PERS

Public Employees Retirement Systems (PERS) are defined benefit plans, meaning they guarantee a specific level of retirement income based on factors like years of service and salary. This differs from defined contribution plans, like 401(k)s, where the retirement income depends on investment performance.

The primary purpose of a PERS is to attract and retain qualified individuals for public service. By offering a secure retirement, governments can compete with the private sector for talent, ensuring essential public services are adequately staffed.

PERS are funded through a combination of employee contributions, employer contributions (typically from tax revenue), and investment earnings. The specific contribution rates and investment strategies vary significantly between different PERS.

The management of a PERS involves actuarial analysis to determine the long-term liabilities and required funding levels. Actuaries project future benefit payments and ensure the system has sufficient assets to meet those obligations.

Investment strategies for PERS are often diversified across various asset classes, including stocks, bonds, real estate, and private equity. The goal is to generate returns that will help cover future benefit payments.

However, many PERS face significant funding challenges due to factors like increasing life expectancies, lower investment returns, and insufficient contributions. This can lead to unfunded liabilities, which represent the difference between projected benefit obligations and available assets.

Unfunded liabilities can strain government budgets, potentially requiring increased taxes or cuts to other public services. Addressing these challenges often involves difficult decisions regarding contribution rates, benefit levels, and investment strategies.

The financial health of a PERS is a critical indicator of the long-term fiscal stability of the state or local government that sponsors it. Careful monitoring and proactive management are essential to ensure these systems can fulfill their promises to public employees.