Posts Tagged ‘public pension’

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.”

 

 

 

Conservative Nevada Think Tank Publishes Sourcebook For Policymakers And Public

By Sean Whaley | 2:00 am March 1st, 2012

CARSON CITY – A conservative Nevada think tank today published a guide for policymakers and the public on issues ranging from the state spending to public education to tax policy.

The 88-page sourcebook, called “Solutions 2013” is a compilation of research and policy recommendations from the Nevada Policy Research Institute addressing 39 different subject areas.

The publication comes 11 months before the Nevada Legislature will convene in 2013 to consider a host of critical issues, and just as the 2012 election season gets officially under way with candidate filing set to begin Monday.

“This collection dispels many popular misconceptions about Nevada, while highlighting new approaches to policy making,” said NPRI President Andy Matthews in an introduction to the guide. “My hope is that, regardless of where your political sympathies may lie, you will consider these ideas on their merits.”

Geoffrey Lawrence, NPRI’s deputy policy director, said even those who disagree with the recommendations can use the data cited in the guide.

“I think this is valuable for everyone who is interested in public policy regardless of their particular political persuasions because there is a lot of objective data in there that you can draw your own conclusions from if you like,” he said. “I think one of the other values of it is that you can see that our conclusions are drawn straight from these objective data sources so they are not just things that we’re coming up with out of thin air.”

The organization weighs in on the potential of a Texas-style margin tax being imposed on Nevada businesses, which it says should be rejected. A coalition of education and labor groups is contemplating putting such a revenue generator on the state ballot, but no such proposal has been filed yet with the Secretary of State’s office.

“The business margin tax is a hybrid, combining negative features of both corporate‐income and gross‐receipts taxes,” the policy guide says. It quotes the Tax Foundation as saying, “the Texas ‘margin’ tax is really a badly designed corporate income tax.”

The NPRI guide says a margin tax would create a tax liability even for businesses that operate at a financial loss, meaning the tax also possesses the negative attributes of gross receipts taxation.

The organization also takes up the issue of a state-run lottery, an idea that gets attention from lawmakers virtually every legislative session. NPRI notes that such lotteries do not generate a lot of revenue and are not stable sources of income.

California lottery ticket. / Photo: Bdviets via Wikimedia Commons.

“As Price Waterhouse – the Nevada Legislature’s own tax consultant – has concluded, ‘A state‐run lottery fails every test of a “good” tax policy. In Nevada, gaming should be left to the private sector,’ ” the guide says.

NPRI weighs in on the issue of what, if anything, should be done about the current public employee retirement system. Gov. Brian Sandoval and some lawmakers have called for a change to the plan to make it a 401(k)-style defined contribution plan instead of the current “defined benefit” plan so that concerns of the potential long-term liabilities of the retirement plan can be addressed.

NPRI argues for a hybrid plan as adopted by the Utah Legislature to avoid the high upfront costs associated with a wholesale change to a defined contribution plan.

“Utah’s system was put in place with the enactment of Senate Bill 63 from Utah’s 2010 General Legislative Session, which should serve as a model to guide Nevadans,” the policy guide says.

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Audio clips:

Geoffrey Lawrence of NPRI says the Texas-style margin tax is a bad idea:

030112Lawrence1 :26 disadvantages to it.”

Lawrence says the NPRI policy guide has useful data regardless of a person’s political views:

030112Lawrence2 :29 of thin air.”

 

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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Nevada Should Look at San Franciso Pension Reform Initiative

By Elizabeth Crum | 8:13 pm August 2nd, 2010

CapitolBeatOK reports that a San Francisco pension reform initiative has qualified for the November ballot. If approved, the proposal will be responsible for saving California taxpayers hundreds of millions of dollars in the next decade and could serve as a model for other states.

The state of California has an estimated $500 billion in pension debt, CalWatchdog has reported.

The Cali proposal is of such wide national interest that the man who started it, Jeff Adachi, a public defender in San Francisco, was added as a speaker at the Global Forum on Modern Direct Democracy being held at the University of California, Hastings School of Law this week.

In remarks made on Sunday, Adachi described the frustration he and other California taxpayers felt after learning that one out of every five dollars collected in local taxes were paying benefits for government employees. Adachi said he was motivated to act as he witnessed budget cuts in the public defender’s office, the closure of public parks and other program cuts driven by cost accelerations in the pension plan.

