Posts Tagged ‘PERS’

Nevada’s Public Employee Retirement Plan Saw Improvement In 2012

By Sean Whaley | 3:22 pm November 19th, 2012

CARSON CITY – The long-term unfunded liability of Nevada’s public employee retirement plan improved slightly in fiscal year 2012, up to 71 percent fully funded from 70.2 percent in the previous year, a state official said today.

The plan saw the modest improvement even though the return on investment for the fiscal year was only 2.9 percent. The small gain came after a record 21 percent investment gain in 2011.

The 2012 return was still better than the median gain of 1.15 percent for public pension plans in fiscal year 2012 reported earlier this year by Wilshire Associates.

Dana Bilyeu, executive officer of the Public Employees’ Retirement System, said the plan, which covers nearly all of Nevada’s local and state public employees, had assets of $27.4 billion as of June 30, 2012, up from $25.8 billion in 2011.

PERS Executive Officer Dana Bilyeu.

The unfunded liability dollar value increased as well, however, to $11.2 billion from $11 billion.

The numbers and percentages reflect the combined plans for regular public employees and police and fire fighters.

At its high point in 2000 Nevada’s public employee retirement plan was 85 percent funded.

The long-term unfunded liabilities of the PERS plan, and of public employee pension plans nationwide, are generating concern from policy makers, although Nevada’s plan is considered to be well managed and in better fiscal shape than many others around the country.

Nevada Gov. Brian Sandoval has advocated for a change to the pension plan for future workers from a defined benefit to a 401(k)-style defined contribution plan. Defined contribution plans eliminate any unfunded fiscal liability for states. The 2011 Legislature took no action on the issue but it is expected to resurface in 2013.

The financial health of Nevada’s public employee pension plan was found to be cause for serious concern because it was only 70 percent funded as of fiscal year 2010, the Pew Center on the States said in June. The funding ratio in Nevada is below the 80 percent benchmark that fiscal experts recommend for a sustainable program.

In response to the report, Bilyeu said in June the heavy reliance by Pew on the funding ratio for the state rankings presents an incomplete picture.

Nevada’s contribution rates, which will increase again in the next two-year budget, are based on an analysis by an independent actuary, and are fully funded each year, she said.

PERS manages retirement benefits for about 100,000 active government workers and more than 40,000 retirees.

New Report Shows Nevada Among States With Highest Per Capita Debt

By Sean Whaley | 3:06 pm October 8th, 2012

CARSON CITY – Nevada is among the states with the highest amount of government debt per capita at $14,949, according to a new report from State Budget Solutions (SBS), a non-partisan advocate for state budget reform.

The level of debt put Nevada at 37th highest among the states.

It was a slight improvement from 2011, when Nevada ranked 38th highest at $15,509.

The debt totals include budget gaps, outstanding unemployment trust fund loans, post-employment benefit liabilities such as health care coverage and unfunded public pension liabilities.

Nevada, for example, has borrowed about $680 million from the federal government to pay unemployment benefits during the current recession. The state is looking at increasing tax rates on businesses to repay the loan. The state’s Public Employees’ Retirement System was projected by the state to have a long-term unfunded liability of $11 billion as of June 30, 2011. Other analyses put the liability at much higher levels.

Hawaii, New Jersey and Alaska lead the nation with the highest debt per capita at $29,062, $29,252 and $31,141 respectively.

Debt among all the states amounts to $13,425 for each resident.

“Americans are sadly desensitized to the trillions of dollars in debt our states are facing,” said Bob Williams, president of SBS. “This report brings the debt closer to home by demonstrating that a newborn arrives already more than $13,000 in debt and that a family of four owes their state government $53,700. It is the individuals and families who will ultimately bear this horrific financial burden if state governments do not get their budgets under control.”

In a telephone interview, Williams said meaningful pension reform would go a long ways to reducing the per capita debt. But the looming costs of the federal health care law could become a significant contributing factor to the problem in the years to come, he said.

“States really need to address the pension problem,” he said. “Currently the public sector salaries and benefits, particularly the pensions, are unsustainable for the taxpayers.”

Gov. Brian Sandoval has advocated for changing Nevada’s public pension plan to a defined contribution plan where there would be no long-term liability to taxpayers, but efforts to change the plan in the 2011 legislative session went nowhere.

Getting policy makers to act has been difficult, but recently some of the bond rating firms have begun to signal their concerns, Williams said. If states’ bond ratings are lowered, it might finally force them to come to terms with their debt problems, he said.

Even Chicago Mayor Rahm Emanuel has acknowledged concerns over pension costs, Williams said.

Bill Gates has also expressed concerns about the cost of public pensions and the effect on funding for public and higher education.

“You cannot keep pushing the cost off to future generations,” Williams said.

The report is an extension of State Budget Solutions’ third annual State Debt Report, released in August showing that state governments face a crushing debt of more than $4.6 trillion. The analysis of debt per person looks at state debt per capita, per private sector employee, and the percentage of private sector gross state product (GSP). In each of the three categories, Hawaii, New Jersey, and Alaska are among states with the five largest debt figures. At the other end of the spectrum, Nebraska has the lowest total in each of the areas.

Nebraska has the lowest total debt per capita at just $4,249 for each resident. Tennessee, Indiana, Florida, and Idaho round out the lowest five debt levels per capita.

Private sector workers are at increased risk as they are the ultimate tax base for reducing state debt, the report says. Using figures from the U.S. Bureau of Labor Statistics, State Budget Solutions determined that Hawaii has the largest debt per private sector worker at $83,815, followed by Alaska, New Jersey, Connecticut, and New Mexico. Nebraska again has the lowest total, with $9,829 in debt for each private sector employee. Indiana, Tennessee, North Dakota, and South Dakota follow.

“Voters deserve to know how much debt their elected officials are saddling them with before they go to voting booth,” Williams said. “$13,425 per person is an unacceptable debt and immediate fiscal reform is desperately needed.”

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Audio clip:

Bob Williams of State Budget Solutions says awareness of and concerns with state debt problems are growing:

100812Williams :23 to future generations.”

 

 

State Public Employee Pension Plan Sees 2.9 Percent Return In Fiscal Year 2012

By Sean Whaley | 5:07 pm July 11th, 2012

CARSON CITY – Nevada’s Public Employees’ Retirement System earned an estimated 2.9 percent return on its investments in the fiscal year ending June 30, and is now valued at $25.8 billion, an official with the plan said today.

The 2012 return is below the 8 percent anticipated annual return for the system’s investments over the long term.

While well below the record 21 percent return in Fiscal Year 2011, and the 10.8 percent return in Fiscal Year 2010, the 2012 gain will be in the top 20 percent of performers for large public pension plans for the year when adjusted for risk, said Dana Bilyeu, executive officer of PERS.

“So as far as looking at all of the big institutional investors across the country, we’re quite competitive with that kind of return,” she said. “In fact I think it’s going to be one of the top performing funds in the nation. You can only get what these markets are going to give you.”

Dana Bilyeu, executive officer of the Public Employees' Retirement System

The three years of positive returns follow a 15.8 percent loss in 2009.

A final report on the year’s performance will be presented to the board overseeing the plan in August.

The estimated returns are after fees are paid to the investment managers overseeing the retirement funds on behalf of the nearly 100,000 state and local government employees and 41,000 retirees participating in the public pension plan as of June 30, 2011.

“When you talk to the investment professionals, I think most of them would say that what we’ve sort of taken here is a pause in what has been a very large increase in the overall equity markets over the last couple of years,” Bilyeu said. “So maintaining a positive return, maintaining the corpus of the trust, and really just pausing I think is what you see happening here. And that’s what I sort of think this particular fiscal year was.”

The uncertainty over the presidential election is partly responsible for the lackluster equity market, she said.

Over 28 years, the average return for the plan is 9.2 percent after fees have been paid, above the 8 percent assumed return. Some critics of the state’s defined-benefit public pension plan say the expectation of an 8 percent long-term return is overly optimistic given the volatile markets of the past decade.

