National Group Calls On Nation’s Governors To Freeze Defined Benefit Pension Plans For Public Workers

CARSON CITY – A national nonprofit organization seeking fundamental reforms to state budgeting today sent a letter to the nation’s governors urging them to follow General Motors’ lead and freeze defined benefit pensions for all public employees.

Bob Williams, a former Washington state lawmaker and president of State Budget Solutions (SBS), sent the open letter, which was in response to General Motors announcement last week that on September 30, 2012, they will freeze the defined benefit pension plans of all salaried workers in an effort to hold down expenses.

GM’s announcement will affect 19,000 salaried workers hired before 2001, who will move from traditional pension with guaranteed payments to a 401(k)-type plan with contributions based on salary and bonuses.

Bob Williams, president of State Budget Solutions.

“It is time for state government to accurately account for and begin reducing massive deficits,” Williams said in the letter. “By freezing defined benefit pensions, you are taking one step closer to truly balancing budgets. Our nation can no longer ignore the realities and push our budget problems onto future taxpayers. Corporate America isn’t always right, but eventually they have to acknowledge the light of reality. GM is a beacon that your administration must follow.”

Nearly all of Nevada’s public employees are members of the Public Employees’ Retirement System, which offers a defined benefit plan upon retirement.

Gov. Brian Sandoval supports a change to a defined contribution plan for future state workers, but the issue did not get much attention in the 2011 legislative session. It is expected to come up again in the 2013 legislative session.

Sandoval favors a change to the retirement plan because of a concern about the potential taxpayer liability for the defined benefit plan. The long-term unfunded liability is estimated at about $11 billion, although some assessments using different measures put it at a much higher amount.

Williams said in his letter that a State Budget Solutions’ compilation of academic studies shows that the total unfunded pension obligation for state and municipal governments is at least $4 trillion based on common actuarial assumptions.

“Across the country, states have understated their true unfunded pension liabilities because lax government accounting rules allow it,” Williams said. “As a result, the plans are severely underfunded and will adversely impact every state budget for decades. Without major reform now, those liabilities will continue to grow.”

In a telephone interview today, Williams said one reason for the growing size of the obligation is the unrealistic rates of return assumed by public pension plans. Nevada assumes an 8 percent return, which it has achieved over the life of the plan.

“But over the last 10 years (the nation’s public pension plans) only averaged about a 3.5 percent, so once you don’t make that annual return then you have to make that up and there is no way the states are,” he said.

The private sector is facing the reality that the defined benefit plans cannot be sustained, Williams said.

The day of reckoning is coming, he said.

“I think it’s going to really wake us up when it probably hits either New Jersey, Illinois or California first,” Williams said. “I mean those are the states that just have an unbelievable unfunded pension obligation. But why not take action when you can.”

There has been a growing call nationally to move public pension plans to a state to a defined contribution plan, similar to a 401(k)-type plan, from the current defined benefit plan, where retirees are paid a set amount per month based on salary and years of service.

Nevada PERS officials say the current state plan is actuarially sound, and that the unfunded liability will be covered over time. They also note that the contribution rates required to keep the plan healthy are set by an independent actuary and are fully funded by the Legislature. The Legislature also made several changes to the existing PERS plan in 2009.


Audio clips:

Bob Williams, president of State Budget Solutions, says the public pension plans face obligations of more than $3 trillion:

022012Williams1 :29 the states are.”

Williams says the issue could rise to national concern when a major pension plan hits a crisis point:

022012Williams2 :13 when you can.”


  • Anonymous

    I quote the following:

    “Some  say the Public Employees Retirement System (PERS) is
    going broke and must be reformed “before it’s too late ”. All of that is
    partisan nonsense and most of those spewing those lies know better, but they
    get many to believe it with specious logic and partisan politics. It is more
    frustrating, when they say PERS needs to be replaced solely with a 401 k or
    defined contribution plan.

    Let me clarify by offering this:

    Private sector
    employees get Social Security after paying into it at a current rate of 6.2
    percent on income up to $106,800 per year. It is a defined benefit
    retirement plan based on the number of years worked, salary and age. They
    will get a guaranteed monthly benefit with cost of living increases. As an
    extra benefit, their employer may offer an optional 401k, as a way for
    employees to save for their future. Sometimes employers will even add a match
    of a specific amount or percentage.

    Nevada’s public
    sector employees get PERS retirement after paying into it at a current rate of
    up to 11.25 percent with no cap on contributions. It is a defined benefit
    retirement plan based on the number of years worked, salary and retirement
    age. They will get a guaranteed monthly benefit with cost of living increases,
    which start three years after they retire. As an extra benefit, state employees
    can invest in an optional 401k  called
    the “Nevada Public Employee’s Deferred Compensation Program” as a way for them
    to save for their future. However, there is no match.

    Finally, and most
    importantly, state employees do not pay into Social Security, so they
    have no other pension when they retire. None.

    Asking Nevada’s
    public employees to accept a defined contribution plan for their retirement is
    like asking private sector employees to accept a 401 k plan instead of Social
    Security. It is something most Americans have rejected and for good
    reasons. The recent economic collapse would have made millions of pensioners
    destitute and ever more reliant on government aid. In the future, this will
    happen to Nevada’s public employees if forced into a 401k plan without Social

    So I ask those who want a 401k plan for Nevada’s public
    employees, “Why do you want to force our public employees into a plan YOU would
    never accept?”

    Nevada already has the fewest state employees per capita (1%) of ANY state.  State workers have been heavily penalized with 4 years of paycuts and slashed benefits on salaries for multi-degreed professionals that were well below average to begin with!  On top of all that, an in-depth study of the data shows that for every $1 of taxpayer money, state pensions put back more than $6 into NV’s economy.

    Don’t buy the right-wing propaganda; the data are clear:  Many classes of state employees need a raise to be on par, and benefits need to be restored to average, instead of catastrophic, high-deductible health care (That was a $4000 cut to families of state employees that has not been much discussed).  We already pay into our own pensions.

    We are not the 1% with all the money.

  • Kareyna41

    Don’t 401 K’s get raped by the government when they need our money?  My brother and a lot of people I know LOST a lot of money from their 401K when this economy crashed – and all they were doing were WORKING their asses off trying to eek out a living in this American “dream”  yep, it sure is a dream – a nightmare!!!!  Like that solution would work!  People need a guarantee that their full pension will be there when they retire – what nonsense!