In past comments about the proposal, Adachi has insisted, “This isn’t an attack on labor. It’s a math problem.”

Michael Moritz, a Silicon Valley entrepreneur best known as an early investor in Google, YouTube and Yahoo, has supported and helped publicize the measure which no doubt helped Adachi in his efforts to gather enough signatures.

If approved by voters in November, the proposal will save San Francisco taxpayers some $170 million by requiring most public employees to contribute 9% into their own pensions. Police and fire employees, with comparatively more generous benefits, will begin to contribute 10%.

As reported earlier this year by our own Sean Whaley here at the Bureau, Nevada has pension problems of its own that the state’s Public Employee Retirement Board has since agreed needs examination.

Public Employee Retirement Board Authorizes Study to Look at Impact of Reform

By Sean Whaley | 4:25 pm May 28th, 2010

CARSON CITY – Both Democrat and Republican lawmakers agree the 2011 legislative session will likely see a debate about the future of Nevada’s public employee pension program, but differences remain over whether radical change is needed to protect the state from a multi-billion long-term unfunded liability.

The $9 billion question is whether the Public Employees Retirement System should be converted to a “defined contribution” program for new hires, or whether the “defined benefit” plan now in place for state and local government employees, including teachers, should be preserved.

In anticipation that the future of Nevada’s public pension program will be a topic of discussion in 2011, the board that oversees the program voted last week to undertake an analysis of what a conversion to a defined contribution would mean in terms of cost and required regulatory changes, said Tina Leiss, operations officer for PERS.

“It is not something the board is proposing,” she said. “They want to be prepared to provide facts.”

The study is expected to come to the board for review this fall, Leiss said. It is being performed by the system’s current actuary at no additional cost.

PERS officials argue that major changes to the plan are unnecessary because the contributions flowing into the plan from government and public employees, combined with an estimated 8 percent rate of return on investments over time, will see the plan fully funded in the next 30 years. The contribution rates are recommended by an actuary, approved by the seven-member PERS board and the Legislature every two years.

The Nevada Legislature has always endorsed the contribution rate approved by the PERS board, and those contributions have not been diverted to other uses as has occurred in some others states.

The state retirement plan was estimated to have a long-term unfunded liability of $9.1 billion on June 30, 2009. At its high point the state public pension plan was 85 percent fully funded. It now stands at 72.5 percent.

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

The question of what state and local governments should do to resolve the long-term financial uncertainty of their public pension plans is a concern nationally. A number of independent reviews have shown that many of the plans are underfunded and not likely to remain solvent over the long term.

A new report suggests the federal government and taxpayers nationally could end up bailing out the underfunded plans.

Assemblyman Pete Goicoechea, R-Eureka, said he believes the time has come to change the plan to defined contribution, which would provide new public employees a contribution to their retirement that they would then invest on their own behalf.

“It’s going to be tough enough to keep it afloat as it is,” he said.

The current plan called defined benefit, where public employees are guaranteed a specified retirement income upon retirement based on salary and number of years of service, cannot be continued, Goicoechea said.

While employee recruitment and retention would likely be a problem going forward, the pension plan needs to change to bring it more into line with what is offered in the private sector, he said.

Assemblywoman Sheila Leslie, D-Reno, said an estimated $3 billion general fund budget shortfall for the next two-year state budget means all issues have to be debated in the session, including the public employee retirement system.

“I think, when you are $3 billion short, you have to look at the basic structure,” she said. “So we have to look at structural changes, both on the expense side and the revenue side. So I am not willing to exclude anything.”

But Leslie said at this point she believes the defined benefit plan should be continued.

Requiring public employees to make their own investment choices could jeopardize their retirement if the stock market suffers downturns as it is doing right now, she said. The result could be retirees with inadequate retirement income, which could then lead the state to deal with the problem, Leslie said.

Senate Majority Leader Steven Horsford, D-Las Vegas, acknowledges that the public pension program, and whether it needs reform, will be one of the top issues in front of lawmakers next session.

But the Legislature has acted to keep the retirement plan funded by adjusting contribution rates paid both by public employers and their employees, he said. There seems to be an assumption by some that if everyone retired today that a $9 billion bill would come due, but that is not how retirement plans work, Horsford said.

The potential for a change to a defined contribution plan is not the only reform proposal on the table. The SAGE Commission has also recommended a number of changes to the current defined benefit plan to bring pension costs down. The Spending and Government Efficiency panel appointed by Gov. Jim Gibbons to review government operations did not recommend a change to a defined contribution plan, however.