The plan was only 70.2 percent fully funded at the end of fiscal year 2011, a level below the minimum 80 percent some experts say is the best measure for a healthy plan. The long-term unfunded liability equated to $11 billion as of June 30, 2011. The funding ratio through 2012 will be reported to the board in November.

Some estimates put the unfunded liability at much higher levels based on a different type of analysis.

The Pew Center on the States said in June the financial health of Nevada’s public employee pension plan is cause for serious concern because it is below the 80 percent benchmark that fiscal experts recommend for a sustainable program.

Bilyeu argues that a better measure of the health of a pension plan is whether it is being funded each year at the levels recommended by an independent actuary, which is the case for the PERS plan. Not all public pension plans across the country are funded annually to the recommended levels, she said.

Nevada Gov. Brian Sandoval is advocating for a change to the pension plan for future workers from a defined benefit to a 401(k)-style defined contribution plan. Defined contribution plans eliminate any future unfunded fiscal liability for states. The 2011 Legislature took no action on the issue but it is expected to resurface in 2013.

The PERS fund is currently invested 35 percent in bonds and 65 percent in equities and other “risk exposed” investments.

“Over the long haul we remain very, very committed to the investment strategies we have,” Bilyeu said. “We’re in it for the long haul.”

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Audio clips:

Dana Bilyeu of PERS says equities took a pause in Fiscal year 2012:

071112Bilyeu1 :33 fiscal year was.”

Bilyeu says the 2.9 percent return will be among the best performing large institutional funds for 2012 after being adjusted for risk:

071112Bilyeu2 :10 in the nation.”

 

Purchase Of ‘Air Time’ Not Frequent But Some Nevada Lawmakers Want to Review

By Sean Whaley | 2:00 am April 16th, 2012

CARSON CITY – A little-known benefit of Nevada’s public employee pension plan is the right to purchase up to five years of service towards retirement.

Referred to by some as “air time,” or the ability to add years of retirement without actually putting in the time in a public sector job, the benefit can allow state and local government workers to retire early, collecting annual pensions years before they would be eligible otherwise.

A 60-year old state worker with five years in the Public Employees’ Retirement System, could, for example, buy five years of retirement credit and retire right away with a pension worth about 25 percent of salary.

Teachers and many other public employees are in the state pension plan. / Photo by DanielbdaDirector via Wikimedia Commons.

A 50-year-old teacher with 25 years of service could buy five years and retire right away with about 75 percent of salary. Regular public sector workers in Nevada can retire at any age with 30 years of service.

Former Clark County D.A. David Roger a case in point

An example of the use of air timewas reported recently by the Las Vegas Review-Journal concerning former Clark County District Attorney David Roger, who purchased five years of service and retired at age 50 to take another job. According to the newspaper, Roger paid about $330,000 to purchase the five years. He is now eligible for an annual pension of about $150,000 five years before he would be eligible otherwise.

But the cost of purchasing a year of retirement credit is not cheap, and a review of such purchases in Nevada suggests it is not used all that frequently by public employees.

Even so, some state lawmakers say the benefit, along with other aspects of the public pension program in Nevada, are worthy of review in the 2013 legislative session.

The 2011 Legislature approved a study of the public employee retirement system, but a $250,000 private sector donation was required before the review could get under way. The contribution has yet to materialize.

The primary interest for many policy makers, including Gov. Brian Sandoval, is whether Nevada’s public employee pension plan should be changed from a defined benefit plan to a defined contribution plan, similar to a private sector worker’s 401(k), for new public workers going forward.

Air time purchases are offered in many states

Some states make it much less costly for public workers to purchase retirement credits. The ability to buy “air time” was recently highlighted in a news report in USA Today, which found 21 states that allow for such purchases.

Numbers provided by PERS to the Nevada News Bureau shed some light on the use of the benefit.

About $17.2 million was spent on purchase of service in fiscal year 2011, not counting a special program created by the Legislature for teachers who work in at-risk schools. This represents about 1.2 percent of the $1.4 billion in total contributions made to PERS that year from both public employers and employees.

In fiscal year 2010, the number was $13.5 million out of $1.4 billion in total contributions or just under 1 percent.

These amounts may include some purchases of service by a local government in order to encourage workers to retire as a way to save money in the budget.

The Washoe County School District last week, for example, approved 68 early retirement applications to help resolve a $40 million budget shortfall.

The PERS website has a calculator to show what it would cost to buy a year of service. Based on the average salary for all active regular employees of $49,000, it would cost a worker nearly $20,000 to buy one year of service at age 55.

For a police officer or firefighter with an average salary in 2011 of about $74,000, the cost to buy one year of service at age 55 would be nearly $30,000. Public safety employees can retire at any age with 25 years of service.

So dividing these amounts into the $17.2 million in purchase of service in 2011 would equal 860 years of service purchased if all the purchases were by regular employees. For police and fire, the number of years purchased would be about 573 years.

With nearly 100,000 active employees in 2011 and each earning a year of retirement credit for working, the number of purchases appears to be a small piece of the public employee retirement puzzle. The PERS system covers state workers, local government employees and school district personnel across the state.

Air time purchases not that common in Nevada

Dana Bilyeu, executive officer of PERS, said the agency does not collect data by individual on the purchase of service. Even if it did so, pension information about individual retirees has long been considered confidential, although this issue is now before the Nevada Supreme Court.

The Reno Gazette-Journal is seeking individual retirement information and won a court ruling in Carson City District Court in its favor. That ruling has been appealed to the Supreme Court by the PERS board.

But based on anecdotal evidence, Bilyeu said the purchase of service benefit is not used to any great degree of frequency by Nevada public employees.

“You can tell from the numbers that it is not a huge thing for us,” Bilyeu said. “We don’t have a lot of five-year purchases. We usually get purchases of 18 months or a year by an employee to get to 10 years to retire at age 60.”

An employee nearing 30 years of service might purchase a year or half a year to retire a bit early, she said.

The USA Today report said air time is coming under scrutiny as states try to curb retirement spending and make their pension systems resemble private-sector plans. Federal law allows air-time purchases only in government pension plans.

Nevada lawmakers may take up the “air time” issue next year

Assemblyman Randy Kirner, R-Reno, said the $17.2 million in air time purchases in 2011 may not seem large in the context of one year revenue for PERS.

“However, if one were to figure the benefit costs over a lifetime to be paid out, I suspect the resulting math would astound normal citizens who can never hope to have such a staggering benefit,” he said. “So it’s not the $17.2 million but the lifetime cost that’s important to consider. Paying $20,000 or $30,000 per year purchased may be insignificant to the lifetime benefit.

“Bottom line, Assembly Republicans have raised this and other related issues to PERS as potential issue for the 2013 session to address,” Kirner said.

Geoffrey Lawrence, deputy director of policy at the conservative think tank Nevada Policy Research Institute, said his concern with the purchase of service is that employees may not be contributing enough money to cover the cost of the additional retirement benefit.

When years are purchased, PERS assumes it will get an 8 percent return on its money, he said. If that target is not met over the long term, taxpayers could be on the hook to make up any shortfalls, Lawrence said.

“So if you’ve got a bunch of employees buying air time early in their career, and PERS doesn’t get the return that they are assuming, then taxpayers in ensuing years are going to have to make larger contributions into the account to pay back the unfunded liability,” he said. “So this is something that is of concern because it can exacerbate the unfunded liability.”

The PERS plan was 70.2 percent funded as of June 30, 2011.

But Lawrence said he isn’t surprised at the small amount of money going to purchases because most employees probably don’t have $20,000 or more to buy a year of service.

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Audio clips:

Geoffrey Lawrence of NPRI says taxpayers could be on the hook for air time purchases if the pension plan doesn’t hit its investment target:

041212Lawrence1 :28 the unfunded liability.”

