw their funds accrue no benefits beyond what they might have earned had they simply put their contributions in basic savings accounts. Further, teachers who remain in the field of education but enter another pension plan (such as in another state) will find it difficult to purchase the time equivalent to their prior employment in the new system because they are not entitled to any employer contribution.

Mississippi limits teachers' flexibility to purchase years of service. The ability to purchase time is important because defined benefit plans' retirement eligibility and benefit payments are often tied to the number of years a teacher has worked. Mississippi's plan allows teachers to purchase time for previous teaching experience, up to five years. While better than not allowing any purchase at all, this is less than most states' and this provision disadvantages teachers who move to Mississippi with more teaching experience. The state's plan also does not allow teachers to purchase time for approved leaves of absence, except for professional leave, which is a tremendous disadvantage to any teacher who needs to take a leave for paternity or maternity care, or for other personal reasons.

The state is commended for offering a fully portable supplemental savings plan. Teachers can participate in the Mississippi Deferred Compensation Plan & Trust (MDCPT), a 457 retirement plan. There are no employer contributions, however.

Citation

Mississippi Public Employees’ Retirement System, Actuarial Valuation Report as of June 30, 2015. Aldeman, C. and Rotherham, A. (2014). Friends without Benefits: How States Systematically Shortchange Teachers’ Retirement and Threaten Their Retirement Security, Bellwether Education Partners.

Recommendations for Mississippi

Offer teachers a pension plan that is fully portable, flexible and fair.
Mississippi should offer teachers for their mandatory pension plan the option of either a defined contribution plan or a fully portable defined benefit plan, such as a cash balance plan. A well-structured defined benefit plan could be a suitable option among multiple plans. However, as the sole option, defined benefit plans severely disadvantage mobile teachers and those who enter the profession later in life. Because teachers in Mississippi participate in Social Security, they are required to contribute to two defined benefit-style plans.

Increase the portability of its defined benefit plan.
If Mississippi maintains its defined benefit plan, it should allow teachers that leave the system to withdraw employer contributions. The state should also allow teachers to purchase their full amount of previous teaching experience, allow the purchase of parental leaves, and decrease the vesting requirement to year three. A lack of portability is a disincentive to an increasingly mobile teaching force.

Offer an employer contribution to the supplemental retirement savings plan.
While Mississippi at least offers teachers the option of a supplemental defined contribution savings plan, this option would be more meaningful if the state required employers also to contribute.

State response to our analysis

Mississippi did not respond to repeated requests to review this analysis.