SAGE commission recommendations include setting a minimum retirement age of 60 before benefits can be paid out. Regular employees in the plan can now retire at any age with 30 years of service.

Other recommendations include calculating the retirement benefit over five years of pay, not the current three highest pay years and imposing a moratorium on any benefit enhancements until the plan is fully funded.

All three Republican candidates for governor advocate a change to a defined contribution plan, saying such a program would be more in line with what is offered in the private sector.

The expected Democrat candidate, Rory Reid, has not yet come to any conclusion on what changes, if any, are needed to the plan, saying those who hold opposing views need to first come to some consensus on the issue.

The 2009 Legislature did make some modest changes to the retirement plan for new hires starting Jan. 1, 2010, including increasing the retirement age after 10 years of service to age 62 from 60.

Any changes to the plan would affect only new hires. The pension plan has been determined to be a vested property right for current employees that cannot be changed.

Audio files:

052810Goicoechea1 :16 is defined contribution.”

052810Leslie1 :10 the current system.”

052810Horsford1 :23 it’s an issue.”

State Government Pension Costs Could Be on 2011 Legislative Session Agenda

By Sean Whaley | 10:59 am March 19th, 2010

CARSON CITY – The need for the state of Nevada to continue and possibly even increase funding to the public employee retirement system could make the budget problems facing the Legislature next year even worse.

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. The plan has a long-term unfunded liability of $9.1 billion as of June 30, 2009. If this liability had to be paid off today, it would cost every private sector worker in Nevada about $9,500 each.

Questions have been raised by some in Nevada and nationally as to whether these public pension plans are sustainable.

Carole Vilardo, president of the Nevada Taxpayers Association, said the drain on the state general fund from the pension expenses could be even more costly if, as expected, the contribution rate to keep the fund actuarially sound must be increased. It is currently at 21.5 percent, with half paid by the state and half by the employee.

Vilardo, who calls Nevada’s public pension plan “generous,” said putting additional scarce revenues into the plan will make it even tougher on the 2011 Legislature to balance the budget.

“When you’ve got a severe fiscal emergency, it may be time to move it down the road a bit and not put scarce funds into a benefit that does nothing to offer programs and services the state wants to provide,” she said.

Lynn Hettrick, deputy chief of staff to Governor Jim Gibbons, agrees that an increase in the funding of the Public Employees Retirement System (PERS) contributions could make an already bad budget situation even tougher to deal with. But any suggestion of withholding contribution increases would be risky, he said.

Dana Bilyeu, executive officer of PERS, acknowledged interim assessments suggest the contribution rate will have to be increased by 1 percentage point in the upcoming biennium. But she added that the actual cost of providing the defined benefit retirement plan is not as significant a part of the state budget as some may believe.

Of the $1.3 billion that flows into the plan each year from all participating state and local governments and employees, less than $200 million comes from the state and half of that amount is paid by the state employees. This does not count the cost of the contributions to public school teachers, however. About 37 percent of the state general fund budget is spent each year on public education.

Bilyeu said a 1 percentage point increase in the contribution rate would cost all participating employers and employees about $45 million. State employees would see their paychecks reduced by half a percentage point to pay their share of the increase. So while every hit on the budget next session will be difficult to accommodate, the actual cost of the 1 point increase would be modest, she said.

There has been discussion in recent years of changing the plan to a “defined contribution” system, where employees would take on the responsibility of investing their retirement contributions, thereby eliminating the long-term liability to the state and local governments.

Bilyeu does not support the concept, saying employees typically are not as willing to ride out the short-term fluctuations in the stock market to ensure a reasonable pension upon retirement.

The current defined benefit plan provides security to public employees at a minimal and reasonable cost, she said.

Assemblywoman Sheila Leslie, D-Reno, said Nevada’s public pension plan is very well managed and that significant changes – such as a switch to a defined contribution plan – are not needed. Leslie, who serves as the specialty courts coordinator for the 2nd Judicial District Court, is herself a member of PERS.

“Of course we have concerns about the long-term liability,” she said. “I think the stability of PERS is always on everyone’s mind. We have to look long-term to ensure it remains solvent. But this is not the time to make any radical changes.”

Vilardo agreed that switching to a defined contribution plan is not realistic right now. But the plan should be changed so that retirement ages for public employees conform to those used by the Social Security Administration, which start at age 62, along with some other reforms, she said.