Lawrence says the low use of the program is not surprising:

041212Lawrence2 :15 deal, you know.”

 

 

 

State Fiscal Constraints Holding Up Interim Studies Of Public Education, Retirement System

By Sean Whaley | 1:51 pm February 15th, 2012

CARSON CITY – The state of Nevada’s tough financial situation is holding up two separate interim studies approved by the Legislature because of the requirement for alternative funding sources to assist in conducting the reviews.

One is a study of the state Public Employees’ Retirement System and the other is a study of the funding formula now used for public education. Both studies require non-state funding, but proponents are having a hard time coming up with the money.

Typically there is state funding appropriated for interim studies by the Legislature. But the state’s difficult fiscal situation led to the imposition of the financial requirements for the two studies.

Retirement system review requires $250,000 in private cash up front

Gov. Brian Sandoval and lawmakers approved a study of the state public pension system with an eye towards evaluating the need for a change for future state and local government hires to a “defined contribution”  or some modified type of plan.

But the study outlined in Assembly Bill 405 requires a $250,000 contribution from the private sector to be secured before another $250,000 appropriation from the state could be used for such an assessment.

The private funding has been hard to come by.

Heidi Gansert, chief of staff to Sandoval, said other options are being explored by representatives of Nevada’s business community interested in such a review.

Sandoval Chief of Staff Heidi Gansert, right, with former budget director Andrew Clinger. / Nevada News Bureau file photo.

“They had to meet the $250,000 threshold before state funds would be released and so I think the issue was the level of funding required, private funding, versus getting some funding for it,” she said. “There may be some private sector folks that are still going to work on some form of study.

“My understanding is the $250,000 is too high of a threshold but they are looking at coming up with partial funding and maybe doing something on their own versus trying to meet that threshold to get the state funding,” Gansert said.

Sandoval favors a change to the retirement plan because of a concern about the potential taxpayer liability for the defined benefit plan that covers almost all state and local government employees. The long-term unfunded liability is estimated at about $10 billion, although some assessments using different measures put it at a much higher amount.

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.

Sandoval has advocated such a position, although the concept did not see any serious discussion in the 2011 legislative session.

Nevada PERS officials say the 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.

Public education study requires at least $125,000 to move forward

The legislative study looking at potentially new ways of funding public education was sought by the Clark County School District. But no state funding was provided for the review.

At the first meeting of the New Method for Funding Public Schools interim study in January, Clark County School District official Joyce Haldeman said $125,000 in anticipated funding from a private foundation to pay for a study would not be available.

The district is looking for other funding for the study.

Assemblyman Marcus Conklin, D-Las Vegas, the chairman of the interim study, gave the district until Feb. 21 to identify at least $125,000 for a study. The panel is scheduled to meet Feb. 28, but the meeting will be cancelled if no funding is secured.

The Clark County School District would like to see new factors included in the 45-year-old funding formula, such as additional financial weight given to educate special education students, English-language learners and children in poverty.

Questions have been raised as to whether either study is actually needed, however.

Geoffrey Lawrence, deputy director of policy for the Nevada Policy Research Institute, said in an interview in June, 2011, regarding the PERS unfunded liability that legislative studies do not typically generate change in subsequent legislative sessions.

And Assemblyman Ira Hansen, R-Sparks, a member of the public education interim study panel, asked for justification for the proposed review at the January meeting, noting a 2007 study by lawmakers identified no inequities in the Nevada Plan formula for public education.

After spending nearly $250,000, the conclusion was that the Nevada Plan was highly equitable, he said.

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Audio clips:

Heidi Gansert, Gov. Brian Sandoval’s chief of staff, says the level of private funding required for the PERS study to go forward is too high:

021512Gansert1 :15 form of study.”

Gansert says business leaders may come up with a lower level of funding and conduct their own study:

021512Gansert2 :10 the state funding.”

 

Nevada’s Public Pension Plan Sees Long Term Unfunded Liability Grow Slightly In 2011

By Sean Whaley | 5:09 pm November 18th, 2011

CARSON CITY – Nevada’s public employee pension plan saw its long-term funding ratio decrease slightly in the fiscal year ending June 30, dropping to 70.2 percent from 70.5 percent in fiscal year 2010.

The Public Employees’ Retirement System board heard an update on the plan, which covers virtually all state public employees, at a meeting Wednesday in Las Vegas.

Dana Bilyeu, executive officer of PERS, said in a telephone interview that the slight increase in the long-term unfunded liability of the plan comes even as the pension investments saw a record 21 percent return in fiscal year 2011, which ended June 30. The pension plan is still absorbing a 15.8 percent loss in 2009 and a loss in 2008 as well, she said.

Dana Bilyeu, executive officer of the Public Employees' Retirement System

While the assets in the plan increased significantly in fiscal year 2011, growing to $25.8 billion from just under $21 billion in the prior year, the value of the unfunded liability grew as well, reaching $11 billion on June 30 compared to $10 billion in 2010.

“So from a long-term benchmarking, it’s kind of status quo from last year to this year on the funding of the system,” Bilyeu said. “We had a significant increase in assets on hand, but are continuing to absorb losses from the down market period as well.”

The numbers and percentages reflect the combined plans for regular public employees and police and fire fighters.

At its high point in 2000 the plan was 85 percent funded.

One interesting note in the report to the board was evidence of a reduction in the public employee workforce due to budget cutbacks, Bilyeu said. The regular employee membership declined by 2.5 percent, a reduction from 90,219 as of June 30, 2010 to 87,975 on June 30, 2011.

The police-fire sector saw an even bigger decline of 3.5 percent, she said. Active members declined from 12,375 in 2010 to 11,936 in 2011.

The long-term unfunded liabilities of the PERS plan, and of public employee pension plans nationwide, are generating concern from policy makers, although Nevada’s plan is considered to be well managed and in better fiscal shape than many other plans around the country.

There are also analyses that argue that the method of accounting for the long-term unfunded liabilities used by public pension officials vastly understates the real size of the potential financial impact to taxpayers.

A recent report by Andrew Biggs, a resident scholar at the American Enterprise Institute in Washington, DC, prepared for the Nevada Policy Research Institute, a conservative think tank, argues Nevada’s pension liabilities are much greater than reported.

The analysis found that when the long-term unfunded liabilities of the plan are calculated using a “market-based” valuation, a measure endorsed my most professional economists, the shortfall is actually closer to $41 billion than the $10 billion as of 2010 cited by PERS and its actuary.

Biggs presented his findings at a NPRI luncheon in Las Vegas earlier this month.

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Audio clip:

PERS Executive Officer Dana Bilyeu said the report on the pension plan for 2011 is status quo:

111811Bilyeu :11 of the system.”

 

Nevada Public Pension Liabilities Vastly Understated, New Report Says

By Sean Whaley | 1:01 am November 3rd, 2011

CARSON CITY – Nevada’s public employee pension system is one of the better funded plans around the country, but its financial health is far poorer than taxpayers may realize because of the way the long-term liabilities are calculated, a new analysis released today says.

The report by Andrew Biggs, a resident scholar at the American Enterprise Institute in Washington, DC, was prepared for the Nevada Policy Research Institute, a conservative think tank.

Titled “Reforming Nevada’s Public Employees Pension Plan” the analysis says that when the long-term unfunded liabilities of the plan are calculated using a “market-based” valuation, a measure endorsed my most professional economists, the shortfall is actually closer to $41 billion than the $10 billion cited by Public Employees’ Retirement System (PERS) and its actuary.

The funding ratio of the plan falls from 70.5 percent to about 34 percent, Biggs said in his analysis.

“Nevada PERS is far from the worst-funded or worst-managed public-sector pension system in the country,” Biggs concludes in his report. “However, this merely highlights the worrying state of public-pension financing around the nation. Using market-valuation methods — which are consistent with economic theory, the practice of financial markets and the rules under which private-sector pensions must operate and which have recently been endorsed by the Congressional Budget Office — PERS is very poorly funded.”

