Understanding the Shift: PERS Tier 5 benefits vs PERS Tier 4

August 16, 2025 Jon Myers

The Public Employees’ Retirement System of Mississippi (PERS) is undergoing a significant transition. Beginning March 1, 2026, all new hires in state and local government will enter Tier 5, moving away from the long-standing Tier 4 plan that has governed retirements since 2011. While both tiers share certain similarities, the shift introduces new rules that will have a lasting impact on retirement security for Mississippi’s public workforce.

Entry Dates and Type of Plan

Tier 4: Applies to employees who joined between July 1, 2011 and February 28, 2026.
Tier 5: Begins March 1, 2026, and applies to all new employees moving forward.

The biggest distinction is in plan type:

Tier 4 is a traditional defined benefit pension, where retirement payouts are based on salary and years of service.
Tier 5 is a hybrid plan, combining a smaller defined benefit pension with a defined contribution element, similar to a 401(k).

This means Tier 5 introduces more individual investment risk compared to the guaranteed structure of Tier 4.

Employee and Employer Contributions

Both tiers require a 9% employee contribution, but how that money is allocated differs:
- Tier 4: Entire 9% goes into the defined benefit pension.
- Tier 5: Contributions are split — 4% into the pension and 5% into a defined contribution account.
Employers will continue contributing 18.4% of payroll into PERS under both tiers.

For workers, this split means less guaranteed pension income under Tier 5, but potentially more flexibility (and uncertainty) from the investment-based portion.

Retirement Eligibility

Tier 4: Full retirement at 30 years of service at any age, or age 60 with 8 years vested.
Tier 5: Requires 35 years of service, or age 62 with 8 years vested.

This effectively raises both the service requirement and retirement age, keeping employees in the workforce longer before they can claim full benefits.

Benefit Formulas

Tier 4:
- 2% of average compensation per year for the first 30 years.
- 2.5% per year for service beyond 30 years.
- Early retirement penalty if taken before age 60.
Tier 5:
- 1% of average compensation per year for all years of service.
- The defined contribution plan supplements this but depends on investment performance.

This shift significantly reduces the guaranteed pension portion, placing more emphasis on employee-managed investments for retirement income.

Average Compensation Calculation

Tier 4: Based on the highest 4 years (or last 48 months) of earnings.
Tier 5: Based on the highest 8 years (or last 96 months).

This change smooths out spikes in late-career earnings, often reducing the final pension amount.

Cost-of-Living Adjustments (COLA)

Tier 4: Guaranteed 3% annual COLA, compounded after age 60.
Tier 5: No guaranteed COLA. Any adjustment will depend on legislative approval, leaving future retirees vulnerable to inflation.

This is one of the most significant changes, as it removes automatic protection against rising living costs.

Additional Considerations

Lump Sum Payouts: Available after 33 years in Tier 4, but not offered in Tier 5.
Unused Leave: Tier 4 allows unused leave to count toward service credit; Tier 5 eliminates this.
Military Service: Both tiers allow up to 4 years of free military credit.
Early Withdrawals: Not allowed in Tier 4; Tier 5 allows hardship withdrawals from the defined contribution account.
Service Purchases: Tier 4 members can purchase out-of-state or professional leave credit; Tier 5 members cannot.

What This Means for Public Workers

Teachers and School Employees

Educators entering Tier 5 will work longer, accrue less guaranteed pension income, and face inflation risks without automatic COLA protection. While the defined contribution plan adds flexibility, it also shifts investment responsibility onto teachers, who traditionally rely on stable, predictable benefits.

Police Officers and First Responders

Law enforcement often begins careers young, and under Tier 4, could retire after 30 years in their 50s. Tier 5 extends that requirement to 35 years, pushing many closer to 60 before retirement. This is a significant shift for physically demanding jobs.

Other Public Workers

Clerical staff, municipal employees, and state agency workers will also see reduced guaranteed benefits and must rely more heavily on the defined contribution side to supplement retirement.

The Bigger Picture

The move to Tier 5 reflects growing pension funding pressures faced by states nationwide. By shifting new employees to a hybrid model, Mississippi aims to reduce long-term liabilities. However, the tradeoff is clear: less security and predictability for future retirees.

For current Tier 4 members, benefits remain unchanged. But for anyone hired after March 1, 2026, retirement planning will require more personal savings discipline and investment awareness to maintain the same level of financial security that Tier 4 provided.

✅ Bottom Line:

Tier 4 offered stability, predictability, and guaranteed cost-of-living increases.
Tier 5 reduces guaranteed benefits, raises retirement thresholds, and shifts risk onto employees.
Future teachers, police officers, and state workers will need to plan more actively for retirement to fill the gap left by these changes.

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