The plan provides benefits to nearly 42,000 retired state and local government workers and sets aside funds for another 105,417 active employees as of June 30, 2009. Those in the plan do not participate in Social Security as part of their retirement in Nevada.

Because of growing concerns over the long-term unfunded liability and the cost of providing retirement benefits, the Nevada Legislature in 2009 passed some reforms to the program, but only for new hires beginning Jan. 1, 2010.

The retirement age for a regular state or local government employee with 10 years of service was changed to 62 from 60, and the amount of retirement credit per year of service was reduced from 2.67 percent for current employees to 2.5 percent of salary for each year worked.

Prior to this change, the Las Vegas Chamber of Commerce noted in its fall 2008 report that Nevada PERS had one of the highest “service credits,” otherwise known as a “formula multiplier,” in the nation at 2.67 per year of service. A high service credit effectively increases benefits and/or decreases the service time required to receive full benefits, the chamber report said. This higher multiplier is still in place for most public employees.

The chamber report, prepared by the Las Vegas firm Applied Analysis, also found that the system was intended to be a shared responsibility between government agencies and employees, but instead has morphed into a plan where most contributions are entirely paid by government.

Nevada state employees contribute a share to the plan, equal to the same amount paid by the state on their behalf. But the chamber report found that approximately 82 percent of regular employees and 85 percent of police and fire personnel have all contributions paid on their behalf by the employer.

State employees do not have the right to collective bargaining, while most local employee groups do use the process to negotiate wages and benefits.

The chamber analysis said the intent of the Legislature in creating the plan in the 1970s was that the contribution costs be shared.

Bilyeu disagrees with this assessment, saying local government employees gave up cost-of -living increases in exchange for their employers paying the full retirement contribution. They are sharing equally in the plan, she said.

Bilyeu would also oppose any delay in funding the pension plan, saying the Legislature has over the years followed the recommendations made by the PERS board, based on actuarial review by professional firms, in setting the rates.

The SAGE Commission has recommended several changes to reduce the costs of the plan, including setting a minimum retirement age of 60 before benefits can be paid out. Regular employees in the plan can now retire at any age with 30 years of service.

Other recommendations include calculating the retirement benefit over five years of pay, not the current three highest pay years; reducing the multiplier even further than the 2.5 percent per year approved by the Legislature in 2009, recommending a 2.15 multiplier instead; and imposing a moratorium on any benefit enhancements until the plan is fully funded.

The SAGE Commission said the change to the multiplier and retirement age should be examined separately for police and fire fighters, employee groups that have a different benefit plan within the PERS system.

Bilyeu said most state employees retire with 20 years of service, not 30, so the legislative change to the minimum retirement age to 62 after 10 years of service has had the effect sought by the SAGE Commission and others of equating retirement age to that used by the Social Security Administration.

Critics of the current retirement plan also question the use of an estimate of an 8 percent return to the fund, suggesting a lower return would be more realistic.

Bilyeu said the state’s plan has an annualized return of 9 percent over the past 25 years. While there has been some discussion of lowering estimates of returns in this new era of investing, it is not likely something she will recommend. The return rate will be monitored closely, however, Bilyeu said.

There is no doubt the recent major downturn in the market had a huge impact on the retirement fund. For fiscal year 2009, net assets to the plan decreased by $3.4 billion, or 15.4 percent, to $18.8 billion.

At the low point, the plan has a value of $15.8 billion, Bilyeu said. It is now at $22 billion, just below the high point of nearly $23 billion when the market turned. So far this fiscal year to date, the rate of return on the plan is 16 percent.

While the Pew study and others highlight the challenges states face in addressing their long-term public pension challenges, there is some reason for optimism, the study says.

“While the economic downturn has exposed serious vulnerabilities in states’ retirement systems, it also appears to be spurring policy makers across the country to consider reforms.”

Vilardo agrees, saying: “It could be an opportunity to correct past problems.”

This is the second of a series of stories on the Public Employees Retirement System.  In our next story, candidates for governor will weigh in on the need for PERS reform.

Audio files from this story:

[Audio 1] Hettrick – Contribution increase would make 2011 budget problems worse.

[Audio 2] Hettrick – Delaying contributions to plan not a good idea.

[Audio 3] Bilyeu – PERS plan provides good retirement at reasonable cost.