In a telephone interview, Biggs said: “Whether you agree or disagree with the angle I took on it, I think it is helpful for people to know how the financial health of their pensions is being calculated. What they don’t know is how much of their plan’s funding rides on market risk.

Illustrating the Market Valuation of Liabilities.

“So there is a lot being staked on winning in the market here,” he said. “And whether you think the government can do that or you think the government can’t do it, it’s good to know exactly what’s at stake.”

Report Could Drive Issue For Policy Makers

Geoffrey Lawrence, deputy policy director for NPRI, said the report should encourage Nevada policy makers to take a serious look at making major reforms to the state public pension plan.

“We really felt that his expertise could lend a lot to the debate here in Nevada, where, as in most states, we have kind of a major pension liability,” he said.

The huge differences in the unfunded liability are due to the method used to make the calculation.

Nevada PERS, which covers nearly all state and local government public employees in the state, uses an accepted accounting method based on the actuarial value of its assets, valued at $24.7 billion as of June, 2010, according to Biggs’ analysis. With liabilities of $35.1 billion, the retirement system reports its unfunded liability at about $10 billion. This figure will be updated later this month through June 30, 2011.

This long-term unfunded liability relies on an estimated rate of return on its assets, which are invested mainly in stocks and bonds.

Biggs acknowledges that the valuation under this approach is consistent with rules set out by the Governmental Accounting Standards Board (GASB), which sets nonbinding disclosure rules for public pensions.

Andrew Biggs, author of a Nevada public pension study for NPRI.

But Biggs argues the actuarial valuation masks the true liabilities that taxpayers could ultimately end up having to cover because it does not factor in the risk of achieving an 8 percent return, a rate PERS officials note has been exceeded over the past 28 years.

Using a market-based valuation, which assesses the liabilities based on the much lower interest rate paid on government bonds, provides a more accurate assessment of the long-term unfunded liability, he said.

Lawrence said the report by Biggs shows what is at stake for public pension plans and taxpayers.

“Because under the actuarial approach you are allowed to understate your liabilities, it allows politicians to make bigger promises than they can afford, and then to underfund the pension account at the same time,” he said. “So in the long run they accrue this unfunded liability, which officially here in Nevada is reported at $10 billion, but of course Andrew is showing that it is really closer to $40 billion. So that is a huge gap.”

Nevada PERS officials say the 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.

Biggs said the current housing crisis was a decade in the making and was the result of taking on too much risk. Public pension plans, with trillions of dollars at stake, are also taking on a lot of risk to deliver on their promises, he said.

Biggs published a similar analysis for public pension plans nationwide in 2010, concluding that the shortfalls facing the plans are much larger than most people realize.

In commenting on that report last year, Dana Bilyeu, executive officer of PERS, did not dispute Biggs’ method of calculating the shortfall, but said the actuarial method now being used is the accepted practice for public pension plans.

National Board Considering Changes To Public Pension Reporting

The Governmental Accounting Standards Board has been evaluating some changes to the way public pension liabilities are calculated, but Biggs said he does not expect to see it embrace the market-based approach he and other economists advocate.

“To be honest I think they just don’t get it,” he said. “I don’t think they’re willing to make the kinds of changes that would be needed to bring pension valuation in line with what economists think makes sense and in line with what financial markets think makes sense. It would be such a drastic change I just don’t think they’re capable institutionally of doing it.”

GASB said in July it had approved the proposed standards, dubbed exposure drafts, which would lead to “significant improvements” in the usefulness of pension information. The latest guidance would require governments to report the unfunded portion of their retirement plans as a liability on their balance sheets, among other changes.

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.

Gov. Brian Sandoval has advocated such a position, although the concept did not see any serious discussion in the 2011 legislative session.

Lawrence said an issue with making such a change is the big upfront cost of fully funding the current defined benefit pension plan in an accelerated fashion. But Utah got around that challenge last year by crafting a modified plan that allows employees to choose whether to participate in a defined benefit or defined contribution plan. It could be a good model for Nevada, he said.

Lawrence said one often overlooked benefit of such a plan is that it is portable, allowing public sector workers to move into the private sector if they wish and not remain trapped in jobs they no longer want.

The PERS board has not endorsed any such major change to the state public pension plan.

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Audio clips:

Andrew Biggs, author of a new study of Nevada’s public pension system, says it is important to know how the financial health of the plan is calculated:

110311Biggs1 :23 on market risk.”

Biggs says there is a lot being staked on the market:

110311Biggs2 :10 what’s at stake.”

Biggs says GASB is unlikely to make major changes:

110311Biggs3 :21 of doing it.”

Geoffrey Lawrence of NPRI says the study by Biggs should fuel the policy debate in Nevada:

110311Lawrence1 :14 major pension liability.”

Lawrence says the study shows a much bigger problem than what is being reported by PERS:

110311Lawrence2 :35 a huge gap.”

 

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Author Of New Public Pension Reform Report Says Radical Changes Needed To Protect Taxpayers

By Sean Whaley | 2:34 pm September 28th, 2011

CARSON CITY – Scott Beaulier is no fan of states borrowing money, but in his new working paper on transitioning public pensions to 401(k) style plans to reduce taxpayer liabilities to pay retirement benefits, the Troy University professor says it is an option worth considering.

In his paperFrom Defined Benefit to Defined Contribution” for the Mercatus Center at George Mason University, Beaulier said the benefits of paying the upfront costs of transitioning pension plans from defined benefit, where employees are guaranteed a set amount at retirement, to defined contribution, where employees are responsible for their investment choices, outweigh the disadvantages.

“The borrowing should be one-time, and it should total the present value of all future payments owed to all retirees who do not transition to the 401(k) system,” Beaulier said in his report released earlier this week.

Scott Beaulier, author of Mercatus study on public pension reform.

The state of Michigan opted to borrow when it converted to a defined contribution plan in 1997, he said.

“Thanks to one-time borrowing, the transition was a smooth one, and Michigan covered with debt the billions of dollars in defined benefit liabilities that it was responsible for paying,” Beaulier said. “The move, which involved taking on debt and significant political risk, has proven successful and has saved Michigan taxpayers billions of dollars in unfunded liabilities.”

Beaulier is executive director of the Manuel H. Johnson Center for Political Economy at the Sorrell College of Business at Troy University in Alabama.

Defined benefit plans create long-term liabilities for states and taxpayers, while defined contribution plans carry no such risk. Because of this, and the concern over the health of public pension plans nationwide, there is a growing chorus of groups advocating for the change.

Nevada lawmakers plan to study the PERS defined benefit retirement plan that covers most state and local government employees in the next 16 months before the 2013 legislative session. The legislation authorizing the study allocates $250,000 from the general fund, but requires a $250,000 match from outside sources before the work can begin.

Gov. Brian Sandoval has advocated for a switch for new employees to a defined contribution 401(k)-type retirement plan to address the long-term liability concerns.

Supporters of Nevada’s existing defined benefit plan, including public employee groups and many lawmakers, say it is well managed and will be fully funded over time. They argue no such major changes are needed.

Nevada’s Public Employees’ Retirement System had an analysis performed of the costs of switching to a defined contribution plan for new employees in 2010. The report by the Segal Group Inc., the PERS actuary, said it would cost $1.2 billion in just the first two years to begin making such a transition.

The costs are due to the need to fully fund the existing defined benefit plan for current state employees. One option would be to raise contribution rates paid by public employers and their employees, but the cash-strapped state and local governments would be hard-pressed to come up with the money to pay for it.

In an interview with the Nevada News Bureau, Beaulier said: “Those costs have to be incurred because when you reform usually what you’re doing is offering new retirees the option to go with defined contribution. But by becoming fully funded you’re guaranteeing all of those pensioners who are retiring in the future under the old system that guarantee that their money will be there.

“Borrowing in this case would actually make a lot of sense because it is borrowing to put us on a much more sane fiscal path,” he said. “So one-time borrowing that says we are converting from defined benefit to defined contribution would be a way to deal with this.”

If revenue can be found elsewhere, such as selling off resources, that would be preferable, Beaulier said. Or participants could contribute more to help fully fund the plan as well, he said.

Nevada’s existing public employee retirement plan was 70.5 percent fully funded on June 30, 2010, down from 72.5 percent in the previous year. At its high point in 2000 the plan was 85 percent funded.

A study of state and local government pension funds by the Pew Center on the States released in February of 2010 identified Nevada as one of 19 states where “serious concerns” exist about the long-term health of the retirement plan.

Beaulier said the key to ensuring taxpayers don’t end up on the hook for billions in pension payments when the plans run out of money is to make the change to defined contribution.

There are problems with making such a transition, one example being if a state issues bonds to finance the up-front costs, he said. A state would have to find the money needed to repay the bonds.

But making modest changes to the existing plans, as the Nevada Legislature did in 2009, is not enough, he said.

“I think that the fiscal challenges are forcing state administrators to look closely at how to shore up the financing of their defined benefit plans,” Beaulier said. “But my guess is most of them are just going to chip away at the promises that have been made and not engage in the kind of radical reform that is needed.

“Maybe some of them need to be asking: ‘How do we save taxpayers a lot of money long term,’ ” he said.

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Audio clips:

Mercatus public pension study author Scott Beaulier says the upfront costs have to be paid to transition to a defined contribution plan:

092811Beaulier1 :26 will be there.”

Beaulier says borrowing to make the transition makes sense:

09281Beaulier2 :16 deal with this.”

Beaulier says the political realities are that not all states will make the reforms that are needed:

092811Beaulier3 :19 that is needed.”

National Group Provides “How To” Guide To Reform Public Pension Plans

By Sean Whaley | 9:25 am September 15th, 2011

CARSON CITY – As Nevada policy makers get set to examine the state’s public employee pension plan in advance of the 2013 legislative session, a new report from the Center for State and Local Government Excellence offers some timely advice on how other government agencies have accomplished the difficult task.

The study highlights how three states, one county and one city have reformed pension plans to make them more fiscally sustainable while still providing retirement security to their employees.

Questions about whether the nation’s public pension plans are properly funded are being raised because of concerns taxpayers will ultimately be on the hook to pay retirement benefits if the plans run out of money.

A 2010 study of state and local government pension funds identified Nevada as one of 19 states where “serious concerns” exist about the long-term health of the retirement plan.

“Strengthening State and Local Government Finances: Lessons for Negotiating Public Pension Plan Reforms” covers reforms implemented in Iowa, Oregon, Vermont, Gwinnett County, Ga., and Houston, Texas. It offers lessons for other reform-minded governments on plan funding and governance, the importance of using good data from experts, communication, and employee financial education.

Elizabeth Kellar, president and CEO of the center, said in a Wednesday telephone conference that states are making reforms to their retirement plans. According to the National Conference of State Legislatures, 25 states made significant revisions to at least one pension plan in the first six months of 2011. Thirty-nine states have made significant revisions to their pension plans in the past 18 months, she said.

Elizabeth Kellar, president and CEO of the Center for State and Local Government Excellence.

The Nevada Legislature made several modest reforms to PERS in the 2009 session, raising the retirement age from 60 to 62 for 10 years of service and reducing the amount of retirement credit per year of service, for new employees hired starting Jan. 1, 2010.

Despite the major reforms, the nation’s 126 largest public pension plans in the organization’s database have $2.7 trillion in assets, but $800 billion in unfunded liabilities as of 2010, Kellar said.

“This report gives some important lessons learned for places that are looking at significant reforms,” she said.

Gov. Brian Sandoval proposed major changes to the Public Employees Retirement System early on in the 2011 legislative session, recommending a switch from a full defined benefit plan where retirees are guaranteed a level of retirement income based on wages and years of service, to a hybrid that included a defined contribution element as well. The proposal, aimed only at new government employee hires, did not get introduced, however.

Instead, Sandoval and lawmakers agreed to conduct a complete analysis of PERS to generate the information they need to consider changes to the plan to reduce the $10 billion long-term unfunded liability. The study must include recommendations with actuarially-sound alternatives.

Sandoval has advocated for major changes to the retirement plan. Defenders of the current system, which covers virtually all state and local government workers, say it is well managed and no major changes are necessary.

Key findings in the Center for State and Local Government Excellence report include:

  • Pensions should be viewed as part of a broader human resources strategy that can affect recruitment and retention.
  • Policy makers need high quality data and analyses as they consider benefit changes.
  • Strong communication with all stakeholders helps employees, elected officials, and the public understand the need for change.
  • Discipline in funding a plan’s annual required contribution is important to achieve full funding.
  • Workplace financial education will help public employees learn how to build their retirement savings.

Nevada’s required contributions, paid half by the government agency employer and half by the employee, have been fully paid into the system for the past many years. The rates are set by an independent consulting actuary and are required to be followed by the state Legislature.

Dana Bilyeu, executive officer of Nevada PERS, said she is encouraged by the key findings in the report, two of which she has been advocating for some time: that pensions should be viewed as part of a broader human resources strategy that can affect recruitment and retention and that it is important to fully fund a plan’s annual required contributions.

“NVPERS continues to see commitment to long term financing on the part of the employers and employees to fund the plan over the funding time horizon,” she said.

The Center for State and Local Government Excellence is a non-partisan, non-profit organization engaging in research to shed light on issues such as competitive employment practices, workforce development, pensions, retiree health security and financial planning.

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Audio clips:

Elizabeth Kellar, president and CEO of the Center for State and Local Government Excellence says the 126 largest public pension plans have an $800 billion long-term unfunded liability:

091411Kellar1 :17 0.8 trillion dollars.”

Kellar says the report has important lessons for policy makers who are looking at significant reforms to their public pension plans:

091411Kellar2 :05 at significant reforms.”

Nevada Public Employee Pension Plan Sees Record Investment Return In 2011

By Sean Whaley | 5:24 pm July 25th, 2011

CARSON CITY – Nevada’s public employee retirement system saw a whopping 21 percent return on its investments in the fiscal year ending June 30, the executive officer of the agency said today.

“I believe this is the best performance we’ve had in at least 25 years with the fund,” said Dana Bilyeu, executive officer of the Public Employees’ Retirement System (PERS).

The value of the retirement plan stood at $25.2 billion as of June 30, up from $20.9 billion on June 30, 2010, she said.

Dana Bilyeu, executive officer of the Public Employees' Retirement System

But the PERS investments, just like those of millions of Americans saving for retirement, could suffer in a big market sell off if Congress does not resolve the debt ceiling dispute by Aug. 2.

Bilyeu said a failure to extend the federal government’s debt ceiling limit would indirectly affect the plan the same as it would other investors.

“Because we’re always fully invested, the impact is going to be what that does to the markets themselves,” she said. “It’s really not about the default but really what that ripple effect is throughout the investment markets.”

If Congress fails to approve an extension of the debt limit, the markets will react and they won’t react very well, Bilyeu said. So the likely result would be a second vote by Congress, as happened with the TARP bailout legislation in 2008, to reach agreement and extend the limit, she said.

“I think the end result is going to be they are going to vote to lift the debt ceiling, to some level, we don’t know what that is,” Bilyeu said. “But I think they will get there. I think everyone at this point is trying to work as much into it as they can.”

PERS had over 102,000 active members in 2010, covering virtually all Nevada public employees, from school teachers and city workers to state employees. The plan is a defined benefit pension, where employees earn a guaranteed amount at retirement based on years of service and salary.

The 21 percent return for the just-ended fiscal year comes on the heels of a 10.8 percent return in fiscal year 2010. The plan saw a 15.8 percent loss in 2009.

Bilyeu said the high rate of return in 2011 was due in part to the plan’s significant investments in the S&P 500 and the EAFE stock indexes, both of which were among the top performers in fiscal year 2011.

The annualized rate of return on its investments is 9.6 percent over 28 years, ahead of the 8 percent return assumption over the long term.

The healthy return on the system’s mix of stocks, bonds and other investments will have a positive effect on the long-term financial health of the plan, which was 70.5 percent fully funded as of June 30, 2010, Bilyeu said. But the long-term unfunded liability will not be recalculated until this fall.

The unfunded liability as of June 30, 2010, totaled $10 billion. At its high point in 2000 the plan was 85 percent fully funded.

This long-term unfunded liability, which supporters of the current system say will be funded over time, is one reason Gov. Brian Sandoval in the 2011 session advocated for fundamental changes to the retirement plan. Others have advocated for a change as well, suggesting a switch to a “defined contribution” plan modeled after the 401(k) retirement plans commonly offered in the private sector.

A defined contribution plan is one where the employer contributes a set amount to an employee’s retirement. The employee makes the investment decisions. The employer has no long-term liability with such a plan.

In his state of the state address in January, Sandoval said: “We must also admit that Nevada’s Public Employee Retirement System cannot sustain its current level of liability. Future employees must join PERS under some form of a defined contribution plan.”

No action was taken to alter PERS in the just ended session. Instead, the Legislature passed a bill providing for a study of the plan to assess what, if any changes should be recommended to the 2013 Legislature.

Sandoval said through a spokeswoman today that he looks forward to the results of the independent analysis of PERS required as part of the 2011 budget agreement.

Supporters of the current plan say it is well managed and that no major changes are necessary.

The financial health of public employee retirement plans has become a concern nationally.

A review of these pension plans by the Pew Center on the States in February 2010 identified Nevada as one of 19 states where “serious concerns” exist about the long-term health of the retirement plan because of the size of its long-term unfunded liability.

Audio clips:

Dana Bilyeu, executive officer of PERS, says the 21 percent return was the best in 25 years:

072511Bilyeu1 :08 with the fund.”

Bilyeu says the PERS fund could suffer if Congress does not reach a deal on raising the debt ceiling:

072511Bilyeu2 :12 the investment markets.”

Bilyeu says she believes Congress will reach agreement on the debt ceiling:

072511Bilyeu3 :11 as they can.”

Assembly Panel Hears Bill Seeking Modest Reforms To Public Employee Retirement Plan

By Sean Whaley | 11:50 am April 13th, 2011

CARSON CITY – The Nevada Legislature finally took up the issue of reforms to the state’s public employee retirement system today, but the proposed changes from Democratic Assembly Speaker John Oceguera are modest.

Oceguera spoke in support of Assembly Bill 405, which would eliminate call-back pay as a form of compensation used to compute retirement benefits for new government workers hired starting Jan. 1, 2012. Call-back pay is used when certain police officers or fire fighters are called back to work in an emergency.

It also proposes that the Legislature make no changes in benefits to the Public Employees’ Retirement System (PERS) for 10 years unless necessary to maintain the financial integrity of the plan. After 10 years, the Legislature would not enact any benefit increases unless the system’s long-term unfunded liability was at least 85 percent funded.

The plan is currently 70.5 percent funded.

Oceguera said his changes would bring down the liabilities of the plan while increasing the predictability of the system, which covers virtually all state and local government employees in Nevada.

Oceguera said the Legislature made major changes to the PERS plan in 2009, and those changes need time to take effect. The 10-year moratorium on any changes would allow the system to assess how those reforms are affecting the long-term liability, which stood at $10 billion on June 30, 2010.

Local government and business representatives supported the proposed changes, while some public employee labor groups spoke in opposition. The panel did not take immediate action on the bill, which faces a Friday deadline for passage.

Gov. Brian Sandoval has advocated for a major change to the retirement system to begin work on reducing the unfunded liability of the plan, but he did not introduce a bill this session addressing the issue.

Heidi Gansert, chief of staff to Sandoval, said the administration would participate in a debate on reforms to the retirement plan as bills dealing with the system came up for hearing, but no one from the governor’s office testified on AB405.

Supporting the bill were Ted Olivas, representing the city of Las Vegas, and Tray Abney, with the Reno-Sparks Chamber of Commerce.

Ron Cuzze, representing the Nevada State Law Enforcement Officers’ Association and the Nevada Association of Public Safety Officers, spoke in opposition to the measure, saying the proposed change to call-back pay is a “knee-jerk reaction” to a “group of individuals” in the public employee system that defrauded the taxpayers.

Cuzze was referring to allegations of sick leave abuse by some Clark County fire fighters.

Rusty McAllister, representing the Professional Fire Fighters of Nevada, said the proposed changes in the bill are modest, but that no reforms should be advanced without a discussion of Nevada’s revenue system.

The changes to PERS agreed to in 2009 were made in exchange for the temporary tax increase approved by lawmakers to help fund the current two-year budget, he said.

“We traded, if you will, permanent changes to the PERS and the collective bargaining system for temporary changes in the revenue structure in the state,” McAllister said. “And certainly, we would hope that if this is going to move forward, that this could again be part of a discussion, but part of a discussion as a permanent fix to the revenue stream and not just continuing to pile permanent fixes on the public employees while we have temporary fixes to our problems.”

Sandoval has repeatedly rejected any call for new taxes or fees to balance his $5.8 billion general fund budget.

Dana Bilyeu, executive officer for the retirement system, said her board has not yet taken a position on the bill. Staff will recommend a neutral position on the benefit change, and an endorsement of the legislative pledge for no benefit modifications for 10 years. The proposal mirrors the system board’s funding policy in effect now, she said.

Audio clips:

Assembly Speaker John Oceguera says major reforms to the public employee retirement system were approved in 2009:

041311Oceguera1 :11 is significant change.”

Ron Cuzze, representing Nevada law enforcement, says the change in call-back pay is a knee-jerk reaction:

041311Cuzze :25 doesn’t make sense.”

Rusty McAllister, representing Nevada fire fighters, says further PERS reforms should only be made in exchange for dealing with the state’s revenue problems:

041311McAllister :29 to our problems.”

 

Public Pension Reform Debate To Proceed, But Without Bill From Sandoval Administration

By Sean Whaley | 10:31 am March 29th, 2011

CARSON CITY – Despite citing the need to reform Nevada’s public employee pension plan, Gov. Brian Sandoval did not introduce a bill seeking changes to the retirement system by a deadline Monday.

Even so, Heidi Gansert, Sandoval’s chief of staff, said the administration will “be a part of the conversation” as other measures addressing potential reforms to the Public Employees’ Retirement System are considered in the 2011 legislative session.

“There are other bills that open up that chapter and so we want to be part of that conversation,” she said. “We just could not get agreement on the terms of the bill, and the process was so delayed at getting these bills out, that we ended up deciding we would look for another bill and be part of the discussion.”

Five measures relating to the retirement system for public employees have been introduced this session. One, Assembly Bill 405 by Speaker John Oceguera, D-Las Vegas, proposes to eliminate call-back pay as compensation for retirement purposes for employees hired after Jan. 1, 2012.

Gansert said Sandoval’s original proposal, the details of which were described at a briefing with the press last month, does not have to be the solution to the issue of the retirement system, which faces a $10 billion long-term unfunded liability.

“That proposal was something that we put together looking at what was done in other states,” she said. “But we know there are other ideas out there, so we are willing to talk to everybody about it recognizing that we do have a large unfunded liability and we want to work on that.”

Sandoval said during his campaign he wanted to change PERS for future government hires to make it a defined contribution plan, where employers and employees contribute to retirement but the employees are responsible for managing their funds. This is in contrast to the current “defined benefit” plan where contributions are managed by PERS and the employee is guaranteed a set pension on retirement based on salary and years worked.

In the briefing in February, the proposal being considered by Sandoval would have maintained the current defined benefit system but at about half the contribution rate in effect now, in effect halving the pension payments as well as the future liability to taxpayers. It would have been complemented with a 401(k)-style defined contribution plan that employees could contribute to for a bigger pension on retirement.

The defined benefit plans offered by states and government entities around the country have sparked concern over the potential future liability to taxpayers if there isn’t enough money to pay the benefits. Some plans are much healthier financially than others.

Supporters of Nevada’s current system, which covers virtually all state and local employees, say it is well managed and will be fully funded over time. They argue no changes are necessary.

A recent study by the Pew Center on the States identified Nevada’s public pension plan as one of 19 where “serious concerns” about the long-term health of the plan have been identified.

Nevada’s plan was 70.5 percent fully funded as of June 30, 2010.

Gansert said there are numerous interest groups, including the Las Vegas Chamber of Commerce, which will be involved in the PERS reform discussions as well.

Sandoval has said the public retirement system needs to more closely mirror what is offered by the private sector.

Audio clips:

Chief of Staff Heidi Gansert says the administration will pursue pension reform despite not having its own bill:

032911Gansert1 :16 of the discussion.”

Gansert says the administration will work with the Las Vegas chamber and others on reforms:

032911Gansert2 :14 work on that.”

 

Is Nevada’s Higher Education Retirement Plan A Pension Reform Model?

By Sean Whaley | 9:33 am March 8th, 2011

CARSON CITY – Gov. Brian Sandoval is seeking significant changes to Nevada’s public employee pension plan in the 2011 legislative session to reduce the ongoing and long-term financial cost of the benefit to the state and taxpayers.

But if he wants fundamental change, he might look to the state university system’s retirement plan for faculty.

In all the talk of changes to the Nevada Public Employees’ Retirement Plan, which covers more than 102,000 current active state and local government workers, a separate plan for one small segment of Nevada workers – university and college faculty and professional administrators – has received scant attention.

This group of employees has its own defined contribution plan, the cost of which is shared equally by the Nevada System of Higher Education and the faculty and administrators. The current contribution rate is 11.25 percent from the employee and the same amount from the employer. It was created in 1970 following action by the Legislature in 1969.

About 4,600 Nevada higher education professionals participate in the defined contribution plan, while another 639, or 12.2 percent of the total, are in the PERS plan.

The 401(k)-style retirement plan is portable, meaning faculty can take their investments with them if the relocate. It is the type of plan used by most higher education systems across the country to provide a retirement benefit to faculty because they often relocate to other states as part of their academic careers.

Most importantly, because it is a defined contribution plan, where the employees are responsible for their investment choices, there is no liability to the Nevada higher education system, the state, or taxpayers. The contribution rates for the plan mirror those set for PERS participants.

“There is no accrued liability to the state or the institution under a defined contribution plan,” said Gerry Bomotti, senior vice president for Finance and Business at the University of Nevada, Las Vegas. “Basically the employee and the employer contribute. The employee basically has those resources for their retirement purposes. They have options with investments and the like.”

Bomotti said faculty preferences do tend to shift between the current 401(k)-type plan and the defined benefit option offered by PERS depending on how the markets are performing.

Individuals who manage their own retirement accounts can suffer more in major market downturns than the defined benefit plans managed by professionals.

Attention was first drawn to the plan by a “tweet” from Nevada Faculty Alliance Vice President and UNLV professor Greg Brown, who said: “Faculty have had 401(k)-style plan for decades, zero post-retirement liability for state, privately admin’d. #modelcitizens”

Brown said the professionals covered by the higher education retirement plan are highly educated and entrepreneurial and so have the ability to manage their own retirement accounts. Day-to-day management is handled by one of three firms providing investment opportunities.

“It is in my experience very popular,” he said. “It is part of the culture of the academic profession.”

But that might not be the case for all other classes of government employees who are covered by PERS, Brown said. If there is a decision to move to a defined contribution plan for all future public sector workers, there would have to be some assurances that the employees would have the capacity and opportunity to take on that oversight, he said.

Only three states, Alaska, Nebraska and Michigan, along with the District of Columbia, rely primarily on a defined contribution retirement plan rather than a defined benefit plan, based on 2009 data from the National Conference of State Legislatures.

The defined benefit plan offered by PERS is the more traditional type of pension, where workers get a guaranteed retirement based on salary and years of service.

But these types of plan have come under fire nationally because of the financial liability they create for states, particularly if they are underfunded. Nevada’s PERS plan was only 70.5 percent fully funded as of June 30, 2010.

Other states, including Utah, are looking at retirement plans that combine elements of both, as has been proposed by the Sandoval administration.

Dana Bilyeu, executive officer of PERS, said the retirement system has been approached by representatives of the university professors in the previous two legislative sessions asking to be able to participate in the plan. This is because the individual accounts maintained by faculty saw greater losses on a percentage basis in the recent market downturns than the PERS fund did, she said.

There is no authority under the current law to bring the group into the PERS plan, Bilyeu said.

James Richardson, director of the Grant Sawyer Center for Justice Studies and a UNR faculty member since 1968, said he believes Nevada’s public employee retirement system is one of the best managed and fiscally responsible in the nation. Richardson is not a member of PERS.

“One of the reasons the professionals want back in the (PERS) plan is that it is actually a very good plan,” he said. “It is being amortized out. All kinds of studies have demonstrated it is one of the top plans in the country in terms of its viability.”

Richardson said he would not advocate for a complete changeover to a defined contribution plan. Some states that have made this move are switching back, while others are looking at a combination of defined benefit and defined contribution as Sandoval is proposing, he said.

But the lack of a taxpayer liability is why many states are looking at defined contribution plans for their public employee pensions. The PERS plan had a $10 billion long-term unfunded liability as of July 1, 2010 that taxpayers are potentially on the hook for if the plan’s investments don’t hit targets or if contribution rates are not maintained at adequate levels.

Advocates for the current system say Nevada’s public employee retirement plan is well managed, is being funded appropriately and will be fully funded over time. They say no major changes are necessary.

But Sandoval says the threat to the state from the unfunded liability makes it necessary to move to a defined contribution plan from the defined benefit pension plan for future hires.

He is proposing a partial shift for newly hired state employees to a combination of a defined benefit/defined contribution plan. It would cut the amount the state contributes to an employee’s defined benefit retirement by about half to 6 percent. Employees would also pay half as much at 6 percent.

The result would be a much smaller benefit at retirement, but it would cut the state future pension liability by half as well.

Audio clips:

Gerry Bomotti of UNLV says the faculty retirement plan carries no risk to Nevada taxpayers:

030711Bomotti :22 and the like.”

UNR faculty member James Richardson says some of his colleagues would like to join PERS in part because it is well managed:

030811Richardson :16 of its viability.”

Nevada Fares Well Among States In Moody’s Report On Public Employee Pension Debt

By Sean Whaley | 2:16 pm January 28th, 2011

CARSON CITY – Nevada fares well among the states in a new report that includes unfunded public pension liabilities as part of overall state debt.

This despite Nevada’s long-term unfunded public employee pension liability, which hit $10 billion as of June 30, 2010. Nevada’s public pension plan is 70.5 percent fully funded, down from 72.5 percent in fiscal year 2009.

Moody’s Investors Service announced yesterday it is recalculating states’ debt burdens to reflect pension liabilities.

“Pensions have always had an important place in our analysis of states, but we looked separately at tax-supported bonds and pension funds in our published financial ratios,” said Moody’s analyst Ted Hampton in a news release about the new report. “Presenting combined debt and pension figures offers a more integrated – and timely – view of states’ total obligations.”

Nevada ranks well in the analysis.

The Moody’s report shows that Nevada ranks 40th lowest when the unfunded pension liability is factored into a state’s debt as a share of the gross domestic product at 3.1 percent.

The top three states are Hawaii at 16.2 percent, Mississippi at 15.9 percent and Connecticut at 15.2 percent.

When viewed as state debt per capita, Nevada is again ranked 40th lowest at $1,547.

The top three states in the per capita ranking are Connecticut at $9,366, Hawaii at $7,987 and Massachusetts at 7,872.

Moody’s said that given the level of fiscal stress being felt by most states and the prospects for sluggish economic growth and slow revenue recovery, pension funding pressures will continue to have a negative impact on state credit quality and state ratings. Moody’s also recognizes that, as currently reported, pension liabilities may be understated.

Moody’s presentation of combined debt and pension figures as part of a more integrated view of states’ total obligations follows a period of rapid growth in unfunded pension liabilities.

“Pension underfunding has been driven by weaker-than-expected investment results, previous benefit enhancements, and, in some states, failure to pay the annual required contribution to the pension fund,” Hampton said. “Demographic factors – including the retirement of Baby Boom-generation state employees and beneficiaries’ increasing life expectancy – are also adding to liabilities.”

In Nevada, the Legislature has followed the recommendations of an independent consulting actuary on the contribution rates required for the Public Employees Retirement System, which covers virtually all state and local public sector workers. Contribution rates by the state and local governments and their employees are set to rise again in the coming two fiscal years to maintain the long-term financial health of the plan.

Moody’s said that the evaluation of current and projected pension liabilities is an important area of focus in its rating reviews. For some states, such as Illinois, which is rated A1 and has a negative outlook, large and growing debt and pension burdens have already contributed to rating changes.

Moody’s said states as a group are highly rated – currently A1 or higher – because of their control over revenue and spending that may help address the recent growth in their pension liabilities.

Nevada retained its double-A rating from the nation’s three major credit rating agencies, including Moody’s, in advance of a bond sale in December. “AA” ratings are judged to be of high quality and are subject to very low credit risk. “AAA” is the highest rating possible, with “CC” being the lowest.

Moody’s did revise its intermediate outlook for Nevada to “negative” from “stable” late last year however, which could mean a ratings change in the months ahead.

Moody’s cited a “very large expected budget gap” for the next biennium and uncertainty about how the gap will be eliminated as a reason for the change in outlook. Also mentioned were Nevada’s weak economy and “uncertainty around the recovery of gaming in the state.”

Hampton said many states are beginning to respond to the growing challenge of pension liability by increasing contribution requirements, raising minimum retirement ages, and undertaking other reforms.

The Nevada Legislature implemented some reforms to PERS in the 2009 session, including raising the retirement age from 60 to 62 with 10 years of service for newly hired public employees.

Newly elected GOP Gov. Brian Sandoval wants to undertake a major change to the retirement system, however, switching from a defined benefit plan to a defined contribution plan for future employees. He offered no details of what the change should look like in his State of the State address on Monday, only asking the Legislature to quickly send him a package of reforms.

Nevada Policy Makers Remain Divided On Future Of Public Employee Pension Plan

By Sean Whaley | 4:12 pm December 20th, 2010

CARSON CITY – Nevada policy makers remain divided over the need to make a fundamental change to the public employees’ retirement system following the release last week of a report showing significant costs to move to a defined contribution plan.

Some lawmakers say they have not yet read the report by the Segal Group Inc. which says it would cost about $1.2 billion over the next two years to change from the current defined benefit plan to a defined contribution plan for new state and local government workers. These additional costs would continue for several years.

Lawmakers on both sides of the issue say they need more information and expect to hear more details of what such a shift would entail in the upcoming legislative session.

Gov.-elect Brian Sandoval continues to favor a change to a defined contribution plan for new government hires, but has not yet reviewed the study in-depth, said spokeswoman Mary-Sarah Kinner.

She said Sandoval expects to meet with the staff of the Public Employees’ Retirement System after taking office in January.

“Gov.-elect Sandoval remains committed to the concept of defined contribution as discussed in the campaign,” Kinner said.

Assembly Minority Leader Pete Goicoechea, R-Eureka, said he believes the retirement system will have to be changed over to a defined contribution plan, but that he needs more details on how such a change would be accomplished.

The price tag just for the next two years gives him concerns as well.

Goicoechea said if the contribution rates have to be increased significantly for current public employees to fully fund the current pension plan within about a decade, it could be a big hit to workers as well.

Contribution rates, which now are shared by employers and employees, are set to increase over the next two fiscal years to keep the current defined benefit plan financially healthy. Rates will go up to 23.75 percent from 21.5 percent now for regular employees.

But to fund the plan more quickly, the rate would have to increase to 34 percent instead, according to the Segal report.

For police and firefighters, who are analyzed separately, the increase would go from the proposed 40 percent contribution rate over the next two years to 52 percent.

The cost of these increases would total $1.2 billion for the coming two years, and would continue until the closed defined benefit plan was fully funded.

If these increases are shared by workers, it would mean a significant pay cut, Goicoechea said. It could also lead to a mass exodus of current employees who are eligible for retirement, he said.

Goicoechea says he does favor changing to a defined contribution for new hires.

“But I want to see some more on the plan before I really step out there,” he said.

Assembly Speaker John Oceguera, D-Las Vegas, said he does not believe a major change to a defined contribution plan is necessary. But there is no question that the long-term unfunded liability of the current plan, which hit $10 billion as of June 30, needs to be paid down, he said.

“If we can reduce that unfunded liability portion by whatever method, then I think we ought to look at that,” he said. “I don’t think we ought to change the way we do it though, the system we have.

“Getting to 100 percent funded is a good cause, and I think we should try to do that,” Oceguera said.

Senate Majority Leader Steven Horsford, D-Las Vegas, said he could not comment because he has not yet read the report.

Senate Minority Leader Mike McGinness, R-Fallon, favors a change to a defined contribution plan for new hires but said he has not read the Segal report and so could not yet comment on the findings.

Assemblywoman Debbie Smith, D-Sparks, chairwoman of the Ways and Means Committee, said the report indicates what other such studies have said previously, that it would not be fiscally prudent to change the pension plan from a defined benefit to a defined contribution plan.

The Legislature has been attempting to address the unfunded liability, although budget problems in recent years have made that more difficult to accomplish, she said. It will be up for discussion at every legislative session, Smith said.

“I think the public employee benefit plans will certainly be under scrutiny; and making sure we have plans to fund them,” she said.

The 2009 Legislature did make some changes to the retirement plan for new hires in an effort to reduce costs, including increasing the retirement age to 62 for some workers.

The report released Dec. 15 says that to change to a defined contribution plan for new hires, the existing defined benefit plan will have to be fully funded over a shorter time frame, requiring increased contribution rates from the state and local governments and possibly employees as well.

A change from a “defined benefit” plan where retirement payments are guaranteed based on salary and years worked, to a “defined contribution plan” where public employers contribute to employee retirement without any guarantees of pension amounts upon retirement, is being pushed for public employee retirement plans nationwide.

Such a change would affect only future hires. There is a current legal prohibition for changing the plan for workers currently in the system.

Advocates for the current system say Nevada’s plan is well managed, is being funded appropriately and will be fully funded over time. Supporters of a change to defined contribution say it would eliminate any future unfunded liability and so benefit taxpayers.

Audio clips:

Assembly Minority Leader Pete Goicoechea says changing the public employee retirement system could have a big financial impact on state and local governments and employees:

122010Goicoechea1 :07 a tremendous impact.”

Goicoechea says a change to the system could generate a large number of retirements:

122010Goicoechea2 :09 until July 1.”

Assembly Speaker John Oceguera says lawmakers should work to close the unfunded liability rather than make sweeping changes:

122010Oceguera1 :13 that we have.”

Oceguera says getting the current plan 100 percent funded is a worthwhile goal:

122010Oceguera2 :04 to do that.”

Assemblywoman Debbie Smith says budget problems have delayed legislative action on the unfunded liability:

122010Smith :14 plate every session.”